-----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, ACbITrCYjkOx9j/BFzjp1plmUFIkXT0Bln9WLY+N5SH3F0Zr9l4UfyQ4rhVcaNkw vHxrEE2GjeYm3MCoLGhjCg== 0001190903-04-000780.txt : 20040806 0001190903-04-000780.hdr.sgml : 20040806 20040806154058 ACCESSION NUMBER: 0001190903-04-000780 CONFORMED SUBMISSION TYPE: N-6 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20040806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Nationwide VLI Separate Account-7 CENTRAL INDEX KEY: 0001299473 IRS NUMBER: 311000740 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-6 SEC ACT: 1933 Act SEC FILE NUMBER: 333-117998 FILM NUMBER: 04958015 BUSINESS ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE COMPANY STREET 2: ONE NATIONWIDE PLAZA, 1-09-V3 CITY: COLUMBUS STATE: OH ZIP: 43219 BUSINESS PHONE: 614-249-6567 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE COMPANY STREET 2: ONE NATIONWIDE PLAZA, 1-09-V3 CITY: COLUMBUS STATE: OH ZIP: 43219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Nationwide VLI Separate Account-7 CENTRAL INDEX KEY: 0001299473 IRS NUMBER: 311000740 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-6 SEC ACT: 1940 Act SEC FILE NUMBER: 811-21610 FILM NUMBER: 04958016 BUSINESS ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE COMPANY STREET 2: ONE NATIONWIDE PLAZA, 1-09-V3 CITY: COLUMBUS STATE: OH ZIP: 43219 BUSINESS PHONE: 614-249-6567 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE COMPANY STREET 2: ONE NATIONWIDE PLAZA, 1-09-V3 CITY: COLUMBUS STATE: OH ZIP: 43219 N-6 1 boatng2.txt BOA TNG 2
======================================================================================================================== '33 Act File No. 333-_____ '40 Act File No. 811-_____ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-6 REGISTRATION UNDER THE SECURITIES ACT OF 1933 |X| PRE-EFFECTIVE AMENDMENT NO. ___ |_| POST-EFFECTIVE AMENDMENT NO. __ |_| and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X| AMENDMENT NO. __ |_| (Check appropriate box or boxes.) NATIONWIDE VLI SEPARATE ACCOUNT-7 (Exact Name of Registrant) NATIONWIDE LIFE INSURANCE COMPANY (Name of Depositor) ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43215 (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code: (614) 249-7111 PATRICIA R. HATLER, ESQ. With Copies To: SECRETARY MICHAEL R. MOSER, ESQ. ONE NATIONWIDE PLAZA ONE NATIONWIDE PLAZA, 1-09-V3 COLUMBUS, OHIO 43215-2220 COLUMBUS, OHIO 43215-2220 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: ________, 2004 DELAYING AMENDMENT: THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ========================================================================================================================
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES Issued By NATIONWIDE LIFE INSURANCE COMPANY Through NATIONWIDE VLI SEPARATE ACCOUNT-7 - -------------------------------------------------------------------------------- The Date Of This Prospectus Is _______________ - -------------------------------------------------------------------------------- PLEASE KEEP THIS PROSPECTUS FOR FUTURE REFERENCE. - -------------------------------------------------------------------------------- Variable life insurance is complex, and this prospectus is designed to help you become as fully informed as possible in making your decision to purchase or not to purchase the variable life insurance policy it describes. Prior to your purchase, we encourage you to take the time you need to understand the policy, its potential benefits and risks, and how it might or might not benefit you. In consultation with your financial adviser, you should use this prospectus to compare the benefits and risks of this policy versus those of other life insurance policies and alternative investment instruments. - -------------------------------------------------------------------------------- Please read this entire prospectus and consult with a trusted financial adviser. If you have policy specific questions or need additional information, contact us. Also, contact us for free copies of the prospectuses for the mutual funds available under the policy. ============================== =============================================== TELEPHONE: 1-866-221-1100 TDD: 1-800-238-3035 INTERNET: www.bestofamerica.com U.S. MAIL: Nationwide Life Insurance Company One Nationwide Plaza, RR1-04-D4 Columbus, OH 43215-2220 ============================== =============================================== - --------------------------------------------------------- ---------------------- PLEASE UNDERSTAND THAT THE POLICY TERMS WILL GOVERN THE WAY THE POLICY WORKS AND ALL RIGHTS AND OBLIGATIONS. - -------------------------------------------------------------------------------- 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. ------------------------------------------------------------------- THIS POLICY IS NOT: FDIC INSURED; A BANK DEPOSIT; AVAILABLE IN EVERY STATE; OR INSURED OR ENDORSED BY A BANK OR ANY FEDERAL GOVERNMENT AGENCY. ------------------------------------------------------------------- ------------------------------------------------------------------- THIS POLICY MAY DECREASE IN VALUE TO THE POINT OF BEING VALUELESS. ------------------------------------------------------------------- THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION WHERE SUCH OFFERING MAY NOT LAWFULLY BE MADE. - -------------------------------------------------------------------------------- The purpose of this policy is to provide life insurance protection for the beneficiary you name. IF YOUR PRIMARY NEED IS NOT LIFE INSURANCE PROTECTION, THEN PURCHASING THIS POLICY MAY NOT BE IN YOUR BEST INTERESTS. We make no claim that the policy is in any way similar or comparable to a systematic investment plan of a mutual fund. In thinking about buying this policy to replace existing life insurance, please carefully consider its advantages versus those of the policy you intend to replace, as well as any replacement costs. As always, consult your financial adviser. Not all terms, conditions, benefits, programs, features and investment options are available or approved for use in every state. - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- TABLE OF CONTENTS...................................I IN SUMMARY: POLICY BENEFITS.........................1 IN SUMMARY: POLICY RISKS............................3 IN SUMMARY: VARIABLE UNIVERSAL LIFE INSURANCE AND THE POLICY.........................................5 IN SUMMARY: FEE TABLES..............................7 AVAILABLE SUB-ACCOUNTS.............................14 THE POLICY.........................................20 Policy Owner....................................20 The Beneficiaries...............................20 To Purchase.....................................20 Coverage........................................21 Coverage Effective Date.........................21 Temporary Insurance Coverage....................21 To Cancel (Examination Right)...................22 To Change Coverage..............................22 Sub-Account Portfolio Transfers.................23 Fixed Investment Option Transfers...............24 Modes To Make A Transfer........................24 To Exchange.....................................25 To Terminate (Surrender)........................26 To Assign.......................................26 Proceeds Upon Maturity..........................26 Reminders, Reports And Illustrations............27 Errors Or Misstatements.........................27 Incontestability................................27 If We Modify The Policy.........................27 RIDERS.............................................28 Policy Guard Rider..............................28 Adjusted Sales Load Life Insurance Rider........29 Children's Insurance Rider......................29 Long-term Care Rider............................30 Spouse Life Insurance Rider.....................30 Accidental Death Benefit Rider..................31 Premium Waiver Rider............................31 Change Of Insured Rider.........................32 Additional (insurance) Protection Rider.........32 Deduction (of fees and expenses) Waiver Rider...32 PREMIUM............................................33 Initial Premium.................................33 Subsequent Premiums.............................33 CHARGES............................................34 Sales Load......................................34 Premium Taxes...................................34 Surrender Charges...............................35 Partial Surrender Fee...........................36 Policy Guard Rider..............................36 Cost Of Insurance...............................36 Mortality And Expense Risk......................37 Administrative..................................37 Policy Loan Interest............................37 Adjusted Sales Load Life Insurance Rider........37 Children's Insurance Rider......................39 Long-term Care Rider............................39 Spouse Life Insurance Rider.....................39 Accidental Death Benefit Rider..................39 Premium Waiver Rider............................40 Additional (insurance) Protection Rider.........40 Deduction (of fees and expenses) Waiver Rider...40 Reduction of Charges............................40 A Note On Charges...............................41 TO ALLOCATE NET PREMIUM AND SUB-ACCOUNT VALUATION..42 Variable Investment Options.....................43 Fixed Investment Options........................43 Allocation Of Net Premium And Cash Value...........................................44 When Accumulation Units Are Valued..............44 How Investment Experience Is Determined.........44 Cash Value......................................45 Dollar Cost Averaging...........................46 Asset Rebalancing...............................47 THE DEATH BENEFIT..................................48 Calculation Of The Death Benefit Proceeds.......48 Death Benefit Options...........................48 The Minimum Required Death Benefit..............49 Changes In The Death Benefit Option.............49 Suicide.........................................50 SURRENDERS.........................................50 Full Surrender..................................50 Partial Surrender...............................50 Reduction Of Specified Amount On A Partial Surrender......................................51 THE PAYOUT OPTIONS.................................52 Interest Income.................................52 Income For A Fixed Period.......................52 Life Income With Payments Guaranteed............52 Fixed Income For Varying Periods................53 Joint And Survivor Life.........................53 Alternate Life Income...........................53 POLICY LOANS.......................................53 Loan Amount And Interest........................53 Collateral And Interest.........................54 Repayment.......................................54 Net Effect Of Policy Loans......................54 LAPSE..............................................54 Guaranteed Policy Continuation Provision........55 Grace Period....................................55 Reinstatement...................................55 TAXES..............................................56 Types Of Taxes Of Which To Be Aware.............56 Buying The Policy...............................57 Investment Gain In The Policy...................58 Periodic Withdrawals, Non-Periodic Withdrawals And Loans......................................59 Terminal Illness................................60 Surrender Of The Policy.........................60 Withholding.....................................60 Exchanging The Policy For Another Life Insurance Policy...............................61 Taxation Of Death Benefits......................61 Taxes And The Value Of Your Policy..............61 Tax Changes.....................................62 NATIONWIDE LIFE INSURANCE COMPANY..................63 NATIONWIDE VLI SEPARATE ACCOUNT-7..................63 Organization, Registration And Operation........63 Addition, Deletion Or Substitution Of Mutual Funds.........................................64 Voting Rights...................................65 LEGAL PROCEEDINGS..................................65 Nationwide Life Insurance Company...............65 Nationwide Investment Services Corporation.....................................67 FINANCIAL STATEMENTS...............................67 APPENDIX A: DEFINITIONS...........................A-1 IN SUMMARY: POLICY BENEFITS Appendix A defines certain words and phrases we use in this prospectus. DEATH BENEFIT The primary benefit of your policy is life insurance coverage. While the policy is In Force, we will pay the Proceeds to your beneficiary when the Insured dies. YOUR CHOICE OF DEATH BENEFIT OPTIONS |X| Option One: The death benefit is THE GREATER OF the Specified Amount OR the Minimum Required Death Benefit under federal tax law. |X| Option Two: The death benefit is THE GREATER OF the Specified Amount plus the Cash Value OR the Minimum Required Death Benefit under federal tax law. |X| Option Three: The death benefit is THE GREATER OF the Specified Amount plus accumulated Premium payments (less any partial surrenders) OR the Minimum Required Death Benefit under federal tax law. For more information, see "The Death Benefit," beginning on page 48. YOUR OR YOUR BENEFICIARY'S CHOICE OF POLICY PROCEEDS You or your beneficiary may choose to receive the Policy Proceeds in a lump sum, or there are a variety of options that will pay out over time. For more information, see "The Payout Options," beginning on page 52. COVERAGE FLEXIBILITY Subject to conditions, you may choose to: |X| Change the Death Benefit option; |X| Increase or decrease the Specified Amount; |X| Change your beneficiaries; and |X| Change who owns the policy. For more information, see: "Changes In The Death Benefit Option," beginning on page 49; "To Change Coverage," beginning on page 22; "The Beneficiaries," beginning on page 20; and "To Assign," beginning on page 26. CONTINUATION OF COVERAGE IS GUARANTEED Your policy will remain In Force so long as you pay the Policy Continuation Premium Amount. For more information, see "Guaranteed Policy Continuation Provision," beginning on page 55. ACCESS TO CASH VALUE Subject to conditions, you may choose to borrow against, or withdraw, the Cash Value of your policy: |X| Take a policy loan of an amount no greater than 90% of the Sub-Account portfolios plus 100% of the fixed account, less any surrender charges. The minimum loan amount is $200. For more information, see "Policy Loans," beginning on page 53. |X| Take a partial surrender of no less than $200. For more information, see "Partial Surrender," beginning on page 50. 1 |X| Surrender the policy at any time while the Insured is alive. The Cash Surrender Value will be the Cash Values of the Sub-Account portfolios and fixed investment options, less Indebtedness and surrender charges. You may choose to receive the Cash Surrender Value in a lump sum, or you will have available the same payout options as if it constituted a Death Benefit. For more information, see "Full Surrender," beginning on page 50 and "The Payout Options," beginning on page 52. PREMIUM FLEXIBILITY While we would like you to select a premium payment plan, you will not be required to make your Premium payments accordingly. Within limits, you may vary the frequency and amount, and you might even be able to skip a Premium payment. For more information, see "Premium," beginning on page 33. INVESTMENT OPTIONS You may choose to allocate your Net Premiums after charges to fixed or variable investment options in any proportion: |X| There currently are two fixed investment options. Both fixed investment options will earn interest daily at an annual effective rate of at least 3%. The Long Term Fixed Account option may earn a higher interest rate than the Fixed Account, but will also be subject to greater transfer restriction levels. |X| The variable investment options constitute the limitedly available mutual funds. We have divided Nationwide VLI Separate Account-7 into an equal number of Sub-Account portfolios, to account for your allocations. Your Investment Experience will depend on the market performance of the Sub-Account portfolios you have chosen. For more information, see "Available Sub-Accounts," beginning on page 14 and "To Allocate Net Premium And Sub-Account Valuation," beginning on page 42. TRANSFERS BETWEEN AND AMONG INVESTMENT OPTIONS You may transfer between the fixed and variable investment options, subject to conditions. You may transfer among the Sub-Account portfolios of the variable investment option within limits. We have implemented procedures intended to reduce the potentially detrimental impact that disruptive trading has on Sub-Account Investment Experience. For more information, see "Sub-Account Portfolio Transfers," beginning on page 23 and "Modes To Make A Transfer," beginning on page 24. We also offer dollar cost averaging, an automated investment strategy that spreads out transfers over time to try to reduce the investment risks of market fluctuations. For more information, see "Dollar Cost Averaging," beginning on page 46. TAXES Unless you make a withdrawal, generally, you will not be taxed on any earnings. This is known as tax deferral. For more information, see "The Minimum Required Death Benefit," beginning on page 49. Also, your beneficiary generally will not have to include the Proceeds as taxable income. For more information, see "Taxes," beginning on page 56. Unlike other variable insurance products Nationwide offers, these Flexible Premium Variable Universal Life Insurance Policies do not require distributions to be made before the death of the Insured. ASSIGNMENT You may assign the policy as collateral for a loan or another obligation while the Insured is alive. For more information, see "To Assign," beginning on page 26. 2 EXAMINATION RIGHT For a limited time, you may cancel the policy, and you will receive a refund. For more information, see "To Cancel (Examination Right)," beginning on page 22. RIDERS You may purchase any of the available Riders (except for both the Premium Waiver and Deduction Waiver Riders, simultaneously) to suit your needs. Availability will vary by state, and there may be an additional charge. |X| Policy Guard Rider |X| Adjusted Sales Load Life Insurance Rider |X| Children's Insurance Rider |X| Long-term Care Rider |X| Spouse Life Insurance Rider |X| Accidental Death Benefit Rider |X| Premium Waiver Rider |X| Change Of Insured Rider (There is no charge for this Rider.) |X| Additional (insurance) Protection Rider |X| Deduction (of fees and expenses) Waiver Rider For more information, see "Riders," beginning on page 28. IN SUMMARY: POLICY RISKS IMPROPER USE Variable universal life insurance is not suitable as an investment vehicle for short-term savings. It is designed for long-term financial planning. You should not purchase the policy if you expect that you will need to access its Cash Value in the near future because substantial surrender charges will apply in the first several years from the Policy Date. UNFAVORABLE INVESTMENT EXPERIENCE The variable investment options to which you have chosen to allocate Net Premium may not generate a sufficient, let alone a positive, return, especially after the deductions for policy and Sub-Account portfolio charges. Besides Premium payments, Investment Experience will impact the Cash Value, and poor Investment Experience (in conjunction with your flexibility to make changes to the policy and deviate from your chosen premium payment plan) could cause the Cash Value of your policy to decrease. This decrease results in a Lapse of insurance coverage, sooner than might have been foreseen, and, potentially, with very little or no value. EFFECT OF PARTIAL SURRENDERS AND POLICY LOANS ON INVESTMENT RETURNS Partial surrenders or policy loans may accelerate a Lapse because the amount of either or both will no longer be available to generate any investment return. A partial surrender will proportionately reduce the amount of Cash Value allocated among the Sub-Account portfolios you have chosen. If there is not enough Cash Value in the Sub-Account portfolios, partial surrenders will then reduce the cash allocated to the Fixed Account, and then the Long Term Fixed Account. As collateral for a policy loan, we will transfer an equal amount of Cash Value to the policy loan account, which will also reduce the Cash Value allocated between and among your chosen investment options. Thus, the remainder of your policy's Cash Value is all that would be available to generate enough of an investment return to cover policy and Sub-Account portfolio charges and keep the policy In Force, at 3 least until you repay the policy loan or make another Premium payment. There will always be a Grace Period, and the opportunity to reinstate insurance coverage. Under certain circumstances, however, the policy could terminate without value, and insurance coverage would cease. REDUCTION OF THE DEATH BENEFIT A partial surrender could, and a policy loan would, impact the policy's Death Benefit, depending on how the Death Benefit option you have chosen at the time it becomes payable relates to the policy's Cash Value. ADVERSE TAX CONSEQUENCES Existing federal tax laws that benefit this policy may change at any time. These changes could alter the favorable federal income tax treatment the policy enjoys, such as the deferral of taxation on the gains in the policy's Cash Value and the exclusion from taxable income of the Proceeds we pay to the policy's beneficiaries. Also, not all policies are afforded the same tax treatment. For more information, see "Periodic Withdrawals, Non-Periodic Withdrawals And Loans," beginning on page 60. For example, distributions from the policy may be taxed differently. Special rules will apply for a policy that is considered a "modified endowment contract," including that a 10% penalty tax may be imposed on distributions, including any policy loan. In addition, there are federal estate and gift taxes, and state and local taxes, with which you should be aware. You should consult a qualified tax adviser on all tax matters involving your policy. FIXED ACCOUNT TRANSFER RESTRICTIONS AND LIMITATIONS We will not honor a request to transfer Cash Value to or from a fixed account until after the first year. Then, we will only honor a transfer request from a fixed account that is made within 30 days of the end of a calendar quarter, but not within 12 months of a previous request. We may also limit what percentage of Cash Value, fixed account value, or variable account value you will be permitted to transfer to or from a fixed account. SUB-ACCOUNT PORTFOLIO LIMITATIONS Frequent trading among the Sub-Accounts may dilute the value of your Sub-Account units, cause the Sub-Account to incur higher transaction costs, and interfere with the Sub-Accounts' ability to pursue its stated investment objective. This disruption to the Sub-Account may result in lower Investment Experience and Cash Value. We have instituted procedures to minimize disruptive transfers. For more information, see " Sub-Account Portfolio Transfers," beginning on page 23 and "Modes To Make A Transfer," beginning on page 24. While we expect these procedures to reduce the adverse effect of disruptive transfers, we cannot assure you that we have eliminated these risks. SUB-ACCOUNT PORTFOLIO INVESTMENT RISK A comprehensive discussion of the risks of the mutual funds held by each Sub-Account portfolio may be found in that mutual fund's prospectus. You should read the mutual fund's prospectus carefully before investing. 4 IN SUMMARY: VARIABLE UNIVERSAL LIFE INSURANCE AND THE POLICY VARIABLE UNIVERSAL LIFE INSURANCE, IN GENERAL, MAY BE IMPORTANT TO YOU IN TWO WAYS. |X| It will provide economic protection to a beneficiary. |X| It may build Cash Value. Why would you want to purchase this type of life insurance? How will you allocate the Net Premium among the variable and the fixed investment options? Your reasons and decisions will affect the insurance and Cash Value aspects of the policy. While variable universal life insurance is designed primarily to provide life insurance protection, the Cash Value of a policy will be important to you in that it may enhance (with favorable investment results) or impair (with poor investment results) your ability to pay the costs of keeping the insurance In Force. Apart from the life insurance protection features, you will have an interest in maximizing the value of the policy as a financial asset. IT IS SIMILAR, BUT ALSO DIFFERENT, TO UNIVERSAL LIFE INSURANCE. |X| You will pay Premiums for life insurance coverage on the Insured. |X| The policy will provide for the accumulation of a Cash Surrender Value if you were to surrender it at any time while the Insured is alive. |X| The Cash Surrender Value could be substantially lower than the Premiums you have paid. What makes the policy different than universal life insurance is your opportunity to allocate Premiums after charges to the Sub-Account portfolios you have chosen (and the fixed investment options). Also, that its Cash Value will vary depending on the market performance of the Sub-Account portfolios, and you will bear this risk. FROM THE TIME WE ISSUE THE POLICY THROUGH THE INSURED'S DEATH, HERE IS A BASIC OVERVIEW. (BUT PLEASE READ THE REMAINDER OF THIS PROSPECTUS FOR THE DETAILS.) |X| At issue, the policy will require a minimum initial Premium payment. Among other considerations, this amount will be based on: the Insured's age and sex; the underwriting class; any substandard ratings; the Specified Amount; the Death Benefit option; and the choice of any Riders. |X| At the time of a Premium payment, we will deduct some charges. We call these charges transaction fees. |X| You will then be able to allocate the Premium net of transaction fees, or Net Premium, between and among the fixed investment options and the variable investment options. |X| On a periodic basis, we will deduct other charges from the policy's Cash Value to help cover the mortality risks we assumed, and the sales and administrative costs. |X| You may be able to vary the timing and amount of Premium payments. So long as there is enough Cash Surrender Value to cover the policy's periodic charges as they come due, the policy will remain In Force. |X| After the first year from the Policy Date, you may request to increase or decrease the policy's Specified Amount. 5 This flexibility will allow you to adjust the policy to meet your changing needs and circumstances, subject to: additional underwriting (for us to evaluate an increase of risk); confirmation that the policy's tax status is not jeopardized; and confirmation that the minimum specified amount remain met. |X| The policy will pay a Death Benefit to the beneficiary. When you apply for the policy, you have a choice of one of three options. As your insurance needs change, you may be able to change Death Benefit options, rather than buying a new policy, or terminating this policy. |X| Prior to the Insured's death, you may withdraw all, or a portion (after the first year from the Policy Date), of the policy's Cash Surrender Value. Or you may borrow against the Cash Surrender Value. Withdrawals and policy loans are subject to restrictions, may reduce the Death Benefit and increase the likelihood of the policy Lapsing. There also could be adverse tax consequences. 6 IN SUMMARY: FEE TABLES THE FOLLOWING TABLES DESCRIBE THE FEES AND EXPENSES THAT YOU WILL PAY WHEN BUYING, OWNING AND SURRENDERING THE POLICY. THE FIRST TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT YOU BUY THE POLICY, SURRENDER THE POLICY OR TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS. FOR MORE INFORMATION, SEE "CHARGES," BEGINNING ON PAGE 34.
=================================================================================================================================== TRANSACTION FEES =================================================================================================================================== Charge When Charge Is Deducted Amount Deducted - ------------------------------------------- ------------------------------ --------------------------- ---------------------------- SALES LOAD(1) Upon Making A Premium Payment Maximum Guaranteed Currently $25 $5 Per $1,000 Of Premium Payment - ------------------------------------------- ------------------------------ -------------------------------------------------------- PREMIUM TAXES(1) Upon Making A Premium Payment $35 Per $1,000 Of Premium Payment - ------------------------------------------- ------------------------------ --------------------------- ---------------------------- SURRENDER CHARGES(2), (3), (4) Upon Full Surrender Maximum (5) Minimum (6) Representative - For An Age 35 Male $29,230 $2,521 Non-tobacco Preferred With A Specified Representative (7) Amount Of $500,000 And Death Benefit $4,824 Option One From The Policy's Available Cash Value - ------------------------------------------- ------------------------------ ---------------------------- --------------------------- ILLUSTRATION CHARGE (8) Upon Requesting An Maximum Guaranteed Currently Illustration $25 0 - ------------------------------------------- ------------------------------ ---------------------------- --------------------------- PARTIAL SURRENDER FEE (9) Upon A Maximum Guaranteed Currently Partial Surrender $25 0 From The Policy's Available Cash Value(10) - ------------------------------------------- ------------------------------ --------------------------------------------------------
(1) We deduct one charge composed of the sales load and premium taxes. On the Policy Data Page, we call the combined charge Premium Loading. (2) This charge is comprised of two components. There is an underwriting component, which is based on the Insured's age (when the policy was issued). There is also a sales expense component, which is based on and varies by the Insured's sex, age (when the policy was issued) and underwriting class. The amount of the charge we would deduct begins to decrease each year after the third from the Policy Date. For example, by the thirteenth year, the amount is 0% of the initial surrender charge, and, thereafter, there is no charge for a full surrender. We will calculate a separate surrender charge based on the Specified Amount, and each increase in the Specified Amount, which, when added together, will amount to your surrender charge. For more information, see "Surrender Charges," beginning on page 35. (3) To be able to present dollar amounts of this charge here, for a full surrender occurring in the first year from the Policy Date, we assume an aggregate first year Premium in excess of the surrender target premium. The surrender target premium is an assumed Premium payment amount we use in calculating the surrender charge. The surrender charge is based on the lesser of the surrender target premium and the Premiums you pay in the first year from the Policy Date. The surrender target premium varies by: the Insured's sex; age (when the policy was issued); 7 underwriting class and the Specified Amount (and any increases). The surrender charge for decreases in the Specified Amount will be a fraction of the charge for a full surrender. (4) Ask for an illustration, or see the Policy Data Page for more information on your cost. (5) The amount is based on a male who is age 85 and uses tobacco (representing our greatest underwriting risk). We assume a policy with a Specified Amount of $500,000 and Death Benefit Option One. The stated surrender charge is for a surrender occurring in the first year from the Policy Date. (6) The amount is based on a female who is age 0. We assume a policy with a Specified Amount of $500,000 and Death Benefit Option One. The stated surrender charge is for a surrender occurring in the first year from the Policy Date. (7) This amount may not be representative of your cost. (8) If we begin to charge for illustrations, you will be expected to pay the charge directly to us at the time of your request. (9) You may request a partial surrender at any time after the first year from the Policy Date so long as the policy is In Force. (10) Besides this charge, remember that the Cash Value available for a partial surrender is subject to any outstanding policy loans. 8 THE NEXT TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE POLICY, NOT INCLUDING SUB-ACCOUNT PORTFOLIO OPERATING EXPENSES.
================================================================================================================================== PERIODIC CHARGES OTHER THAN SUB-ACCOUNT PORTFOLIO OPERATING EXPENSES ================================================================================================================================== Charge When Charge Is Deducted Amount Deducted From Cash Values - ------------------------------------- ----------------------------- -------------------- ------------------- --------------------- COST OF INSURANCE (11), (12) Monthly Minimum Maximum Representative (13) Representative - For An Age 35 $0.03 $83.33 $0.12 Male Non-tobacco Preferred With A Per $1,000 Of Net Amount At Risk - Proportionately From Your Specified Amount Of $500,000 And Chosen Variable And Fixed Account Death Benefit Option One - ------------------------------------- ----------------------------- -------------------------------------------------------------- MORTALITY AND EXPENSE RISK Monthly Maximum Guaranteed $0.60 Per $1,000 Of Cash Value (14) Proportionately From Your Chosen Variable Investment Options - ------------------------------------- ----------------------------- -------------------------------------------------------------- ADMINISTRATIVE Monthly Per Policy Maximum Guaranteed Currently $20 $10 (15) Proportionately From Your Chosen Variable And Fixed Investment Options - ------------------------------------- ----------------------------- -------------------------------------------------------------- Monthly Per $1,000 Of Maximum Minimum Specified Amount (16) $0.10 per $1,000 $0.10 per $1,000 Proportionately From Your Chosen Variable And Fixed Investment Options - ------------------------------------- ----------------------------- ------------------------------- ------------------------------ POLICY LOAN Annually Maximum Guaranteed Currently INTEREST (17), (18), (19) $39 $39 Per $1,000 Of An Outstanding Policy Loan - ------------------------------------- ----------------------------- --------------------------------------------------------------
(11) This charge varies by: the Insured's sex; age; underwriting class; any substandard ratings; the year from the Policy Date and the Specified Amount. Rider charges are taken from the policy's Cash Value at the beginning of the month starting with the Policy Date and we will not pro rate the monthly fee should the Rider terminate before the beginning of the next month. (12) Ask for an illustration, or see the Policy Data Page for more information on your cost. (13) This amount may not be representative of your cost and is based on the first year from the Policy Date. (14) On a current basis, during the first through tenth years from the Policy Effective Date, this charge is $0.60 per $1,000 on the first $25,000 of Cash Value in the variable investment options, $0.30 per $1,000 on $25,000 up to $250,000 of Cash Value in the variable investment options and $0.10 per $1,000 on any additional variable cash value. From the eleventh policy year through the twentieth policy year, this charge is $0.30 per $1,000 on the first $25,000 of Cash Value in the variable investment options, $0.20 per $1,000 on $25,001 up to $250,000 of Cash Value in the variable investment options, and $0.05 per $1,000 on any additional variable cash value. Thereafter, from policy year 21, there is no charge on Cash Value in the variable investment options. 9 (15) During the first year from the Policy Date, the monthly maximum guaranteed amount is $20, and the monthly current amount is $10. Thereafter, in the renewal years, the monthly maximum guaranteed amount is $20. and the monthly current amount is $10. (16) The Monthly Per $1,000 of Specified Amount charged at a constant rate of $0.10, but will not be more than $25 per month. (17) On the amount of an outstanding loan, we not only charge, but also credit, interest, so there is a net cost to you. Also, there are ordinary and preferred loans on which interest rates vary. For more information, see "Policy Loans," beginning on page 53. (18) We charge a 3.9% interest per annum on the outstanding balance, which accrues daily and becomes due and payable at the end of the year from the Policy Date, or we add it to your loan. Meanwhile, we credit interest daily, too, on the portion of your policy's Cash Value corresponding to, and serving as collateral or security to ensure repayment of, the loan. During years one through ten, it is 3.0% (guaranteed 3.0% minimally), and, thereafter, 3.9% per annum currently (guaranteed 3.65% minimally). (19) Your net cost for a loan through years one through ten from the Policy Date is 0.9% per annum currently. Thereafter, there is no cost (a net zero cost) for a loan currently. For more information, see "Collateral and Interest," beginning on page 54. 10
================================================================================================================================== PERIODIC CHARGES OTHER THAN SUB-ACCOUNT PORTFOLIO OPERATING EXPENSES FOR RIDERS ================================================================================================================================== Optional Charge (20) When Optional Charge Is Amount Deducted Deducted From Cash Value - ------------------------------------- ----------------------------- ------------------------------- ------------------------------ POLICY GUARD RIDER (21) Upon Invoking The Rider Maximum Unlimited Minimum $0.01 Representative - For An Age 35 Male Representative Non-Tobacco Preferred With a Cash $16,000 Value of $500,000 and Indebtedness From the Policy's Available Cash Value of $480,000 - ------------------------------------- ----------------------------- -------------------------------------------------------------- ADJUSTED SALES LOAD LIFE INSURANCE Monthly $0.13 RIDER Per $1,000 Of Premium And 1% Of Premium Load- Proportionately From Your Chosen Variable And Fixed Investment Options - ------------------------------------- ----------------------------- -------------------------------------------------------------- CHILDREN'S INSURANCE RIDER Monthly $0.43 Per $1,000 Of Rider Specified Amount - Proportionately From Your Chosen Variable And Fixed Investment Options - ------------------------------------- ----------------------------- -------------------------------------------------------------- LONG-TERM CARE RIDER (22) Monthly Minimum Maximum Representative Representative - For An Age 35 Male $0.02 $28.65 $0.02 Non-tobacco Preferred With A Long-term Care Specified Amount Of $500,000 And Death Benefit Option One - ------------------------------------- ----------------------------- -------------------------------------------------------------- Per $1,000 Of Rider Net Amount At Risk - Proportionately From Your Chosen Variable And Fixed Account - ------------------------------------- ----------------------------- -------------------- -------------------- -------------------- SPOUSE LIFE INSURANCE RIDER (23) Monthly Minimum Maximum Representative Representative Spouse - For An Age $0.10 $10.23 $0.11 35 Female Non-tobacco With A Spouse Per $1,000 Of Spouse Death Benefit - Proportionately From Life Specified Amount Of $100,000 Your Chosen Variable And Fixed Account - ------------------------------------- ----------------------------- -------------------- -------------------- -------------------- ACCIDENTAL DEATH BENEFIT RIDER (24) Monthly Minimum Maximum Representative Representative - For An Age 35 Male $0.05 $0.75 $0.06 Non-tobacco Preferred With An Per $1,000 Of Accidental Death Benefit - Proportionately Accidental Death Benefit Of $100,000 From Your Chosen Variable And Fixed Investment Options - ------------------------------------- ----------------------------- --------------------------------------------------------------
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- ------------------------------------- ----------------------------- -------------------- -------------------- -------------------- PREMIUM WAIVER Monthly Minimum Maximum Representative RIDER (25, 26) Representative - For An Age 35 Male Non-tobacco Preferred $42 $105 $42 Per $1,000 Of Premium Waiver Benefit - Proportionately From Your Chosen Variable And Fixed Account - ------------------------------------- ----------------------------- -------------------- -------------------- -------------------- ADDITIONAL PROTECTION Monthly Minimum Maximum Representative RIDER (27) Representative - For An Age 35 Male Non-tobacco Preferred With Additional Death Benefit Of $250,000 $0.01 $83.33 $0.02 Per $1,000 Of Additional Protection - Proportionately From Your Chosen Variable And Fixed Investment Options - ------------------------------------- ----------------------------- -------------------- -------------------- -------------------- DEDUCTION WAIVER Monthly Minimum Maximum Representative RIDER (28) Representative - For An Age 35 Male Non-tobacco Preferred With A Specified Amount Of $500,000 And Death Benefit Option One $90 $860 $90 Per $1,000 Of Deduction Waiver Benefit - Proportionately From Your Chosen Variable and Fixed Investment Options - ------------------------------------- ----------------------------- --------------------------------------------------------------
--------------------------------------- (20) You may elect any of these Riders (except for both the Premium Waiver and Deduction Waiver Riders, simultaneously). Rider charges are taken from the policy's Cash Value at the beginning of the month starting with the Policy Date and we will not pro rate the monthly fee should the Rider terminate before the beginning on the next month. There is also a Change of Insured Rider you may elect for no charge. The continuation of a Rider is contingent on the policy being In Force. The amounts presented here may not be representative of your cost. Ask for an illustration, or see the Policy Data Page, for more information on your cost. (21) You may invoke this Rider only when certain conditions are met that include: 1) the Insured attains age 75; 2) the policy has been In Force 15 years from the Policy Date; 3) the policy's Cash Value is at least $100,000 and 4) the policy qualifies as life insurance using the guideline premium/cash value corridor tax test. For more information, see "Policy Guard Rider," beginning on page 28. The level of Indebtedness as a percentage of Cash Value that will allow you to invoke the Rider will vary with the attained age of the Insured. Generally, the higher the Insured's attained age, the higher the level of Indebtedness must be to invoke the Rider. (22) This charge varies by: the Insured's sex; age; underwriting class; any substandard ratings; and the Specified Amount of the Rider. (23) This charge varies by: the spouse's sex; age; underwriting class; any substandard ratings; and the Specified Amount of the Rider. (24) This charge varies by: the Insured's sex; Attained Age; underwriting class; and any substandard ratings. (25) To be able to present dollar amounts of this charge here, we assume monthly Premium payments of $1,000, the waiver of which would occur in the event of the Insured's total disability for six consecutive months. (26) This charge varies by: the Insured's sex; Attained Age; underwriting class; any substandard ratings and the Specified Amount of the Rider. (27) This charge varies by: the Insured's sex; Attained Age; and any substandard ratings. 12 (28) To be able to present dollar amounts of this charge here, we assume total monthly periodic charges of $1,000 (not including this Rider's cost, and any loan amount interest (which are meant to be excluded)). These changes would be waived in the event of the Insured's total disability for six consecutive months. THE NEXT ITEM SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY THE SUB-ACCOUNT PORTFOLIOS THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE POLICY. MORE DETAIL CONCERNING EACH SUB-ACCOUNT PORTFOLIO'S FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR THE MUTUAL FUND THAT CORRESPONDS TO THE SUB-ACCOUNT PORTFOLIO. PLEASE CONTACT US, AT THE TELEPHONE NUMBERS OR ADDRESS ON THE COVER PAGE OF THIS PROSPECTUS, FOR FREE COPIES OF THE PROSPECTUSES FOR THE MUTUAL FUNDS AVAILABLE UNDER THE POLICY. THE FOLLOWING SECTION LISTS THE AVAILABLE SUB-ACCOUNTS BY NAME, INVESTMENT TYPE AND ADVISER.
TOTAL ANNUAL SUB-ACCOUNT PORTFOLIO OPERATING EXPENSES MINIMUM MAXIMUM (expenses that are deducted from the Sub-Account portfolio assets, including 0.27% 4.56% management fees, distribution (12b-1) fees, and other expenses)
13 - -------------------------------------------------------------------------------- AVAILABLE SUB-ACCOUNTS - -------------------------------------------------------------------------------- We identify Sub-Accounts by the name of the underlying mutual funds. The Sub-Accounts available through this policy, their advisers, and their investment objectives are:
AIM VARIABLE INSURANCE FUNDS - AIM V.I. BALANCED FUND: SERIES I SHARES - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: AIM Advisors, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: The highest total return possible that is consistent with the preservation of capital. - ------------------------------------------------ ----------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS - AIM V.I. CAPITAL APPRECIATION FUND: SERIES I SHARES - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: AIM Advisors, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Growth of capital. - ------------------------------------------------ ----------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS - AIM V.I. CAPITAL DEVELOPMENT FUND: SERIES I SHARES - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: AIM Advisors, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC. - AMERICAN CENTURY VP INFLATION PROTECTION FUND: CLASS II - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: American Century Investment Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term total return using a strategy that seeks to protect against U.S. inflation. - ------------------------------------------------ ----------------------------------------------------------------------------------- AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. - AMERICAN CENTURY VP INTERNATIONAL FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: American Century Investment Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. - AMERICAN CENTURY VP ULTRA FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: American Century Investment Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. - AMERICAN CENTURY VP VALUE FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: American Century Investment Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- DREYFUS STOCK INDEX FUND, INC.: INITIAL SHARES - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: The Dreyfus Corporation - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: To match total return of S&P 500 Composite Stock Price Index. - ------------------------------------------------ ----------------------------------------------------------------------------------- DREYFUS INVESTMENT PORTFOLIOS - SMALL CAP STOCK INDEX PORTFOLIO: SERVICE SHARES - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: The Dreyfus Corporation - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: To match performance of the S&P Small Cap 600 Index. - ------------------------------------------------ ----------------------------------------------------------------------------------- DREYFUS VARIABLE INVESTMENT FUND - APPRECIATION PORTFOLIO: INITIAL SHARES - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: The Dreyfus Corporation - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ -----------------------------------------------------------------------------------
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FEDERATED INSURANCE SERIES - FEDERATED QUALITY BOND FUND II: PRIMARY SHARES - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Federated Investment Management Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND - VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management & Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Reasonable income. - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND - VIP GROWTH PORTFOLIO: SERVICE CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management & Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND - VIP OVERSEAS PORTFOLIO: SERVICE CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management and Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND II - VIP II CONTRAFUND(R) PORTFOLIO: SERVICE CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management & Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND II - VIP II INVESTMENT GRADE BOND PORTFOLIO: SERVICE CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management & Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High level of current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND III - VIP III MID CAP PORTFOLIO: SERVICE CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management & Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term growth of capital. - ------------------------------------------------ ----------------------------------------------------------------------------------- Total Underlying Mutual Fund 0.78% Annual Operating Expenses: - ------------------------------------------------ ----------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND III - VIP III VALUE STRATEGIES PORTFOLIO: SERVICE CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Fidelity Management & Research Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - FRANKLIN RISING DIVIDENDS SECURITIES FUND: CLASS 1 - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Franklin Advisory Services, LLC - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - FRANKLIN SMALL CAP VALUE SECURITIES FUND: CLASS 1 - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Franklin Advisory Services, LLC - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term total return. - ------------------------------------------------ ----------------------------------------------------------------------------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - TEMPLETON FOREIGN SECURITIES FUND: CLASS 1 - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Templeton Investment Counsel, Inc - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - COMSTOCK GVIT VALUE FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-adviser: Van Kampen Asset Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital growth and income. - ------------------------------------------------ -----------------------------------------------------------------------------------
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GARTMORE VARIABLE INSURANCE TRUST - DREYFUS GVIT INTERNATIONAL VALUE FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-adviser: The Dreyfus Corporation - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - DREYFUS GVIT MID CAP INDEX FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-adviser: The Dreyfus Corporation - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - FEDERATED GVIT HIGH INCOME BOND FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-adviser: Federated Investment Counseling - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT EMERGING MARKETS FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Global Asset Management Trust, an indirect subsidiary of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-adviser: Gartmore Global Partners, an indirect subsidiary of Nationwide Mutual Insurance Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT GLOBAL HEALTH SCIENCES FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT GLOBAL TECHNOLOGY AND COMMUNICATIONS FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT GOVERNMENT BOND FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High level of income. - ------------------------------------------------ -----------------------------------------------------------------------------------
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GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT INVESTOR DESTINATIONS FUNDS: CLASS II - --------------------------- -------------------------------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - --------------------------- ----------------------------------- -------------------------------------------------------------------- GARTMORE GVIT INVESTOR Investment Objective: To maximize total investment return by seeking income and, DESTINATIONS CONSERVATIVE secondarily, long term growth of capital. The Fund invests in FUND: CLASS II a target allocation mix of 10% large cap U.S. stocks, 5% mid cap U.S. stocks, 5% international stocks, 35% bonds, and 45% short-term investments. - --------------------------- ----------------------------------- -------------------------------------------------------------------- GARTMORE GVIT INVESTOR Investment Objective: To maximize total investment return by seeking income and, DESTINATIONS MODERATELY secondarily, long term growth of capital. The Fund invests in CONSERVATIVE FUND: CLASS a target allocation mix of 20% large cap U.S. stocks, 10% mid II cap U.S. stocks, 10% international stocks, 35% bonds, and 25% short-term investments. - --------------------------- ----------------------------------- -------------------------------------------------------------------- GARTMORE GVIT INVESTOR Investment Objective: To maximize total investment return by seeking growth of DESTINATIONS MODERATE capital and income. The Fund invests in a target allocation FUND: CLASS II mix of 30% large cap U.S. stocks, 10% mid cap U.S. stocks, 5% small cap U.S. stocks, 15% international stocks, 25% bonds, and 15% short-term investments. - --------------------------- ----------------------------------- -------------------------------------------------------------------- GARTMORE GVIT INVESTOR Investment Objective: To maximize total investment return primarily by seeking growth DESTINATIONS MODERATELY of capital, but also income. The Fund invests in a target AGGRESSIVE FUND: CLASS II allocation mix of 35% large cap U.S. stocks, 15% mid cap U.S. stocks, 5% small cap U.S. stocks, 25% international stocks, 15% bonds, and 5% short-term investments. - --------------------------- ----------------------------------- -------------------------------------------------------------------- GARTMORE GVIT INVESTOR Investment Objective: To maximize total investment return primarily by seeking growth DESTINATIONS AGGRESSIVE of capital. The Fund invests in a target allocation mix of 40% FUND: CLASS II large cap U.S. stocks, 15% mid cap U.S. stocks, 10% small cap U.S. stocks, 30% international stocks, and 5% bonds. - --------------------------- ----------------------------------- -------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT MID CAP GROWTH FUND - CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High level of current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT MONEY MARKET FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High level of current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT NATIONWIDE(R) FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ -----------------------------------------------------------------------------------
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GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT U.S. GROWTH LEADERS FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GVIT SMALL CAP GROWTH FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-advisers: Neuberger Berman, LLC; Waddell & Reed Investment Management Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GVIT SMALL CAP VALUE FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-adviser: The Dreyfus Corporation; J.P. Morgan Investment Management Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GVIT SMALL COMPANY FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-advisers: The Dreyfus Corporation; Gartmore Global Partners, an indirect subsidiary of Nationwide Mutual Insurance Company; Neuberger Berman, LLC; Strong Capital Management, Inc.; Waddell & Reed Investment Management Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - VAN KAMPEN GVIT MULTI SECTOR BOND FUND: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Gartmore Mutual Fund Capital Trust, an affiliate of Nationwide Financial Services, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Sub-adviser: Morgan Stanley Investment Management Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Above average total return. - ------------------------------------------------ ----------------------------------------------------------------------------------- MFS(R) VARIABLE INSURANCE TRUST - MFS INVESTORS GROWTH STOCK SERIES: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Massachusetts Financial Services Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth and future income. - ------------------------------------------------ ----------------------------------------------------------------------------------- MFS(R) VARIABLE INSURANCE TRUST - MFS VALUE SERIES: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Massachusetts Financial Services Company - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation and reasonable income. - ------------------------------------------------ ----------------------------------------------------------------------------------- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST - AMT FASCIANO PORTFOLIO: CLASS S - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Neuberger Berman Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST - AMT GUARDIAN PORTFOLIO - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Neuberger Berman Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital growth. - ------------------------------------------------ ----------------------------------------------------------------------------------- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST - AMT LIMITED MATURITY BOND PORTFOLIO: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Neuberger Berman Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Highest available current income. - ------------------------------------------------ -----------------------------------------------------------------------------------
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NEUBERGER BERMAN SOCIALLY RESPONSIVE FUND: TRUST CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Neuberger Berman Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term growth of capital. - ------------------------------------------------ ----------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER CAPITAL APPRECIATION FUND/VA: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: OppenheimerFunds Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation and current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GLOBAL SECURITIES FUND/VA: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: OppenheimerFunds, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Long-term capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER HIGH INCOME FUND/VA: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: OppenheimerFunds, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High level of current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER MAIN STREET(R) FUND/VA: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: OppenheimerFunds, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High total return. - ------------------------------------------------ ----------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER MAIN STREET(R) SMALL CAP FUND/VA: INITIAL CLASS - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: OppenheimerFunds, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: High total return. - ------------------------------------------------ ----------------------------------------------------------------------------------- PUTNAM VARIABLE TRUST - PUTNAM VT GROWTH & INCOME FUND: CLASS IB - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Putnam Investment Management, LLC - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital growth and current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- PUTNAM VARIABLE TRUST - PUTNAM VT VOYAGER FUND: CLASS IB - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Putnam Investment Management, LLC - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Capital appreciation. - ------------------------------------------------ ----------------------------------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - CORE PLUS FIXED INCOME PORTFOLIO: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Morgan Stanley Investment Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Above-average total return. - ------------------------------------------------ ----------------------------------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - U.S. REAL ESTATE PORTFOLIO: CLASS I - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Morgan Stanley Investment Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Above average current income and long-term capital appreciation. - ------------------------------------------------------------------------------------------------------------------------------------
The Sub-Account portfolios listed above are designed primarily as investments for variable annuity contracts and variable life insurance policies issued by insurance companies. There is no guarantee that the investment objectives will be met. We have entered into agency agreements with certain broker-dealer firms to distribute the policy. Some of those firms have an affiliate that acts as an investment adviser or subadviser to one or more of the underlying funds that are offered under the policy. PLEASE REFER TO THE PROSPECTUS FOR EACH SUB-ACCOUNT PORTFOLIO FOR MORE DETAILED INFORMATION. 19 - -------------------------------------------------------------------------------- THE POLICY - -------------------------------------------------------------------------------- The policy is a legal contract between you and us. Any change must be in writing, signed by our president and corporate secretary, and attached to or endorsed on the policy. You may exercise all policy rights and options while the Insured is alive. You may also change the policy, but only in accordance with its terms. Generally, the policy is available for an insured between the ages of 0 and 85 (although these ages may vary in your state). It is nonparticipating, meaning we will not be contributing any operating profits or surplus earnings toward the Proceeds from the policy. The policy will comprise and be evidenced by: a written contract; any Riders; any endorsements; Policy Data Pages; and the application, including any supplemental application. We will consider the statements you make in the application as representations. We will rely on them as being true and complete. However, we will not void the policy or deny a claim unless a statement is a material misrepresentation. - -------------------------------- ----------------------------------------------- POLICY OWNER The policy belongs to the owner named in the application. You may also name a contingent owner. A contingent owner will become the owner if the owner dies before any Proceeds become payable. Otherwise, ownership will pass to the owner's estate, if the owner is not the Insured. To the extent permitted by law, policy benefits are not subject to any legal process for the payment of any claim, and no right or benefit will be subject to claims of creditors (except as may be provided by assignment). You may name different owners or contingent owners (so long as the Insured is alive) by submitting your written request to our Home Office, which will become effective when signed rather than the date on which we received it. There may be adverse tax consequences. For more information, see "Taxes" beginning on page 56. - -------------------------------- ----------------------------------------------- THE BENEFICIARIES The principal right of a beneficiary is to receive Proceeds constituting the Death Benefit upon the Insured's death. So long as the Insured is alive, you may: name more than one beneficiary; designate primary and contingent beneficiaries; change or add beneficiaries; and provide for the method of distribution. If a primary beneficiary dies before the Insured, we will pay the Death Benefit to the remaining primary beneficiaries. Unless you specify otherwise, we will pay multiple primary beneficiaries in equal shares. A contingent beneficiary will become the primary beneficiary if all primary beneficiaries die before the Insured, and before any Proceeds become payable. You may name more than one contingent beneficiary. Unless you specify otherwise, we will also pay multiple contingent beneficiaries in equal shares. To change or add beneficiaries, you must submit your written request to us at our Home Office, which will become effective when signed, rather than the date on which we received it. The change will not affect any payment we made, or action we took, before we recorded the change. - -------------------------------- ----------------------------------------------- TO PURCHASE To purchase the policy, you must submit to us a completed application and a required initial Premium payment as stated on the Policy Data Page. 20 We must receive evidence of insurability that satisfies our underwriting standards (this may require a medical examination) before we will issue a policy. We can provide you with the details of our underwriting standards. We reserve the right to reject an application for any reason permitted by law. Also, we reserve the right to modify our underwriting standards at any time. The minimum initial Specified Amount in most states is $50,000 for non-preferred policies. For preferred policies, the minimum initial Specified Amount is $100,000. The basic distinction between the non-preferred and preferred underwriting classifications is that we expect the Insured under a preferred policy to live longer. We reserve the right to modify our minimum Specified Amount at any time. - -------------------------------- ----------------------------------------------- COVERAGE We will issue the policy only if the underwriting process has been completed, we have approved the application and the proposed Insured is alive and in the same condition of health as described in the application. However, full insurance coverage will take effect only after you have paid the minimum required initial Premium. We begin to deduct monthly charges from your policy Cash Value on the Policy Date. - -------------------------------- ----------------------------------------------- COVERAGE EFFECTIVE DATE Insurance coverage will begin and be In Force on the Policy Date shown on the Policy Data Page. For a change in the Specified Amount, the effective date will be on the next monthly anniversary from the Policy Date after we have approved your request. It will end upon the Insured's death, once we begin to pay the Proceeds, or when the policy matures. It could end if the policy were to Lapse. - -------------------------------- ----------------------------------------------- TEMPORARY INSURANCE COVERAGE Temporary insurance coverage, equal to the Specified Amount up to $1,000,000, may be available for no charge before full insurance coverage takes effect. You must submit a temporary insurance agreement and make an initial Premium payment. The amount of this Premium will depend on the initial Specified Amount, and your choice of Death Benefit option and any Riders, for purposes of the policy. During this time, we will deposit your initial Premium payment into an interest bearing checking account. Temporary insurance coverage will remain In Force for no more than 60 days from the date of the temporary insurance agreement. Before then, temporary insurance coverage will terminate on the date full insurance coverage takes effect, or five days from the date we mail a termination notice (accompanied by a refund equal to the Premium payment you submitted). If we issue the policy, what we do with the Net Premium depends on the right to examine law of the state in which you live. 21 - -------------------------------- ----------------------------------------------- TO CANCEL (EXAMINATION RIGHT) You may cancel your policy during the free look period. The free look period expires ten days after you receive the policy or longer if required by state law. If you decide to cancel during the free look period, return the policy to the sales representative who sold it to you, or to us at our Home Office, along with your written cancellation request. Within seven days, we will refund the amount prescribed by the law of the state in which we issued the policy. Depending on the right to examine law of the state in which you live, this amount will be your initial premium or the policy's Cash Value. We will treat the policy as if we never issued it. For more information, see "To Allocate Net Premium And Sub-Account Valuation" beginning on page 42. - -------------------------------- ----------------------------------------------- TO CHANGE COVERAGE After the first year from the Policy Date, you may request to change the Specified Amount; however, no change will take effect unless the new Cash Surrender Value would be sufficient to keep the policy In Force for at least three months. Changes to the Specified Amount will typically alter the Death Benefit. For more information, see "Changes In The Death Benefit Option," beginning on page 49. You may request to increase the Specified Amount, by at least $10,000, which may increase the Net Amount At Risk. Because the cost of insurance charge is based on the Net Amount At Risk, and because there will be a separate cost of insurance rate for the increase, this will usually cause the policy's cost of insurance charge to increase. As a result, there will often be a corresponding increase in the periodic charges we deduct from the policy's Cash Value. Also, an increase in the Specified Amount may cause an increase to the amount of your subsequent Premium payments and the likelihood that the entire policy is at risk of lapsing sooner. For more information, see "Lapse," beginning on page 54. You may request to decrease the Specified Amount. We first apply decreases to the amount of insurance coverage as a result of any prior Specified Amount increases, starting with the most recent. Then we will decrease the initial Specified Amount. We will deny a request, however, to reduce the amount of your coverage below the minimum initial Specified Amount. For more information, see "To Purchase," beginning on page 20. Also, we will deny a request that would disqualify the policy as a contract for life insurance. For more information, see "The Minimum Required Death Benefit," beginning on page 49. To change the Specified Amount, you must submit your written request to us at our Home Office. You must provide us with evidence of insurability that satisfies our underwriting standards. The Insured must be 85 or younger to request an increase in Specified Amount. Changes will become effective on the next monthly anniversary from the Policy Date after we approve the request. We reserve the right to limit the number of changes to one each year from the Policy Date. 22 - -------------------------------- ----------------------------------------------- SUB-ACCOUNT PORTFOLIO TRANSFERS We will determine the amount you have available for transfers among the Sub-Account portfolios in Accumulation Units based on the Net Asset Value (NAV) per share of the mutual fund in which a Sub-Account portfolio invests. The mutual fund will determine its NAV once daily as of the close of the regular business session of the New York Stock Exchange (usually 4:00 p.m. Eastern time). An Accumulation Unit will not equal the NAV of the mutual fund in which the Sub-Account portfolio invests, however, because the Accumulation Unit value will reflect the deduction for any transaction fees and periodic charges. For more information, see "In Summary: Fee Tables," beginning on page 7, and "How Investment Experience Is Determined," beginning on page 44. Disruptive trading practices, which hamper the orderly pursuit of stated investment objectives by underlying mutual fund managers, may adversely affect the performance of our Sub-Accounts. Prior to the policy's Maturity Date, you may transfer among the available Sub-Account portfolios. However, in instances of disruptive trading that we may determine, or have determined to be harmful to policy owners, we will attempt to curtail or limit the disruptive trading through the use of appropriate means available to us. If your trading activities, or those of a third party acting on your behalf, constitute disruptive trading, we will not limit your ability to initiate the trades as provided in your policy; however, we may limit your means for making a transfer or take other action we deem necessary to protect the interests of those investing in the affected Sub-Accounts. If you intend to use an active trading strategy, you should contact us or consult your registered representative and request information on our other variable insurance products that offer Sub-Accounts that are designed specifically to support active trading. We may add new underlying mutual funds, or new share classes of currently available underlying mutual funds, that assess short-term trading fees. In the case of new share class additions, your subsequent allocations may be limited to that new share class. Short-term trading fees are a charge assessed by an underlying mutual fund when you transfer out of a Sub-Account before the end of a stated period. These fees will only apply to Sub-Accounts corresponding to underlying mutual funds that impose such a charge. The underlying mutual fund intends short-term trading fees to compensate the fund and its shareholders for the negative impact on fund performance that may result from disruptive trading practices, including frequent trading and short-term trading (market timing) strategies. The fees generally are not intended to adversely impact policy owners not engaged in such strategies. The separate account will collect the short-term trading fees at the time of the transfer by reducing the policy owner's Sub-Account value. We will remit all such fees to the underlying mutual fund. 23 - -------------------------------- ----------------------------------------------- FIXED INVESTMENT OPTION TRANSFERS Prior to the policy's Maturity Date, you may also make transfers involving the fixed investment options (the Fixed Account or the Long Term Fixed Account). These transfers will be in dollars, and we reserve the right to limit their timing and amount, including that you may not request a transfer involving the fixed accounts before the end of the first year from the Policy Date. Also, you may not make more than one transfer every 12 months. On transfers to the fixed investment options, we may not permit you to transfer over 20% of the Cash Value allocated to the Sub-Account portfolios as of the close of business of the prior Valuation Period. We reserve the right to refuse any transfer to the fixed investment options if that Fixed Account's Cash Value comprises more than 30% of the policy's Cash Value. On transfers from the Fixed Account, we may not permit you, in a policy year, to transfer over 20% of the Cash Value of the Fixed Account as of the end of the previous policy year (subject to state restrictions). On transfers from the Long Term Fixed Account, you may transfer the greater of $6,000 or 12% of the amount in the Long Term Fixed Account, but we may not permit you to transfer more. We will take policy charges from the Long Term Fixed Account only if there are no amounts in the Sub-Account Portfolios or Fixed Account. We do not allow transfers from the Long Term Fixed Account as part of the Asset Rebalancing or Dollar Cost Averaging programs. - -------------------------------- ----------------------------------------------- MODES TO MAKE A TRANSFER To make a transfer, send your written request to us at our Home Office via first class U.S. mail. Upon receipt, we will process a transfer request at the end of a current Valuation Period. We may also permit you to use other modes of communication subject to limitations. OUR CONTACT INFORMATION IS ON THE COVER PAGE OF THIS PROSPECTUS With respect to any telephonic or electronic mode of communication, including the Internet, we monitor transfer activity for potentially disruptive trading practices. Generally, you are limited to 20 "transfer events" per calendar year. If you initiate transfer events within a lesser time interval at a pace that is equivalent to 20 within a year, you may be required to submit all subsequent transfers via U.S. Mail. To calculate transfer events, at the end of each Valuation Period, we will group together all of your transfer requests for the day. We will count this grouping as a transfer event, regardless of the number of Sub-Accounts involved. Once 20 transfer events within a year or an equivalent number within a shorter period occur, you may continue to make transfers, but only by sending your written request to us at our Home Office via first class U.S. mail. You must use this mode of communication until the end of the year. Then, we begin to count transfer events over again. We have the right to restrict transfer requests, or take any other action we deem necessary, in order to protect policy owners and beneficiaries from the negative investment results that may result from harmful investment practices employed by some policy owners (or third parties acting on their behalf). In particular, we may restrict trading strategies designed to avoid or take advantage of our monitoring procedures and other measures aimed at curbing harmful trading practices. 24 Some investment advisers/representatives manage the assets of multiple Nationwide policies pursuant to trading authority granted or conveyed by multiple policy owners. We generally will require multi-policy advisers to submit all transfer requests via U.S. mail. We will employ reasonable procedures to confirm that instructions are genuine, especially with respect to the Internet and telephone, including: o requiring forms of personal identification before acting upon instructions; o providing you with written confirmation of completed transactions; and/or o recording instructions. If we follow these procedures, we will not be liable for any loss, damage, cost or expense from complying with what we reasonably believe to be genuine instructions. Rather, you will bear the risk of loss. Any computer system or telephone, whether it is yours, your service provider's, your representative's, or ours, can experience slowdowns or outages for a variety of reasons. These slowdowns or outages may delay or prevent our ability to process your request. Although we have taken precautions to help our system handle heavy usage, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your request in writing. - -------------------------------- ----------------------------------------------- TO EXCHANGE You have an exchange right under the policy. At any time within the first 24 months of coverage from the Policy Date, you may surrender this policy and use the Cash Surrender Value to purchase a new policy on the Insured's life without evidence of insurability. Afterwards, you may also surrender the policy and use the Cash Surrender Value to purchase a new policy on the same Insured's life, but subject to evidence of insurability that satisfies our underwriting standards. The new policy may be one of our available flexible premium adjustable life insurance policies. It may not have a greater Death Benefit than that of this policy immediately prior to the exchange date. It will have the same Specified Amount, Policy Date, and issue age. We will base Premiums on our rates in effect for the same sex, Attained Age and underwriting class of the Insured on the exchange date. You may transfer Indebtedness to the new policy. You must make your request on our official forms to the Home Office. The policy must be In Force and not in a Grace Period. You must pay a surrender charge. For more information, see "In Summary: Fee Tables," beginning on page 7. The exchange may have tax consequences. For more information, see "Exchanging The Policy For Another Life Insurance Policy," beginning on page 61. The new policy will take effect on the exchange date only if the Insured is alive. This policy will terminate when the new policy takes effect. 25 - -------------------------------- ----------------------------------------------- TO TERMINATE (SURRENDER) You have the right to terminate (surrender) the policy. Or you may surrender the policy for its Cash Surrender Value. The policy will automatically terminate when the Insured dies, the policy matures, or the Grace Period ends. For more information, see "Surrenders," beginning on page 50. Generally, if the policy has a Cash Surrender Value in excess of the Premiums you have paid, upon surrender it will be included in your income for federal tax purposes. For more information, see "Surrender Of The Policy," beginning on page 60. The Cash Surrender Value will be reduced by the outstanding amount of a policy loan. For more information, see "Policy Loans," beginning on page 53. - -------------------------------- ----------------------------------------------- TO ASSIGN You may assign any rights under the policy while the Insured is alive. If you do, your beneficiary's interest will be subject to the person(s) to whom you have assigned rights. Your assignment must be in writing, and it must be recorded at our Home Office before it will become effective. Your assignment will be subject to any outstanding policy loans. For more information, see "Policy Loans," beginning on page 53. - -------------------------------- ----------------------------------------------- PROCEEDS UPON MATURITY If the policy is In Force on the Maturity Date, we will pay you the Proceeds. Normally, we will pay the Proceeds within seven days after we receive your written request at our Home Office. The payment will be postponed, however, when: the New York Stock Exchange is closed; the SEC restricts trading or declares an emergency; the SEC permits us to defer it for the protection of our policy owners; or the Proceeds are to be paid from the fixed investment options. The Proceeds will equal the policy's Cash Value minus any Indebtedness. After we pay the Proceeds, the policy is terminated. We may offer to extend the Maturity Date to coincide with the Insured's death, after which we will pay the Proceeds to your beneficiary. During this time, you will still be able to request partial surrenders, and you will still have in effect the Long-term Care Rider (though you will not be charged for it), the termination of benefits under which will coincide with the policy's extended Maturity Date (unless you decide otherwise). The Maturity Date extension will either be for the policy value (as defined below), or for the Specified Amount (subject to the law of the state in which you lived at the time you purchased the policy). It is your choice, and, in any event, your policy will be endorsed so that: > no changes to the Specified Amount will be allowed; > no additional Premium payments will be allowed; > no additional periodic charges will be deducted; > 100% of the policy value will be transferred to the Fixed Account; > to extend for the Cash Value, your policy's Death Benefit will become the Cash Value, irrespective of your previous Death Benefit option choice; or > to extend for the Specified Amount, the Specified Amount will be adjusted to what it was when the Insured reached Attained Age 70, but excluding any coverage provided by the Additional Protection Rider and subject to any partial surrenders, which will affect the Specified Amount of a policy 26 with Death Benefit Option One, based on the Insured's Attained Age at the time the request for a partial surrender is made. While the Insured is between the Attained Ages of 71 and 90, a partial surrender will decrease the Specified Amount proportionately. If the Insured is Attained Age 91, a partial surrender will reduce the Proceeds by an amount proportionate to the ratio of the partial surrender to the Cash Value prior to the partial surrender. Notwithstanding your choice, the Proceeds will be the greater of the policy's Specified Amount or Cash Value unless you have invoked the Policy Guard Rider, in which case the Proceeds may be reduced. The Maturity Date will not be extended, however, when the policy would fail the definition of life insurance under the Code. For more information, see "The Payout Options," beginning on page 52 and "The Death Benefit," beginning on page 48. - -------------------------------- ----------------------------------------------- REMINDERS, REPORTS AND ILLUSTRATIONS On request, we will send you scheduled Premium payment reminders and transaction confirmations. We will also send you semi-annual and annual reports that show: o the Specified Amount o the current Cash Value o minimum monthly Premiums o the Cash Surrender Value o Premiums paid o outstanding Indebtedness o all charges since the last report We will send these reminders and reports to the address you provide on the application, or to another you may specify. At any time, you may ask for an illustration of future benefits and values under the policy. While we do not at present, we may charge if you ask for more than one illustration per year from the Policy Date. - -------------------------------- ----------------------------------------------- ERRORS OR MISSTATEMENTS If you make an error or misstatement in completing the application, then we will adjust the Death Benefit and Cash Value accordingly. - -------------------------------------------------------------------------------- INCONTESTABILITY We will not contest payment of the Death Benefit based on the initial Specified Amount after the policy has been In Force during the Insured's lifetime for two years from the Policy Date. For any change in Specified Amount requiring evidence of insurability, we will not contest payment of the Death Benefit based on such an increase after it has been In Force during the Insured's lifetime for two years from its effective date. - -------------------------------- ----------------------------------------------- IF WE MODIFY THE POLICY Any modification (or waiver) of our rights or requirements under the policy must be in writing and signed by our president or corporate secretary. No agent may bind us by making any promise not contained in the policy. 27 We may modify the policy, our operations, or the separate account's operations to meet the requirements of any law (or regulation issued by a government agency) to which the policy, our company, or the separate account is subject. We may modify the policy to assure that it continues to qualify as a life insurance contract under the federal tax laws. We will notify you of all modifications, and we will make appropriate endorsements to the policy. - -------------------------------------------------------------------------------- RIDERS - -------------------------------------------------------------------------------- Riders are available for you to purchase to design the policy to meet your specific needs. You may purchase any of them (except for both the Premium Waiver and Deduction Waiver Riders). Once the policy is In Force, to add a Rider, we may require further evidence of insurability. You may only elect the Adjusted Sales Load Life Insurance Rider when purchasing the policy. Availability will vary by state. You will be charged for a Rider: so long as the policy remains In Force and the Rider's term has not expired; we have paid the benefit; or you decide you no longer need the benefit and let us know in writing at our Home Office. For more information on the costs of the Riders, see "In Summary: Fee Tables," beginning on page 7, and "Charges" beginning on page 34. - -------------------------------------------------------------------------------- POLICY GUARD RIDER This Rider is available to you if the Insured has attained age 75, the policy has been In Force for 15 years from the Policy Date, the policy's Cash Value is at least $100,000, at issuance of the policy you selected the guideline premium/cash value corridor tax test, policy Indebtedness is a certain, specified percentage of Cash Value (between 95% and 99% depending on the Insured's age) and the entire cost basis for tax purposes must be withdrawn from the policy. The benefit is guaranteed paid-up insurance benefit that will prevent the policy from Lapsing due to Indebtedness. When you invoke the Rider, if the policy meets the tax definition of life insurance, then the Death Benefit will be an Option 1 Death Benefit with the Specified Amount equal to that stated on the Policy Data Page. If the policy does not meet the tax definition of life insurance, then the Death Benefit will be the lesser of the Specified Amount immediately before you invoked the Rider and minimum required Death Benefit immediately after we take the charge for the Rider. For more information, see "The Minimum Required Death Benefit," beginning on page 49. The Rider's benefit continues until the policy terminates or matures. A one-time charge is taken at the time you invoke the Rider. Invoking the Rider will cause the Long Term Rider, Spouse Rider, and Waiver of Monthly Deduction Rider to terminate. 28 - -------------------------------- ----------------------------------------------- ADJUSTED SALES LOAD LIFE INSURANCE RIDER This Rider is only available to purchase when you purchase the policy. The benefit is replacing the Premium Load we would otherwise deduct before allocating your Net Premiums with the Rider's monthly charge, which depends on whether you want to replace all or a portion of the Premium Load. We will deduct the Rider's charge from the policy's Cash Value over a period of up to fifteen years, but this depends on the number of years over which the Premium payments you plan to make will be covered by this Rider (a whole number up to seven years from the Policy Date). This deduction will continue to be deducted for nine years after the lesser of: o the number of years (from one to seven) you choose to have the Rider apply to your Premium payments; or o the number of years in this period during which you actually make Premium payments. So, say you want to replace all of the Premium Load on each of your Premium payments for five years, but the last Premium payment you make while the Rider is in effect is within the third year from the Policy Date. Instead of for fourteen years, we will deduct the Rider's charge through the twelfth year. Also, if you terminate your policy during the first ten years from the Policy Date, we will reduce your Cash Surrender Value. The more Premium Load you elect to replace, the higher the Rider's charge will be. If you purchase this Rider, you should expect that its charge, in the aggregate, would amount to more than if we had deducted the Premium Load from each of your Premium payments covered by it. To better understand how this Rider might benefit you, ask for an illustration of future benefits and rights under the policy with and without the purchase of this Rider. - -------------------------------- ----------------------------------------------- CHILDREN'S INSURANCE RIDER You may purchase term life insurance on any of the Insured's children at any time. Before the expiration date, the policy pays a benefit to the named beneficiary upon the insured child's death. As long as the policy is In Force, the insurance coverage for each child will continue until the earlier of: 1) the anniversary of the policy on or after the date that the child turns age 22; or 2) the anniversary of the policy on or after the date that the Insured turns age 65. Subject to certain conditions specified in the Rider, the Rider may be converted into a policy on the life of the insured child without evidence of insurability. You will be charged for this Rider: so long as the policy remains In Force and the Rider's term has not expired; until we have paid the benefit; or you decide you no longer need the benefit and let us know in writing at our Home Office. Because we deduct the charge for this benefit from the policy's Cash Value, your purchase of this Rider could reduce the amount of Proceeds payable when the Death Benefit depends on Cash Value. Otherwise, the benefit of this Rider and the Death Benefit are independent of one another. 29 - -------------------------------- ----------------------------------------------- LONG-TERM CARE RIDER This Rider is available to purchase at issue, or after issue but will require evidence of insurability. The Insured is paid a monthly benefit upon meeting the eligibility requirements and an elimination period of 90 days. The requirements include confinement to a care facility (other than a hospital) or provision of personal assistance at home while under a physician's care. The benefit may not cover all your prospective long-term care costs. The benefit may not cover your retrospective long-term care costs. The benefits paid under the Rider are intended to be "qualified long-term care insurance" under federal tax law, and, generally, the benefits may not be taxable to the policyholder. See your tax adviser about the use of this Rider in your situation. The benefit will end if you invoke the Policy Guard Rider. You will be charged for this Rider: so long as the policy remains In Force through maturity; until we have paid the benefit; until you invoke the Policy Guard Rider; or until you decide you no longer need the benefit and let us know in writing at our Home Office. Because we deduct the charge for this benefit from the policy's Cash Value, your purchase of this Rider could reduce the amount of Proceeds payable when the Death Benefit depends on Cash Value. Also, the benefits paid under this Rider will reduce the Cash Surrender Value if you were to surrender the policy while the Insured is alive. More importantly, though, the benefits paid under this Rider will impact your policy's Death Benefit. The Proceeds payable upon the Insured's death will be adjusted to account for the benefits paid under this Rider. There is a free look period for this Rider. Within 30 days of receipt, you may return this Rider to the sales representative who sold it to you, or to us at our Home Office, and we will void this Rider and refund the related charges. - -------------------------------- ----------------------------------------------- SPOUSE LIFE INSURANCE RIDER You may purchase this Rider at any time. The benefit is a death benefit payable to the beneficiary you designate upon the Insured's spouse's death; otherwise, the benefit is payable to the Insured. The benefit continues until the anniversary of the Rider on or next following the year in which the Insured's spouse turns age 70, you invoke the Policy Guard Rider, or the policy matures, whichever is earliest. You will be charged for this Rider: so long as the policy remains In Force and the Rider's term has not expired; until we have paid the benefit; until you invoke the Policy Guard Rider; or until you decide you no longer need the benefit and let us know in writing at our Home Office. Because we deduct the charge for this benefit from the policy's Cash Value, your purchase of this Rider could reduce the amount of Proceeds payable when the Death Benefit depends on Cash Value. Otherwise, the benefit of this Rider and the Death Benefit are independent of one another. This Rider has a conversion right. The Insured's spouse may exchange this Rider's benefit for a level premium, level benefit plan or whole life or endowment insurance, subject to limitations. 30 - -------------------------------- ----------------------------------------------- ACCIDENTAL DEATH BENEFIT RIDER You may purchase this Rider at any time so long as the policy is In Force and it is before the Policy Date on or following when the Insured reaches age 65. The Rider pays a benefit, in addition to the Death Benefit, to the named beneficiary upon the Insured's accidental death. The benefit continues until the Insured reaches Attained Age 70. You will be charged for this Rider: so long as the policy remains In Force and the Rider's term has not expired; until we have paid the benefit or you decide you no longer need the benefit and let us know in writing at our Home Office. Because we deduct the charge for this benefit from the policy's Cash Value, your purchase of this Rider could reduce the amount of Proceeds payable when the Death Benefit depends on Cash Value. Otherwise, the benefit of this Rider and the Death Benefit are independent of one another. - -------------------------------- ----------------------------------------------- PREMIUM WAIVER RIDER You may purchase this Rider at any time. The benefit is a monthly credit to the policy upon the Insured's total disability for six consecutive months. The amount is the lesser of: o the Premium you specified, or o the average actual Premiums you paid over the thirty-six months before the total disability. However, the monthly credit may not be enough to allow you to rely on this Rider alone. While the benefit is payable, you may also need to pay additional Premium to keep your policy from Lapsing. Notwithstanding, purchasing this Rider could help to preserve the Death Benefit. The benefit continues until the Insured turns age 65, or for two years for an Insured who is age 63 or older, at the time of the total disability. You will be charged for this Rider so long as the policy remains In Force and the Rider's term has not expired unless we are paying a benefit under the Rider or you decide you no longer need the benefit and let us know in writing at our Home Office. Because we deduct the charge for this benefit from the policy's Cash Value, your purchase of this Rider could reduce the amount of Proceeds payable when the Death Benefit depends on Cash Value. In contrast to this Rider, if the benefit under the Deduction (of fees and expenses) Waiver Rider becomes payable during the first three years from the Policy Date, the monthly credit will be sufficient to keep the policy from Lapsing. Thereafter, or if the benefit becomes payable after three years from the Policy Date, the benefit will be the waiver of your policy's charges on a monthly basis. 31 - -------------------------------- ----------------------------------------------- CHANGE OF INSURED RIDER You may elect this Rider for no charge at any time. You may change the Insured for a new Insured, subject to insurability and other conditions. The costs and benefits under the policy after the change will be based on, and could change with, the underwriting classification and characteristics of the new Insured, but this Rider's benefit will have no impact on the policy's Death Benefit. - -------------------------------- ----------------------------------------------- ADDITIONAL (insurance) PROTECTION RIDER This Rider is available when the policy is In Force. The benefit is term life insurance on the Insured, in addition to the Death Benefit, payable to the beneficiary upon the Insured's death. The benefit amount varies monthly and is based on the Death Benefit option you have chosen. You may renew coverage annually until the Insured reaches Attained Age 100, when this Rider's term expires. Because we deduct the charge for this benefit from the policy's Cash Value, your purchase of this Rider could reduce the amount of Proceeds payable when the Death Benefit depends on Cash Value. - -------------------------------- ----------------------------------------------- DEDUCTION (of fees and expenses) WAIVER RIDER You may purchase this Rider at any time so long as the policy is In Force and it is before the Policy Date on or following when the Insured reaches age 65. If an Insured becomes disabled, as defined in this Rider, for six consecutive months within the first three years from the Policy Date, the benefit is a credit to your policy in an amount necessary to keep the policy In Force. The benefit for subsequent years, however, is a waiver of your policy's monthly charges. So, say you become totally disabled for six consecutive months two years and eight months from the Policy Date. For the first four months, the benefit would be a credit equal to the amount necessary to keep the policy In Force. After that, the Rider's benefit is a waiver of your policy's monthly charges. AFTER THE FIRST THREE YEARS FROM THE POLICY DATE, THIS RIDER'S BENEFIT MAY NOT BE ENOUGH TO KEEP YOUR POLICY FROM LAPSING WITHOUT NEEDING TO PAY ADDITIONAL PREMIUM. THEREAFTER, WITH THIS RIDER, IT WILL COST YOU LESS, ON A MONTHLY BASIS, TO KEEP THE POLICY IN FORCE. For how long the benefit lasts depends on the Insured's age when total disability begins. Before age 60, the benefit continues for as long as the Insured is totally disabled (even if that disability extends past when the Insured reaches age 65) or you invoke the Policy Guard Rider. Between ages 60 and 63, the benefit continues until the Insured turns age 65. From age 63, the benefit lasts only for two years. Because we deduct the charge for this benefit from the policy's Cash Value, your purchase of this Rider could reduce the amount of Proceeds payable when the Death Benefit depends on Cash Value. For the first three years from the Policy Date, the benefit payable under this Rider appears to be the same as the benefit payable under the Premium Waiver Rider; however, the monthly credit will be sufficient to keep the policy from Lapsing. Thereafter, or if the benefit becomes payable after the three years from the Policy Date, it will cost you less, on a monthly basis, to keep the policy In Force. Meanwhile, the benefit payable under the Premium Waiver Rider will remain a monthly credit of Premium. 32 - -------------------------------------------------------------------------------- PREMIUM - -------------------------------------------------------------------------------- This policy does not require a scheduled payment of Premium to keep it In Force. The policy will remain in effect as long as the conditions that cause the policy to Lapse do not exist. Upon request, we will furnish Premium receipts. - -------------------------------- ----------------------------------------------- INITIAL PREMIUM The amount of your initial Premium will depend on the initial Specified Amount of insurance, the Death Benefit option, and any Riders you select. Generally, the higher the initial Specified Amount, the higher the minimum required initial Premium will be. Similarly, because Death Benefit Options Two and Three provide for a potentially greater Death Benefit than Death Benefit Option One, Death Benefit Options Two and Three may require a higher amount of initial Premium. Also, the age, health, and activities of the Insured will affect our determination of the risk of issuing the policy. In general, the greater these risks, the higher the required initial Premium will be. Whether we will issue full insurance coverage depends on the Insured meeting all underwriting requirements, you paying the initial Premium, and our delivery of the policy while the Insured is alive. We will not delay delivery of the policy to increase the likelihood that the Insured is not still living. Depending on the outcome of our underwriting process, more or less Premium may be necessary for us to issue the policy. We also retain the right to not issue the policy, after which, if we exercise this right, we will return your payment within two business days. You may pay the initial Premium to our Home Office or to our authorized representative. The initial Premium payment must be at least $50. - -------------------------------- ----------------------------------------------- SUBSEQUENT PREMIUMS You may make additional Premium payments at any time while the policy is In Force, subject to the following: > We may require satisfactory evidence of insurability before accepting any additional Premium payment that results in an increase in the policy's Net Amount At Risk; > We will refund Premium payments that exceed the applicable Premium limit established by the IRS to qualify the policy as a contract for life insurance. As discussed in the "Taxes" section of this prospectus, additional Premium payments or other changes to the policy may jeopardize the policy's non-modified endowment status. We will monitor Premiums paid and other policy transactions and will notify you when the policy's non-modified endowment contract status is in jeopardy; and > We may require that policy Indebtedness be repaid prior to accepting any additional Premium payments. Some, but not all, of the situations when we might exercise this right include when interest rates are low, when your policy loans exceed 90% of the Cash Value of your Sub-Account portfolio allocations, or when a Premium payment may alter the character of the policy for tax purposes. For more information, see "Lapse," beginning on page 54. We will let you know ahead of time. 33 We will send scheduled premium payment reminder notices to you according to the premium payment method shown on the Policy Data Page. If you decide to make a subsequent Premium payment, you must send it to our Home Office. Each Premium payment must be at least $50. - -------------------------------------------------------------------------------- CHARGES - -------------------------------------------------------------------------------- PLEASE READ AND CONSIDER THE FOLLOWING, WHICH WE INTEND TO BE AN AMPLIFICATION (BUT IT MAY ALSO BE DUPLICATIVE), IN CONJUNCTION WITH THE FEE TABLES, AND THE ACCOMPANYING FOOTNOTES, APPEARING EARLIER IN THE PROSPECTUS. SEE "IN SUMMARY: FEE TABLES," BEGINNING ON PAGE 7. ALSO, SEE THE POLICY, INCLUDING THE POLICY DATA PAGE, AND THE RIDERS, FOR MORE INFORMATION. We will make deductions under the policy to compensate us for: the services and benefits we provide; the costs and expenses we incur; and the risks we assume. Every time you make a Premium payment, we will charge against that Premium payment a Premium Load, which is composed of the sales load and premium taxes. If we begin to charge for illustrations, you will be expected to pay the charge in cash at the time of your request. We will not deduct this charge from your policy's Cash Value. However, we will deduct all other charges from the policy's Cash Value (rather than a Premium payment), in proportion to the balances of your Sub-Account portfolios, and Fixed Account, allocations. We will calculate charges, except the mortality and expense risk charge, on amounts you allocate to the Long Term Fixed Account. We will take charges from the Long Term Fixed Account, however, only if amounts in the Sub-Account Portfolios and Fixed Account are insufficient. We will only deduct the mortality and expense risk charge from the Cash Value of the Sub-Account portfolios. We will transfer the loan interest charge from your investment options to the loan account. We take the monthly periodic charges in advance and we will not pro rate any monthly Rider charge should the Rider terminate before the beginning of the next month. There are also charges associated with the Sub-Account portfolios. While you will not pay them directly, they will affect the value of the assets in the Sub-Account portfolios. On a daily basis, the manager of each mutual fund that comprises the policy's available variable investment options deducts operating charges from that mutual fund's assets before calculating the NAV. (We use NAV to calculate the value of your corresponding Sub-Account portfolio allocation in Accumulation Units.) More detail about these charges is contained in the prospectus for the mutual fund. - -------------------------------------------------------------------------------- SALES LOAD The guaranteed maximum sales load portion of the Premium Load charge is $5 per $1,000 of Premium and covers our sales expenses. This is the amount we currently charge. - -------------------------------------------------------------------------------- PREMIUM TAXES The guaranteed maximum premium taxes portion of the Premium Load charge is $35 per $1,000 of Premium and reimburses us for state and local premium taxes (at the estimated rate of 2.25%), and for federal premium taxes (at the estimated rate of 1.25%). This amount is an estimated amount. If the actual tax liability is more or less, we will not adjust the charge, so we may profit from it. This is the amount we currently charge. - -------------------------------------------------------------------------------- 34 - -------------------------------------------------------------------------------- SURRENDER CHARGES A surrender charge will apply if you surrender or lapse the policy. There are two components of the surrender charge meant to cover our policy underwriting (the underwriting component) and sales expenses (the sales component), including for: processing the application; conducting any medical exams; determining insurability (and the Insured's underwriting class); and establishing policy records. The surrender charge equals the underwriting component and a percentage (that varies by age, sex and risk class, and ranges between 34% to 60%) of the sales component. We will deduct the surrender charge based on the following schedule: - -------------------------- ------------------------------------------------- During Percentage Of Initial Surrender Charge Policy Year - -------------------------- ----------------------- ------------------------- Issue Ages 0-49 Issue Ages 50+ - -------------------------- ----------------------- ------------------------- 1 100% 100% - -------------------------- ----------------------- ------------------------- 2 100% 100% - -------------------------- ----------------------- ------------------------- 3 100% 92.5% - -------------------------- ----------------------- ------------------------- 4 92.5% 85.0% - -------------------------- ----------------------- ------------------------- 5 85.0% 76.0% - -------------------------- ----------------------- ------------------------- 6 77.5% 66.0% - -------------------------- ----------------------- ------------------------- 7 70.0% 56.0% - -------------------------- ----------------------- ------------------------- 8 62.5% 46.0% - -------------------------- ----------------------- ------------------------- 9 52.5% 36.0% - -------------------------- ----------------------- ------------------------- 10 42.5% 26.0% - -------------------------- ----------------------- ------------------------- 11 32.5% 0% - -------------------------- ----------------------- ------------------------- 12 20.0% 0% - -------------------------- ----------------------- ------------------------- 13+ 0% 0% - -------------------------- ----------------------- ------------------------- The underwriting component is the product of the Specified Amount and the administrative target premium. The administrative target premium is actuarially derived, and we use it to figure out how much to charge per Premium payment for underwriting expenses. The administrative target premium varies by the Specified Amount, and Insured's age when the policy was issued. The sales expense component is the lesser of the following two amounts. The first amount is the product of the Specified Amount, divided by 1,000, and the surrender target premium. The surrender target premium is actuarially derived, and we use it to figure out how much to charge per Premium payment for sales expenses. The surrender target premium varies by: the Insured's sex; age (when the policy was issued); and the underwriting class. The second amount is the sum of all Premium payments you made during the first year from the Policy Date. We will calculate a separate surrender charge based on the initial Specified Amount and each increase in the Specified Amount, which are, respectively, Specified Amount segments. The surrender charge for each segment, when added together, will amount to your total surrender charge. A surrender charge will also apply when the aggregate surrenders exceed 25% of a segment's Specified Amount. We defer and accrue the charge on partial surrenders that do not exceed 25% of the segment's Specified Amount. Once partial surrenders exceed 25%, we assess the current and accrued charge 35 against your Cash Value. In determining the 25% level, we use a last in-first out method, so that the latest segment reaches the 25% level first. We reserve the right to change this practice and assess the surrender charge against all partial surrenders. We will calculate the surrender charge for a decrease in the Specified Amount as if you surrendered the policy, though we will only deduct a portion of it from your policy's Cash Value. The amount of surrender charge we deduct will be a product of the surrender charge and the decrease in Specified Amount divided by the Specified Amount before the decrease. All things being equal, the surrender charge will be greater for a policy with: an older Insured; a male insured; a greater Specified Amount; more first year Premium; or a higher-risk Insured. If you change the Death Benefit option, we will not deduct a surrender charge. - -------------------------------------------------------------------------------- PARTIAL SURRENDER FEE You may request a partial surrender after the first year from the Policy Date while the policy is In Force, and we may charge a $25 partial surrender fee to compensate us for the administrative costs in calculating and generating the surrender amount. However, currently, there is no charge for a partial surrender. - -------------------------------- ----------------------------------------------- COST OF INSURANCE The cost of insurance charge compensates us for underwriting insurance protection. The cost of insurance charge is the product of the Net Amount At Risk and the cost of insurance rate. We base the cost of insurance rates on our expectations as to future mortality and expense experience. The cost of insurance rate will vary by: the Insured's sex; age; underwriting class; any substandard ratings; the duration the policy has been In Force; and the Specified Amount. There will be a separate cost of insurance rate for the initial Specified Amount and any Specified Amount increases. The cost of insurance rates will never be greater than those shown on the Policy Data Page. We will uniformly apply a change in any cost of insurance rate for Insureds of the same age, sex, underwriting class, and any substandard ratings, if their policies have been In Force for the same length of time. The change could increase your cost of insurance charge, which, accordingly, would decrease your policy's Cash Value, and the converse is true, too. In contrast, you could cause your cost of insurance charge to decrease with a request to reduce the Specified Amount that also reduces the Net Amount At Risk. - -------------------------------------------------------------------------------- POLICY GUARD RIDER We take a one-time charge at the time you invoke this Rider. The charge is the product of the policy's Cash Value and an age-based factor shown on the Policy Data Page. Thus, the charge varies by age of the Insured and Cash Value. If the Cash Value less Indebtedness is insufficient to meet the Rider's charge, you cannot invoke the Rider without repaying enough Indebtedness to cover the Rider's charge. This charge is to both cover the costs and compensate us for the risk of the Rider's guaranteed paid-up death benefit. - -------------------------------------------------------------------------------- 36 - -------------------------------------------------------------------------------- MORTALITY AND EXPENSE RISK Though the maximum guaranteed mortality and expense risk charge is higher, currently, we deduct this monthly charge according to the following schedule. During the first through tenth years from the Policy Date, the charge is $0.60 per $1,000 on the first $25,000 of variable Cash Value, $0.30 per $1,000 on $25,001 up to $250,000 of variable Cash Value and $0.10 per $1,000 on any additional variable Cash Value. From the eleventh through the twentieth policy years, the charge is $0.30 per $1,000 on the first $25,000 of variable Cash Value, $0.20 per $1,000 on $25,001 up to $250,000 of variable Cash Value and $0.05 per $1,000 on any additional variable Cash Value. There is no charge after policy year 20. This charge compensates us for assuming risks associated with mortality and expense costs, and we may profit from it. The mortality risk is that the Insured does not live as long as expected. The expense risk is that the costs of issuing and administering the policy are more than expected. - -------------------------------------------------------------------------------- ADMINISTRATIVE Currently, we deduct $10 per month through the first year from the Policy Date so long as the policy is In Force. The maximum guaranteed charge is $20 per month. This charge reimburses us for the costs of maintaining the policy, including for accounting and record-keeping. - -------------------------------------------------------------------------------- POLICY LOAN INTEREST We will charge interest on the amount of an outstanding policy loan, at the rate of 3.9% per annum, which will have accrued daily and become due and payable at the end of the year from the Policy Date. If left unpaid, we will add it to the loan amount. As collateral or security for repayment, we will transfer an equal amount of Cash Value to the policy loan account, on which interest will accrue and be credited daily. During years one through ten from the Policy Date, current interest crediting rate is 3.0% (guaranteed minimum of 3.0%). Thereafter, the current interest crediting rate is 3.9% per annum for all loans (guaranteed minimum of 3.65%). Accordingly, your net cost for a loan during years one through ten from the Policy Date is 0.9% per annum currently. Thereafter, there is no cost (a net cost of zero) for a loan currently. For more information, see "Collateral and Interest," beginning on page 54. - -------------------------------------------------------------------------------- ADJUSTED SALES LOAD LIFE INSURANCE RIDER The charge for this Rider replaces the Premium Load to cover our sales expenses and premium taxes. Especially since the portion for premium taxes is an estimated amount not subject to adjustment for the actual tax liability, we may profit from it. The charge is the product of: your aggregate monthly Premiums since the Policy Date; the portion of Premium Load you choose to replace (expressed as a whole percentage of Premium paid); and the factor of 0.0001345. 37 The Rider's charge may vary. Each Premium Payment you make will cause the Rider's charge to increase. The length of time of the charge will also vary (up to fifteen years). The length of time will be nine years and the lesser of: o the number of years (from one to seven) you choose to have the Rider apply to your Premium payments; and o the number of years during this period which you actually made Premium payments. For example, if you had chosen to have this Rider apply to your Premium payments for five years, but you only made Premium payments for three years while the Rider was in effect. We would adjust the number of years over which we would deduct this charge from fourteen to twelve years. If the policy terminates within the first ten years from the Policy Date, we will recover a portion of the Premium Load replaced by the Rider, based on the following schedule: - -------------------- --------------------- Years Policy Has Percentage Been In Force - -------------------- --------------------- 1 100 - -------------------- --------------------- 2 90 - -------------------- --------------------- 3 80 - -------------------- --------------------- 4 70 - -------------------- --------------------- 5 60 - -------------------- --------------------- 6 50 - -------------------- --------------------- 7 40 - -------------------- --------------------- 8 30 - -------------------- --------------------- 9 20 - -------------------- --------------------- 10 10 - -------------------- --------------------- 11+ 0 - -------------------- --------------------- This deduction is equal to the amount of the product of Premium Load replaced by the Rider and the percentage from the table above that corresponds to the number of years the policy has been In Force. For example, say you terminate your policy during the fifth year from the Policy Date, on which you had chosen to replace the entire Premium for seven years. Assume that you paid $10,000 of Premium during this time. The Premium Load the Rider has replaced is $400, and 60% of this amount is $240, which we will deduct from your Cash Surrender Value. This deduction allows us to cover a portion of our sales expenses and premium taxes for which the Rider's charge would have compensated us had the policy remained In Force. - -------------------------------------------------------------------------------- 38 - -------------------------------------------------------------------------------- CHILDREN'S INSURANCE RIDER The charge for this Rider is $0.43 per $1,000 of Specified Amount of the Rider. This charge compensates us for providing term insurance on the life of each child of the Insured. We will charge for the Rider so long as the policy is In Force and the Rider is in effect. The cost will remain the same, even if you request to change the number of children covered under the Rider. However, we may decline your request to add another child based on our underwriting standards. - -------------------------------------------------------------------------------- LONG-TERM CARE RIDER The charge for this Rider compensates us for providing long-term care coverage once the Insured meets the eligibility requirements. The charge is the product of the Net Amount At Risk of the Rider and a long-term care cost of insurance rate. Because this Rider has no Cash Value, we define its Net Amount At Risk as the lesser of the Specified Amount of the Rider and the Net Amount At Risk of the policy. We base the long-term care cost of insurance rate on our expectations as to your need for long-term care over time. The long-term care cost of insurance rate will vary by: the Insured's sex; Attained Age; underwriting class; and any substandard ratings. - -------------------------------------------------------------------------------- SPOUSE LIFE INSURANCE RIDER The charge for this Rider compensates us for providing term insurance on the life of the Insured's spouse. The charge is the product of the Specified Amount of this Rider and the spouse life insurance cost of insurance rate. We base the spouse life insurance cost of insurance rate on our expectations as to the mortality of the Insured's spouse. The spouse life insurance cost of insurance rate will vary by: the spouse's sex; Attained Age; underwriting class; any substandard ratings; and Specified Amount of the Rider. - -------------------------------------------------------------------------------- ACCIDENTAL DEATH BENEFIT RIDER The charge for this Rider compensates us for providing coverage in the event of the Insured's accidental death, meaning the Insured's death as a result of bodily injury caused by external, violent and accidental means from a cause other than a risk not assumed. The charge is the product of the Specified Amount of this Rider and the accidental death benefit cost of insurance rate. We base the accidental death benefit cost of insurance rate on our expectations as to the likelihood of the Insured's accidental death. The accidental death benefit cost of insurance rate will vary by: the Insured's sex; Attained Age; underwriting class; and any substandard ratings. - -------------------------------------------------------------------------------- 39 - -------------------------------------------------------------------------------- PREMIUM WAIVER RIDER The charge for this Rider compensates us for crediting your policy the amount of scheduled due and payable Premium payments upon the Insured's total disability for six consecutive months. The benefit will amount to the lesser of the Premium you specified and the average actual Premiums you paid over the thirty-six months before the total disability. The charge is the product of the benefit of this Rider and the premium waiver cost rate. We base the premium waiver cost rate on our expectations as to likelihood of the Insured's total disability for six consecutive months. The premium waiver cost rate will vary by: the Insured's sex; Attained Age; underwriting class; and any substandard ratings. IF YOU CHOOSE THIS RIDER, YOU MAY NOT ALSO CHOOSE THE DEDUCTION WAIVER RIDER. - -------------------------------------------------------------------------------- ADDITIONAL (insurance) PROTECTION RIDER The charge for this Rider compensates us for providing term life insurance on the Insured. The charge is the product of the Specified Amount of this Rider and the additional protection cost of insurance rate. We base the additional protection cost of insurance rate on our expectation as to the Insured's mortality. The additional protection cost of insurance rate will vary by: the Insured's sex; Attained Age; underwriting class; any substandard ratings; and the Specified Amount of the Rider. - -------------------------------------------------------------------------------- DEDUCTION (of fees and expenses) WAIVER RIDER The charge for this Rider compensates us for waiving monthly charges upon the Insured's total disability, as defined in this Rider, for six consecutive months. However, during the first three years from the Policy Date, we will instead credit your policy with the minimum monthly Premium payment due during the Insured's total disability. The charge is the product of the amount of periodic charges deducted from the policy on a monthly basis (excluding the cost for this Rider) and the deduction waiver cost rate. We base the deduction waiver cost rate on our expectations as to the likelihood of the Insured's total disability for six consecutive months. The deduction waiver cost rate varies by: the Insured's sex; Attained Age; underwriting class; and any substandard ratings. IF YOU CHOOSE THIS RIDER, YOU MAY NOT ALSO CHOOSE THE PREMIUM WAIVER RIDER. - -------------------------------- ----------------------------------------------- REDUCTION OF CHARGES In addition to sales to individuals, the policy may be purchased by corporations and other entities. 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 allows us to realize savings with respect to sales, underwriting, administrative or other costs. We determine the eligibility and the amount of any reduction by examining a number of factors, including: the number of policies owned with different insureds; the total premium we expect to receive; total Cash Value of commonly owned policies; the nature of the relationship among individual insureds; the purpose for which the policies are being purchased; the length of time we expect the individual policies to be In Force; and any other circumstances which are rationally related to the expected reduction in expenses. 40 We may change both the extent and the nature of the reductions. We make the reductions in charges in a way that is not unfairly discriminatory to policy owners and reflects the differences in costs of services we provide. Entities considering purchasing the policy should note that in 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. The policies are based upon actuarial tables that distinguish between men and women unless the purchaser is an entity and requests that we use non-sex distinct tables. Thus the policies generally 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. - -------------------------------- ----------------------------------------------- A NOTE ON CHARGES We make many assumptions and account for many economic and financial factors in establishing fees and charges. As we noted at the beginning of this "Charges" section, the deductions we make under the policy are designed to compensate us for the services and benefits we provide, the costs and expenses we incur, and the risks we assume. Our initial expenses in distributing and establishing the contract exceed the deductions we make during the early stages of policy ownership. Nevertheless, we expect to make a profit over time because variable life insurance is intended to be a long term financial product. Accordingly, we have designed the policy with features and underlying investment options that we believe support and encourage long-term ownership. The "In Summary: Fee Tables," beginning on page 7 sets out the costs you incur when you purchase this policy. The following two sections describe: 1) how we use some of those charges to distribute the policy; and 2) how some of the underlying investment options pay us for services we provide to them. Neither of these transactions alters the charges you pay for the policy. Rather, these two sections provide you with information about how we set those charges. You should consider how these transactions may affect any advice you may receive with respect to the policy. Distribution, Promotional and Sales Expenses Commissions to broker/dealer firms are among the promotional and sales expenses we incur when distributing the policy. We may pay a maximum gross commissions of up to 99% of first year premiums and 3% for renewal premiums after the first year. In lieu of these premium based commissions, we may pay an equivalent amount that we calculate as a percentage of assets. Asset-based commissions may be up to 0.25% of the non-loaned Cash Value per year. Combinations of payment forms that generally equate to this maximum commission amount may also be utilized. The actual level of commissions we pay depends on factors such as the level of premium we receive from the respective broker/dealer firms and the scope of the services they provide. Individual registered representatives typically receive a portion of the commissions we pay, depending on their arrangement with their broker/dealer firm. 41 In addition to commissions, we may also furnish marketing and expense allowances to certain firms based on our assessment of that firm's capabilities and demonstrated willingness to promote and market our products. The firms determine how these allowances are spent. If you would like to know the exact compensation arrangement associated with this product, you should consult your registered representative. Revenue from Underlying Mutual Funds The underlying mutual funds incur expense each time they sell, administer, or redeem their shares. Since the Variable Account purchases fund shares on behalf of all policy holders, it serves as a single shareholder of the fund. By processing aggregated policy owner transactions, we relieve the fund of the expenses of processing individual policy owner transactions. We also pay the costs of selling the policy as outlined in the preceding section. Sales of the policy benefits the funds by allowing policy owners to purchase interests in the Sub-Accounts, which then results in the Variable Account's purchase of fund shares. We perform all of the accounting and recordkeeping for the Sub-Accounts, and pay any processing cost associated with the redemption of interests in the Sub-Accounts. The funds understand and acknowledge that, in performing these functions and incurring these costs, we provide substantial value to the funds. Accordingly, the underlying mutual funds pay us (or our affiliates) a fee for some of the distribution and operational services we provide and the related costs we incur. These payments may be made pursuant to a fund's 12b-1 plan, in which case, they are deducted from fund assets, or service/administration agreements between the fund adviser and us or our affiliates with no deduction from fund assets. In setting the charges for this policy, we considered the amount of these payments expected to be received from the underlying mutual funds. Without these payments, you would expect our charges to be higher. We include only funds in the Variable Account that make these payments for the services we provide. - -------------------------------------------------------------------------------- TO ALLOCATE NET PREMIUM AND SUB-ACCOUNT VALUATION - -------------------------------------------------------------------------------- When you apply for the policy, you choose how your Net Premium will be allocated among the available Sub-Accounts once the free look period expires. When this actually happens depends on the right to examine law of the state in which you live. You may choose to allocate all or a portion of your Net Premium to the fixed investment option, and we will allocate it when we receive it. Based on the right to examine law, some states require that we refund the initial Premium if you exercise your right to cancel the policy. Others require that we return the Cash Value. If yours is a state that requires us to refund the initial Premium, we will hold the initial Net Premium in the GVIT Gartmore GVIT Money Market Fund: Class I. Once your examination right ends, we will transfer the Cash Value to your Sub-Account allocations in effect at the time of the transfer. If yours is a state that requires us to refund the Cash Value, we will allocate the Net Premiums to the Sub-Account choices in effect when we receive the Premium payment. 42 - -------------------------------- ----------------------------------------------- VARIABLE INVESTMENT OPTIONS The variable investment options constitute the limitedly available mutual funds, and we have divided the separate account into an equal number of Sub-Account portfolios to account for your allocations. Each Sub-Account portfolio invests in a mutual fund that is registered with the SEC. (This registration does not involve the SEC's supervision of the management or investment practices or policies of these mutual funds.) The "Available Sub-Accounts" section identifies the available mutual funds, by name, investment type and adviser. Your choices and any changes will appear on the Policy Data Page. Each Sub-Account portfolio's assets are held separately from the assets of the other Sub-Account portfolios, and each Sub-Account portfolio has investment objectives and policies that are different from those of the other Sub-Account portfolios. Thus, each Sub-Account portfolio operates as a separate investment fund, and the income or losses of one Sub-Account portfolio generally have no effect on the Investment Experience of any other Sub-Account portfolio. - -------------------------------- ----------------------------------------------- FIXED INVESTMENT OPTIONS. There are currently two fixed investment options, the Fixed Account and the Long Term Fixed Account. The Net Premium you allocate to any fixed investment option is held in that fixed account, which is part of our general account. The general account contains all of our assets other than those in the separate accounts and funds the fixed investment options. These assets are subject to our general liabilities from business operations. The general account is used to support our insurance and annuity obligations. Any amounts in excess of the separate account liabilities are deposited into our general account. We bear the full investment risk for all amounts allocated to the fixed accounts. We guarantee that the amounts you allocate to a fixed investment option will be credited interest daily at a net effective annual interest rate of no less than the stated interest crediting rate on the Policy Data Page. We will credit any interest in excess of the guaranteed interest crediting rate at our sole discretion. You assume the risk that the actual rate may not exceed the guaranteed interest crediting rate. The amounts you allocate to a fixed investment option will not share in the investment performance of our general account. Rather, the investment income you earn on your allocations will be based on varying rates we set. The general account is not subject to the same laws as the separate account, and the SEC has not reviewed the disclosures in this prospectus relating to the fixed investment options. Interest rates are set at the beginning of each calendar quarter. You may receive a different interest rate depending on the rates in effect when you purchase the policy. During the same time period, we anticipate the rate for the Long Term Fixed Account generally to be higher than the Fixed Account, but the Long Term Fixed Account will have less liquidity. For more information, see "Fixed Investment Option Transfers," beginning on page 24. The rate may also vary for new Net Premiums versus a transfer of Units from a Sub-Account portfolio. In honoring your request to transfer an amount out of the fixed account, we will do so on a last-in, first-out basis (LIFO). 43 Interest we credit to the fixed investment option may not increase the Cash Surrender Value enough to cover the policy's charges. If not, the policy may Lapse. For more information, see "Lapse" beginning on page 54. - -------------------------------- ----------------------------------------------- ALLOCATION OF NET PREMIUM AND CASH VALUE We allocate your Net Premium payments to Sub-Accounts or the fixed investment options per your instructions. You must specify your Net Premium payments in whole percentages. The sum of allocations must equal 100%. - -------------------------------- ----------------------------------------------- WHEN ACCUMULATION UNITS ARE We will price Accumulation Units on any day the New York Stock Exchange (NYSE) is VALUED open for business, unless we are closed. We will not price Accumulation Units on these recognized holidays. o New Year's Day o Labor Day o Martin Luther King, Jr. Day o Thanksgiving o Presidents' Day o Christmas o Good Friday o Memorial Day o Independence Day In addition, we will not price Accumulation Units if: > trading on the New York Stock Exchange is restricted; > an emergency exists making disposal or valuation of securities held in the separate account impracticable; or > the SEC, by order, permits a suspension or postponement for the protection of security holders. SEC rules and regulations govern when the conditions described above exist. Any transaction you try to effect when we are closed will not happen until the next day the NYSE and we are both open for business. We will process transactions we receive after the close of the NYSE on the next Valuation Period that we are open. - -------------------------------- ----------------------------------------------- HOW INVESTMENT EXPERIENCE IS DETERMINED Though the number of Accumulation Units will not change as a result of Investment Experience, changes in the net investment factor may cause the value of an Accumulation Unit to increase or decrease from Valuation Period to Valuation Period. Changes in the net investment factor may not be directly proportional to changes in the NAV of the mutual fund shares. We determine the change in Sub-Account values at the end of a Valuation Period. The Accumulation Unit value for a Valuation Period is determined by multiplying the Accumulation Unit value as of the prior Valuation Period by the net investment factor for the Sub-Account for the current Valuation Period. We determine the net investment factor for any Valuation Period by dividing (a) by (b) where: (a) is the sum of: > the NAV per share of the mutual fund held in the Sub-Account as of the end of the current Valuation Period; and 44 > the per share amount of any dividend or income distributions made by the mutual fund (if the date of the dividend or income distribution occurs during the current Valuation Period); plus or minus > a per share charge or credit for any taxes reserved for as a result of the Sub-Account's investment operations. (b) is the NAV per share of the mutual fund determined as of the end of the immediately preceding Valuation Period. - -------------------------------- ----------------------------------------------- CASH VALUE The policy has a Cash Value. There is no guaranteed Cash Value. Rather, it will be based on the values of the investment options you have selected, and these values vary with the Investment Experience of the Sub-Account portfolios to which you have allocated Net Premium, as well as the values of, and any daily crediting of interest to, the policy loan (if you have taken a policy loan) and fixed investment options. It will also vary because we deduct the policy's periodic charges from the Cash Value. So, if the policy's Cash Value is a necessary variable in determining death benefit Proceeds, then your Death Benefit will fluctuate. We will determine the value of the assets in the separate account at the end of each Valuation Period. We will determine the Cash Value at least monthly. To determine the number of Accumulation Units credited to each Sub-Account, we divide the net amount you allocate to the Sub-Account by the Accumulation Unit value for the Sub-Account (using the next Valuation Period following when we receive the Premium). If you surrender part or all of the policy, we will deduct a number of Accumulation Units from the separate account and an amount from the fixed investment options that corresponds to the surrendered amount. Thus, your policy's Cash Value will be reduced by the surrendered amount. Similarly, when we assess charges or deductions, a number of Accumulation Units from the separate account and an amount from the Fixed Account and Long Term Fixed Account that corresponds with the charge or deduction will be deducted from the policy's Cash Value. We make these deductions first from the Sub-Accounts, then from the Fixed Account, and finally from the Long Term Fixed Account in the same proportion that each bears to the policy's total Cash Value. The Cash Value in the policy loan and fixed accounts will be credited interest daily at the respective guaranteed minimum annual effective rate for each as stated on the Policy Data Page. For there to be Cash Value in the policy loan account, you must have taken a policy loan. We may decide to credit interest in excess of the guaranteed minimum annual effective rates. For the fixed investment options, we will guarantee the current rate in effect through the end of the calendar quarter. Upon request, we will inform you of the current applicable rates for each fixed investment option. For more information, see "Fixed Investment Option," beginning on page 42 and "Policy Loan Interest," beginning on page 37. 45 On any date during the policy year, the Cash Value equals the Cash Value on the preceding Valuation Period, plus any Net Premium applied since the previous Valuation Period, minus any policy charges, plus or minus any investment results, and minus any partial surrenders. - -------------------------------- ----------------------------------------------- DOLLAR COST AVERAGING You may elect to participate in a dollar cost averaging program. Dollar cost averaging is an investment strategy designed to reduce the investment risks associated with market fluctuations, which will promote a more stable Cash Value and Death Benefit over time. The strategy spreads the allocation of your Premium among the Sub-Account portfolios and the Fixed Account over a period of time to allow you to potentially reduce the risk of investing most of your Premium into the Sub-Accounts at a time when prices are high. There is no charge for dollar cost averaging, but it does count as a transfer event. For more information, see "Sub-Account Portfolio Transfers," beginning on page 23. On a monthly basis (or another frequency we may permit), a specified dollar amount of your Premium is systematically and automatically transferred from the Fixed Account (but not the Long Term Fixed Account) to a Sub-Account portfolio. You may also have Premium transferred from the: Federated Insurance Series - Federated Quality Bond Fund II: Primary Shares; Fidelity Variable Insurance Products Fund - VIP High Income Portfolio: Service Class (available only for policies issued prior to May 1, 2003); GVIT Gartmore GVIT Government Bond Fund: Class I; GVIT Federated GVIT High Income Bond Fund: Class I; and GVIT Gartmore GVIT Money Market Fund: Class I. We will continue to process transfers until there is no more value left in the Fixed Account or the originating mutual fund(s). You may also instruct us in writing to stop the transfers. If you have Premium transferred from the fixed account, the amount must be no more than 1/30th of the fixed account value at the time you elect to participate in the program. Either you elect to participate in the dollar cost averaging program upon application or by submitting an election form before the beginning of the month. 46 Periodically, we may offer enhanced dollar cost averaging programs on initial Premiums. Under an enhanced dollar cost averaging program, you will earn interest on the Cash Value of a specified fixed investment option. The interest we credit daily may be different than the net effective annual interest rate we credit on the Cash Value of the Fixed Account that is outside of the enhanced dollar cost averaging program. These programs will last for one year, and your Premium will be systematically and automatically transferred based on the following schedule: - -------------------- --------------------- FRACTION OF REMAINING CASH BEGINNING OF MONTH VALUE TRANSFERRED - -------------------- --------------------- 2 1/11 - -------------------- --------------------- 3 1/10 - -------------------- --------------------- 4 1/9 - -------------------- --------------------- 5 1/8 - -------------------- --------------------- 6 1/7 - -------------------- --------------------- 7 1/6 - -------------------- --------------------- 8 1/5 - -------------------- --------------------- 9 1/4 - -------------------- --------------------- 10 1/3 - -------------------- --------------------- 11 1/2 - -------------------- --------------------- 12 Remaining Amount - -------------------- --------------------- A dollar cost averaging program may not be available in all states. We do not assure the success of these strategies; success depends on market trends. We cannot guarantee that dollar cost averaging will result in a profit or protect against loss. You should carefully consider your financial ability to continue these programs over a long enough period of time to purchase Accumulation Units when their value is low, as well as when their value is high. We may modify, suspend or discontinue these programs at any time. We will notify you in writing 30 days before we do so. - -------------------------------- ----------------------------------------------- ASSET REBALANCING You may elect to set up asset rebalancing. To do so, you must complete the Asset Rebalancing Program Form and submit it to our Home Office. (You will use the same form to change your investment allocation choices, or terminate asset rebalancing, too.) Thereafter, automatically, on a periodic basis, the Cash Value of your chosen Sub-Account portfolios (up to 20), having fluctuated with Investment Experience, will be rebalanced in proportion to your investment allocation choices. There is no charge for asset rebalancing, but it does count as a transfer event. For more information, see "Sub-Account Portfolio Transfers," beginning on page 23. You can schedule asset rebalancing to occur every three, six, or twelve months on days when we price Accumulation Units. For more information, see "When Accumulation Units Are Valued," beginning on page 44. 47 Unless you elect otherwise, asset rebalancing will not affect the allocation of Net Premiums you pay after beginning the program. Asset Rebalancing is not available for the Long Term Fixed Account. We reserve the right to modify, suspend or discontinue asset rebalancing at any time. - -------------------------------------------------------------------------------- THE DEATH BENEFIT - -------------------------------- ----------------------------------------------- CALCULATION OF THE DEATH BENEFIT PROCEEDS We will calculate the Death Benefit and pay it to the beneficiary when we receive proof at our Home Office that the Insured has died, as well as other customary information. We will not dispute the payment of the Death Benefit after the policy has been In Force for two years from the Policy Date. The Death Benefit may be subject to an adjustment if you make an error or misstatement upon application, or if the Insured dies by suicide. While the policy is In Force, the Death Benefit will never be less than the Specified Amount. The Death Benefit will depend on which option you have chosen and the tax test you have elected, as discussed in greater detail below. Also, the Death Benefit may vary with the Cash Value of the policy, which will depend on investment performance and take into account any insurance provided by Riders, as well as outstanding Indebtedness and any due and unpaid monthly deductions that accrued during a Grace Period. - -------------------------------- ----------------------------------------------- DEATH BENEFIT OPTIONS There are three Death Benefit options under the policy. You may choose one. If you do not choose one of the following Death Benefit options, we will assume that you intended to choose Death Benefit Option One. OPTION ONE The Death Benefit will be the greater of the Specified Amount or the Minimum Required Death Benefit. OPTION TWO The Death Benefit will be the greater of the Specified Amount PLUS the Cash Value as of the date of death, or the Minimum Required Death Benefit. OPTION THREE The Death Benefit will be the greater of the Specified Amount PLUS the accumulated premium account (which consists of all Premium payments minus all partial surrenders to the date of death) or the Minimum Required Death Benefit. The amount of the accumulated premium account will be based on the Option Three Interest Rate stated on the Policy Data Page, which will be no less than zero or more than the Option Three Maximum Increase also stated on the Policy Data Page. Not all Death Benefit options are available in all states. 48 - -------------------------------- ----------------------------------------------- THE MINIMUM REQUIRED DEATH BENEFIT The policy has a minimum required Death Benefit. The minimum required Death Benefit is the lowest Death Benefit that will qualify the policy as life insurance under Section 7702 of the Code. The tax tests for life insurance generally require that the policy has a significant element of life insurance and not be primarily an investment vehicle. At the time we issue the policy, you irrevocably elect one of the following tests to qualify the policy as life insurance under Section 7702 of the Code: > the cash value accumulation test; or > the guideline premium/cash value corridor test. The cash value accumulation test determines the minimum required Death Benefit by multiplying the account value by a percentage determined by methodology set out in the federal tax regulations. The percentages depend upon the Insured's age, sex and underwriting classification. Under the cash value accumulation test, there is no limit to the amount that may be paid in premiums as long as there is sufficient Death Benefit in relation to the account value at all times. The guideline premium/cash value corridor test determines the minimum required Death Benefit by comparing the Death Benefit to an applicable percentage of the Cash Value. These percentages are set out in the Code, but the percentage varies only by the Attained Age of the Insured. Regardless of which test you elect, we will monitor compliance to assure that the policy meets the statutory definition of life insurance for federal tax purposes. As a result, the Proceeds payable under a policy should be excludable from gross income of the beneficiary for federal income tax purposes. Conversely, if in the unlikely event that the policy did not qualify as life insurance because your Death Benefit failed to amount to the minimum required Death Benefit, the Proceeds payable under the policy would be includable in the gross income of the beneficiary for federal income tax purposes. Because of this adverse consequence, we may refuse additional Premium payments or return the gross Premium payments to you so that the policy continues to meet the Code's definition of life insurance. For more information, see "Periodic Withdrawals, Non-Periodic Withdrawals And Loans," beginning on page 59. If you do not elect a test, we will assume that you intended to elect the guideline premium/cash value corridor test. - -------------------------------- ----------------------------------------------- CHANGES IN THE DEATH BENEFIT OPTION After the first year from the Policy Date, you may elect to change the Death Benefit option under the policy from either Option One to Option Two, or from Option Two to Option One. You may not change to Option Three but may change from it to Option One or Option Two. We will permit only one change of Death Benefit option per policy year. The effective date of a change will be the monthly anniversary date following the date we approve the change. 49 For any change in the Death Benefit option to become effective, the Cash Surrender Value after the change must be sufficient to keep the policy In Force for at least three months. We will adjust the Specified Amount so that the Net Amount At Risk remains constant before and after the Death Benefit option change. Because your Net Amount At Risk remains the same, changing the Death Benefit option by itself does not alter the policy's cost of insurance. The policy's charges going forward, however, will be based on a new Specified Amount that will change the calculation of those charges. Depending on changes in factors such as fluctuations in the policy's Cash Value, these charges may increase or decrease after the reduction. Notwithstanding, we will refuse a Death Benefit option change that would reduce the Specified Amount to a level where the Premium you have already paid would exceed any premium limit under the tax tests for life insurance. Where the policy owner has selected the guideline premium/cash value corridor test, a change in Death Benefit option will not be permitted if it results in the total Premiums paid exceeding the maximum premium limitations under Section 7702 of the Code. - -------------------------------- ----------------------------------------------- SUICIDE If the Insured dies by suicide, while sane or insane, within two years from the Policy Date, we will pay no more than the sum of the Premiums paid, less any Indebtedness, and less any partial surrenders. Similarly, if the Insured dies by suicide, while sane or insane, within two years from the date we accept an application for an increase in the Specified Amount, we will pay no more than the Death Benefit associated with insurance that has been In Force for at least two years from the Policy Date, plus the cost of insurance charges associated with any increase in Specified Amount that has been In Force for a shorter period. - -------------------------------------------------------------------------------- SURRENDERS - -------------------------------- ----------------------------------------------- FULL SURRENDER You may surrender the policy for the Cash Surrender Value at any time while the Insured is alive. We calculate the Cash Surrender Value based on the policy's Cash Value. For more information, see "Cash Value," beginning on page 45. To derive the Cash Surrender Value, we will deduct from the Cash Value any Indebtedness and the surrender charge. The effective date of a surrender will coincide with the date on which we receive the policy and your written request at our Home Office. We reserve the right to postpone payment of that portion of the Cash Surrender Value attributable to the fixed investment option for up to six months. - -------------------------------- ----------------------------------------------- PARTIAL SURRENDER You may request, in writing to our Home Office, a partial surrender of the policy's Cash Surrender Value at any time after it has been In Force for one year from the Policy Date. We may charge a $25 partial surrender fee. Currently, however, there is no charge. 50 We reserve the right to limit partial surrenders to one per year from the Policy Date. The minimum amount of any partial surrender request is $200. A partial surrender cannot cause the total Specified Amount to be reduced below the minimum Specified Amount indicated on the Policy Data Page, and after any partial surrender, the policy must continue to qualify as life insurance under Section 7702 of the Code. Partial surrenders may be subject to income tax penalties. They could also cause your policy to become a "modified endowment contract" under the Code, which could change the income tax treatment of any distribution from the policy. For more information, see "Periodic Withdrawals, Non-Periodic Withdrawals And Loans," beginning on page 59. We will reduce the Cash Value of the policy by the amount of any partial surrender in the same proportion as how you have allocated Cash Value among the Sub-Accounts. We will only reduce the Cash Value attributable to the Fixed Account when that of the Sub-Accounts is insufficient to cover the amount of the partial surrender and we will only reduce the Cash Value attributable to the Long Term Fixed Account when that of the Fixed Account is insufficient. - -------------------------------- ----------------------------------------------- REDUCTION OF SPECIFIED AMOUNT ON A PARTIAL SURRENDER When you take a partial surrender, we will reduce the Specified Amount to ensure that the Net Amount At Risk does not increase. Because your Net Amount At Risk is the same before and after the reduction, a partial surrender by itself does not alter the policy's cost of insurance. The policy's charges going forward will be based on a new Specified Amount that will change the calculation of those charges. Depending on changes in variables, such as the Cash Value, these charges may increase or decrease after the reduction in Specified Amount. Any reduction we make to the Specified Amount will be made in the following order: > against the most recent increase in the Specified Amount; > against the next most recent increases in the Specified Amount in succession; and > against the Specified Amount under the original application. While we reserve the right to deduct a partial surrender fee of up to $25, we currently deduct none. For more information, see "Surrender Charges," beginning on page 35. Partial surrenders may be subject to income tax penalties. They could also cause your policy to become a "modified endowment contract" under the Code, which would change the income tax treatment of any distributions from the policy. For more information, see "Periodic Withdrawals, Non-Periodic Withdrawals, and Loans," beginning on page 59. 51 - -------------------------------------------------------------------------------- THE PAYOUT OPTIONS - -------------------------------------------------------------------------------- You have a number of options of receiving Proceeds, besides in a lump sum, which you may elect upon application. You may elect one or a combination of options. We will pay the Proceeds from our general account. If you do not make an election, when the Insured dies, the beneficiary may do so. If the beneficiary does not make an election, we will pay the Proceeds in a lump sum. Normally, we will make the lump sum payment within seven days after we receive your written request at our Home Office. We will postpone any payment of Proceeds, however, on the days we are unable to price Accumulation Units. For more information, see "When Accumulation Units Are Valued," beginning on page 44. To elect more than one payout option, you must apportion at least $2,000 per option, which would amount to a payment, at specified intervals, of at least $20. At any time before Proceeds become payable, you may request to change your payout option in writing to our Home Office. Changing the beneficiary of the policy will revoke the payout options in effect at that time. Proceeds are neither assignable nor subject to claims of creditors or legal process. Please note that for the remainder of The Payout Options section, "you" means the person we are obligated to pay. - -------------------------------- ----------------------------------------------- INTEREST INCOME You keep the Proceeds with us to earn interest at a specified rate. The interest can be paid at the end of 12-, six-, three- or one-month intervals or left to accumulate. You may withdraw any outstanding balance by making a written request of us at our Home Office. We will pay interest on the outstanding balance at a rate of at least 2.5% per annum, compounded annually. We will determine annually if we will pay any interest in excess of 2.5%. Upon your death, we will pay any outstanding balance to your estate. - -------------------------------- ----------------------------------------------- INCOME FOR A FIXED PERIOD You keep the Proceeds with us, but are paid at specified intervals over a number of years (no more than 30). Each payment will consist of a portion of the Proceeds plus interest at a stated rate. The Proceeds can be paid at the beginning of 12-, six-, three- or one-month intervals. You may withdraw any outstanding balance by making a written request of us at our Home Office. We will pay interest at an annually determined rate of at least 2.5% per annum, compounded annually. We will determine annually if we will pay any interest in excess of 2.5%. Upon your death, we will pay any outstanding balance to your estate. - -------------------------------- ----------------------------------------------- LIFE INCOME WITH PAYMENTS GUARANTEED We pay you the Proceeds at specified intervals for a guaranteed period (10, 15 or 20 years), and, then, for the rest of your life, if you outlive the guaranteed period. The Proceeds can be paid at the beginning of 12-, six-, three- or one-month intervals. During the guaranteed period, we will pay interest on the outstanding balance at a rate of at least 2.5% per annum, compounded annually. We will determine annually if we will pay any interest in excess of 2.5%. As the payments are based on your lifetime, you cannot withdraw any amount you designate to this option after payments begin. If you die before the guaranteed period has elapsed, we will make the remaining payments to your estate. If you die after the guaranteed period has elapsed, we will make no payments to your estate. 52 - -------------------------------- ----------------------------------------------- FIXED INCOME FOR VARYING PERIODS You keep the Proceeds with us, but are paid a fixed amount at specified intervals until principal and interest have been exhausted. The total amount payable each year may not be less than 5% of the original Proceeds. The Proceeds can be paid at the beginning of 12-, six-, three- or one-month intervals. You may withdraw any outstanding balance by making a written request of us at our Home Office. We will pay interest on the outstanding balance at a rate of at least 2.5% per annum, compounded annually. We will determine annually if we will pay any interest in excess of 2.5%. Upon your death, we will pay any outstanding balance to your estate. - -------------------------------- ----------------------------------------------- JOINT AND SURVIVOR LIFE We pay you the Proceeds in equal payments at specified intervals for the life of the last surviving payee. The Proceeds can be paid at the beginning of 12-, six-, three- or one-month intervals. As the payments are based on the lifetimes of the payees, you cannot withdraw any amount you designate to this option after payments begin. Also, payments will cease upon the death of the last surviving payee. We will make no payments to the last surviving payee's estate. - -------------------------------- ----------------------------------------------- ALTERNATE LIFE INCOME We use the Proceeds to purchase an annuity with the payee as annuitant. The amount payable will be 102% of our current individual immediate annuity purchase rate on the date of the Insured's death, the Maturity Date, or the date the policy is surrendered, as applicable. The Proceeds can be paid at the end of 12-, six-, three- or one-month intervals. As the payments are based on your lifetime, you cannot withdraw any amount you designate to this option after payments begin. Also, payments will cease upon your death. We will make no payments to your estate. - -------------------------------------------------------------------------------- POLICY LOANS - -------------------------------------------------------------------------------- While the policy is In Force, you may take an advance of money from the Cash Value. We call this advance a policy loan. You must make your request in writing at our Home Office. You may increase your risk of Lapse if you take a policy loan. There also may be adverse tax consequences. You should obtain competent tax advice before you decide to take a policy loan. - -------------------------------- ----------------------------------------------- LOAN AMOUNT AND INTEREST The minimum policy loan you may take is $200. You may take no more than the maximum loan value. The maximum loan value is based on your Cash Surrender Value less 10% of your Cash Value allocated to the Sub-Accounts. For more information, see "Full Surrender," beginning on page 50. We charge interest, at the maximum guaranteed rate of 3.9% per annum, on the amount of an outstanding loan, which will accrue daily and be payable at the end of each year from the Policy Date. If left unpaid, we will add the interest to the loan amount. 53 - -------------------------------- ----------------------------------------------- COLLATERAL AND INTEREST As collateral or security, we will transfer a corresponding amount of Cash Value from each Sub-Account to the loan account in the same proportion as your Sub-Account allocations, unless you instruct otherwise. You may request that we transfer this amount from specific Sub-Account portfolios. We will only make a transfer from the fixed investment options if the loan amount exceeds 90% of the Cash Value you have allocated to Sub-Account portfolios. On this amount, we will credit interest daily based on the current rate in effect, which will not be less than the guaranteed interest crediting rates shown on the Policy Data Page. We may credit interest in excess of the guaranteed interest crediting rate. Currently, the interest crediting rate is 3.0% per annum during years one through ten from the Policy Date, and 3.9% per annum thereafter. - -------------------------------- ----------------------------------------------- REPAYMENT You may repay all or part of a policy loan at any time while your policy is In Force during the Insured's lifetime. The minimum repayment is $50. Interest on the loan amount will be due and payable at the end of each year from the Policy Date. If left unpaid, we will add it to the loan amount by transferring a corresponding amount of Cash Value from each Sub-Account to the loan account in the same proportion as your Sub-Account allocations. While your policy loan is outstanding, we will continue to treat any payments that you make as a Premium payment, unless you instruct otherwise. Similarly, we will apply a loan repayment in the same proportion as your current Sub-Account allocations, unless you instruct otherwise. - -------------------------------- ----------------------------------------------- NET EFFECT OF POLICY LOANS We will charge interest on the loan amount at the same time as the collateral amount will be credited interest. In effect, we will net the loan amount interest rate against the interest crediting rate, so that your actual cost of a policy loan will be less than the loan amount interest rate. For more information, see "In Summary: Fee Tables," in particular, the footnotes, beginning on page 7. Nevertheless, keep in mind that the Cash Value we transferred to the loan account will neither be affected by the Investment Experience of the Sub-Account portfolios, nor credited with the interest rates accruing on the fixed investment options. Whether repaid, a policy loan will affect the policy, the net Cash Surrender Value and the Death Benefit. If your total Indebtedness ever exceeds the policy's Cash Value, your policy may Lapse. Repaying a policy loan will cause the Death Benefit and net Cash Surrender Value to increase accordingly. - -------------------------------------------------------------------------------- LAPSE - -------------------------------------------------------------------------------- The policy is at risk of Lapsing when the Cash Surrender Value is insufficient to cover the monthly deduction of periodic charges. However, it will not Lapse under the guaranteed policy continuation provision so long as you have at least paid the Policy Continuation Premium Amount, irrespective of poor investment results from your Net Premium allocation choices, or that the Cash Surrender Value is less than the amount of the policy's periodic charges deduction (or both). Subject to its conditions, you may also invoke the Policy Guard Rider to prevent the policy from Lapsing due to Indebtedness. For more information, see "Policy Guard Rider," beginning on page 28. In any event, there is a Grace Period before your policy will Lapse. Also, you may reinstate a policy that has Lapsed, subject to conditions. 54 - -------------------------------- ----------------------------------------------- GUARANTEED POLICY CONTINUATION PROVISION The policy will not Lapse if you have at least paid the Policy Continuation Premium Amount during the guaranteed policy continuation period, as stated on the Policy Data Page. The Policy Continuation Premium Amount will vary by: the Insured's issue age; sex; underwriting class; any substandard ratings; flat extras; the Specified Amount, including increases; and the existence of any Riders purchased. The Policy Continuation Premium Amount will not account, however, for any subsequent policy loans or partial surrenders. For no charge, you may request that we determine whether your Premium payments, less policy loans and partial surrenders, are sufficient to keep the guaranteed policy continuation provision in effect at any time, and you should do so especially after you have: requested an increase in the Specified Amount; taken a policy loan; or requested a partial surrender. The guaranteed policy continuation period will begin when we issue the policy and continue for the lesser of 30 years, or the number of years until the Insured reaches Attained Age 65, from the Policy Date. For policies issued to ages greater than 55, the guaranteed policy continuation period is ten years but if the Insured is older than age 70, there is none. When the guaranteed policy continuation period ends, if the Cash Surrender Value remains insufficient to cover the monthly deductions of periodic charges, the policy is at risk of Lapsing, and a Grace Period will begin. The guaranteed policy continuation provision is subject to state insurance restrictions and may be different in your state and for your policy. There is no charge for the guaranteed policy continuation provision. - -------------------------------- ----------------------------------------------- GRACE PERIOD We will send you a notice when the Grace Period begins. The notice will state an amount of Premium required to avoid Lapse that is equal to four times the current monthly deductions or, if it is less, the Premium that will bring the guaranteed policy continuation provision back into effect. If you do not pay this Premium within 61 days, the policy and all Riders will Lapse. The Grace Period will not alter the operation of the policy or the payment of Proceeds. - -------------------------------- ----------------------------------------------- REINSTATEMENT You may reinstate a Lapsed policy by: > submitting a written request at any time within three years after the end of the Grace Period and prior to the Maturity Date; > providing further evidence of insurability we may require that is satisfactory to us; > paying sufficient Premium to cover all policy charges that were due and unpaid during the Grace Period; > paying sufficient Premium to keep the policy In Force for three months from the date of reinstatement, or, if the policy is in the guaranteed policy continuation period, paying the lesser of (a) and (b) where: (a) is Premium sufficient to keep the policy In Force for three months from the date of reinstatement; and (b) is Premium sufficient to bring the guaranteed policy continuation provision into effect; and 55 > paying or reinstating any Indebtedness against the policy which existed at the end of the Grace Period. At the same time, you may also reinstate any Riders, but subject to evidence of insurability satisfactory to us. The effective date of a reinstated policy, including any Riders, will be the monthly anniversary date on or next following the date we approve the application for reinstatement. If the policy is reinstated, the Cash Value on the date of reinstatement, will be set equal to the lesser of: > the Cash Value at the end of the Grace Period; or > the surrender charge for the year from the Policy Date in which the policy was reinstated. We will then add any Premiums or loan repayments that you made to reinstate the policy. The allocations to the Sub-Accounts in effect at the start of the Grace Period will be reinstated, unless you provide otherwise. - -------------------------------------------------------------------------------- TAXES - -------------------------------------------------------------------------------- The tax treatment of life insurance policies under the Code is a multifaceted subject. The tax treatment of your policy will depend on your particular circumstances. We urge you to seek competent tax advice regarding the tax treatment of the policy given your situation. The following discussion provides an overview of the Code's provisions relating to certain common transactions involving the policy. It is not and cannot be comprehensive. It cannot replace consulting with a competent tax professional. - -------------------------------- ----------------------------------------------- TYPES OF TAXES OF WHICH TO BE AWARE Federal Income Tax. Generally, the United States assesses a tax on income which is broadly defined to include all items of income from whatever source, unless the item is specifically excluded. Certain expenditures can reduce income for tax purposes and correspondingly the amount of tax payable. These expenditures are called deductions. While there are many more income tax concepts under the Code, the concepts of "income" and "deduction" are the most fundamental to the federal income tax treatment that pertains to this policy. 56 Federal Transfer Tax. In addition to the income tax, the United States also assesses a tax on some or all of the value of certain transfers of wealth made by gift while a person is living (the federal gift tax), and by bequest or otherwise at the time of a person's death (the federal estate tax). The federal estate tax is integrated with the federal gift tax under a unified tax rate schedule. In general, in 2004, an estate of less than $1,500,000 (inclusive of certain pre-death gifts) will not incur a federal estate tax liability. The $1.5 million amount increases to $2 million in 2006, 2007, and 2008 and $3.5 million in 2009. The federal estate tax is scheduled to be repealed effective after 2009; however, unless Congress acts to make that repeal permanent, the estate tax is scheduled to be reinstated with respect to decedents who die after December 31, 2010. Also, an unlimited marital deduction may be available for federal estate tax purposes for certain amounts that pass to the surviving spouse. In addition, if the transfer is made to someone two or more generations younger than the transferor, the transfer may be subject to the federal generation-skipping transfer tax ("GSTT"). The GSTT provisions generally apply to the same transfers that are subject to estate or gift taxes. The tax is imposed at a flat rate equal to the maximum estate tax rate (for 2004, 48%, decreasing by 1 percentage point each year until 2007, when it will be 45%), and there is a provision for an aggregate $1 million exemption. The GSTT estate tax is scheduled to be repealed effective after 2009; however, unless Congress acts to make that repeal permanent, the GSTT tax is scheduled to be reinstated on January 1, 2011 at a rate of 55%. State and Local Taxes. 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. While these taxes may or may not be substantial in your case, the specific nature of these taxes preclude a useful description of them in this prospectus. - -------------------------------- ----------------------------------------------- BUYING THE POLICY Note to Non-Resident Aliens. Specific tax laws and rules apply to non-resident aliens of the United States including certain withholding requirements with respect to pre-death distributions from the policy. In addition, foreign law may impose additional taxes on the policy, the Death Benefit, or other distributions and/or ownership of the policy. If you are a non-resident alien, you should confer with a competent tax professional with respect to the tax treatment of this policy. Federal Income Tax. Generally, the Code treats life insurance Premiums as a personal expense. This means that under the general rule you cannot deduct from your taxable income the Premiums paid to purchase the policy. Federal Transfer Tax. Generally, the Code treats the payment of Premiums on a life insurance policy as a gift when the Premium payment benefits someone else like the policy owner. Gifts are not generally included in the recipient's taxable income. If you (whether or not you are the Insured) transfer ownership of the policy to another person, the transfer may be subject to a federal gift tax. The tax is imposed at a flat rate equal to the maximum estate tax rate (for 2004, 48%, decreasing by 1 percentage point each year until 2007, when it will be 45%), and there is a provision for an aggregate $1 57 million exemption. The GSTT estate tax is scheduled to be repealed effective after 2009; however, unless Congress acts to make that repeal permanent, the GSTT tax is scheduled to be reinstated on January 1, 2011. In addition, if you transfer the policy to someone two or more generations younger than you, the transfer may be subject to the GSTT, with the taxable amount equaling the value of the policy. - -------------------------------- ----------------------------------------------- INVESTMENT GAIN IN THE POLICY The income tax treatment of changes in the policy's Cash Value depends on whether the policy is "life insurance" under the Code. If the policy meets the definition of life insurance, then the increase in the policy's Cash Value is not included in your taxable income for federal income tax purposes. To qualify as life insurance, the policy must meet certain tests set out in Section 7702 of the Code. For more information, see "The Minimum Required Death Benefit," beginning on page 49. In addition to meeting the tests required under Section 7702, Section 817(h) of the Code requires that the investments of the separate account be adequately diversified. Regulations under Code Section 817(h) provide that a variable life policy that fails to satisfy the diversification standards will not be treated as life insurance unless such failure was inadvertent, is corrected, and the policy owner or the issuer pays an amount to the IRS. If the failure to diversify is not corrected, you will be deemed to be the owner of the underlying securities and taxed on the earnings of your policy's account. Representatives of the IRS have informally 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. In 2003, the IRS issued formal guidance, in Revenue Ruling 2003-91, that indicate that if the number of underlying mutual funds available in a variable insurance product does not exceed twenty, the number of funds alone would not cause the policy to not qualify for the desired tax treatment. The IRS has also indicated that exceeding 20 investment options may be considered a factor, along with other factors including the number of transfer opportunities available under the policy, when determining whether the policy qualifies for the desired tax treatment. The revenue ruling did not indicate the number of fund options, if any, that would cause the policy to not provide the desired tax treatment. 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 the investment objectives of underlying mutual funds such that the policy would no longer qualify as life insurance under Section 7702 of the Code, we will take whatever steps are available to remain in compliance. We will monitor compliance with the Code Section 817(h) and the regulations applicable to Section 817(h) and, to the extent necessary, will change the objectives or assets of the Sub-Account investments to remain in compliance. We will also monitor the Policy's compliance with Code Section 7702. Thus, the policy should receive federal income tax treatment as life insurance. 58 - -------------------------------- ----------------------------------------------- PERIODIC WITHDRAWALS, NON-PERIODIC WITHDRAWALS AND LOANS The tax treatment described in this section applies to withdrawals and loans you choose to take from the policy. It also applies to Premiums we accept but then return to meet the Code's definition of life insurance. For more information, see "The Minimum Required Death Benefit," beginning on page 49. The income tax treatment of distributions of cash from the policy depends on whether the policy is also a "modified endowment contract" under the Code. Generally, the income tax consequences of owning a life insurance contract that is not a modified endowment contract are more advantageous than the tax consequences of owning a life insurance contract that is a modified endowment contract. The policies offered by this prospectus may or may not be issued as modified endowment contracts. If a contract is issued as a modified endowment contract, it will always be a modified endowment contract; a contract that is not issued as a modified endowment contract can become a modified endowment contract due to subsequent transactions with respect to the contract, such as payment of additional Premiums. When the Policy is Life Insurance that is a Modified Endowment Contract. Section 7702A of the Code defines modified endowment contracts as those life insurance 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. Under certain conditions, a policy may become a modified endowment contract, or may become subject to a new 7 year testing period as a result of a "material change" or a "reduction in benefits" as defined by Section 7702A(c) of the Code. The Code provides special rules for the taxation of surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions from modified endowment contracts. Under these special rules, such transactions are taxable to the extent the Cash Value of the policy exceeds, at the time of distribution, the Premiums paid into the policy. In addition, 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 a series of substantially equal periodic payments as defined in the Code. When the Policy is Life Insurance that is NOT a Modified Endowment Contract. If the policy is not issued as a modified endowment contract, Nationwide will monitor Premiums paid and will notify the policy owner when the policy is in jeopardy of becoming a modified endowment contract. 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 Code. You should carefully consider this potential tax ramification and seek further information before initiating any changes in the terms of the policy. 59 Distributions from life insurance contracts that are not modified endowment contracts are treated as being (a) from the Premiums paid into the contract, and then (b) from the income in the contract. Because Premium payments are generally nondeductible, distributions not in excess of aggregate Premium payments are generally not includible in income; instead, they reduce the owner's "cost basis" in the contract. In addition, a loan from life insurance contracts that are not modified endowment contracts are not taxable when made, although it can be treated as a distribution if it is forgiven during the owner's lifetime. Contracts that are not modified endowment contracts are not subject to the 10% early distribution penalty tax. - -------------------------------------------------------------------------------- TERMINAL ILLNESS Certain distributions made under a policy on the life of a "terminally ill individual," as that term is defined in the Code, are treated as death proceeds. These distributions from the policy are subject to the Death Benefit rules of Section 101 of the Code described below in this section on Taxes under the heading "Taxation Of Death Benefits," beginning on page 61. - -------------------------------- ----------------------------------------------- SURRENDER OF THE POLICY 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 you receive plus total policy Indebtedness exceeds the Premiums paid into the policy, then 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 life insurance policy, including a life insurance policy that is a modified endowment contract, are subject to federal income tax withholding. Generally, the recipient may elect not to have the withholding taken from the distribution. We will withhold income tax unless you advise us, in writing, of your request not to withhold. If you request that taxes not be withheld, or if the taxes withheld are insufficient, you may be liable for payment of an estimated tax. A distribution of income from a contract may be subject to mandatory back-up withholding. Mandatory backup withholding means we are required to withhold taxes on a distribution, at the rate established by Section 3406 of the Code, and the recipient cannot elect to receive the entire distribution at once. Mandatory backup withholding may arise if we have not been provided a taxpayer identification number, or if the IRS notifies us that back-up withholding is required. In certain employer-sponsored life insurance arrangements, participants may be required to report for income tax purposes, one or more of the following: > the value each year of the life insurance protection provided; > an amount equal to any employer-paid Premiums; or > some or all of the amount by which the current value exceeds the employer's interest in the policy. 60 Participants in an employer sponsored plan relating to this policy should consult with the sponsor or the administrator of the plan, and/or with their personal tax or legal adviser, to determine the tax consequences, if any, of their employer-sponsored life insurance arrangements. - -------------------------------- ----------------------------------------------- EXCHANGING THE POLICY FOR ANOTHER LIFE INSURANCE POLICY As described in the section "Surrenders," you ordinarily will pay taxes on amounts that you receive in excess of your Premium payments when you completely surrender the policy. If, however, you exchange the policy for another life insurance policy, a modified endowment contract or an annuity contract, you will not be taxed on the excess amount if the exchange meets the requirements of Code Section 1035. To meet Section 1035 requirements, the Insured named in the policy must be the Insured for the new policy or contract. Also, the new policy or contract cannot extend the Maturity Date of the policy or otherwise delay a distribution that would extend when tax would be payable under the policy. Generally, the new policy or contract will be treated as having the same date of issue and tax basis as the old contract. - -------------------------------- ----------------------------------------------- TAXATION OF DEATH BENEFITS Federal Income Tax. The amount of the Death Benefit payable under a policy generally is excludable from gross income of the beneficiary under Section 101 of the Code. However, if the policy is transferred for valuable consideration, then a portion of the Death Benefit may be includable in the beneficiary's gross income. Federal Transfer Taxes. When the Insured dies, the Death Benefit will generally be included in such 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 beneficiary is two or more generations younger than the Insured, the payment of the Proceeds at the death of the Insured may be subject to the GSTT. Pursuant to regulations issued by the U.S. Secretary of the Treasury, we may be required to withhold a portion of the Proceeds and pay them directly to the IRS as the GSTT liability. - -------------------------------- ----------------------------------------------- TAXES AND THE VALUE OF YOUR POLICY As discussed in "Charges," the Accumulation Units you hold in the separate account are adjusted to reflect a Premium Tax charge for certain taxes assessed by federal and state taxing authorities. This charge relates to taxes associated with the payment of Premium or certain other policy acquisition costs. This charge decreases your Accumulation Unit values. For federal income tax purposes, the separate account is not a separate entity from Nationwide Life Insurance Company. Thus, the tax status of the separate account is not distinct from our status as a life insurance company. Investment income and realized capital gains on the assets of the separate account are reinvested and taken into account in determining the value of 61 Accumulation Units. As a result, such investment income and realized capital gains are automatically applied to increase reserves under the policies. At present, we do not initially expect to incur any federal income tax liability that would be chargeable to the Accumulation Units you hold in the separate account. Based upon these expectations, no charge is currently being made against your Accumulation Units in the separate account for federal income taxes. If, however, we determine that taxes may be incurred, we reserve the right to assess a charge for taxes. We may also incur state and local taxes (in addition to those described in the discussion of the Premium Taxes) in several states. At present, these taxes are not significant. If they increase, however, charges for such taxes may be made that would decrease the value of your Accumulation Units in the separate account. - -------------------------------- ----------------------------------------------- TAX CHANGES The foregoing discussion, which is based on our understanding of federal tax laws as currently interpreted by the IRS, is general and is not intended as tax advice. The Code has been subjected to numerous amendments and changes, and it is reasonable to believe that it will continue to be revised. The United States Congress has, in the past, considered numerous legislative proposals that, if enacted, could change the tax treatment of the policies. It is reasonable to believe that such proposals, and future proposals, may be enacted into law. 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 you, the Insured, the 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, payment of the Death Benefit, 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. We make no representation as to the likelihood of the continuation of these current laws, interpretations, and policies. 62 In 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was enacted into law. EGTRRA contained numerous changes to the federal income, gift, estate and generation skipping transfer taxes, many of which are not scheduled to become effective until a future date. Among other matters, EGTRRA provides for the repeal of the federal estate and generation skipping transfer taxes after 2009; however, unless Congress and the President enact additional legislation, EGTRRA also provides that all of those changes will "sunset" after 2010, and the estate and generation skipping transfer taxes will be reinstated as if EGTRRA had never been enacted. 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. You should consult your independent legal, tax and/or financial adviser. - -------------------------------------------------------------------------------- NATIONWIDE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- We are a stock life insurance company organized under Ohio law. We were founded in March, 1929 and our Home Office is One Nationwide Plaza, Columbus, Ohio 43215. We provide long-term savings products by issuing life insurance, annuities and other retirement products. - -------------------------------------------------------------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-7 - -------------------------------------------------------------------------------- ORGANIZATION, REGISTRATION AND OPERATION Nationwide VLI Separate Account-7 is a separate account established under Ohio law. We own the assets in this account, and we are obligated to pay all benefits under the policies. We may use the account to support other variable life insurance policies we issue. It is registered with the SEC as a unit investment trust under the Investment Company Act of 1940 ("1940 Act") and qualifies as a "separate account" within the meaning of the federal securities laws. This registration, however, does not involve the SEC's supervision of this account's management or investment practice or policies. It is divided into Sub-Accounts that may invest in shares of the available Sub-Account portfolios. We buy and sell the Sub-Account portfolio shares at NAV. Any dividends and distributions from a Sub-Account portfolio are reinvested at NAV in shares of that Sub-Account portfolio. Income, gains, and losses, whether or not realized, from the assets in the account will be credited to, or charged against, the account without regard to our other income, gains, or losses. Income, gains, and losses credited to, or charged against, a Sub-Account reflect the Sub-Account's own Investment Experience and not the Investment Experience of our other assets. Its assets are held separately from our other assets and are not part of our general account. We may not use the separate account's assets to pay any of our liabilities other than those arising from the policies. If the separate account's assets exceed the required reserves and its other liabilities, we may transfer the excess to our general account. The separate account may include other Sub-Accounts that are not available under the policies, and are not discussed in this prospectus. 63 If investment in the mutual funds or a particular portfolio is no longer possible, in our judgment becomes inappropriate for the purposes of the policy, or for any other reason in our sole discretion, we may substitute another mutual fund or portfolio without your consent. The substituted mutual fund or portfolio may have different fees and expenses. Substitution may be made with respect to existing investments or the investments of future Premium, or both. We will comply with federal securities laws to effect a substitution. Furthermore, we may close Sub-Accounts to allocations of Premiums or policy value, or both, at any time in our sole discretion. The mutual funds, which sell their shares to the Sub-Accounts pursuant to participation agreements, also may terminate these agreements and discontinue offering their shares to the Sub-Accounts. In addition, we reserve the right to make other structural and operational changes affecting this separate account. WE DO NOT GUARANTEE ANY MONEY YOU PLACE IN THIS SEPARATE ACCOUNT. THE VALUE OF EACH SUB-ACCOUNT WILL INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR MONEY. - -------------------------------------------------------------------------------- ADDITION, DELETION OR SUBSTITUTION OF MUTUAL FUNDS Where permitted by applicable law, we reserve the right to: > remove, combine, or add Sub-Accounts and make new Sub-Accounts available; > substitute shares of another mutual fund, which may have different fees and expenses, for shares of an existing mutual fund; > transfer assets supporting the policies from one Sub-Account to another or from one separate account to another; > combine the separate account with other separate accounts, and/or create new separate accounts; > deregister the separate account under the 1940 Act, or operate the separate account as a management investment company under the 1940 Act, or as any other form permitted by the law; and > modify the policy provisions to reflect changes in the Sub-Accounts and the separate account to comply with applicable law. 64 - -------------------------------- ----------------------------------------------- VOTING RIGHTS Unless there is a change in existing law, we will vote our shares only as you instruct on all matters submitted to shareholders of the portfolios. Before a vote of a portfolio's shareholders occurs, you will have the right to instruct us based on the number of portfolio shares that corresponds to the amount of policy account value you have in the portfolio (as of a date set by the portfolio). We 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 NAV of that underlying mutual fund. We will designate a date for this determination not more than 90 days before the shareholder meeting. - -------------------------------------------------------------------------------- LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- NATIONWIDE LIFE INSURANCE COMPANY Nationwide is a party to litigation and arbitration proceedings and inquiries from regulatory bodies 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. On October 31, 2003, a lawsuit seeking class action status was filed against Nationwide in Arizona federal court by plaintiff Robert Helman (Robert Helman et al v. Nationwide Life Insurance Company et al). The suit challenges the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans. On April 8, 2004, plaintiff filed an amended class action complaint on behalf of all persons who purchased an individual variable deferred annuity contract or a certificate to a group variable annuity contract issued by Nationwide or Nationwide Life and Annuity Insurance Company which were allegedly used to fund certain tax-deferred retirement plans. The amended class action complaint seeks unspecified compensatory damages. This lawsuit is in a very preliminary stage and Nationwide is evaluating its merits. On August 15, 2001, Nationwide was named in a lawsuit filed in Connecticut federal court (Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance Company). The plaintiffs first amended their complaint on September 6, 2001 to include class action allegations, and have subsequently amended their complaint twice. As amended, in the current complaint, the plaintiffs seek to represent a class of ERISA qualified retirement plans that purchased variable annuities from Nationwide. Plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts, and that Nationwide acquired and breached ERISA fiduciary duties by accepting service payments from certain mutual funds that allegedly consisted of or diminished those ERISA plan assets. The complaint seeks 65 disgorgement of some or all of the fees allegedly received by Nationwide and other unspecified relief for restitution, along with declaratory and injunctive relief and attorneys' fees. On December 3, 2001, the plaintiffs filed a motion for class certification. Plaintiffs filed a supplement to that motion on September 19, 2003. Nationwide opposed that motion on December 24, 2003. On January 30, 2004, Nationwide filed its Revised Memorandum in Support of Summary Judgment and a Motion Requesting that the Court Decide Summary Judgment before Class Certification. Plaintiffs are opposing that motion. Nationwide intends to defend this lawsuit vigorously. On May 1, 2003, a class action was filed against Nationwide in the United States District Court for the Eastern District of Louisiana (Edward Miller, Individually, and on behalf of all others similarly situated, v. Nationwide Life Insurance Company). The complaint alleges that in 2001, plaintiff Edward Miller purchased three group modified single premium variable annuities issued by Nationwide. Plaintiff alleges that Nationwide represented in its prospectus and promised in its annuity contracts that contract holders could transfer assets without charge among the various funds available through the contracts, that the transfer rights of contract holders could not be modified and that NLIC's expense charges under the contracts were fixed. Plaintiff claims that Nationwide has breached the contracts and violated federal securities laws by imposing trading fees on transfers that were supposed to have been without charge. Plaintiff seeks compensatory damages and rescission on behalf of himself and a class of persons who purchased this type of annuity or similar contracts issued by Nationwide between May 1, 2001 and April 30, 2002 inclusive and were allegedly damaged by paying transfer fees. Nationwide's motion to dismiss the complaint was granted by the Court on October 28, 2003. Plaintiff has appealed that dismissal to the United States Court of Appeals for the Fifth Circuit. On January 21, 2004, Nationwide was named in a lawsuit filed in the U.S. District Court for the Northern District of Mississippi (United Investors Life Insurance Company v. Nationwide Life Insurance Company and/or Nationwide Life Insurance Company of America and/or Nationwide Life and Annuity Insurance Company and/or Nationwide Life and Annuity Company of America and/or Nationwide Financial Services, Inc. and/or Nationwide Financial Corporation, and John Does A-Z). In its complaint, the plaintiff alleges that Nationwide and/or its affiliated life insurance companies (1) tortiously interfered with the plaintiff's contractual and fiduciary relationship with Waddell & Reed, Inc. and/or its affiliates, Waddell & Reed Financial, Inc., Waddell & Reed Financial Services, Inc. and W & R Insurance Agency, Inc. (collectively, "Waddell & Reed"), (2) conspired with and otherwise caused Waddell & Reed to breach its contractual and fiduciary obligations to the plaintiff, and (3) tortiously interfered with the plaintiff's contractual relationship with policyholders of insurance policies issued by the plaintiff. The complaint seeks compensatory damages, punitive damages, pre- and post-judgment interest, a full accounting, and costs and disbursements, including attorneys' fees. The plaintiff seeks to have each defendant judged jointly and severally liable for all damages. This lawsuit is in a very preliminary stage, and Nationwide intends to defend it vigorously. 66 On April 13, 2004, Nationwide was named in a class action lawsuit filed in Circuit Court, Third Judicial Circuit, Madison County, Illinois, entitled Woodbury v. Nationwide Life Insurance Company. The plaintiff purports to represent a class of persons in the United States who, through their ownership of a Nationwide annuity or insurance product, held units of any Nationwide sub-account invested in mutual funds which included foreign securities in their portfolios and which experienced market timing trading activity. The complaint contains allegations of negligence, reckless indifference and breach of fiduciary duty. Plaintiff seeks to recover compensatory and punitive damages in an amount not to exceed $75,000 per plaintiff or class member. The case is in a very preliminary stage and Nationwide intends to defend this case vigorously. The financial services industry, including mutual fund, variable annuity and distribution companies have been the subject of increasing scrutiny by regulators, legislators, and the media over the past year. Numerous regulatory agencies, including the SEC and the New York Attorney General, have commenced industry-wide investigations regarding late trading and market timing in connection with mutual funds and variable insurance contracts, and have commenced enforcement actions against some mutual fund companies on those issues. Investigations and enforcement actions have also been commenced, on a smaller scale, regarding the sales practices of mutual fund and variable annuity distributors. These legal proceedings are expected to continue in the future. These investigations and proceedings could result in legal precedents, as well as new industry-wide legislation, rules, or regulations, that could significantly affect the financial services industry, including variable annuity companies. Nationwide has been contacted by regulatory agencies for information relating to market timing, late trading, and sales practices. Nationwide is cooperating with these regulatory agencies and is responding to those information requests. There can be no assurance that any such litigation or regulatory actions will not have a material adverse effect on Nationwide in the future. - -------------------------------- ----------------------------------------------- NATIONWIDE INVESTMENT SERVICES The general distributor, Nationwide Investment Services Corporation, is not engaged CORPORATION in litigation of a material nature. - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The Statement of Additional Information (SAI) contains financial statements of Nationwide Life Insurance Company and subsidiaries. You may obtain a copy of the SAI FREE OF CHARGE by contacting us at the address or telephone number on the first page of this prospectus. You should distinguish the financial statements of the company and subsidiaries from the financial statements of the separate account. Please consider the financial statements of the company only as bearing on our ability to meet the obligations under the policy. You should not consider the financial statements of the company and subsidiaries as affecting the investment performance of the assets of the separate account. 67 - -------------------------------------------------------------------------------- APPENDIX A: DEFINITIONS - -------------------------------------------------------------------------------- ACCUMULATION UNIT - The measure of your investment in, or share of, a Sub-Account after we deduct for transaction fees and periodic charges. Initially, we set the Accumulation Unit value at $10 for each Sub-Account. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTAINED AGE - The Insured's age upon the issue of full insurance coverage plus the number of full years since the Policy Date. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CASH SURRENDER VALUE - The Cash Value, subject to Indebtedness and the surrender charge. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CASH VALUE - The total of the Sub-Accounts you have chosen, which will vary with Investment Experience, and the policy loan and fixed accounts, to which interest will be credited daily. We will deduct partial surrenders and the policy's periodic charges from the Cash Value. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CODE - The Internal Revenue Code of 1986, as amended. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEATH BENEFIT - The amount we pay to the beneficiary upon the Insured's death, before payment of any unpaid outstanding loan balances or charges. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GRACE PERIOD - A 61-day period after which the Policy will Lapse if you do not make a sufficient payment. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HOME OFFICE - Our Home Offices are located at One Nationwide Plaza, Columbus, Ohio 43215. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IN FORCE - The insurance coverage is in effect. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEBTEDNESS - The total amount of all outstanding policy loans, including principal and interest due. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INSURED - The person whose life we insure under the policy, and whose death triggers the Death Benefit. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT EXPERIENCE - The performance of a mutual fund in which a Sub-Account portfolio invests. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LAPSE - The policy terminates without value. - -------------------------------------------------------------------------------- 68 - -------------------------------------------------------------------------------- MATURITY DATE - The policy anniversary on or next following the Insured's 100th birthday. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MINIMUM REQUIRED DEATH BENEFIT - The amount of Proceeds that must be payable to you upon death of the Insured so that the policy qualifies as life insurance under the Code. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET AMOUNT AT RISK - The policy's base Death Benefit minus the policy's Cash Value. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET ASSET VALUE (NAV) - The price each share of a mutual fund in which a Sub-Account portfolio invests. It is calculated by subtracting the mutual fund's liabilities from its total assets, and dividing that figure by the number of shares outstanding. We use NAV to calculate the value of Accumulation Units. NAV does not reflect deductions we make for charges we take from Sub-Accounts. Accumulation Unit values do reflect these deductions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET PREMIUM - Premium after transaction charges, but before any allocation to an investment option. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- POLICY CONTINUATION PREMIUM AMOUNT - The amount of Premium, on a monthly basis from the Policy Date, stated on the Policy Data Page, that you must pay, in the aggregate, to keep the policy In Force under the Guaranteed policy continuation provision; however, this amount does not account for any increases in the Specified Amount, policy loans or partial surrenders, so you should anticipate paying more if you intend to request an increase in Specified Amount; take a policy loan; or request a partial surrender. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- POLICY DATA PAGE(S) - The Policy Data Page contains more detailed information about the policy, some of which is unique and particular to the owner, the beneficiary and the Insured. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- POLICY DATE - The date the policy takes effect as shown on the Policy Data Page. Policy years and months are measured from this date. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- POLICY PROCEEDS OR PROCEEDS - Policy Proceeds may constitute the Death Benefit, or the amount payable if the policy matures or you choose to surrender the policy adjusted to account for any unpaid charges or policy loans and Rider benefits. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREMIUM - The amount of money you pay to begin and continue the policy. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREMIUM LOAD - The aggregate of the sales load and premium tax charges. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RIDER - An optional benefit you may purchase under the policy. - -------------------------------------------------------------------------------- 69 - -------------------------------------------------------------------------------- SEC - The Securities and Exchange Commission. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIFIED AMOUNT - The dollar or face amount of insurance coverage the owner selects. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUB-ACCOUNTS - The mechanism we use to account for your allocations of Net Premium and cash value among the policy's variable investment options. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- US, WE, OUR or the COMPANY - Nationwide Life Insurance Company. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- VALUATION PERIOD - The period during which we determine the change in the value of the Sub-Accounts. One Valuation Period ends and another begins with the close of normal trading on the New York Stock Exchange. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- YOU, YOUR or the POLICY OWNER OR OWNER - The person named as the owner in the application, or the person assigned ownership rights. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 70 OUTSIDE BACK COVER PAGE To learn more about this policy, you should read the Statement of Additional Information (the "SAI") dated the same date as this prospectus. For a free copy of the SAI, to receive personalized illustrations of Death Benefits, net cash surrender values, and cash values, and to request other information about this policy please call our Service Center at 1-866-221-1100 (TDD: 1-800-238-3035) or write to us at our Service Center at Nationwide Life Insurance Company, One Nationwide Plaza, RR1-04-D4, Columbus, OH 43215-2220. The SAI has been filed with the SEC and is incorporated by reference into this prospectus. The SEC maintains an Internet website (http://www.sec.gov) that contains the SAI and other information about us and the policy. Information about us and the policy (including the SAI) may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., or may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, 450 Fifth Street, NW, Washington, D.C. 20549-0102. Additional information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 942-8090. Investment Company Act of 1940 Registration File No. 811-________. 71 SAI-12 NATIONWIDE VLI SEPARATE ACCOUNT-7 (REGISTRANT) NATIONWIDE LIFE INSURANCE COMPANY (DEPOSITOR) One Nationwide Plaza, RR1-04-D4 Columbus, OH 43215-2220 1-866-221-1100 TDD: 1-800-238-3035 STATEMENT OF ADDITIONAL INFORMATION FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES This Statement of Additional Information ("SAI") contains additional information regarding the individual flexible premium variable universal life insurance policy offered by us, Nationwide Life Insurance Company. This SAI is not a prospectus and should be read together with the policy prospectus dated __________, 2004 and the prospectuses for the variable investment options. You may obtain a copy of these prospectuses by writing or calling us at our address or phone number shown above. The date of this Statement of Additional Information is __________, 2004. TABLE OF CONTENTS NATIONWIDE LIFE INSURANCE COMPANY NATIONWIDE VLI SEPARATE ACCOUNT-7 NATIONWIDE INVESTMENT SERVICES CORPORATION (NISC) SERVICES UNDERWRITING PROCEDURE MAXIMUM SURRENDER CHARGE CALCULATION ILLUSTRATIONS ADVERTISING TAX DEFINITION OF LIFE INSURANCE FINANCIAL STATEMENTS NATIONWIDE LIFE INSURANCE COMPANY We are a stock life insurance company organized under the laws of the State of Ohio in March 1929 with our Home Office at One Nationwide Plaza, Columbus, Ohio 43215. We provide life insurance, annuities and retirement products. We are admitted to do business in all states, the District of Columbia and Puerto Rico. Nationwide is a member of the Nationwide group of companies and all of our common stock is owned by Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two classes of common stock outstanding with different voting rights enabling Nationwide Corporation (the holder of all of the outstanding Class B Common Stock) to control NFS. Nationwide Corporation is a holding company, as well. All of the common stock is held by Nationwide Mutual Insurance Company (95.24%) and Nationwide Mutual Fire Insurance Company (4.76%), the ultimate controlling persons of the Nationwide group of companies. The Nationwide group of companies is one of America's largest insurance and financial services family of companies, with combined assets of over $147 billion as of December 31, 2003. NATIONWIDE VLI SEPARATE ACCOUNT-7 Nationwide VLI Separate Account-7 is a separate account that invests in mutual funds offered and sold to insurance companies and certain retirement plans. We established the separate account on August 3, 2004 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 the SEC does not supervise our management or the management of the variable account. We serve as the custodian of the assets of the variable account. NATIONWIDE INVESTMENT SERVICES CORPORATION (NISC) The policies are distributed by NISC, located at One Nationwide Plaza, Columbus, Ohio 43215, a wholly owned subsidiary of Nationwide. For contract issued in Michigan, all references to NISC will mean Nationwide Investment Svcs. Corporation. The policies will be sold on a continuous basis 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"). Gross first year commissions plus any expense allowance payments paid by Nationwide on the sale of these policies provided by NISC will not exceed 99% of the target premium plus 4% of any excess premium payments. We pay gross renewal commissions in years 2 through 10 on the sale of the policies provided by NISC that will not exceed 4% of actual premium payment, and that will not exceed 2% in policy years 11 and thereafter. We have paid no underwriting commissions to NISC for each of this separate account's last three fiscal years. SERVICES We have responsibility for administration of the policies and the variable account. We also maintain the records of the name, address, taxpayer identification number, and other pertinent information for each policy owner and the number and type of policy issued to each policy owner and records with respect to the policy value of each policy. We are the custodian of the assets of the variable account. We will maintain a record of all purchases and redemption of shares of the mutual funds. We or our affiliates may have entered into agreements with either the investment adviser or distributor for the mutual funds. The agreements relate to administrative services we or our affiliate furnish and provide for an annual fee based on the average aggregate net assets of the variable account (and our affiliate life insurance company subsidiaries' other separate accounts) invested in particular mutual funds. These fees in no way affect the NAV of the mutual funds or fees paid by the policy owner. The financial statements of Nationwide Life Insurance Company and subsidiaries for the periods indicated have been included herein in reliance upon the reports of KPMG LLP, and independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG LLP covering the December 31, 2001 financial statements of Nationwide Life Insurance Company and subsidiaries refers to a change to the method of accounting for derivative instruments and hedging activities, and for purchased or retained interests in securitized financial assets. KPMG LLP is located at 191 West Nationwide Blvd., Columbus, Ohio 43215. UNDERWRITING PROCEDURE We underwrite the policies issued through Nationwide VLI Separate Account-7. The policy's cost of insurance depends upon the Insured's sex, issue age, risk class, and length of time the policy has been In Force. The rates will vary depending upon tobacco use and other risk factors. 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 standard guaranteed cost of insurance rate on a standard basis. That is, standard guaranteed cost of insurance rates for substandard risks are guaranteed cost of insurance rates for standard risks times a percentage greater than 100%. These mortality tables are sex distinct. In addition, separate mortality tables will be used for tobacco and non-tobacco. We may deduct a "flat extra" which is an additional constant charge per $1,000 of Specified Amount for certain activities or medical conditions of the Insured. We apply the same flat extra to all Insureds that engage in the same activity or have the same medical condition irrespective of their sex, issue age, underwriting class, or substandard rating, if any. Mortality tables are unisex for: o policies issued in the State of Montana; and o group or sponsored arrangements (including our employees and their family members). The rate class of an insured may affect the cost of insurance rate. We currently place 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. Any change in the cost of insurance rates will apply to all insureds of the same age, gender, risk class and whose policies have been in effect for the same length of time. The cost of insurance rates, policy charges, and payment options for policies issued in some states or in connection with certain employee benefit arrangements may be issued on a gender-neutral (unisex) basis. The unisex rates will be higher than those applicable to females and lower than those applicable to males. If the rating class for any increase in the Specified Amount of insurance coverage is not the same as the rating class at issue, the cost of insurance rate used after such increase will be a composite rate based upon a weighted average of the rates of the different rating classes. The actual charges made during the policy year will be shown in the annual report delivered to policy owners. MAXIMUM SURRENDER CHARGE CALCULATION The maximum surrender charge under the policy is based on the following calculation. MAXIMUM SURRENDER CHARGE (p) multiplied by the lesser of (b) or (c),where: (p)= is the surrender charge percentage in the range 34% - 60% which varies by age, sex, and risk classification (a)= the Specified Amount multiplied by the rate indicated on the chart "Surrender Target Factor" below divided by 1,000; and (b)= Premiums paid by the policy owner during the first two policy years Plus (c) multiplied by (d) where: (c)= the Specified Amount divided by 1,000; and (d)= the applicable rate from the "Administrative Target Factor" chart below. The Surrender Target Factor allows the company to account for the probability that our costs incurred in the sales process will not be recouped. The Administrative Target Factor allows the company to account for the probability (at various ages) that death will occur and no CDSC will be recouped. SURRENDER TARGET FACTOR
- --------- -------------------- ----------------------- ---------------- ----------------- AGE MALE NON-TOBACCO FEMALE NON-TOBACCO MALE TOBACCO FEMALE TOBACCO - --------- -------------------- ----------------------- ---------------- ----------------- 0 0.00 3.35 0.00 2.54 - --------- -------------------- ----------------------- ---------------- ----------------- 1 0.00 3.38 0.00 2.57 - --------- -------------------- ----------------------- ---------------- ----------------- 2 0.00 3.50 0.00 2.66 - --------- -------------------- ----------------------- ---------------- ----------------- 3 0.00 3.64 0.00 2.75 - --------- -------------------- ----------------------- ---------------- ----------------- 4 0.00 3.78 0.00 2.86 - --------- -------------------- ----------------------- ---------------- ----------------- 5 0.00 3.93 0.00 2.96 - --------- -------------------- ----------------------- ---------------- ----------------- 6 0.00 4.09 0.00 3.08 - --------- -------------------- ----------------------- ---------------- ----------------- 7 0.00 4.27 0.00 3.20 - --------- -------------------- ----------------------- ---------------- ----------------- 8 0.00 4.45 0.00 3.34 - --------- -------------------- ----------------------- ---------------- ----------------- 9 0.00 4.65 0.00 3.47 - --------- -------------------- ----------------------- ---------------- ----------------- 10 0.00 4.87 0.00 3.62 - --------- -------------------- ----------------------- ---------------- ----------------- 11 0.00 5.09 0.00 3.78 - --------- -------------------- ----------------------- ---------------- ----------------- 12 0.00 5.33 0.00 3.94 - --------- -------------------- ----------------------- ---------------- ----------------- 13 0.00 5.57 0.00 4.12 - --------- -------------------- ----------------------- ---------------- ----------------- 14 0.00 5.82 0.00 4.30 - --------- -------------------- ----------------------- ---------------- ----------------- 15 0.00 6.07 0.00 4.48 - --------- -------------------- ----------------------- ---------------- ----------------- 16 0.00 6.31 0.00 4.67 - --------- -------------------- ----------------------- ---------------- ----------------- 17 0.00 6.55 0.00 4.87 - --------- -------------------- ----------------------- ---------------- ----------------- 18 5.11 6.80 4.27 5.08 - --------- -------------------- ----------------------- ---------------- ----------------- 19 5.30 7.05 4.45 5.29 - --------- -------------------- ----------------------- ---------------- ----------------- 20 5.50 7.32 4.64 5.52 - --------- -------------------- ----------------------- ---------------- ----------------- 21 5.71 7.60 4.83 5.76 - --------- -------------------- ----------------------- ---------------- ----------------- 22 5.93 7.90 5.04 6.01 - --------- -------------------- ----------------------- ---------------- ----------------- 23 6.17 8.22 5.26 6.28 - --------- -------------------- ----------------------- ---------------- ----------------- 24 6.42 8.57 5.49 6.56 - --------- -------------------- ----------------------- ---------------- ----------------- 25 6.69 8.94 5.73 6.86 - --------- -------------------- ----------------------- ---------------- ----------------- 26 6.99 9.34 5.99 7.17 - --------- -------------------- ----------------------- ---------------- ----------------- 27 7.30 9.77 6.25 7.50 - --------- -------------------- ----------------------- ---------------- ----------------- 28 7.63 10.22 6.54 7.85 - --------- -------------------- ----------------------- ---------------- ----------------- 29 7.98 10.71 6.84 8.22 - --------- -------------------- ----------------------- ---------------- ----------------- 30 8.36 11.23 7.16 8.61 - --------- -------------------- ----------------------- ---------------- ----------------- 31 8.76 11.79 7.49 9.02 - --------- -------------------- ----------------------- ---------------- ----------------- 32 9.19 12.38 7.85 9.45 - --------- -------------------- ----------------------- ---------------- ----------------- 33 9.64 13.01 8.22 9.91 - --------- -------------------- ----------------------- ---------------- ----------------- 34 10.12 13.67 8.62 10.39 - --------- -------------------- ----------------------- ---------------- ----------------- 35 10.63 14.38 9.04 10.90 - --------- -------------------- ----------------------- ---------------- ----------------- 36 11.16 15.12 9.48 11.44 - --------- -------------------- ----------------------- ---------------- ----------------- 37 11.73 15.92 9.95 12.01 - --------- -------------------- ----------------------- ---------------- ----------------- 38 12.34 16.75 10.44 12.60 - --------- -------------------- ----------------------- ---------------- ----------------- 39 12.97 17.64 10.96 13.22 - --------- -------------------- ----------------------- ---------------- ----------------- 40 13.65 18.58 11.50 13.87 - --------- -------------------- ----------------------- ---------------- ----------------- 41 14.36 19.56 12.07 14.55 - --------- -------------------- ----------------------- ---------------- -----------------
- --------- -------------------- ----------------------- ---------------- ----------------- 42 15.12 20.60 12.67 15.26 - --------- -------------------- ----------------------- ---------------- ----------------- 43 15.93 21.70 13.30 16.01 - --------- -------------------- ----------------------- ---------------- ----------------- 44 16.78 22.87 13.97 16.79 - --------- -------------------- ----------------------- ---------------- ----------------- 45 17.68 24.09 14.68 17.60 - --------- -------------------- ----------------------- ---------------- ----------------- 46 18.65 25.39 15.42 18.47 - --------- -------------------- ----------------------- ---------------- ----------------- 47 19.67 26.76 16.21 19.37 - --------- -------------------- ----------------------- ---------------- ----------------- 48 20.76 28.21 17.05 20.33 - --------- -------------------- ----------------------- ---------------- ----------------- 49 21.92 29.76 17.93 21.34 - --------- -------------------- ----------------------- ---------------- ----------------- 50 23.15 31.40 18.87 22.40 - --------- -------------------- ----------------------- ---------------- ----------------- 51 24.47 33.13 19.87 23.53 - --------- -------------------- ----------------------- ---------------- ----------------- 52 25.87 34.98 20.93 24.72 - --------- -------------------- ----------------------- ---------------- ----------------- 53 27.37 36.93 22.05 25.97 - --------- -------------------- ----------------------- ---------------- ----------------- 54 28.97 38.99 23.25 27.30 - --------- -------------------- ----------------------- ---------------- ----------------- 55 30.67 41.17 24.51 28.70 - --------- -------------------- ----------------------- ---------------- ----------------- 56 32.49 43.48 25.86 30.18 - --------- -------------------- ----------------------- ---------------- ----------------- 57 34.42 45.92 27.31 31.76 - --------- -------------------- ----------------------- ---------------- ----------------- 58 36.49 48.52 28.86 33.46 - --------- -------------------- ----------------------- ---------------- ----------------- 59 38.71 51.28 30.52 35.28 - --------- -------------------- ----------------------- ---------------- ----------------- 60 41.09 54.23 32.32 37.25 - --------- -------------------- ----------------------- ---------------- ----------------- 61 43.63 57.36 34.26 39.37 - --------- -------------------- ----------------------- ---------------- ----------------- 62 46.36 60.70 36.35 41.65 - --------- -------------------- ----------------------- ---------------- ----------------- 63 49.28 64.24 38.59 44.09 - --------- -------------------- ----------------------- ---------------- ----------------- 64 52.40 67.98 40.99 46.69 - --------- -------------------- ----------------------- ---------------- ----------------- 65 55.75 71.92 43.56 49.46 - --------- -------------------- ----------------------- ---------------- ----------------- 66 59.32 76.10 46.32 52.41 - --------- -------------------- ----------------------- ---------------- ----------------- 67 63.16 80.52 49.30 55.57 - --------- -------------------- ----------------------- ---------------- ----------------- 68 67.28 85.23 52.52 58.99 - --------- -------------------- ----------------------- ---------------- ----------------- 69 71.73 90.27 56.04 62.72 - --------- -------------------- ----------------------- ---------------- ----------------- 70 76.52 95.66 59.88 66.80 - --------- -------------------- ----------------------- ---------------- ----------------- 71 81.69 101.41 64.08 71.26 - --------- -------------------- ----------------------- ---------------- ----------------- 72 87.24 107.54 68.67 76.11 - --------- -------------------- ----------------------- ---------------- ----------------- 73 93.18 114.01 73.64 81.35 - --------- -------------------- ----------------------- ---------------- ----------------- 74 99.50 120.81 79.03 86.97 - --------- -------------------- ----------------------- ---------------- ----------------- 75 106.21 127.90 84.84 92.97 - --------- -------------------- ----------------------- ---------------- ----------------- 76 113.33 135.27 91.10 99.39 - --------- -------------------- ----------------------- ---------------- ----------------- 77 120.92 142.94 97.88 106.27 - --------- -------------------- ----------------------- ---------------- ----------------- 78 129.04 150.99 105.24 113.68 - --------- -------------------- ----------------------- ---------------- ----------------- 79 137.79 159.53 113.28 121.73 - --------- -------------------- ----------------------- ---------------- ----------------- 80 147.23 168.60 122.07 130.49 - --------- -------------------- ----------------------- ---------------- ----------------- 81 147.23 168.60 122.07 130.49 - --------- -------------------- ----------------------- ---------------- ----------------- 82 147.23 168.60 122.07 130.49 - --------- -------------------- ----------------------- ---------------- ----------------- 83 147.23 168.60 122.07 130.49 - --------- -------------------- ----------------------- ---------------- ----------------- 84 147.23 168.60 122.07 130.49 - --------- -------------------- ----------------------- ---------------- ----------------- 85 147.23 168.60 122.07 130.49 - --------- -------------------- ----------------------- ---------------- -----------------
ADMINISTRATIVE TARGET FACTOR - ------------------ ------------------------ ---------------------------- ISSUE AGE Administrative Target Administrative Target Component Component With Specified Amount With Specified Amount Of Less Than $100,000 $100,000 And More - ------------------ ------------------------ ---------------------------- - ------------------ ------------------------ ---------------------------- 0 through 35 6.00 4.00 - ------------------ ------------------------ ---------------------------- - ------------------ ------------------------ ---------------------------- 36 through 55 7.50 5.00 - ------------------ ------------------------ ---------------------------- - ------------------ ------------------------ ---------------------------- 56 through 85 7.50 6.50 - ------------------ ------------------------ ---------------------------- ILLUSTRATIONS Before you purchase the policy and upon request thereafter, we will provide illustrations of future benefits under the policy based upon the proposed Insured's age and premium class, the Death Benefits option, face amount, planned periodic Premiums, and Riders requested. We reserve the right to charge a reasonable fee for this service to persons who request more than one policy illustration during a policy year. ADVERTISING RATING AGENCIES Independent financial rating services, including Moody's, Standard & Poor's and A.M. Best Company rank and rate us. The purpose of these ratings is to reflect the financial strength or claims-paying ability of Nationwide. The ratings are not intended to reflect the Investment Experience or financial strength of the variable account. We may advertise these ratings from time to time. In addition, we may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend us or the policies. Furthermore, we 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. MONEY MARKET YIELDS We may advertise the "yield" and "effective yield" for the money market sub-account. Yield and effective yield are annualized, which means that it is assumed that the underlying mutual fund generates the same level of net income throughout a year. Yield is a measure of the net dividend and interest income earned over a specific seven-day period (which period will be stated in the advertisement) expressed as a percentage of the offering price of the underlying mutual fund's units. The effective yield is calculated similarly, but reflects assumed compounding, calculated under rules prescribed by the SEC. Thus, effective yield will be slightly higher than yield, due to the compounding. HISTORICAL PERFORMANCE OF THE SUB-ACCOUNTS We will advertise historical performance of the sub-accounts in accordance with SEC prescribed calculations. Please note that performance information is annualized. However, if a sub-account has been available in the variable account for less than one year, the performance information for that sub-account is not annualized. Performance information is based on historical earnings and is not intended to predict or project future results. TAX DEFINITION OF LIFE INSURANCE Section 7702(b)(1) of the Internal Revenue Code provides that if one of two alternate tests is met, a policy will be treated as life insurance for federal tax purposes. The two tests are referred to as the Cash Value Accumulation Test and the Guideline Premium/Cash Value Corridor Test. Both tests are available to flexible premium policies such as this one. The tables below show, numerically, the requirements for each test. GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST TABLE OF APPLICABLE PERCENTAGES OF CASH VALUE - ----------------------------------------- ATTAINED AGE OF PERCENTAGE OF CASH INSURED VALUE - ----------------------------------------- 0-40 250% - ----------------------------------------- 41 243% - ----------------------------------------- 42 236% - ----------------------------------------- - ----------------------------------------- 43 229% - ----------------------------------------- 44 222% - ----------------------------------------- 45 215% - ----------------------------------------- 46 209% - ----------------------------------------- 47 203% - ----------------------------------------- 48 197% - ----------------------------------------- 49 191% - ----------------------------------------- 50 185% - ----------------------------------------- 51 178% - ----------------------------------------- 52 171% - ----------------------------------------- 53 164% - ----------------------------------------- 54 157% - ----------------------------------------- 55 150% - ----------------------------------------- 56 146% - ----------------------------------------- 57 142% - ----------------------------------------- 58 138% - ----------------------------------------- 59 134% - ----------------------------------------- 60 130% - ----------------------------------------- 61 128% - ----------------------------------------- 62 126% - ----------------------------------------- 63 124% - ----------------------------------------- 64 122% - ----------------------------------------- 65 120% - ----------------------------------------- 66 119% - ----------------------------------------- 67 118% - ----------------------------------------- 68 117% - ----------------------------------------- 69 116% - ----------------------------------------- 70 115% - ----------------------------------------- 71 113% - ----------------------------------------- 72 111% - ----------------------------------------- 73 109% - ----------------------------------------- 74 107% - ----------------------------------------- 75 105% - ----------------------------------------- 76 105% - ----------------------------------------- 77 105% - ----------------------------------------- 78 105% - ----------------------------------------- 79 105% - ----------------------------------------- 80 105% - ----------------------------------------- 81 105% - ----------------------------------------- 82 105% - ----------------------------------------- 83 105% - ----------------------------------------- 84 105% - ----------------------------------------- 85 105% - ----------------------------------------- 86 105% - ----------------------------------------- 87 105% - ----------------------------------------- 88 105% - ----------------------------------------- 89 105% - ----------------------------------------- 90 105% - ----------------------------------------- 91 104% - ----------------------------------------- 92 103% - ----------------------------------------- 93 102% - ----------------------------------------- 94 101% - ----------------------------------------- 95 100% - ----------------------------------------- 96 100% - ----------------------------------------- 97 100% - ----------------------------------------- - ----------------------------------------- 98 100% - ----------------------------------------- 99 100% - ----------------------------------------- 100 100% - ----------------------------------------- Cash Value Accumulation Test The Cash Value Accumulation Test also requires the Death Benefit to exceed an applicable percentage of the cash value. These applicable percentages are calculated by determining net single premiums, as defined in Code Section 7702(b), for each policy year given a set of actuarial assumptions. The relevant material assumptions include an interest rate of 4% and 1980 CSO guaranteed mortality as prescribed in Revenue Code Section 7702 for the Cash Value Accumulation Test. The resulting net single premiums are then inverted (i.e., multiplied by 1/net single premium) to give the applicable cash value percentages. These premiums vary with the ages, sexes, and risk classifications of the Insureds. The table below provides an example of applicable percentages for the Cash Value Accumulation Test. This example is for a male non-tobacco preferred issue age 55. - ---------------------------------------- POLICY PERCENTAGE OF YEAR CASH VALUE - ---------------------------------------- 1 302% - ---------------------------------------- 2 290% - ---------------------------------------- 3 279% - ---------------------------------------- 4 269% - ---------------------------------------- 5 259% - ---------------------------------------- 6 249% - ---------------------------------------- 7 240% - ---------------------------------------- 8 231% - ---------------------------------------- 9 223% - ---------------------------------------- 10 215% - ---------------------------------------- 11 207% - ---------------------------------------- 12 200% - ---------------------------------------- 13 193% - ---------------------------------------- 14 186% - ---------------------------------------- 15 180% - ---------------------------------------- 16 174% - ---------------------------------------- 17 169% - ---------------------------------------- 18 164% - ---------------------------------------- 19 159% - ---------------------------------------- 20 154% - ---------------------------------------- 21 150% - ---------------------------------------- 22 146% - ---------------------------------------- 23 142% - ---------------------------------------- 24 139% - ---------------------------------------- 25 136% - ---------------------------------------- 26 133% - ---------------------------------------- 27 130% - ---------------------------------------- 28 127% - ---------------------------------------- 29 125% - ---------------------------------------- 30 123% - ---------------------------------------- 31 121% - ---------------------------------------- 32 119% - ---------------------------------------- 33 118% - ---------------------------------------- 34 116% - ---------------------------------------- 35 115% - ---------------------------------------- - ---------------------------------------- 36 113% - ---------------------------------------- 37 112% - ---------------------------------------- 38 111% - ---------------------------------------- 39 110% - ---------------------------------------- 40 108% - ---------------------------------------- 41 107% - ---------------------------------------- 42 106% - ---------------------------------------- 43 104% - ---------------------------------------- 44 103% - ---------------------------------------- 45 102% - ---------------------------------------- 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 (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of earnings, shareholder's equity, and cash flows for each of the years in the three-year period ended December 31, 2003. 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 auditing standards generally accepted in the United States of America. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. As discussed in note 2 to the consolidated financial statements, the Company changed its methods of accounting for derivative instruments and hedging activities, and for purchased or retained interests in securitized financial assets in 2001. /s/ KPMG LLP Columbus, Ohio March 11, 2004 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Earnings (in millions)
YEARS ENDED DECEMBER 31, --------------------------------------- 2003 2002 2001 ==================================================================================================================================== REVENUES: Policy charges $ 924.1 $ 973.8 $1,017.3 Life insurance premiums 279.8 259.9 251.1 Net investment income 1,980.0 1,838.5 1,724.7 Net realized gains (losses) on investments, hedging instruments and hedged items: Unrelated parties (100.8) (107.6) (62.7) Related parties - 23.2 44.4 Other income 12.7 8.8 8.2 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues 3,095.8 2,996.6 2,983.0 - ------------------------------------------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES: Interest credited to policyholder account values 1,300.4 1,241.2 1,238.7 Other benefits and claims 361.8 326.0 280.3 Policyholder dividends on participating policies 41.2 45.2 41.7 Amortization of deferred policy acquisition costs 375.9 670.1 347.9 Interest expense on debt, primarily with Nationwide Financial Services, Inc. (NFS) 48.4 36.0 6.2 Other operating expenses 533.7 508.6 439.3 - ------------------------------------------------------------------------------------------------------------------------------------ Total benefits and expenses 2,661.4 2,827.1 2,354.1 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations before federal income tax expense 434.4 169.5 628.9 Federal income tax expense 96.2 8.7 161.2 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations 338.2 160.8 467.7 Income from discontinued operations, net of tax - 0.7 1.2 Cumulative effect of adoption of accounting principle, net of tax (0.6) - (7.1) - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 337.6 $ 161.5 $ 461.8 ====================================================================================================================================
See accompanying notes to consolidated financial statements, including note 15 which describes related party transactions. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions, except share amounts)
DECEMBER 31, December 31, 2003 2002 ============================================================================================================================= ASSETS: Investments: Securities available-for-sale, at fair value: Fixed maturity securities (cost $25,850.2 in 2003; $23,134.3 in 2002) $ 26,946.8 $ 24,169.0 Equity securities (cost $74.0 in 2003; $85.1 in 2002) 85.6 84.3 Mortgage loans on real estate, net 8,345.8 7,923.2 Real estate, net 96.5 116.6 Policy loans 618.3 629.2 Other long-term investments 130.6 137.5 Short-term investments, including amounts managed by a related party 1,860.8 1,210.3 - ----------------------------------------------------------------------------------------------------------------------------- Total invested assets 38,084.4 34,270.1 - ----------------------------------------------------------------------------------------------------------------------------- Cash 0.1 0.9 Accrued investment income 367.1 328.7 Deferred policy acquisition costs 3,219.3 2,971.1 Other assets 1,815.5 1,243.6 Assets held in separate accounts 57,084.5 47,208.2 - ----------------------------------------------------------------------------------------------------------------------------- Total assets $ 100,570.9 $ 86,022.6 ============================================================================================================================= LIABILITIES AND SHAREHOLDER'S EQUITY: Future policy benefits and claims $ 35,322.3 $ 31,679.8 Short-term debt 199.8 - Long-term debt, payable to NFS 700.0 600.0 Other liabilities 3,264.7 2,985.8 Liabilities related to separate accounts 57,084.5 47,208.2 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 96,571.3 82,473.8 - ----------------------------------------------------------------------------------------------------------------------------- Shareholder's equity: Capital shares, $1 par value. Authorized 5.0 million shares; 3.8 million shares issued 3.8 3.8 and outstanding Additional paid-in capital 271.3 171.1 Retained earnings 3,257.2 2,979.6 Accumulated other comprehensive income 467.3 394.3 - ----------------------------------------------------------------------------------------------------------------------------- Total shareholder's equity 3,999.6 3,548.8 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholder's equity $ 100,570.9 $ 86,022.6 =============================================================================================================================
See accompanying notes to consolidated financial statements, including note 15 which describes related party transactions. 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, 2003, 2002 and 2001 (in millions)
ACCUMULATED ADDITIONAL OTHER TOTAL CAPITAL PAID-ON RETAINED COMPREHENSIVE SHAREHOLDER'S SHARES CAPITAL EARNINGS INCOME EQUTY ================================================================================================================================= ================================================================================================================================= Balance as of January 1, 2001 $ 3.8 $ 646.1 $2,436.3 $ 116.7 $ 3,202.9 Comprehensive income: Net income - - 461.8 - 461.8 Net unrealized gains on securities available-for-sale arising during the period, net of tax - - - 98.2 98.2 Cumulative effect of adoption of accounting principles, net of tax - - - (1.4) (1.4) Accumulated net losses on cash flow hedges, net of tax - - - (8.8) (8.8) --------------- Total comprehensive income 549.8 --------------- Dividend to NFS - - (35.0) - (35.0) - --------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2001 $ 3.8 $ 646.1 $2,863.1 $ 204.7 $ 3,717.7 ================================================================================================================================= Comprehensive income: Net income - - 161.5 - 161.5 Net unrealized gains on securities available-for-sale arising during the period, net of tax - - - 178.6 178.6 Accumulated net gains on cash flow hedges, net of tax - - - 11.0 11.0 --------------- Total comprehensive income 351.1 --------------- Returns of capital to NFS - (475.0) - - (475.0) Dividend to NFS - - (45.0) - (45.0) - --------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2002 $ 3.8 $ 171.1 $2,979.6 $ 394.3 $ 3,548.8 ================================================================================================================================= Comprehensive income: Net income - - 337.6 - 337.6 Net unrealized gains on securities available-for-sale arising during the period, net of tax - - - 99.6 99.6 Accumulated net losses on cash flow hedges, net of tax - - - (26.6) (26.6) --------------- Total comprehensive income 410.6 --------------- Capital contributed by NFS - 200.2 - - 200.2 Return of capital to NFS - (100.0) - - (100.0) Dividend to NFS - - (60.0) - (60.0) - --------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2003 $ 3.8 $ 271.3 $3,257.2 $ 467.3 $ 3,999.6 =================================================================================================================================
See accompanying notes to unaudited consolidated financial statements, including note 15 which describes related party transactions. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (in millions)
YEARS ENDED DECEMBER 31, ---------------------------------------- 2003 2002 2001 =========================================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 337.6 $ 161.5 $ 461.8 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations - (0.7) (1.2) Interest credited to policyholder account values 1,300.4 1,241.2 1,238.7 Capitalization of deferred policy acquisition costs (567.2) (648.2) (743.0) Amortization of deferred policy acquisition costs 375.9 670.1 347.9 Amortization and depreciation 69.3 (0.7) (31.5) Realized losses (gains) on investments, hedging instruments and hedged items: Unrelated parties 100.8 107.6 62.7 Related parties - (23.2) (44.4) Cumulative effect of adoption of accounting principles (0.9) - 10.9 Increase in other assets (640.7) (606.1) (271.8) Increase in policy and other liabilities 299.1 463.1 335.8 Other, net 1.1 11.0 (47.0) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by continuing operations 1,275.4 1,375.6 1,318.9 Net cash provided by discontinued operations - 0.7 1.7 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,275.4 1,376.3 1,320.6 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity of available-for-sale securities 4,101.6 3,887.7 3,933.9 Proceeds from sale of available-for-sale securities 2,220.5 1,534.9 497.2 Proceeds from repayments of mortgage loans on real estate 1,478.3 1,009.0 1,204.4 Proceeds from sale of limited partnership to related parties - 54.5 158.9 Cost of available-for-sale securities acquired (9,366.7) (9,874.5) (7,123.6) Cost of mortgage loans on real estate acquired (1,914.4) (1,810.2) (2,123.1) Short-term investments, net (639.9) (193.1) (568.7) Disposal of subsidiary, net of cash - (20.0) - Other, net 254.2 (31.8) 697.0 - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,866.4) (5,443.5) (3,324.0) Net cash provided by discontinued operations - - 0.6 - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,866.4) (5,443.5) (3,323.4) - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in short-term debt 199.8 (100.0) (18.7) Net proceeds from issuance of long-term debt to NFS 100.0 300.0 300.0 Capital contributed by NFS 200.2 - - Capital returned to NFS (100.0) (475.0) - Cash dividends paid to NFS (60.0) (35.0) (35.0) Increase in investment and universal life insurance product account values 5,116.1 6,278.9 5,976.7 Decrease in investment and universal life insurance product account values (2,865.9) (1,923.4) (4,216.0) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 2,590.2 4,045.5 2,007.0 - --------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash (0.8) (21.7) 4.2 Cash, beginning of period 0.9 22.6 18.4 - --------------------------------------------------------------------------------------------------------------------------- Cash, end of period $ 0.1 $ 0.9 $ 22.6 ===========================================================================================================================
See accompanying notes to consolidated financial statements, including note 15 which describes related party transactions. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements December 31, 2003, 2002 and 2001 (1) ORGANIZATION AND DESCRIPTION OF BUSINESS Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) is a leading provider of life insurance and retirement savings products in the United States of America (U.S.) and is a wholly owned subsidiary of Nationwide Financial Services, Inc. (NFS). The Company develops and sells a diverse range of products including individual annuities, private and public sector pension plans, other investment products sold to institutions, life insurance and an advisory services program. The Company markets its products through a diverse distribution network, including independent broker/dealers, wirehouse and regional firms, financial institutions, pension plan administrators, life insurance specialists, certified public accounting firms and the following affiliated producers: Nationwide Retirement Solutions, TBG Financial, Nationwide Provident agents and Nationwide agents. Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC) and Nationwide Investment Services Corporation. (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 accounting principles generally accepted in the U.S. (GAAP), which differ from statutory accounting practices. The statutory financial statements of NLIC and NLAIC are presented on the basis of accounting practices prescribed or permitted by the Ohio Department of Insurance (the Department). The Ohio Department of Insurance has adopted the National Association of Insurance Commissioners (NAIC) statutory accounting practices (NAIC SAP) as the basis of its statutory accounting practices. NLIC and NLAIC have no statutory accounting practices that differ from NAIC SAP. See also note 14 for discussion of statutory capital requirements and dividend limitations. 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 the balance and amortization of deferred policy acquisition costs (DAC) for investment products, universal life insurance products, valuation allowances for mortgage loans on real estate, impairment losses on other investments and accruals related to federal income taxes and pension and other postretirement benefits. Although some variability is inherent in these estimates, the recorded amounts reflect management's best estimates and management believes the amounts provided are appropriate. (a) Consolidation Policy The consolidated financial statements include the accounts of NLIC and companies in which NLIC directly or indirectly has a controlling financial interest and, as discussed in note 2(n), effective December 31, 2003, the Company applied the provisions of FIN 46R to those special purpose entities (SPIEs) with which it is associated. All significant intercompany balances and transactions have been eliminated. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements, Continued (b) Valuation of Investments, Investment Income and Related Gains and Losses The Company is required to classify its fixed maturity securities and marketable equity securities as held-to-maturity, available-for-sale or trading. All fixed maturity and marketable equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs (DAC), future policy benefits and claims, and deferred federal income tax, reported as a separate component of accumulated other comprehensive income (AOCI) in shareholders' equity. The adjustment to DAC represents the changes in amortization of DAC that would have been required as a charge or credit to operations had such unrealized amounts been realized and allocated to the product lines. The adjustment to future policy benefits and claims represents the increase in policy reserves from using a discount rate that would have been required if such unrealized gains been realized and the proceeds reinvested at then current market interest rates, which were lower than the then current effective portfolio rate. The fair value of fixed maturity and marketable equity securities is generally obtained from independent pricing services based on market quotations. For fixed maturity securities not priced by independent services (generally private placement securities and securities that do not trade regularly), an internally developed pricing model or "corporate pricing matrix" is most often used. The corporate pricing matrix is developed by obtaining spreads versus the US Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced using the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the US Treasury yield to create an estimated market yield for the that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. Additionally, the Company's internal corporate pricing matrix is not suitable for valuing certain fixed maturity securities, particularly those with complex cash flows such as certain mortgage-backed and asset-backed securities. In these cases, a separate "structured product pricing matrix" has been developed to value, as appropriate, using the same methodology described above. For securities for which quoted market prices are not available and for which the Company's structured product pricing matrix is not suitable for estimating fair values, qualified company representatives determine the fair value using other modeling techniques, primarily using a commercial software application utilized in valuing complex securitized investments with variable cash flows. As of December 31, 2003, 68% of the fair values of fixed maturity securities were obtained from independent pricing services, 21% from the Company's pricing matricies and 11% from other sources. Management regularly reviews its fixed maturity and equity securities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. A number of criteria are considered during this process including, but not limited to, the current fair value as compared to amortized cost or cost, as appropriate, of the security, the length of time the security's fair value has been below amortized cost/cost, and by how much, specific credit issues related to the issuer, and current economic conditions. Other-than-temporary impairment losses result in a permanent reduction of the cost basis of the underlying investment. Also, the Company estimates the cash flows over the life of certain purchased beneficial interests in securitized financial assets. Based on current information and events, if the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value and if there has been an adverse change in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment is recognized and the purchased beneficial interest is written down to fair value. Impairment losses are recorded on investments in 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. For mortgage-backed securities, the Company recognizes income using a constant effective yield method based on prepayment assumptions and the estimated economic life of the securities. When estimated prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments; any resulting adjustment is included in net investment income. All other investment income is recorded using the interest-method without anticipating the impact of prepayments. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and the estimated value of the mortgage loan. Estimated value is based on the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in net investment income in the period received. The valuation allowance account for mortgage loans on real estate is maintained at a level believed adequate by the Company to absorb its best estimate of probable credit losses inherent in the portfolio at the balance sheet date. The valuation allowance for mortgage loans is comprised of a specific component, based on known impairments by specific loan and an unallocated component that is derived based on the Company's estimate of impairments inherent in the portfolio at the balance sheet date, but not specifically identified by loan. The unallocated component is derived for principal amounts related to loans without a specific reserve. The Company's periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Real estate is carried at cost less accumulated depreciation. Real estate designated as held for disposal is carried at the lower of the carrying value at the time of such designation or fair value less cost to sell. Other long-term investments are carried on the equity method of accounting. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Changes in the Company's mortgage loan valuation allowances and recognition of impairment losses for other-than-temporary declines in the fair values of applicable investments are included in realized gains and losses on investments, hedging instruments and hedged items. (c) Derivative Instruments Derivatives are carried at fair value. On the date the derivative contract is entered into, the Company designates the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), a foreign currency fair value or cash flow hedge (foreign currency hedge) or a non-hedge transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for entering into various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company enters into interest rate swaps, cross-currency swaps or Euro futures to hedge the fair value of existing fixed rate assets and liabilities. In addition, the Company uses short Treasury future positions to hedge the fair value of bond and mortgage loan commitments. Typically, the Company is hedging the risk of changes in fair value attributable to changes in benchmark interest rates. Derivative instruments classified as fair value hedges are carried at fair value, with changes in fair value recorded in realized gains and losses on investments, hedging instruments and hedged items. Changes in the fair value of the hedged item, attributable to the risk being hedged, are also recorded in realized gains and losses on investments, hedging instruments and hedged items. The Company may enter into "receive fixed/pay variable" interest rate swaps to hedge existing floating rate assets or to hedge cash flows from the anticipated purchase of investments. These derivative instruments are identified as cash flow hedges and are carried at fair value with the offset recorded in AOCI to the extent the hedging relationship is effective. The ineffective portion of the hedging relationship is recorded in realized gains and losses on investments, hedging instruments and hedged items. Gains and losses on derivative instruments that are initially recognized into AOCI are reclassified out of AOCI and recognized in earnings over the same period(s) that the hedged item affects earnings. Accrued interest receivable or payable under interest rate and foreign currency swaps are recognized as an adjustment to net investment income or interest credited to policyholder account values consistent with the nature of the hedged item, except for interest rate swaps hedging the anticipated sale of investments where amounts receivable or payable under the swaps are recorded as realized gains and losses on investments, hedging instruments and hedged items, and except for interest rate swaps hedging the anticipated purchase of investments where amounts receivable or payable under the swaps are initially recorded in AOCI to the extent the hedging relationship is effective. From time to time, the Company may enter into a derivative transaction that will not qualify for hedge accounting. The Company does not enter into speculative positions. Although these transactions do not qualify for hedge accounting, or have not been designated in hedging relationships by the Company, they provide the Company with an economic hedge, which is used as part of its overall risk management strategies. For example, the Company may sell credit default protection through a credit default swap. Although the credit default swap may not be effective in hedging specific investments, the income stream allows the Company to manage overall investment yields. The Company may enter into a cross-currency basis swap (pay a variable US rate and receive a variable foreign-denominated rate) to eliminate the foreign currency exposure of a variable rate foreign-denominated liability. Although basis swaps may qualify for hedge accounting, the Company has chosen not to designate these derivatives as hedging instruments due to the difficulty in assessing and monitoring effectiveness for both sides of the basis swap. Derivative instruments that do not qualify for hedge accounting, or are not designated as hedging instruments are carried at fair value, with changes in fair value recorded in realized gains and losses on investments, hedging instruments and hedged items. (d) 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. The timing of revenue recognition as it relates to fees assessed on investment contracts and universal life contracts is determined based on the nature of such fees. Asset fees, cost of insurance and policy administration charges are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited. Surrender charges are recognized upon surrender of a contract in accordance with contractual terms. Policy benefits and claims that are charged to expense include interest credited to policy account values and benefits and claims incurred in the period in excess of related policy account values. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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. (e) Deferred Policy Acquisition Costs The costs of acquiring business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable sales expenses that relate to and vary with the production of new or renewal business have been deferred. DAC is subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each reporting period. For investment products (principally individual and group annuities) and universal life insurance products, DAC is 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, less policy benefits and policy maintenance expenses. The DAC asset related to investment products and universal life insurance products is adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b). The most significant assumptions that are involved in the estimation of future gross profits include future net separate account performance, surrender/lapse rates, interest margins and mortality. The Company's long-term assumption for net separate account performance is 8 percent growth per year. If actual net separate account performance varies from the 8 percent assumption, the Company assumes different performance levels over the next three years, such that the mean return equals the long-term assumption. This process is referred to as a reversion to the mean. The assumed net separate account return assumptions used in the DAC models are intended to reflect what is anticipated. However, based on historical returns of the S&P 500 Index, the Company's policy regarding the reversion to the mean process does not permit such returns to be negative or in excess of 15 percent during the three-year reversion period. Changes in assumptions can have a significant impact on the amount of DAC reported for investment products and universal life insurance products and their related amortization patterns. In the event actual experience differs from assumptions or assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense (DAC unlocking), which could be significant. In general, increases in the estimated general and separate account returns result in increased expected future profitability and may lower the rate of DAC amortization, while increases in lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization. Due to the magnitude of the DAC balance related to the individual variable annuity business, the sensitivity of the calculation to minor changes in the underlying assumptions, the complexity and judgments involved in related estimate, and the related volatility that could result in the reported DAC balance without meaningful improvement in its reasonableness, the Company evaluates the appropriateness of the individual variable annuity DAC balance within pre-set parameters. Should the recorded balance of individual variable annuity DAC fall outside of these parameters for a prescribed period of time, or should the recorded balance fall outside of these parameters and the Company determines it is not reasonably possible to get back within this period of time, assumptions are required to be unlocked and the DAC is recalculated using revised best estimate assumptions. Otherwise, DAC is not unlocked to reflect updated assumptions. In the event DAC assumptions are unlocked and revised, the Company will continue to use the reversion to the mean process. For other investment products and universal life insurance products, DAC is set each quarter to reflect revised best estimate assumptions, including the use of a reversion to the mean methodology over the next three years as it relates to net separate account performance. Any resulting DAC unlocking adjustments are reflected currently as a charge or credit to DAC amortization expense. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements For traditional life insurance products, DAC is 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 is estimated using the same assumptions as those used for computing liabilities for future policy benefits at issuance. Under existing accounting guidance, the concept of DAC unlocking does not apply to traditional life insurance products, although evaluations of DAC for recoverability at the time of policy issuance and loss recognition testing at each reporting period are performed as required. (f) Separate Accounts Separate account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. Separate account assets are recorded at fair value based primarily on market quotations of the underlying securities. 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. Such fees are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. (g) Future Policy Benefits The liability for future policy benefits for investment products in the accumulation phase, universal life insurance and variable universal life insurance policies is the policy account balance, which represents participants' net premiums and deposits plus investment performance and interest credited less applicable contract charges. The liability for future policy benefits for traditional life insurance policies has been calculated by the net level premium method using interest rates varying from 3.0% 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. The liability for future policy benefits for payout annuities has been calculated using the present value of future benefits and maintenance costs discounted using interest rates varying from 3.0% to 13.0%. Also, as of December 31, 2003 and 2002, the calculated reserve was adjusted to reflect the incremental reserve that would be required if unrealized gains and losses had been realized and therefore resulted in the use of a lower discount rate, as discussed in note 2(b). (h) Participating Business Participating business represented approximately 13% in 2003 (15% in 2002 and 17% in 2001) of the Company's life insurance in-force, 56% of the number of life insurance policies in-force in 2003 (59% in 2002 and 63% in 2001), and 11% of life insurance statutory premiums in 2003 (9% in 2002 and 9% in 2001). The provision for policyholder dividends was based on then current dividend scales and has been included in Future policy benefits and claims in the accompanying consolidated balance sheets. (i) Federal Income Tax The Company provides for federal income taxes based on amounts the Company believes it will ultimately owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain expenses or the realization of certain tax credits differ from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. Management has used best estimates to establish reserves based on current facts and circumstances regarding tax exposure items where the ultimate deductibility is open to interpretation. Quarterly, management evaluates the appropriateness of such reserves based on any new developments specific to their fact patterns. Information considered includes results of completed tax examinations, Technical Advice Memorandums and other rulings issued by the Internal Revenue Service or the tax courts. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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. (j) 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 in the consolidated balance sheets on a gross basis, separately from the related balances of the Company. (k) Recently Issued Accounting Pronouncements In December 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 132 (revised 2003) Employers' Disclosures about Pensions and Other Postretirement Benefits an amendment of FASB Statements No. 87, 88 and 106 (SFAS 132R). SFAS 132R provides revised disclosure guidance for pension and other postretirement benefit plans but does not change the measurement or recognition of those plans under existing guidance. Disclosures previously required under SFAS No. 132 Employers' Disclosures about Pensions and Other Postretirement Benefits, which was replaced by SFAS 132R, were retained. In addition, SFAS 132R requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit pension plans. The Company adopted SFAS 132R effective December 31, 2003, except for disclosures about estimated benefit payments, which is expected to be adopted in the second quarter of 2004, as permitted by SFAS 132R. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities - an interpretation of ARB No. 51 (FIN 46). Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB 51) states that consolidation is usually necessary when a company has a "controlling financial interest" in another company, a condition most commonly achieved via ownership of a majority voting interest. FIN 46 clarifies the application of ARB 51, to certain "variable interest entities" (VIEs) where (i) the equity investors are not empowered to make sufficient decisions about the entity's operations, or do not receive expected returns or absorb expected losses commensurate with their equity ownership; or (ii) the entity does not have sufficient equity to finance its activities without additional subordinated financial support from other parties. VIEs are consolidated by their primary beneficiary, which is a party having a majority of the entity's expected losses, expected residual returns, or both. A company holding a significant variable interest in a VIE, but not deemed the primary beneficiary is subject to certain disclosure requirements specified by FIN 46. FIN 46 applies to entities formed after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. In October 2003, the FASB delayed the implementation date of FIN 46 for VIEs acquired prior to January 31, 2003 to interim periods ending after December 15, 2003, with early adoption permitted. In December 2003, the FASB issued Interpretation No. 46 (revised December 2003) Consolidation of Variable Interest Entities - an interpretation of ARB No. 51 (FIN 46R) that required all public companies to apply the provisions of FIN 46 or FIN 46R to special purpose entities created prior to February 1, 2003. Once adopted by an entity, FIN 46R replaces FIN 46. Public companies, including the Company, at a minimum, must apply the unmodified provisions of FIN 46 to entities that were considered "special purpose entities" in practice and under applicable FASB pronouncements or guidance by the end of the first reporting period ending after December 15, 2003. The Company had no special purpose entity VIE's as of December 31, 2003. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company is required to apply the provisions of FIN 46R to all entities created after December 31, 2003 and to all other entities no later than the beginning of the first reporting period beginning after March 15, 2004. FIN 46 may be applied on a prospective basis with a cumulative effect adjustment made as of the date of initial application or by restating previously issued financial statements for one or more years with a cumulative effect adjustment as of the beginning of the first year restated. The Company plans to adopt the remaining provisions of FIN 46R during the first quarter of 2004. The adoption of the remaining provisions of FIN 46R is not expected to have a material impact on the results of operations or financial position of the Company. In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). SOP 03-1 addresses a number of topics; the most significant of which to the Company is the accounting for contracts with guaranteed minimum death benefits (GMDB). SOP 03-1 requires companies to evaluate the significance of the GMDB benefit to determine whether the contract should be accounted for as an investment or insurance contract. For contracts determined to be insurance contracts, companies are required to establish a reserve to recognize a portion of the assessment (revenue) that compensates the insurance company for benefits to be provided in future periods. SOP 03-1 also provides guidance on separate account presentation, interest in separate accounts, gains and losses on the transfer of assets from the general account to a separate account, liability valuation, return based on a contractually referenced pool of assets or index, annuitization options and sales inducements to contract holders. The Company adopted SOP 03-1 on January 1, 2004. As a result, the Company expects to record a cumulative effect adjustment resulting from the adoption of accounting principles of approximately $3.3 million, net of tax, during the first quarter of 2004. See note 21 for further discussion. In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for the classification and measurement of certain freestanding financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Further, SFAS 150 requires disclosure regarding the terms of those instruments and settlement alternatives. As originally issued the guidance in SFAS 150 was generally effective for financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adjustments required as a result of the application of SFAS 150 to existing instruments should be reported as a cumulative effect of a change in accounting principle. The adoption of SFAS 150 on July 1, 2003 did not have any impact on the results of operations or financial position of the Company. In April 2003, the FASB released SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS 149 on July 1, 2003 did not have a material impact on the results of operations or financial position of the Company. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements In April 2003, the FASB released Statement 133 Implementation Issue B36, Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments (DIG B36). DIG B36 addresses the need to separately account for an embedded derivative within a reinsurer's receivable and ceding company's payable arising from modified coinsurance or similar arrangements. Paragraph 12.a. of SFAS 133 indicates that an embedded derivative must be separated from the host contract (bifurcated) if the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract. DIG B36 concludes that bifurcation is necessary in a modified coinsurance and similar arrangement because the yield on the receivable and payable is based on or referenced to a specified proportion of the ceding company's return on either its general account assets or a specified block of those assets, rather than the overall creditworthiness of the ceding company. The effective date of implementation was the first day of the first fiscal quarter beginning after September 15, 2003, October 1, 2003 for the Company. Upon adoption of DIG B36 on October 1, 2003, the Company recorded a derivative liability of $0.9 million, deferred taxes of $0.3 million and a charge of $0.6 million as a cumulative effect of adoption of this accounting principal. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees - an Iinterpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 requires a guarantor to provide more detailed interim and annual financial statement disclosures about obligations under certain guarantees it has issued. It also requires a guarantor to recognize, at the inception of new guarantees issued or modified after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee. Although superceded by FIN 45, the guidance provided in FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others has been incorporated into FIN 45 without change. The adoption of FIN 45 on January 1, 2003 did not have a material impact on the financial position or results of operations of the Company. In June 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which the Company adopted January 1, 2003. Adoption of SFAS 146 did not have any impact on the financial position or results of operations of the Company. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections (SFAS 145), which the Company adopted on October 1, 2002. The adoption of SFAS 145 did not have any impact on the financial position or results of operations of the Company. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB 30). SFAS 144 was adopted by the Company on January 1, 2002 and carries forward many of the provisions of SFAS 121 for recognition and measurement of the impairment of long-lived assets to be held and used, and measurement of long-lived assets to be disposed of by sale, while providing additional criteria to determine when a long-lived asset is actually held-for-sale. SFAS 144 also broadens the definition of "discontinued operations," but does not allow for the accrual of future operating losses before they occur as previously required by APB 30. Under SFAS 144, if a long-lived asset is part of a group that includes other assets and liabilities, then the provisions of SFAS 144 apply to the entire group. In addition, SFAS 144 does not apply to goodwill and other intangible assets that are not amortized. The adoption of SFAS 144 did not have a material impact on the results of operations or financial position of the Company. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 applies to all acquired intangible assets whether acquired singularly, as part of a group, or in a business combination. SFAS 142 supersedes APB Opinion No. 17, Intangible Assets (APB 17) and carries forward provisions in APB 17 related to internally developed intangible assets. SFAS 142 changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment-only approach. The Company adopted SFAS 142 on January 1, 2002, at which time, the Company had no unamortized goodwill and therefore, the adoption of SFAS 142 did not have any impact on the results of operations or financial position of the Company. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 (SFAS 137), and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (SFAS 138), was adopted by the Company effective January 1, 2001. All references hereafter to SFAS 133 include the amendments outlined in SFAS 137 and SFAS 138. Upon adoption, the provisions of SFAS 133 were applied prospectively. SFAS 133, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The adoption of SFAS 133 resulted in the Company recording a net transition adjustment loss of $4.8 million (net of related income tax of $2.6 million) in net income in 2001. In addition, a net transition adjustment loss of $3.6 million (net of related income tax of $2.0 million) was recorded in AOCI as of January 1, 2001. The adoption of SFAS 133 resulted in the Company derecognizing $17.0 million of deferred assets related to hedges, recognizing $10.9 million of additional derivative instrument liabilities and $1.3 million of additional firm commitment assets, while also decreasing hedged future policy benefits by $3.0 million and increasing the carrying amount of hedged investments by $10.6 million. The adoption of SFAS 133 increases the Company's exposure to the volatility of reported earnings and other comprehensive income. The amount of volatility will, in part, vary with the level of derivative and hedging activities, fluctuations in market interest rates, foreign currency exchange rates and other hedged risks, during any period; and the effectiveness of hedging derivatives in offsetting changes in fiar value and cash flows attributable to those hedged risks. In November 1999, the Emerging Issues Task Force (EITF) issued EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (EITF 99-20). The Company adopted EITF 99-20 on April 1, 2001. EITF 99-20 establishes the method of recognizing interest income and impairment on certain asset-backed investment securities that are not of high credit quality. EITF 99-20 requires the Company to update the estimate of cash flows over the life of certain retained beneficial interests in securitization transactions and purchased beneficial interests in securitized financial assets. Pursuant to EITF 99-20, based on current information and events, if the Company estimates that the fair value of its beneficial interests is less than its carrying value and that there has been an adverse change in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment should be recognized. The cumulative effect, net of tax, upon adoption of EITF 99-20 on April 1, 2001 decreased net income by $2.3 million with a corresponding increase to AOCI. (l) Discontinued Operations As described more fully in note 15, NLIC paid a dividend to NFS in the form of all of the shares of common stock of Nationwide Securities, Inc. (NSI), a wholly owned broker/dealer subsidiary engaged in the asset management business. The accompanying consolidated financial statements and related notes reflect this business as discontinued operations. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (m) Reclassification Certain items in the 2002 and 2001 consolidated financial statements and related footnotes have been reclassified to conform to the 2003 presentation. (3) INVESTMENTS The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 2003 and 2002 were:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED (in millions) COST GAINS LOSSES FAIR VALUE ======================================================================================================================= December 31, 2003: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $1,042.5 $ 61.0 $ 1.9 $1,101.6 Obligations of states and political subdivisions 167.6 1.0 5.2 163.4 Debt securities issued by foreign governments 51.8 2.0 0.8 53.0 Public securities 10,000.0 503.7 26.2 10,477.5 Private securities 6,454.2 469.1 25.3 6,898.0 Mortgage-backed securities - U.S. Government backed 3,990.1 73.9 21.8 4,042.2 Asset-backed securities 4,144.0 129.0 61.9 4,211.1 - ----------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 25,850.2 1,239.7 143.1 26,946.8 Equity securities 74.0 11.8 0.2 85.6 - ----------------------------------------------------------------------------------------------------------------------- Total $25,924.2 $1,251.5 $ 143.3 $27,032.4 ======================================================================================================================= DECEMBER 31, 2002: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 774.3 $ 64.4 $ 0.3 $ 838.4 Obligations of states and political subdivisions 20.8 1.1 - 21.9 Debt securities issued by foreign governments 39.3 2.7 - 42.0 Public securities 8,744.3 445.4 75.2 9,114.5 Private securities 5,399.2 489.1 41.4 5,846.9 Mortgage-backed securities - U.S. Government backed 4,347.5 146.5 0.1 4,493.9 Asset-backed securities 3,808.9 157.3 154.8 3,811.4 - ----------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 23,134.3 1,306.5 271.8 24,169.0 Equity securities 85.1 7.1 7.9 84.3 - ----------------------------------------------------------------------------------------------------------------------- Total $23,219.4 $1,313.6 $ 279.7 $24,253.3 =======================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 2003, 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) COST FAIR VALUE ========================================================================================================================= Fixed maturity securities available-for-sale: Due in one year or less $1,056.7 $1,079.1 Due after one year through five years 7,442.2 7,784.5 Due after five years through ten years 6,704.7 7,123.5 Due after ten years 2,512.5 2,706.4 - ------------------------------------------------------------------------------------------------------------------------- Subtotal 17,716.1 18,693.5 Mortgage-backed securities - U.S. Government backed 3,990.1 4,042.2 Asset-backed securities 4,144.0 4,211.1 - ------------------------------------------------------------------------------------------------------------------------- Total $25,850.2 $26,946.8 ========================================================================================================================= The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31: (in millions) 2003 2002 ========================================================================================================================= Unrealized gains, before adjustments and taxes $ 1,108.2 $ 1,033.9 Adjustment to deferred policy acquisition costs (243.7) (300.6) Adjustment to future policy benefits and claims (110.6) (133.2) Deferred federal income tax (264.2) (210.0) - ------------------------------------------------------------------------------------------------------------------------- Net unrealized gains $ 489.7 $ 390.1 ========================================================================================================================= An analysis of the change in gross unrealized gains on securities available-for-sale for the years ended December 31: (in millions) 2003 2002 2001 ========================================================================================================================= Fixed maturity securities $ 61.9 $ 625.5 $ 212.0 Equity securities 12.4 (11.8) 5.5 - ------------------------------------------------------------------------------------------------------------------------- Net change $ 74.3 $ 613.7 $ 217.5 =========================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements An analysis of selected data about gross unrealized losses on available-for-sale securities by time on an unrealized loss position as of December 31, 2003 and 2002 follows:
LESS THAN OR EQUAL TO MORE TOTAL ONE YEAR THAN ONE YEAR ------------------------------------------------------------------------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED (in millions) FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES ========================================================================================================================== December 31, 2003: Fixed maturity securities: U.S. Treasury securities and $ 154.4 $ 1.9 $ - $ - $ 154.4 $ 1.9 obligations of U.S. Government corporations and agencies Obligations of states and 123.4 5.2 - - 123.4 5.2 political subdivisions Debt securities issued by 19.9 0.8 - - 19.9 0.8 foreign governments Public securities 1,236.7 24.5 31.7 1.7 1,268.4 26.2 Private securities 832.3 21.4 49.1 3.9 881.4 25.3 Mortgage-backed securities - 984.9 21.7 5.3 0.1 990.2 21.8 U.S. Government backed Asset-backed securities 787.0 36.2 260.4 25.7 1,047.4 61.9 - -------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 4,138.6 111.7 346.5 31.4 4,485.1 143.1 Equity securities 6.2 0.1 2.0 0.1 8.2 0.2 - -------------------------------------------------------------------------------------------------------------------------- Total $ 4,144.8 $ 111.8 $ 348.5 $ 31.5 $ 4,493.3 $ 143.3 ========================================================================================================================== % of gross unrealized loss 78.0% 22.0% DECEMBER 31, 2002: Fixed maturity securities: U.S. Treasury securities and $ 55.3 $ 0.3 $ - $ - $ 55.3 $ 0.3 obligations of U.S. Government corporations and agencies Obligations of states and - - - - - - political subdivisions Debt securities issued by - - - - - - foreign governments Public securities 590.5 46.5 266.7 28.7 857.2 75.2 Private securities 245.6 32.8 70.4 8.6 316.0 41.4 Mortgage-backed securities - 51.4 0.1 19.6 - 71.0 0.1 U.S. Government backed Asset-backed securities 576.3 62.6 260.8 92.2 837.1 154.8 - -------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 1,519.1 142.3 617.5 129.5 2,136.6 271.8 Equity securities 24.6 3.9 16.1 4.0 40.7 7.9 - -------------------------------------------------------------------------------------------------------------------------- Total $ 1,543.7 $ 146.2 $ 633.6 $ 133.5 $ 2,177.3 $ 279.7 ========================================================================================================================== % of gross unrealized loss 52.3% 47.7%
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Proceeds from the sale of securities available-for-sale during 2003, 2002 and 2001 were $2.22 billion, $1.53 billion and $497.2 million, respectively. During 2003, gross gains of $104.0 million ($42.0 million and $31.3 million in 2002 and 2001, respectively) and gross losses of $27.6 million ($16.6 million and $10.1 million in 2002 and 2001, respectively) were realized on those sales. The Company had $27.2 million and $28.0 million of real estate investments as of December 31, 2003 and 2002, respectively, that were non-income producing during the preceding twelve months. Real estate is presented at cost less accumulated depreciation of $22.4 million as of December 31, 2003 ($18.6 million as of December 31, 2002). The carrying value of real estate held for disposal totaled $10.5 million and $46.0 million as of December 31, 2003 and 2002, respectively. The recorded investment of mortgage loans on real estate considered to be impaired was $46.3 million as of December 31, 2003 ($27.4 million as of December 31, 2002), which includes $46.3 million ($10.9 million as of December 31, 2002) of impaired mortgage loans on real estate for which the related valuation allowance was $3.9 million ($2.5 million as of December 31, 2002). Impaired mortgage loans with no valuation allowance are a result of collateral dependent loans where the fair value of the collateral is estimated to be greater than the recorded investment of the loan. During 2003, the average recorded investment in impaired mortgage loans on real estate was $15.4 million ($5.5 million in 2002) and interest income recognized on those loans using the cash-basis method of income recognition, totaled $3.3 million in 2003 ($0.1 million in 2002). Activity in the valuation allowance account for mortgage loans on real estate for the years ended December 31 was:
(in millions) 2003 2002 2001 ================================================================================================================= Allowance, beginning of period $ 43.4 $ 42.9 $ 45.3 Net (reductions) additions (credited) charged to allowance (14.3) 0.5 (2.4) - -------------------------------------------------------------------------------------------------------------- Allowance, end of period $ 29.1 $ 43.4 $ 42.9 =================================================================================================================
During the third quarter of 2003, the Company refined its analysis of the overall performance of the mortgage loan portfolio and related allowance for mortgage loan losses. This analysis included an evaluation of the current composition of the portfolio, historical losses by property type, current economic conditions and expected losses incurred as of the balance sheet date, but not yet identified by specific loan. As a result of the analysis, the total valuation allowance was reduced by $12.1 million. An analysis of investment income (loss) from continuing operations by investment type follows for the years ended December 31:
(in millions) 2003 2002 2001 ===================================================================================================================== Securities available-for-sale: Fixed maturity securities $1,453.1 1,332.5 1,181.1 Equity securities 1.4 1.9 1.8 Mortgage loans on real estate 579.7 563.8 527.9 Real estate 21.7 26.8 33.1 Short-term investments 9.3 12.6 28.0 Derivatives (100.3) (79.6) (19.7) Other 64.8 31.0 20.9 - --------------------------------------------------------------------------------------------------------------------- Gross investment income 2,029.7 1,889.0 1,773.1 Less investment expenses 49.7 50.5 48.4 - --------------------------------------------------------------------------------------------------------------------- Net investment income $1,980.0 1,838.5 1,724.7 =====================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements An analysis of net realized losses on investments, hedging instruments and hedged items, by source follows for the years ended December 31:
(in millions) 2003 2002 2001 ============================================================================================================= UNRELATED PARTIES: Realized gains on sales, net of hedging losses: Fixed maturity securities, available-for-sale $ 98.5 $ 42.0 $ 30.1 Hedging losses on fixed maturity sales (42.4) (36.2) (1.5) Equity securities, available-for-sale 5.5 - 1.2 Real estate 4.2 14.0 3.3 Mortgage loans on real estate 3.0 3.2 11.2 Mortgage loan hedging losses (2.4) (1.2) (8.1) Other - 0.1 1.2 - ------------------------------------------------------------------------------------------------------------- Total realized gains on sales - unrelated parties 66.4 21.9 37.4 - ------------------------------------------------------------------------------------------------------------- Realized losses on sales, net of hedging gains: Fixed maturity securities, available-for-sale (27.2) (15.7) (9.3) Hedging gains on fixed maturity sales 9.2 10.7 0.1 Equity securities, available-for-sale (0.4) (0.9) (0.8) Real estate (0.3) (3.0) (1.4) Mortgage loans on real estate (5.0) (3.3) (0.6) Mortgage loan hedging gains 0.5 0.9 - Other (2.0) (1.0) (7.7) - ------------------------------------------------------------------------------------------------------------- Total realized losses on sales - unrelated parties (25.2) (12.3) (19.7) - ------------------------------------------------------------------------------------------------------------- Other-than-temporary impairments: Fixed maturity securities, available-for-sale (159.4) (111.6) (66.1) Equity securities, available-for-sale (8.0) - (13.8) Real estate (0.8) (2.4) - Mortgage loans on real estate 11.7 (6.3) (0.7) - ------------------------------------------------------------------------------------------------------------- Total other-than-temporary impairments (156.5) (120.3) (80.6) - ------------------------------------------------------------------------------------------------------------- Credit default swaps 13.3 (6.4) (0.5) Derivatives, excluding hedging gains and losses on 1.2 9.5 0.7 sales, and credit default swaps - ------------------------------------------------------------------------------------------------------------- Total unrelated parties (100.8) (107.6) (62.7) Gain on sale of limited partnership - related party - 23.2 44.4 - ------------------------------------------------------------------------------------------------------------- Net realized losses on investments, $ (100.8) $ (84.4) $ (18.3) hedging instruments and hedged items =============================================================================================================
Fixed maturity securities with an amortized cost of $7.8 million as of December 31, 2003 and $7.3 million as of December 31, 2002 were on deposit with various regulatory agencies as required by law. As of December 31, 2003 and 2002 the Company had pledged fixed maturity securities with a fair value of $101.2 million and $152.4 million, respectively, as collateral to various derivative counterparties. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements As of December 31, 2003 and 2002 the Company held collateral of $544.5 million and $413.1 million, respectively, on derivative transactions. This amount is invested in short-term investments with a corresponding liability recorded in other liabilities. The Company also held $163.0 million and $25.9 million of securities as off-balance sheet collateral on derivative transactions as of December 31, 2003 and 2002, respectively. As of December 31, 2003 and 2002, the Company had loaned securities with a fair value of $958.1 million and $950.5 million, respectively. As of December 31, 2003 and 2002 the Company held collateral of $976.6 million and $974.5 million, respectively. This amount is invested in short-term investments with a corresponding liability recorded in other liabilities. (4) DEFERRED POLICY ACQUISITION COSTS As part of the regular quarterly analysis of DAC, at the end of the third quarter of 2002, the Company determined that using actual experience to date and assumptions consistent with those used in the second quarter of 2002, its individual variable annuity DAC balance would be outside a pre-set parameter of acceptable results. The Company also determined that it was not reasonably possible that the DAC would return to an amount within the acceptable parameter within a prescribed period of time. Accordingly, the Company unlocked its DAC assumptions for individual variable annuities and reduced the DAC asset to the amount calculated using the revised assumptions. Because the Company unlocked the net separate account growth rate assumption for individual variable annuities for the three-year reversion period, the Company unlocked that assumption for all investment products and variable universal life insurance products to be consistent across product lines. Therefore, the Company recorded an acceleration of DAC amortization totaling $347.1 million, before tax, or $225.6 million, net of $121.5 million of federal income tax benefit, which has been reported in the following segments in the amounts indicated, net of tax: Individual Annuity - $213.4 million, Institutional Products - $7.8 million and Life Insurance - $4.4 million. The acceleration of DAC amortization was the result of unlocking certain assumptions underlying the calculation of DAC for investment products and variable universal life insurance products. The most significant assumption changes were the resetting of the Company's anchor date for reversion to the mean calculations to September 30, 2002, and resetting the assumption for net separate account growth to 8 percent during the three-year reversion period for all investment products and variable life insurance products, as well as increasing the future lapses and costs related to guaranteed minimum death benefits (GMDB) on individual variable annuity contracts. These adjustments were primarily driven by the sustained downturn in the equity markets. (5) VARIABLE ANNUITY CONTRACTS The Company issues traditional variable annuity contracts through its separate accounts, for which investment income and gains and losses on investments accrue directly to, and investment risk is borne by, the contract holder. The Company also issues non-traditional variable annuity contracts in which the Company provides various forms of guarantees to benefit the related contract holders. There are three primary guarantee types that are provided under non-traditional variable annuity contracts: (1) Guaranteed Minimum Death Benefits (GMDB); (2) Guaranteed Minimum Accumulation Benefits (GMAB); and (3) Guaranteed Minimum Income Benefits (GMIB). The GMDB provides a specified minimum return upon death. Many, but not all of these death benefits are spousal, whereby a death benefit will be paid upon death of the first spouse and the survivor has the option to terminate the contract or continue it and have the death benefit paid into the contract and a second death benefit paid upon the survivor's death. There are six primary GMDB types that the company offers. o RETURN OF PREMIUM - provides the greater of account value or total deposits made to the contract less any partial withdrawals and assessments, which is referred to as "net premiums". There are two variations of this benefit. In general, there is no lock in age for this benefit, however for some contracts, the GMDB reverts to the account value at a specified age, typically age 75. o RESET - provides the greater of a return of premium death benefit or the most recent five-year anniversary (prior to lock in age) account value adjusted for withdrawals. For most contracts, this GMDB locks in at age 86 or 90 and for others the GMDB reverts to the account value at age 75, 85, 86 or 90. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements o RATCHET - provides the greater of a return of premium death benefit or the highest specified "anniversary" account value (prior to age 86) adjusted for withdrawals. Currently, there are three versions of ratchet, with the difference being based on the definition of anniversary: monthaversary - evaluated monthly, annual - evaluated annually, and five-year - evaluated every fifth year. o ROLLUP - provides the greater of a return of premium death benefit or premiums adjusted for withdrawals accumulated at generally 5% simple interest up to the earlier of age 86 or 200% of adjusted premiums. There are two variations of this benefit. For certain contracts, this GMDB locks in at age 86 and for others the GMDB reverts to the account value at age 75. o COMBO - provides the greater of annual ratchet death benefit or rollup death benefit. This benefit locks in at either age 81 or 86. o EARNINGS ENHANCEMENT - provides an enhancement to the death benefit that is a specified percentage of the adjusted earnings accumulated on the contract at the date of death. There are two versions of this benefit, one where the benefit expires at age 86 and a credit of 4% of account value is deposited into the contract and the second where the benefit doesn't have an end age, but has a cap on the payout and is paid upon the first death in a spousal situation. Both benefits have age limitations. This benefit is paid in addition to any other death benefits paid under the contract. The GMAB is a living benefit that provides the contract holder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified period of time, 5, 7 or 10 years, selected by the contract holder at the issuance of the variable annuity contract. In some cases, the contract holder also has the option, after a specified period of time, to drop the rider and continue the variable annuity contract without the GMAB. In general, the GMAB requires a minimum allocation to guaranteed term options (GTOs) or adherence to limitations required by an approved asset allocation strategy. The GMIB is a living benefit that provides the contract holder with a guaranteed annuitization value. The GMIB types are: o RATCHET - provides an annuitization value equal to the greater of account value, net premiums or the highest one-year anniversary account value (prior to age 86) adjusted for withdrawals. o ROLLUP - provides an annuitization value equal to the greater of account value and premiums adjusted for withdrawals accumulated at 5% compound interest up to the earlier of age 86 or 200% of adjusted premiums. o COMBO - provides an annuitization value equal to the greater of account value, ratchet GMIB benefit or rollup GMIB benefit. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Following is a summary of the account values and net amount at risk, net of reinsurance, for variable annuity contracts with guarantees as of December 31, 2003 and 2002:
2003 2002 ----------------------------------------------- ---------------------------------------------- ACCOUNT NET AMOUNT WTD. AVG. Account Net amount Wtd. Avg. (in millions) VALUE AT RISK 1 ATTAINED AGE value at risk 1 attained age ============================================================================================================================== GMDB: Return of premium $ 9,760.0 $ 199.8 56.0 $ 8,737.4 $ 736.7 54.0 Reset 17,534.2 569.4 61.0 14,710.3 1,776.9 60.0 Ratchet 8,147.7 141.0 63.0 6,058.3 411.2 63.0 Roll-up 669.7 22.2 68.0 616.7 32.8 67.0 Combo 2,128.7 39.6 67.0 1,104.0 111.6 65.0 - ------------------------------------------------------------------------------------------------------------------------------ Subtotal $ 38,240.3 972.0 61.0 $ 31,226.7 3,069.2 59.0 ============== ============= Earnings enhancement $ 314.1 10.9 59.0 $ 213.1 1.7 61.0 ----------------------------------- -------------------------------- Total - GMDB $ 982.9 61.0 $ 3,070.9 59.0 =================================== ================================ GMAB: 5 Year $ 79.9 $ 0.1 N/A n/a n/a n/a 7 Year 125.5 0.5 N/A n/a n/a n/a 10 Year 43.4 0.1 N/A n/a n/a n/a - ------------------------------------------------------------------------------------------------------------------------------ Total - GMAB $ 248.8 $ 0.7 N/A n/a n/a n/a ============================================================================================================================== GMIB: 2 Ratchet $ 416.6 $ - N/A $ 307.8 $ - n/a Roll-up 1,131.9 - N/A 664.4 - n/a Combo 1.1 - N/A 0.1 - n/a - ------------------------------------------------------------------------------------------------------------------------------ Total - GMIB $ 1,549.6 $ - N/A $ 972.3 $ - n/a ==============================================================================================================================
1 Net amount at risk is calculated on a seriatum basis and represents the greater of the respective guaranteed benefit less the account value and zero. As it relates to GMIB, net amount at risk is calculated as if all policies were eligible to annuitize immediately, although all GMIB options have a waiting period of at least 7 years from issuance, with the earliest annuitizations beginning in 2005. 2 The weighted average period remaining until expected annuitization is not meaningful and has not been presented because there is currently no net GMIB exposure. Please refer to note 8 for discussion about the use of derivatives in managing the guarantee risks discussed above. Also, refer to the equity market risk section of note 12 for discussion about the risks associated with these guarantees. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Following is a rollforward of the liabilities for guarantees on variable annuity contracts reflected in the general account for the years ended December 31, 2003 and 2002:
(in millions) GMDB GMAB GMIB TOTAL ========================================================================================================================== Balance as of December 31, 2001 $ 10.8 $ - $ - $ 10.8 Change in fair value 23.6 - - 23.6 Paid guarantee benefits (20.7) - - (20.7) - -------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2002 13.7 - - 13.7 NEW BUSINESS ACQUIRED - 4.7 - 4.7 Change in fair value 30.0 (0.4) - 29.6 Paid guarantee benefits, net of reinsurance (21.9) - - (21.9) - -------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2003 $ 21.8 $ 4.3 $ - $ 26.1 ==========================================================================================================================
Account balances of contracts with guarantees were invested in separate accounts as follows as of each December 31:
(in millions) 2003 2002 =============================================================================================================== Bond mutual funds $ 4,620.3 $ 4,476.3 Domestic equity mutual funds 26,399.4 20,040.6 International equity mutual funds 1,622.0 1,158.7 Money market funds 1,792.9 2,550.2 - --------------------------------------------------------------------------------------------------------------- Total $ 34,434.6 $ 28,225.8 ===============================================================================================================
(6) SHORT-TERM DEBT NLIC has established a $500.0 million commercial paper program under which borrowings are unsecured and are issued for terms of 364 days or less. NLIC had $199.8 million of commercial paper outstanding as of December 31, 2003 at a weighted average effective rate of 1.07%, none as of December 31, 2002. See also note 16. The Company paid interest on short-term debt totaling $1.3 million, $0.7 million and $5.3 million in 2003, 2002 and 2001, respectively, including $0.1 million and $0.5 million to NFS in 2003 and 2002, respectively. (7) LONG-TERM DEBT, PAYABLE TO NATIONWIDE FINANCIAL SERVICES, INC. Following is a summary of surplus notes payable to NFS as of each December 31:
(in millions) 2003 2002 ==================================================================================================================== 7.50% surplus note, due December 17, 2031 $ 300.0 $ 300.0 8.15% surplus note, due June 27, 2032 300.0 300.0 6.75% surplus note, due December 23, 2033 100.0 - - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Total long-term debt $ 700.0 $ 600.0 ====================================================================================================================
The Company made interest payments to NFS on surplus notes totaling $47.1 million in 2003, $30.1 million in 2002 and none in 2001. Payments of interest and principal under the notes require the prior approval of the Ohio Department of Insurance. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (8) DERIVATIVE FINANCIAL INSTRUMENTS QUALITATIVE DISCLOSURE Interest Rate Risk Management From time to time the Company purchases fixed rate investments to back variable rate liabilities. As a result, the Company can be exposed to interest rate risk due to the mismatch between variable rate liabilities and fixed rate assets. To mitigate this risk, the Company enters into various types of derivative instruments to minimize fluctuations in fair values resulting from changes in interest rates. The Company principally uses pay fixed/receive variable interest rate swaps and short Euro futures to manage this risk. Under interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments. The fixed interest paid on the swap offsets the fixed interest received on the investment, resulting in the Company receiving the variable interest payments on the swap, generally 3-month libor. The net receipt of a variable rate will then match the variable rate paid on the liability. Short Euro futures, when considered in combination with the fixed-rate instruments, effectively change the fixed rate cash flow exposure to variable rate cash flows. With short Euro futures, if interest rates rise (fall), the gains (losses) on the futures are recognized in investment income. When combined with the fixed income received on the investment, the gains and losses on the Euro futures contracts results in a variable stream of cash inflows, which matches the variable interest paid on the liability. As a result of entering into commercial mortgage loan and private placement commitments, the Company is exposed to changes in the fair value of such commitments due to changes in interest rates during the commitment period prior to the loans being funded. To manage this risk, the Company enters into short Treasury futures during the commitment period. With short Treasury futures, if interest rates rise (fall), the gains (losses) on the futures will offset the change in fair value of the commitment. Floating rate investments (commercial mortgage loans and corporate bonds) expose the Company to variability in cash flows and investment income due to changes in interest rates. Such variability poses risks to the Company when the assets are funded with fixed rate liabilities. To manage this risk, the Company enters into receive fixed, pay variable interest rate swaps. In using interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments. The variable interest paid on the swap offsets the variable interest received on the investment, resulting in the Company receiving the fixed interest payments on the swap. The net receipt of a fixed rate will then match the fixed rate paid on the liability. Foreign Currency Risk Management In conjunction with the Company's medium-term note program, from time to time, the Company issues both fixed and variable rate liabilities denominated in foreign currencies. As a result, the Company is exposed to changes in fair value of the liabilities due to changes in foreign currency exchange rates and interest rates. To manage these risks, the Company enters into cross-currency interest rate swaps resulting, when combined with the hedged obligations, in net U.S. dollar cash outflows. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements For a fixed rate liability, the cross-currency interest rate swap is structured to receive a fixed rate, in the foreign currency and pay a variable U.S. dollar rate, generally 3-month libor. For a variable rate foreign liability, the cross-currency interest rate swap is structured to receive a variable rate in the foreign currency and pay a variable U.S. dollar rate, generally 3-month libor. In both cases, the terms of the foreign currency received on the swap will exactly match the terms of the foreign currency paid on the liability, thus eliminating currency risk. Because the resulting cash flows in both cases remain variable, the Company has designated such cross-currency interest rate swaps as fair value hedging relationships. The Company is exposed to changes in fair value of fixed rate investments denominated in a foreign currency due to changes in foreign currency exchange rates. To manage this risk, the Company uses cross-currency interest rate swaps , resulting, when combined with hedged investments, in net U.S. dollar cash inflows. Cross-currency interest rate swaps on investments are structured to pay a fixed rate, in the foreign currency and receive a variable U.S. dollar rate, generally 3-month libor. The terms of the foreign currency paid on the swap will exactly match the terms of the foreign currency received on the asset, thus eliminating currency risk. Because the resulting cash inflows remain variable, the Company has designated such cross-currency interest rate swaps in fair value hedging relationships. Equity Market Risk Management Many of the Company's individual variable annuity contracts offer GMDB features. The GMDB generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on the premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the contract value, which could result in additional GMDB claims. To manage this risk, the Company has implemented a GMDB economic hedging program for primarily for certain new business generated after December 2002. The program does not qualify for hedge accounting under FAS 133, but is designed to offset changes in the value of the GMDB obligation up to a return of the contractholder's premiums paid less amounts withdrawn. Currently the program shorts S&P 500 index futures, which provides an offset to changes in the value of the designated obligation. Prior to implementation of the GMDB hedging program in 2003, the Company managed the risk of these benefits primarily by entering into reinsurance arrangements. See note 12 for additional discussion. The Company also offers certain variable annuity products with a guaranteed minimum accumulation benefit (GMAB) rider. The GMAB provides the contract holder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified period of time, 5, 7 or 10 years, selected by the contract holder at the issuance of the variable annuity contract. In some cases, the contract holder also has the option, after a specified period of time, to drop the rider and continue the variable annuity contract without the GMAB. The GMAB is an embedded derivative, as such, the equity exposure in this product is recognized at fair value, separately from the annuity contract, with changes in fair value recognized in the income statement. The Company is exposed to equity market risk to the extent that the underlying investment options, which can include fixed and variable components, selected by the contract holder do not generate enough earnings over the life of the contract to at least equal the adjusted premiums. The Company is economically hedging the GMAB exposure for those risks that exceed a level considered acceptable by purchasing interest rate futures and shorting S&P 500 futures. The GMAB economic hedge does not qualify for hedge accounting under FAS 133. Other Non-Hedging Derivatives From time-to-time, the Company enters into basis swaps (receive one variable rate, pay another variable rate) to change the rate characteristics of a specific investment to better match the variable rate paid on a liability. While the pay-side terms of the basis swap will line up with the terms of the asset, the Company is not able to match the receive-side terms of the derivative to a specific liability; therefore, basis swaps do not receive hedge accounting treatment. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company sells credit default protection on selected debt instruments and combines the credit default swap with selected assets the Company owns to replicate a higher yielding bond. These assets may have sufficient duration for the related liability, but do not earn a sufficient credit spread. The combined credit default swap and cash instrument provides the duration and credit spread targeted by the Company. The credit default swaps do not qualify for hedge accounting treatment. The Company also has purchased credit default protection on selected debt instruments exposed to short-term credit concerns, or because the combination of the corporate bond and purchased default protection provides sufficient spread and duration targeted by the Company. The purchased credit default protection does not qualify for hedge accounting treatment. QUANTITATIVE DISCLOSURE Fair Value Hedges During the years ended December 31, 2003, 2002 and 2001 gains of $4.2 million, $7.1 million and $2.1 million, respectively, were recognized in net realized losses on investments, hedging instruments and hedged items. This represents the ineffective portion of the fair value hedging relationships. There were no gains or losses attributable to the portion of the derivative instruments' change in fair value excluded from the assessment of hedge effectiveness. There were also no gains or losses recognized in earnings as a result of hedged firm commitments no longer qualifying as fair value hedges. Cash Flow Hedges For the year ended December 31, 2003 and 2002, the ineffective portion of cash flow hedges was a loss of $5.4 and a gain of $1.8 million in 2002. There were no net gains or losses attributable to the portion of the derivative instruments' change in fair value excluded from the assessment of hedge effectiveness. The Company anticipates reclassifying less than $0.2 million in losses out of AOCI over the next 12-month period. In general, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with forecasted transactions is twelve months or less. However, in 2003, the Company did enter into a hedge of a forecasted purchase of shares of a specified mutual fund, where delivery of the shares will occur 30 years in the future. During 2003, 2002 and 2001 the Company did not discontinue any cash flow hedges because the original forecasted transaction was no longer probable. Additionally, no amounts were reclassified from AOCI into earnings because it became probable that a forecasted transaction would not occur. Other Derivative Instruments, Including Embedded Derivatives Net realized gains and losses on investments, hedging instruments and hedged items for the years ended December 31, 2003, 2002 and 2001 include a net gain of $11.8 million, a net loss of $2.2 million and a net loss of $1.6 million, respectively, related to other derivative instruments, including embedded derivatives, not designated in hedging relationships. For the years ended December 31, 2003, 2002 and 2001, net gains of $4.2 million, $120.4 million and a net loss of $27.7 million, respectively, were recorded in net realized losses on investments, hedging instruments and hedged items reflecting the change in fair value of cross-currency interest rate swaps hedging variable rate medium-term notes denominated in foreign currencies. An additional net gain of $0.9, loss of $119.6 million and a net gain of $26.3 million were recorded in net realized losses on investments, hedging instruments and hedged items to reflect the change in spot rates of these foreign currency denominated obligations during the years ended December 31, 2003, 2002 and 2001, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The notional amount of derivative financial instruments outstanding as of December 31, 2003 and 2002 were as follows:
(in millions) 2003 2002 =================================================================================================================== INTEREST RATE SWAPS: Pay fixed/receive variable rate swaps hedging investments $1,954.7 $ 2,206.5 Pay variable/receive fixed rate swaps hedging investments 188.2 229.7 Pay variable/receive variable rate swaps 154.0 221.0 Pay variable/receive fixed rate swaps hedging liabilities 500.0 500.0 Pay variable/receive variable rate swaps 430.0 430.0 Other contracts hedging investments 842.5 690.8 CROSS CURRENCY INTEREST RATE SWAPS: Hedging foreign currency denominated investments 580.1 111.0 Hedging foreign currency denominated liabilities 2,643.9 3,033.6 Futures contracts 2,615.8 4,250.9 - ------------------------------------------------------------------------------------------------------------------- Total $9,909.2 $11,673.5 ===================================================================================================================
(9) FEDERAL INCOME TAX Through September 30, 2002, the Company filed a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC), the ultimate majority shareholder of NFS. Effective October 1, 2002, Nationwide Corporation's ownership in NFS decreased from 80% to 63%, and as a result, NFS and its subsidiaries, including the Company, no longer qualify to be included in the NMIC consolidated federal income tax return. The members of the NMIC consolidated federal income tax return group participated in a tax sharing arrangement, which provided, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. Under Internal Revenue Code regulations, NFS and its subsidiaries cannot file a life/non-life consolidated federal income tax return until five full years following NFS' departure from the NMIC consolidated federal income tax return group. Therefore, NFS and its direct non-life insurance company subsidiaries will file a consolidated federal income tax return; NLIC and NLAIC will file a consolidated federal income tax return; the direct non-life insurance companies under NLIC will file separate federal income tax returns until 2008, when NFS expects to be able to file a single consolidated federal income tax return with all of its subsidiaries, including NLIC. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 2003 and 2002 were as follows:
(in millions) 2003 2002 ======================================================================================================================== DEFERRED TAX ASSETS: Future policy benefits $ 594.8 $ 549.6 Derivatives 11.7 40.2 Other 104.4 40.1 - ------------------------------------------------------------------------------------------------------------------------ Gross deferred tax assets 710.9 629.9 Less valuation allowance (7.0) (7.0) - ------------------------------------------------------------------------------------------------------------------------ Net deferred tax assets 703.9 622.9 - ------------------------------------------------------------------------------------------------------------------------ DEFERRED TAX LIABILITIES: Fixed maturity securities 390.0 402.2 Equity securities and other investments 42.7 37.4 Deferred policy acquisition costs 840.8 762.0 Other 88.1 50.5 - ------------------------------------------------------------------------------------------------------------------------ Gross deferred tax liabilities 1,361.6 1,252.1 - ------------------------------------------------------------------------------------------------------------------------ Net deferred tax liability $ 657.7 $ 629.2 ========================================================================================================================
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. Future taxable amounts or recovery of federal income tax paid within the statutory carryback period can offset nearly all future deductible amounts. The valuation allowance was unchanged for each of the years in the three-year period ended December 31, 2003. The Company's current federal income tax liability was $106.3 million and $176.4 million as of December 31, 2003 and 2002, respectively. Federal income tax expense attributable to income from continuing operations before cumulative effect of adoption of accounting principles for the years ended December 31 was as follows:
(in millions) 2003 2002 2001 ====================================================================================================================== Current $ 106.7 $ 63.7 $ 32.2 Deferred (10.5) (55.0) 129.0 - ---------------------------------------------------------------------------------------------------------------------- Federal income tax expense $ 96.2 $ 8.7 $161.2 ======================================================================================================================
The customary relationship between federal income tax expense and pre-tax income from continuing operations before cumulative effect of adoption of accounting principles did not exist in 2002. This is a result of the impact of the $121.5 million tax benefit associated with the $347.1 million of accelerated DAC amortization reported in 2002 (see note 4) being calculated at the U.S. federal corporate income tax rate of 35%. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Total federal income tax expense for the years ended December 31, 2003, 2002 and 2001 differs from the amount computed by applying the U.S. federal income tax rate to income from continuing operations before federal income tax expense and cumulative effect of adoption of accounting principles as follows:
2003 2002 2001 ---------------------- ----------------------- ----------------------- (in millions) AMOUNT % Amount % Amount % ===================================================================================================================== Computed (expected) tax expense $ 152.0 35.0 $ 59.3 35.0 $ 220.1 35.0 Tax exempt interest and dividends received deduction (45.7) (10.5) (38.9) (22.9) (48.8) (7.7) Income tax credits (10.8) (2.5) (12.7) (7.5) (11.5) (1.8) Other, net 0.7 0.1 1.0 0.5 1.4 0.1 - --------------------------------------------------------------------------------------------------------------------- Total (effective rate for each year) $ 96.2 22.1 $ 8.7 5.1 $ 161.2 25.6 =====================================================================================================================
Total federal income tax paid (refunded) was $176.0 million, $71.0 million and $(45.4) million during the years ended December 31, 2003, 2002 and 2001, respectively. The 2002 amount includes $56.0 million for previously deferred intercompany gains for tax purposes that became due when NFS no longer qualified to be included in the NMIC consolidated federal income tax return. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (10) COMPREHENSIVE INCOME Comprehensive income includes net income as well as certain items that are reported directly within a separate component of shareholder's equity that bypass net income. Other comprehensive income is comprised of net unrealized gains on securities available-for-sale and accumulated net gains (losses) on cash flow hedges. The related before and after federal income tax amounts for the years ended December 31, 2003, 2002 and 2001 were as follows:
YEARS ENDED DECEMBER 31, ------------------------------------------- (in millions) 2003 2002 2001 ===================================================================================================================== Unrealized (losses) gains on securities available-for-sale arising during the period: Gross $ (16.7) $ 527.5 $ 164.0 Adjustment to deferred policy acquisition costs 56.9 (205.7) (71.7) Adjustment to future policy benefits and claims 22.6 (133.2) - Related federal income tax expense (22.4) (66.0) (32.3) - --------------------------------------------------------------------------------------------------------------------- Net unrealized gains 40.4 122.6 60.0 - --------------------------------------------------------------------------------------------------------------------- Reclassification adjustment for net losses on securities available-for-sale realized during the period: Gross 91.0 86.2 58.7 Related federal income tax benefit (31.8) (30.2) (20.5) - --------------------------------------------------------------------------------------------------------------------- Net reclassification adjustment 59.2 56.0 38.2 - --------------------------------------------------------------------------------------------------------------------- Other comprehensive income on securities 99.6 178.6 98.2 available-for-sale - --------------------------------------------------------------------------------------------------------------------- Accumulated net (losses) gains on cash flow hedges: Gross (40.9) 16.9 (13.5) Related federal income tax benefit (expense) 14.3 (5.9) 4.7 - --------------------------------------------------------------------------------------------------------------------- Other comprehensive (loss) income on cash flow hedges (26.6) 11.0 (8.8) - --------------------------------------------------------------------------------------------------------------------- Accumulated net loss on transition adjustments: Transition adjustment - SFAS 133 - - (5.6) Transition adjustment - EITF 99-20 - - 3.5 Related federal income tax benefit - - 0.7 - --------------------------------------------------------------------------------------------------------------------- Other comprehensive loss on transition adjustments - - (1.4) - --------------------------------------------------------------------------------------------------------------------- Total other comprehensive income $ 73.0 $ 189.6 $ 88.0 =====================================================================================================================
Reclassification adjustments for net realized gains and losses on the ineffective portion of cash flow hedges were immaterial during 2003, 2002 and 2001 and, therefore, are not reflected in the table above. (11) 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The fair value of a financial instrument is defined as the amount at which the financial instrument could be bought, or in case of liabilities incurred, or sold, or in the case of liabilities settled, in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is to be based on the best information available in the circumstances. Such estimates of fair value should consider prices for similar assets or similar liabilities and the results of valuation techniques to the extent available in the circumstances. Examples of valuation techniques include the present value of estimated expected future cash flows using discount rates commensurate with the risks involved, option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis. Valuation techniques for measuring assets and liabilities must be consistent with the objective of measuring fair value and should incorporate assumptions that market participants would use in their estimates of values, future revenues, and future expenses, including assumptions about interest rates, default, prepayment, and volatility. 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 matrix pricing, present value or other suitable 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, the Company's estimate of the fair values 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 the estimates of fair value and have not been considered in arriving at such estimates. In estimating its fair value disclosures, the Company used the following methods and assumptions: Fixed maturity and equity securities: The fair value of fixed maturity and marketable equity securities is generally obtained from independent pricing services based on market quotations. For fixed maturity securities not priced by independent services (generally private placement securities and securities that do not trade regularly), an internally developed pricing model or "corporate pricing matrix" is most often used. The corporate pricing matrix is developed by obtaining spreads versus the US Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced using the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the US Treasury yield to create an estimated market yield for the that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. Additionally, the Company's internal corporate pricing matrix is not suitable for valuing certain fixed maturity securities, particularly those with complex cash flows such as certain mortgage-backed and asset-backed securities. In these cases, a separate "structured product pricing matrix" has been developed to value, as appropriate, using the same methodology described above. For securities for which quoted market prices are not available and for which the Company's structured product pricing matrix is not suitable for estimating fair values, qualified company representatives determine the fair value using other modeling techniques, primarily using a commercial software application utilized in valuing complex securitized investments with variable cash flows. As of December 31, 2003, 68% of the fair values of fixed maturity securities were obtained from independent pricing services, 21% from the Company's pricing matricies and 11% from other sources. 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. Estimated fair value is based on the present value of expected future cash flows discounted at the loan's effective interest rate. Policy loans, short-term investments and cash: The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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 based on one of 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 in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. Policy reserves on life insurance contracts: Included are disclosures for individual and corporate-owned 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, for which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. Short-term debt and collateral received - securities lending and derivatives: The carrying amounts reported in the consolidated balance sheets for these instruments approximates their fair value. Long-term debt, payable to NFS: The fair value for long-term debt is based on estimated market prices. Commitments to extend credit: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 12. Interest rate and cross currency interest rate swaps: The fair value for interest rate and cross currency interest rate swaps are calculated with pricing models using current rate assumptions. Futures contracts: The fair value for futures contracts is based on quoted market prices. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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:
2003 2002 --------------------------- -------------------------- CARRYING ESTIMATED Carrying Estimated (in millions) AMOUNT FAIR VALUE amount fair value ==================================================================================================================== ASSETS Investments: Securities available-for-sale: Fixed maturity securities $26,946.8 $26,946.8 $ 24,169.0 $ 24,169.0 Equity securities 85.6 85.6 84.3 84.3 Mortgage loans on real estate, net 8,345.8 8,830.0 7,923.2 8,536.4 Policy loans 618.3 618.3 629.2 629.2 Short-term investments 1,860.8 1,860.8 1,210.3 1,210.3 Cash 0.1 0.1 0.9 0.9 Assets held in separate accounts 57,084.5 57,084.5 47,208.2 47,208.2 LIABILITIES Investment contracts (28,663.4) (27,239.8) (25,276.3) (23,634.1) Policy reserves on life insurance contracts (6,658.9) (6,706.7) (6,403.5) (6,479.6) Short-term debt (199.8) (199.8) - - Long-term debt, payable to NFS (700.0) (803.7) (600.0) (728.5) Collateral received - securities lending and derivatives (1,521.1) (1,521.1) (1,363.6) (1,363.6) Liabilities related to separate accounts (57,084.5) (56,118.6) (47,208.2) (45,524.6) DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swaps hedging assets (99.4) (99.4) (141.2) (141.2) Cross currency interest rate swaps 599.1 599.1 325.1 325.1 Futures contracts (25.2) (25.2) (45.7) (45.7) Other derivatives 4.6 4.6 - - - --------------------------------------------------------------------------------------------------------------------
(12) RISK DISCLOSURES The following is a description of the most significant risks facing the Company and how it mitigates those risks: Credit Risk: The risk that issuers of securities, mortgagees on real estate mortgage loans or other parties, including reinsurers and derivatives counterparties, default on their contractual obligations. The Company mitigates this risk by adhering to investment policies that provide portfolio diversification on an asset class, creditor, and industry basis, and by complying with investment limitations governed by State insurance laws and regulations, as applicable. The Company actively monitors and manages exposures, including restructuring, reducing, or liquidating investments, and determines whether any securities are impaired or loans are deemed uncollectible and takes charges in the period such assessments are made. The ratings of reinsurers who owe the Company money are regularly monitored along with outstanding balances as part of the Company's reinsurance collection process, with timely follow-up on delayed payments. The aggregate credit risk taken in the investment portfolio is influenced by management's risk/return preferences, the economic and credit environment, the relationship of credit risk in the asset portfolio to other business risks that the Company is exposed to and the Company's current and expected future capital position. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Interest Rate Risk: The risk that interest rates will change and cause a decrease in the value of an insurer's investments relative to the value of its liabilities, and/or an unfavorable change in prepayment activity, resulting in compressed interest margins. For example, if liabilities come due more quickly than assets mature, an insurer could potentially have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. In some investments that contain borrower options, this risk may be realized through unfavorable cash flow patterns, e.g. increased principal repayment when interest rates have declined. When unfavorable interest rate movements occur, interest margins may compress, reducing profitability. The Company mitigates this risk by offering products that transfer this risk to the purchaser and/or by attempting to approximately match the maturity schedule of its assets with the expected payouts of its liabilities, both at inception and on an ongoing basis. In some investments that permit prepayment at the borrower option, make-whole provisions are required such that if the borrower prepays in a lower-rate environment, the Company be compensated for the loss of future income. In other situations, the Company accepts some interest rate risk in exchange for a higher yield on the investment. 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 U.S., thus reducing its exposure to any single product or jurisdiction, and also by employing practices that identify and minimize the adverse impact of this risk. Ratings Risk: The risk that rating agencies change their outlook or rating of the Company or a subsidiary of the company. The rating agencies generally utilize proprietary capital adequacy models in the process of establishing ratings for the Company and certain subsidiaries. The Company is at risk to changes in these models and the impact that changes in the underlying business that it is engaged in can have on such models. To mitigate this risk, the Company maintains regular communications with the rating agencies and evaluates the impact of significant transactions on such capital adequacy models and considers the same in the design of transactions to 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 uinderlying 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 mortgaged property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to generally lend no more than 80% of collateral value. Should the commitment be funded, the Company's exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for all unfunded commitments. Commitments on mortgage loans on real estate of $391.8 million extending into 2004 were outstanding as of December 31, 2003. The Company also had $110.3 million of commitments to purchase fixed maturity securities outstanding as of December 31, 2003. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Notional amounts of derivative financial instruments, primarily interest rate swaps, interest rate futures contracts and foreign currency swaps, significantly exceed the credit risk associated with these instruments and represent contractual balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to the Company, including accrued interest receivable due from counterparties. Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements and other contract provisions. Any exposures related to derivative activity are aggregated with other credit exposures between the Company and the derivative counterparty to assess adherence to established credit limits. As of December 31, 2003, the Company's credit risk from these derivative financial instruments was $75.8 million, net of $544.5 million of cash collateral and $163.0 million in securities pledged as collateral. Equity Market Risk: Asset fees calculated as a percentage of the separate account assets are a significant source of revenue to the Company. As of December 31, 2003, approximately 80% of separate account assets were invested in equity mutual funds. Gains and losses in the equity markets will result in corresponding increases and decreases in the Company's separate account assets and the reported asset fee revenue. In addition, a decrease in separate account assets may decrease the Company's expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in GMDB or GMAB claims, which may require the Company to accelerate the amortization of DAC. Many of the Company's individual variable annuity contracts offer GMDB features. The GMDB generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on the premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the contract value, which could result in additional GMDB claims. The Company utilizes a combination of risk management techniques to mitigate this risk. In general, for most contracts issued prior to July 2002, the Company obtained reinsurance from independent third parties, whereas for certain contracts issued after December 2002, the Company has been executing an economic hedging program. The GMDB economic hedging program is designed to offset changes in the economic value of the GMDB obligation up to a return of the contract holder's premium payments, however the first 10% of GMDB claims are not hedged. Currently the program shorts S&P 500 index futures, which provides an offset to changes in the value of the designated obligation. The Company's economic evaluation of the GMDB obligation is not consistent with current accounting treatment of the GMDB obligation. Therefore the hedging activity will lead to volatility of earnings. This volatility was negligible in 2003. As of December 31, 2003, the net amount at risk, defined as the excess of the death benefit over the account value, was $2.8 billion before reinsurance and $982.9 million net of reinsurance. As of December 31, 2003 and 2002, the Company's reserve for GMDB claims was $21.8 million and $13.7 million, respectively. See note 21 for discussion of the impact of adopting a new accounting principle regarding GMDB reserves in 2004. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company also offers certain variable annuity products with a GMAB rider. The GMAB provides the contract holder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified period of time, 5, 7 or 10 years, selected by the contract holder at the time of issuance of the variable annuity contract. In some cases, the contract holder also has the option, after a specified period of time, to drop the rider and continue the variable annuity contract without the GMAB. The design of the GMAB rider limits the risk to the Company in a variety of ways including the requirement that a significant portion of the premium be allocated to a guaranteed term option (GTO) that is a fixed rate investment, thereby reducing the equity exposure. The GMAB represents an embedded derivative in the variable annuity contract that is required to be separated from and valued apart from the host variable annuity contract. The embedded derivative is carried at fair value and reported in other future policy benefits and claims. The Company initially records an offset to the fair value of the embedded derivative on the balance sheet, which is amortized through the income statement over the term of the GMAB period of the contract. The fair value of the GMAB embedded derivative is calculated based on actuarial assumptions related to the projected benefit cash flows incorporating numerous assumptions including, but not limited to, expectations of contract holder persistency, market returns, correlation's of market returns and market return volatility. The Company began selling contracts with the GMAB feature on May 1, 2003. Beginning October 1, 2003, the Company launched an enhanced version of the rider that offered increased equity exposure to the contract holder in return for a higher charge. The Company simultaneously began economically hedging the GMAB exposure for those risks that exceed a level it considered acceptable. The GMAB economic hedge consists of shorting interest rate futures and S&P 500 futures contracts and does not qualify for hedge accounting under FAS 133. See note 2(c) for discussion of economic hedges. The objective of the GMAB economic hedge strategy is to manage the exposures with risk beyond a level considered acceptable to the Company. The Company is exposed to equity market risk related to the GMAB feature should the growth in the underlying investments, including any GTO investment, fail to reach the guaranteed return level. The GMAB embedded derivative will create volatility in earnings, however the hedging program provides substantial mitigation of this exposure. This volatility was negligible in 2003. The fair value of the GMAB embedded derivative as of December 31, 2003 was $4.3 million. Changes in the fair value of the GMAB embedded derivative and the hedging instruments totaled $(0.4) million and $(0.1) million, respectively, during the year ended December 31, 2003. Significant Concentrations of Credit Risk: The Company grants mainly commercial mortgage loans on real estate to customers throughout the U. S. As of December 31, 2003, the Company has a diversified portfolio with no more than 23% in any geographic area and no more than 2% with any one borrower. As of December 31, 2003, 31% of the carrying value of the Company's commercial mortgage loan portfolio financed retail properties. Significant Business Concentrations: As of December 31, 2003, the Company did not have a material concentration of financial instruments in a single investee, industry or geographic location. Also, the Company did not have a concentration of business transactions with a particular customer, lender or distribution source, a market or geographic area in which business is conducted that makes it overly vulnerable to a single event which could cause a severe impact to the Company's financial position. Guarantee Risk: In connection with the selling of securitized interests in Low Income Housing Tax Credit Funds (Tax Credit Funds), see note 18, the Company guarantees a specified minimum return to the investor. The guaranteed return varies by transaction and follows general market trends. The Company's risk related to securitized interests in Tax Credit Funds is that the tax benefits provided to the investor are not sufficient to provide the guaranteed cumulative after-tax yields. The Company mitigates these risks by having qualified individuals with extensive industry experience perform due diligence on each of the underlying properties to ensure they will be capable of delivering the amount of credits anticipated and by requiring cash reserves to be held at various levels within these structures to provide for possible shortfalls in the amount of credits generated. Reinsurance: The Company has entered into reinsurance contracts to cede a portion of its general account individual annuity business. Total recoveries due from these contracts were $635.9 million as of December 31, 2003. The contracts are immaterial to the Company's results of operations. The ceding of risk does not discharge the original insurer from its primary obligation to the contractholder. Under the terms of the contracts, trusts have been established as collateral for the recoveries. The trust assets are invested in investment grade securities, the fair value of which must at all times be greater than or equal to 100% or 102% of the reinsured reserves, as outlined in each of the underlying contract. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Collateral - Derivatives: The Company enters into agreements with various counterparties to execute over-the-counter derivative transactions. The Company's policy is to include a Credit Support Annex with each agreement to protect the Company for any exposure above the approved credit threshold. This also protects the counterparty against exposure to the Company. The Company generally posts securities as collateral and receives cash as collateral from counterparties. The Company maintains ownership of the pledged securities at all times and is entitled to receive from the borrower any payments for interest or dividends received on such securities during the period it is pledged as collateral. Collateral - Securities Lending: The Company, through its agent, lends certain portfolio holdings and in turn receives cash collateral. The cash collateral is invested in high-quality short-term investments. The Company's policy requires a minimum of 102% of the fair value of the securities loaned be maintained as collateral. Net returns on the investments, after payment of a rebate to the borrower, are shared between the Company and its agent. Both the borrower and the Company can request or return the loaned securities at any time. The Company maintains ownership of the securities at all times and is entitled to receive from the borrower any payments for interest or dividends received on such securities during the loan term. (13) PENSION PLAN, POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND RETIREMENT SAVINGS PLAN The Company, together with certain affiliated companies, sponsors pension plans covering all employees of participating companies who have completed at least one year of service and who have met certain age requirements. Plan contributions are invested in a group annuity contract of NLIC. Benefits are based upon the highest average annual salary of a specified number of consecutive years of the last ten years of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Pension costs charged to operations by the Company during the years ended December 31, 2003, 2002 and 2001 were $13.2 million, $10.0 million and $5.0 million, respectively. The Company has recorded a prepaid pension asset of $7.7 million as of December 31, 2003 compared to pension liability of $0.5 million as of December 31, 2002. In addition to the defined benefit pension plan, the Company, together with certain 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, hired prior to June 1, 2000, 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, by no more than three percent through 2006, at which time the cap will be frozen. 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 Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. FASB Staff Position FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 permits employers that sponsor postretirement benefit plans to defer accounting for the effects of the Act until the FASB issues guidance on how to account for the provisions of the Act. Specific authoritative guidance on accounting for the Act is pending. The issued guidance could require the plan sponsor to change previously reported information. The Company will defer recognition of the Act until the guidance is issued. Any measures of the accumulated postretirement benefit obligation (APBO) and net periodic postretirement benefit cost (NPPBC) do not reflect the effects of the Act. The Company's accrued postretirement benefit expense as of December 31, 2003 and 2002 was $50.5 million and $51.9 million, respectively, and the NPPBC for 2003, 2002 and 2001 was $1.1 million, $3.5 million and $2.9 million, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements Information regarding the funded status of the pension plans as a whole and the postretirement life and health care benefit plan as a whole, both of which are U.S. plans, as of December 31, 2003 and 2002 follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS --------------------------- ------------------------------ (in millions) 2003 2002 2003 2002 ======================================================================================================================== CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 2,236.2 $ 2,132.2 $ 269.7 $ 314.0 Service cost 104.0 103.3 9.9 13.2 Interest cost 131.7 135.6 19.5 22.5 Participant contributions - - 4.2 4.0 Plan amendment 1.6 (11.5) - (117.7) Actuarial loss (gain) 85.1 (13.1) (2.8) 54.0 Benefits paid (101.6) (97.6) (20.4) (20.3) Impact of settlement/curtailment - (12.7) - - Impact of plan merger - - 26.7 - - ------------------------------------------------------------------------------------------------------------------------ Benefit obligation at end of year 2,457.0 2,236.2 306.8 269.7 - ------------------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year 1,965.0 2,200.7 106.9 119.7 Actual return on plan assets 265.4 (142.4) 16.5 (12.7) Employer contributions1 113.6 4.3 20.3 16.2 Participant contributions - - 4.2 4.0 Benefits paid1 (101.6) (97.6) (20.4) (20.3) - ------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 2,242.4 1,965.0 127.5 106.9 - ------------------------------------------------------------------------------------------------------------------------ Funded status (214.6) (271.2) (179.3) (162.8) Unrecognized prior service cost 30.3 33.6 (103.3) (116.9) Unrecognized net losses 192.1 225.9 56.9 71.9 Unrecognized net (asset) obligation at transition (2.5) (3.8) - 0.1 - ------------------------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit cost, net $ 5.3 $ (15.5) $ (225.7) $ (207.7) ======================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------ Accumulated benefit obligation $ 2,020.2 $ 1,821.0 N/A N/A ========================================================================================================================
________ 1 Employer contributions and benefits paid include only those amounts contributed directly to or paid directly from plan assets. Effective January 1, 2003, the pension plan was amended to improve benefits for certain participants, resulting in an increase in the projected benefit of $1.6 million. Two significant plan changes were enacted to the postretirement benefit plans as of December 31, 2002. The postretirement medical plan was revised to reflect the current expectation that there will be no further increases in the benefit cap after 2006. Prior to 2007, it is assumed that benefit caps will increase by 3 percent per year, at which time the cap will be frozen. The postretirement death benefit plan was revised to reflect that all employer subsidies will be phased out beginning in 2007. The 2007 subsidy is assumed to be 2/3 of the current subsidy and the 2008 subsidy is assumed to be 1/3 of the current amount. There is no employer subsidized benefit assumed after 2008. The plan sponsor and participating employers, including the Company, expect to contribute $130.0 million to the pension plan and $20.0 million to the postretirement benefit plan in 2004. Effective January 1, 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) raised IRS limits for benefits and salaries considered in qualified pension plans. The projected benefit obligation decreased by $11.5 million from December 31, 2001 due to the anticipation of the EGTRRA sunset provisions not recognized in the December 31, 2001 calculations. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements On June 30, 2002, NMIC Medicare operations ceased, and all Medicare employees were terminated as Nationwide employees. Curtailment charges of $10.5 million and curtailment credits of $10.0 million were directly assigned to NMIC for the years ended December 31, 2003 and 2002 respectively. Weighted average assumptions used in calculating benefit obligations and the funded status of the pension plan and postretirement life and health care benefit plan as of the end of each period presented were as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------------------- ----------------------------- 2003 2002 2003 2002 =================================================================================================================== Discount rate 5.50% 6.00% 6.10% 6.60% Rate of increase in future compensation levels 4.00% 4.50% - - Assumed health care cost trend rate: Initial rate - - 11.00%1 11.30%1 Ultimate rate - - 5.20%1 5.70%1 Declining period - - 11 YEARS 11 Years - -------------------------------------------------------------------------------------------------------------------
________ 1 The 2003 initial rate is 12.0% for participants over age 65, with an ultimate rate of 5.6% and the 2002 initial rate is 12.3% for participants over age 65, with an ultimate rate of 6.3%. The Company uses a December 31 measurement date for all plans. The asset allocation for the pension plan as a whole at the end of 2003 and 2002, and the target allocation for 2004, by asset category, are as follows:
TARGET ALLOCATION PERCENTAGE PERCENTAGE OF PLAN ASSETS - ----------------------------------------------------------------------------------------------------------------------------------- Asset Category 2004 2003 2002 =================================================================================================================================== Equity Securities 40 - 65 45% 43% Debt Securities 25 - 50 55% 57% Real Estate 0 - 10 0% 0% Total - 100% 100% ===================================================================================================================================
The plan employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. Plan language requires investment in a group annuity contract backed by fixed investments with an interest rate guarantee to match liabilit ies for specific classes of retirees. On a periodic basis, the portfolio is analyzed to establish the optimal mix of assets given current market conditions given the risk tolerance. In the most recent study, asset sub-classes were considered in debt securities (diversified US investment grade bonds, diversified high-yield US securities, and international fixed income, emerging markets, and commercial mortgage loans) and equity investments (domestic equities, private equities, international equities, emerging market equities and real estate investments). Each asset sub-class chosen contains a diversified blend of securities from that sub-class. Investment mix is measured and monitored on an on-going basis through regular investment reviews, annual liability measurements, and periodic asset/liability studies. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The asset allocation for the other postretirement life and healthcare benefit plan as a whole at the end of 2003 and 2002, and the target allocation for 2004, by asset category, are as follows:
TARGET ALLOCATION PERCENTAGE PERCENTAGE OF PLAN ASSETS - --------------------------------------------------------------------------------------------------------------------------------- Asset Category 2004 2003 2002 ================================================================================================================================= - Equity Securities 50 - 80 59% 53% Debt Securities 20 - 50 35% 39% Other 0 - 10 6% 8% Total - 100% 100% =================================================================================================================================
The other postretirement life and health care benefit plan employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. Plan investments for retiree life insurance benefits include a retiree life insurance contract issued by NLIC and for retiree medical liabilities both a group annuity contract issued by NLIC backed by fixed investments with an interest rate guarantee and a separate account invested in diversified US equities. The investment mix is measured and monitored on an on-going basis through regular investment reviews, annual liability measurements, and periodic asset/liability studies. The components of net periodic pension cost for the pension plan as a whole for the years ended December 31, 2003, 2002 and 2001 were as follows:
(in millions) 2003 2002 2001 ======================================================================================================================== Service cost (benefits earned during the period) $ 104.0 $ 103.3 $ 89.3 Interest cost on projected benefit obligation 131.7 135.6 129.1 Expected return on plan assets (156.7) (178.6) (183.8) Recognized gains 0.1 - (7.8) Amortization of prior service cost 4.5 4.4 3.2 Amortization of unrecognized transition asset (1.3) (1.3) (1.3) - ------------------------------------------------------------------------------------------------------------------------ Net periodic pension cost $ 82.3 $ 63.4 $ 28.7 ========================================================================================================================
Weighted average assumptions used in calculating the net periodic pension cost, set at the beginning of each year, for the pension plan were as follows:
2003 2002 2001 ==================================================================================================================== Weighted average discount rate 6.00% 6.50% 6.75% Rate of increase in future compensation levels 4.50% 4.75% 5.00% Expected long-term rate of return on plan assets 7.75% 8.25% 8.00% - --------------------------------------------------------------------------------------------------------------------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company employs a prospective building block approach in determining the long-term expected rate of return for plan assets. This process is integrated with the determination of other economic assumptions such as discount rate and salary scale. Historical markets are studied and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run called a risk premium. Historic risk premiums are used to develop expected real rates of return of each asset sub-class. The expected real rates of return, reduced for investment expenses, are applied to the target allocation of each asset sub-class to produce an expected real rate of return for the target portfolio. This expected real rate of return will vary by plan and will change when the plan's target investment portfolio changes. Current market factors such as inflation and interest rates are incorporated in the process as follows. For a given measurement date, the discount rate is set by reference to the yield on high-quality corporate bonds to approximate the rate at which plan benefits could effectively be settled. The historic real rate of return is subtracted from these bonds to generate an assumed inflation rate. The expected long-term rate of return for plan assets is the assumed inflation rate plus the expected real rate of return. This process effectively sets the expected return for the plan's portfolio at the yield for the reference bond portfolio, adjusted for expected risk premiums of the target asset portfolio. Given the prospective nature of this calculation, short-term fluctuations in the market do not impact the expected risk premiums. However, as the yield for the reference bond fluctuates, the assumed inflation rate and the expected long-term rate are adjusted in tandem. In 2002, the pension plan's target investment portfolio was modified based on the recommendations of a pension optimization study. This change in investment strategy is expected to increase long-term real rates of return 0.50% while maintaining the same aggregate risk level. For this reason, the expected long-term rate of return was increased to 8.25% in 2002 from 8.00% in 2001. The components of NPPBC for the postretirement benefit plan as a whole for the years ended December 31, 2003, 2002 and 2001 were as follows:
(in millions) 2003 2002 2001 ===================================================================================================================== Service cost (benefits attributed to employee service during the year) $ 9.9 $ 13.2 $ 12.6 Interest cost on accumulated postretirement benefit obligation 19.5 22.5 21.4 Expected return on plan assets (8.0) (9.2) (9.6) Amortization of unrecognized transition obligation of affiliates - 0.6 0.6 Net amortization and deferral (9.9) (0.5) (0.4) - --------------------------------------------------------------------------------------------------------------------- NPPBC $11.5 $ 26.6 $ 24.6 =====================================================================================================================
Weighted average actuarial assumptions used for the measurement of the NPPBC, set at the beginning of each year, for the postretirement benefit plan for 2003, 2002 and 2001 were as follows:
2003 2002 2001 ========================================================================================================================== Discount rate 6.60% 7.25% 7.50% Long-term rate of return on plan assets 7.50% 7.75% 8.00% Assumed health care cost trend rate: Initial rate 11.30% 1 11.00% 1 11.00% Ultimate rate 5.70% 1 5.50% 1 5.50% Declining period 11 YEARS 4 Years 4 Years - --------------------------------------------------------------------------------------------------------------------------
1 The 2003 initial rate is 12.0% for participants over age 65, with an ultimate rate of 5.6% and the 2002 initial rate is 12.3% for participants over age 65, with an ultimate rate of 6.3%. Because current plan costs are very close to the employer dollar caps, the health care cost trend has an immaterial effect on plan obligations and expense for the postretirement benefit plan as a whole. For this reason, the effect of a one percentage point increase or decrease in the assumed health care cost trend rate on the APBO as of December 31, 2003 and on the NPPBC for the year ended December 31, 2003 was not calculated. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Company, together with other affiliated companies, sponsors defined contribution retirement savings plans covering substantially all employees of the Company. Employees may make salary deferral contributions of up to 22%. Salary deferrals of up to 6% are subject to a 50% Company match. The Company's expense for contributions to these plans totaled $5.5 million, $5.7 million and $5.6 million for 2003, 2002 and 2001, respectively, including $0.5 million and $0.4 million related to discontinued operations for 2002 and 2001, respectively. (14) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND RESTRICTIONS The State of Ohio, where NLIC and NLAIC are domiciled, 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 total adjusted capital, as defined by the NAIC, to 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 for all periods presented herein. The statutory capital and surplus of NLIC as of December 31, 2003 and 2002 was $2.23 billion and $1.61 billion, respectively. The statutory net income of NLIC for the years ended December 31, 2003, 2002 and 2001 was $444.4 million, $92.5 million and $83.1 million, respectively. The Company is limited in the amount of shareholder dividends it may pay without prior approval by the Department. As of January 1, 2004, based on statutory financial results as of and for the year ended December 31, 2003, NLIC could pay dividends totaling $284.4 million without obtaining prior approval. In February 2004, NLIC obtained prior approval from the Ohio Department of Insurance to pay a dividend to NFS in the amount of $75.0 million because the December 31, 2003 statutory financial statements had not been filed at the time of the dividend. In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State 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 shareholders. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses, interest and shareholder dividends in the future. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements (15) RELATED PARTY TRANSACTIONS 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 investment management, advertising, personnel and general management services, to those subsidiaries. Expenses covered by such agreement are subject to allocation among NMIC and such subsidiaries. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commission expense and other methods agreed to by the participating companies and that are within industry guidelines and practices. In addition, Nationwide Services Company, LLC, a subsidiary of NMIC, provides computer, telephone, mail, employee benefits administration, and other services to NMIC and certain of its direct and indirect subsidiaries, including the Company, based on specified rates for units of service consumed. For the years ended December 31, 2003, 2002 and 2001, the Company made payments to NMIC and Nationwide Services Company, LLC, totaling $170.4 million, $135.6 million and $139.8 million, respectively. The Company does not believe that expenses recognized under these agreements are materially different than expenses that would have been recognized had the Company operated on a stand-alone basis. NLIC has issued group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $5.22 billion and $4.50 billion as of December 31, 2003 and 2002, respectively. Total revenues from these contracts were $138.9 million, $143.3 million and $150.7 million for the years ended December 31, 2003, 2002 and 2001, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances were $111.8 million, $114.8 million and $122.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. The terms of these contracts are consistent in all material respects with what the Company offers to unaffiliated parties who are similarly situated. Funds of Gartmore Global Investments, Inc. (GGI), an affiliate, are offered as investment options in certain of the Company's products. As of December 31, 2003 and 2002, customer allocations to GGI funds were $12.80 billion and $12.21 billion, respectively. For the years ended December 31, 2003 and 2002, GGI paid the Company $38.6 million and $35.3 million, respectively, for the distribution and servicing of these funds. NLIC has a reinsurance agreement with NMIC whereby all of NLIC's accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC on a modified coinsurance basis. Either party may terminate the agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets and investment earnings are paid to the reinsurer. Under the terms of NLIC's agreements, the investment risk associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by NLIC, although a fee is paid to NLIC for the retention of such risk. 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. Revenues ceded to NMIC for the years ended December 31, 2003, 2002 and 2001 were $286.7 million, $325.0 million and $200.7 million, respectively, while benefits, claims and expenses ceded were $247.5 million, $328.4 million and $210.1 million, respectively. Under a marketing agreement with NMIC, NLIC makes payments to cover a portion of the agent marketing allowance that is paid to Nationwide agents. These costs cover product development and promotion, sales literature, rent and similar items. Payments under this agreement totaled $24.8 million, $24.9 million and $26.4 million for the years ended December 31, 2003, 2002 and 2001, respectively. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 2003, 2002 and 2001, the Company made lease payments to NMIC and its subsidiaries of $17.5 million, $20.2 million and $18.7 million, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements 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 after a stated period, the seller will repurchase the securities at the original sales price plus interest. As of December 31, 2003 and 2002, the Company had no borrowings from affiliated entities under such agreements. During 2003, 2002 and 2001, the most the Company had outstanding at any given time was $126.0 million, $224.9 million and $368.5 million, respectively, and the Company incurred interest expense on intercompany repurchase agreements of $0.1 million, $0.3 million and $0.2 million for 2003, 2002 and 2001, respectively. The Company believes that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties. 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 for the benefit of the Company were $205.9 million and $87.0 million as of December 31, 2003 and 2002, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. For the years ending December 31, 2003, 2002 and 2001, the Company paid NCMC fees and expenses totaling $0.3 million, $0.3 million and $0.4 million, respectively. Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for each of the years in the three year period ended December 31, 2003 were $62.0 million, $50.3 million and $52.9 million, respectively. Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, as discussed in more detail in note 9, beginning October 1, 2002, NLIC files a consolidated federal income tax return with NLAIC. Total payments to (from) NMIC were $71.0 million and $(45.4) million for the years ended December 31, 2002 and 2001, respectively. Total payments to (from) NLAIC were $(2.7) million and $0 for the years ended December 31, 2003 and 2002, respectively. In the third quarter of 2003, NLIC received a capital contribution of 100% of the common stock of Nationwide Retirement Plan Solutions (NRPS) from NFS. The capital contribution was valued at $0.2 million. Immediately after receipt of this capital contribution, NRPS was dissolved into NLIC. In first quarter 2003 NLIC received a $200.0 million capital contribution from NFS for general corporate purposes. In 2003 and 2002, NLIC paid dividends of $60.0 million and $35.0 million, respectively, to NFS. During 2003 and 2002 NLIC paid dividends in the form of return of capital of $100.0 million and $475.0 million to NFS, respectively. Furthermore, in February 2004, NLIC paid a $75.0 million dividend to NFS. In addition, in June 2002, NLIC paid a dividend to NFS in the form of all of the shares of common stock of NSI, a wholly owned broker/dealer subsidiary. Therefore, the results of the operations of NSI have been reflected as discontinued operations for all periods presented. This was a transaction between related parties and therefore was recorded at carrying value, $10.0 million, of the underlying components of the transaction rather than fair value. Such amount represents a non-cash transaction that is not reflected in the Consolidated Statement of Cash Flows. In December 2001, NLIC issued NFS a 7.50%, $300.0 million surplus note maturing on December 17, 2031. In June 2002, NLIC issued NFS an 8.15%, $300.0 million surplus note maturing June 27, 2032. In December 2003, NLIC issued NFS a 6.75%, $100.0 million surplus note maturing December 23, 2033. The Company made interest payments on surplus notes to NFS totaling $47.1 million and $30.1 million in 2003 and 2002, respectively. In addition, the Company made interest payments on unsecured notes to NFS totaling less than $0.1 million and $0.5 million in 2003 and 2002, respectively. As of December 31, 2003 there were no outstanding balances on unsecured notes to NFS. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements During 2001, the Company entered into a transaction with NMIC, whereby it sold 78% of its interest in a limited partnership (representing 49% of the limited partnership) to NMIC for $158.9 million. As a result of this sale, the Company recorded a realized gain of $44.4 million, and related tax expense of $15.5 million. During 2002, the Company entered into transactions with NMIC and Nationwide Indemnity Company (NIC), whereby it sold 100% of its remaining interest in the limited partnership (representing 15.11% of the limited partnership) to NMIC and NIC for a total of $54.5 million. As a result of this sale, the Company recorded a realized gain of $23.2 million and related tax expense of $8.1 million. The sales prices for each transaction, which were paid in cash, represented the fair value of the portions of limited partnership interests that were sold and were based on valuations of the limited partnership and its underlying investments as of the effective dates of the transactions. The valuations were completed by qualified management of the limited partnership and utilized a combination of internal and independent valuations of the underlying investments of the limited partnership. Additionally, senior financial officers and the Boards of Directors of the Company and NMIC separately reviewed, through their respective Finance Committees, and approved the process and methodology of the valuations prior to the execution of these transactions. The Company no longer holds an economic or voting interest in the limited partnership. (16) BANK LINES OF CREDIT The Company has available as a source of funds a $1.00 billion revolving credit facility entered into by NFS, NLIC and NMIC. The facility is comprised of a five-year $700.0 million agreement maturing in May of 2005 and a 364 day $300.0 million agreement maturing in May of 2004 with a group of financial institutions. The Company and NMIC intend to renew both parts of the credit facility in 2004. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility contains covenants, including, but not limited to, requirements that the Company maintain consolidated tangible net worth, as defined, in excess of $1.69 billion and NLIC maintain statutory surplus in excess of $935.0 million. The Company had no amounts outstanding under this agreement as of December 31, 2003. NLIC is currently required to maintain an available credit facility equal to 50% of any amounts outstanding under its $500.0 million commercial paper program. Therefore, availability under the aggregate $1.00 billion credit facility is reduced by an amount equal to 50% of any commercial paper outstanding. NLIC had $199.8 million of commercial paper outstanding as of December 31, 2003. Also, the Company has entered into an agreement with its custodial bank to borrow against the cash collateral that is posted in connection with its securities lending program. This is an uncommitted facility, which is contingent on the liquidity of the securities lending program. The maximum amount available under the agreement is $100.0 million. The borrowing rate on this program rate is equal to fed funds plus 3 basis points. There were no amounts outstanding under this agreement as of December 31, 2003. (17) CONTINGENCIES On October 29, 1998, the Company was named in a lawsuit filed in Ohio state court by plaintiff Mercedes Castillo that challenged 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). On May 3, 1999, the complaint was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint was brought as a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by the Company and the other named Company affiliates, which were allegedly used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. On May 28, 2002, the Court granted the motion of Marcus Shore to withdraw as a named plaintiff and denied plaintiffs' motion to add new persons as named plaintiffs. On November 4, 2002, the Court issued a decision granting the Company's motion for summary judgment on all of plaintiff Mercedes Castillo's individual claims, and ruling that plaintiff's motion for class certification was moot. Following appeal by the plaintiff, both of those decisions were affirmed by the Ohio Court of Appeals on September 9, 2003. The plaintiff filed a notice of appeal of the decision by the Ohio Court of Appeals on October 24, 2003. The Ohio Supreme Court announced on January 21, 2004 that the appeal was not accepted and the time for reconsideration has expired. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements On October 31, 2003, a lawsuit seeking class action status containing allegations similar to those made in the Castillo case was filed against NLIC in Arizona federal court by plaintiff Robert Helman (Robert Helman et al v. Nationwide Life Insurance Company et al). This lawsuit is in a very preliminary stage and the Company is of evaluating its merits. The Company intends to defend this lawsuit vigorously. On August 15, 2001, the Company was named in a lawsuit filed in Connecticut federal court (Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance Company). The plaintiffs first amended their complaint on September 6, 2001 to include class action allegations, and have subsequently amended their complaint twice. As amended, in the current complaint, the plaintiffs seek to represent a class of ERISA qualified retirement plans that purchased variable annuities from NLIC. Plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts, and that the Company acquired and breached ERISA fiduciary duties by accepting service payments from certain mutual funds that allegedly consisted of or diminished those ERISA plan assets. The complaint seeks disgorgement of some or all of the fees allegedly received by the Company and other unspecified relief for restitution, along with declaratory and injunctive relief and attorneys' fees. On December 3, 2001, the plaintiffs filed a motion for class certification. Plaintiffs filed a supplement to that motion on September 19, 2003. The Company opposed that motion on December 24, 2003. On January 30, 2004, the Company filed its Revised Memorandum in Support of Summary Judgment, and a Motion Requesting that the Court Decide Summary Judgment before Class Certification. Plaintiffs are opposing that motion. The Company intends to defend this lawsuit vigorously. On May 1, 2003, a class action was filed against NLIC in the United States District Court for the Eastern District of Louisiana, (Edward Miller, Individually, and on behalf of all others similarly situated, v. Nationwide Life Insurance Company). The complaint alleges that in 2001, plaintiff Edward Miller purchased three group modified single premium variable annuities issued by NLIC. Plaintiff alleges that NLIC represented in its prospectus and promised in its annuity contracts that contract holders could transfer assets without charge among the various funds available through the contracts, that the transfer rights of contract holders could not be modified and that NLIC's expense charges under the contracts were fixed. Plaintiff claims that NLIC has breached the contracts and violated federal securities laws by imposing trading fees on transfers that were supposed to have been without charge. Plaintiff seeks compensatory damages and rescission on behalf of himself and a class of persons who purchased this type of annuity or similar contracts issued by NLIC between May 1, 2001 and April 30, 2002 inclusive and were allegedly damaged by paying transfer fees. The Company's motion to dismiss the complaint was granted by the Court on October 28, 2003. Plaintiff has appealed that dismissal. On January 21, 2004, the Company was named in a lawsuit filed in the U.S. District Court for the Northern District of Mississippi (United Investors Life Insurance Company v. Nationwide Life Insurance Company and/or Nationwide Life Insurance Company of America and/or Nationwide Life and Annuity Insurance Company and/or Nationwide Life and Annuity Company of America and/or Nationwide Financial Services, Inc. and/or Nationwide Financial Corporation, and John Does A-Z). In its complaint, the plaintiff alleges that the Company and/or its affiliated life insurance companies (1) tortiously interfered with the plaintiff's contractual and fiduciary relationship with Waddell & Reed, Inc. and/or its affiliates, Waddell & Reed Financial, Inc., Waddell & Reed Financial Services, Inc. and W & R Insurance Agency, Inc. (collectively, "Waddell & Reed"), (2) conspired with and otherwise caused Waddell & Reed to breach its contractual and fiduciary obligations to the plaintiff, and (3) tortiously interfered with the plaintiff's contractual relationship with policyholders of insurance policies issued by the plaintiff. The complaint seeks compensatory damages, punitive damages, pre- and post-judgment interest, a full accounting, and costs and disbursements, including attorneys' fees. The plaintiff seeks to have each defendant judged jointly and severally liable for all damages. This lawsuit is in a very preliminary stage, and the Company intends to defend it vigorously. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The financial services industry, including mutual fund, variable annuity and distribution companies have been the subject of increasing scrutiny by regulators, legislators, and the media over the past year. Numerous regulatory agencies, including the United States Securities and Exchange Commission and the New York Attorney General, have commenced industry-wide investigations regarding late trading and market timing in connection with mutual funds and variable insurance contracts, and have commenced enforcement actions against some mutual fund companies on those issues. Investigations and enforcement actions have also been commenced, on a smaller scale, regarding the sales practices of mutual fund and variable annuity distributors. These legal proceedings are expected to continue in the future. These investigations and proceedings could result in legal precedents, as well as new industry-wide legislation, rules, or regulations, that could significantly affect the financial services industry, including variable annuity companies. The Company has been contacted by regulatory agencies for information relating to market timing, late trading, and sales practices. The Company is cooperating with these regulatory agencies and is responding to those information requests. There can be no assurance that any such litigation or regulatory actions will not have a material adverse effect on the Company in the future. (18) SECURITIZATION TRANSACTIONS To date, the Company has sold $290.1 million of credit enhanced equity interests in Tax Credit Funds to unrelated third parties. The Company has guaranteed cumulative after-tax yields to third party investors ranging from 5.10% to 5.25% and as of December 31, 2003 held guarantee reserves totaling $2.9 million on these transactions. These guarantees are in effect for periods of approximately 15 years each. The Tax Credit Funds provide a stream of tax benefits to the investors that will generate a yield and return of capital. To the extent that the tax benefits are not sufficient to provide these cumulative after-tax yields, then the Company must fund any shortfall, which is mitigated by stabilization collateral set aside by the Company at the inception of the transactions. The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $824.2 million. The Company does not anticipate making any payments related to the guarantees. At the time of the sales, $4.3 million of net sale proceeds were set aside as collateral for certain properties owned by the Tax Credit Funds that had not met all of the criteria necessary to generate tax credits. Such criteria include completion of construction and the leasing of each unit to a qualified tenant among other criteria. Properties meeting the necessary criteria are considered to have "stabilized." The properties are evaluated regularly and upon stabilizing, the collateral is released. During 2003 and 2002, $3.1 million and $0.5 million of stabilization collateral had been released into income, respectively. To the extent there are cash deficits in any specific property owned by the Tax Credit Funds, property reserves, property operating guarantees and reserves held by the Tax Credit Funds are exhausted before the Company is required to perform under its guarantees. To the extent the Company is ever required to perform under its guarantees, it may recover any such funding out of the cash flow distributed from the sale of any and/or all of the underlying properties of the Tax Credit Funds. This cash flow distribution would be paid to the Company prior to any cash flow distributions to unrelated third party investors. (19) SEGMENT INFORMATION The Company uses differences in products as the basis for defining its reportable segments. The Company reports three product segments: Individual Annuity, Institutional Products and Life Insurance. In addition, the Company reports certain other revenues and expenses in a Corporate segment. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The Individual Annuity segment consists of individual The BEST of AMERICA(R) and private label deferred variable annuity products, deferred fixed annuity products and income products. Individual deferred annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, variable annuity contracts provide the customer with access to a wide range of investment options and asset protection in the event of an untimely death, while fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods. The Institutional Products segment is comprised of the Company's private and public sector group retirement plans, medium-term note program and structured products initiatives. The private sector includes the 401(k) business generated through fixed and variable annuities. The public sector includes the Internal Revenue Code Section 457 business in the form of fixed and variable annuities. The Life Insurance segment consists of investment life products, including individual variable life and COLI products, traditional life insurance products and universal life insurance. Life insurance products provide a death benefit and generally also allow the customer to build cash value on a tax-advantaged basis. In addition to the product segments, the Company reports a Corporate segment. The Corporate segment includes net investment income not allocated to the three product segments, unallocated expenses and interest expense on debt and expenses of the Company's non-insurance subsidiaries not reported within the three product segments. In addition to these operating revenues and expenses, the Company also reports net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items in the Corporate segment, but does not consider them as part of pre-tax operating earnings. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The following tables summarize the financial results of the Company's business segments for the years ended December 31, 2003, 2002 and 2001.
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =========================================================================================================================== 2003 Net investment income $ 807.9 $ 787.7 $ 324.3 $ 60.1 $ 1,980.0 Other operating revenue 517.7 162.3 536.2 0.4 1,216.6 Net realized losses on investments, hedging - - - (100.8) (100.8) instruments and hedged items - --------------------------------------------------------------------------------------------------------------------------- Total operating revenues 1,325.6 950.0 860.5 (40.3) 3,095.8 - --------------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account values 602.5 512.3 185.6 - 1,300.4 Amortization of deferred policy acquisition costs 228.4 45.6 101.9 - 375.9 Interest expense on debt, primarily with NFS - - - 48.4 48.4 Other benefits and expenses 324.0 183.1 423.0 6.6 936.7 - --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 1,154.9 741.0 710.5 55.0 2,661.4 - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before federal income tax expense 170.7 209.0 150.0 (95.3) $ 434.4 =============== Net realized losses on investments, hedging instruments and hedged items - - - 100.8 - ------------------------------------------------------------------------------------------------------------ Pre-tax operating earnings 1 $ 170.7 $ 209.0 $ 150.0 $ 5.5 ============================================================================================================ - ------------------------------------------------------------------------------------------------------------ Assets as of period end $ 49,392.5 $ 33,837.4 $ 11,243.5 $ 6,097.5 $ 100,570.9 =========================================================================================================================== 2002 Net investment income $ 668.5 $ 800.2 $ 328.6 $ 41.2 $ 1,838.5 Other operating revenue 526.2 177.9 537.7 0.7 1,242.5 Net realized losses on investments, hedging instruments and hedged items - - - (84.4) (84.4) - --------------------------------------------------------------------------------------------------------------------------- Total operating revenues 1,194.7 978.1 866.3 (42.5) 2,996.6 - --------------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account values 505.9 548.9 186.4 - 1,241.2 Amortization of deferred policy acquisition costs 528.2 53.7 88.2 - 670.1 Interest expense on debt, primarily with NFS - - - 36.0 36.0 Other benefits and expenses 283.4 172.1 420.2 4.1 879.8 - --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 1,317.5 774.7 694.8 40.1 2,827.1 - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before federal income tax expense (122.8) 203.4 171.5 (82.6) 169.5 =============== Net realized losses on investments, hedging instruments and hedged items - - - 84.4 - --------------------------------------------------------------------------------------------------------------------------- Pre-tax operating (loss) earnings 1 $ (122.8) $ 203.4 $ 171.5 $ 1.8 =========================================================================================================================== - --------------------------------------------------------------------------------------------------------------------------- Assets as of period end $ 40,830.0 $ 30,440.7 $ 9,676.3 $ 5,075.6 $ 86,022.6 ===========================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements
INDIVIDUAL INSTITUTIONAL LIFE (in millions) ANNUITY PRODUCTS INSURANCE CORPORATE TOTAL =========================================================================================================================== 2001 Net investment income $ 534.7 $ 847.5 $ 323.3 $ 19.2 $ 1,724.7 Other operating revenue 556.0 209.4 511.5 (0.3) 1,276.6 Net realized losses on investments, hedging instruments and hedged items - - - (18.3) (18.3) - --------------------------------------------------------------------------------------------------------------------------- Total operating revenues 1,090.7 1,056.9 834.8 0.6 2,983.0 - --------------------------------------------------------------------------------------------------------------------------- Interest credited to policyholder account values 433.2 627.8 177.7 - 1,238.7 Amortization of deferred policy acquisition costs 220.0 47.6 80.3 - 347.9 Interest expense on debt primarily with NFS - - - 6.2 6.2 Other benefits and expenses 206.1 170.2 387.1 (2.1) 761.3 - --------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 859.3 845.6 645.1 4.1 2,354.1 - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before 231.4 211.3 189.7 (3.5) $ 628.9 federal income tax expense ============ Net realized losses on investments, hedging instruments and hedged items not related to securitizations - - - 20.2 - --------------------------------------------------------------------------------------------------------------------------- Pre-tax operating earnings 1 $ 231.4 $ 211.3 $ 189.7 $ 16.7 =========================================================================================================================== - --------------------------------------------------------------------------------------------------------------------------- 2 Assets as of period end $ 43,885.4 $ 34,130.1 $ 9,129.0 $ 4,010.1 $ 91,154.6 ===========================================================================================================================
____________ 1 Excludes net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items, discontinued operations and cumulative effect of adoption of accounting principles. 2 Inclues $24.8 million of assets related to discontinued operations. The Company has no significant revenue from customers located outside of the U.S. nor does the Company have any significant long-lived assets located outside the U.S. (20) VARIABLE INTEREST ENTITIES As of December 31, 2003, the Company has relationships with eight VIEs where the Company is the primary beneficiary. Each of these VIEs is a conduit that assists the Company in structured products transactions. One of the VIEs is used in the securitization of mortgage loans, while the others are involved in the sale of Low-Income-Housing Tax Credit Funds (Tax Credit Funds) to third-party investors where the Company provides guaranteed returns (See note 18). The Company has not yet adopted FIN 46 or FIN 46R as it relates to these VIEs. As such, these VIEs and their results of operations are not included in the consolidated financial statements. The net assets of these VIEs totaled $176.1 million as of December 31, 2003. The most significant components of net assets are $58.7 million of mortgage loans on real estate, $241.9 million of other long-term investments, $37.9 million in other assets, $59.2 million of short-term debt and $103.3 million of other liabilities. The total exposure to loss on these VIEs where the Company may be the primary beneficiary is less than $0.1 million as of December 31, 2003. For the mortgage loan VIE, which is the VIE to which the short-term debt relates to, the creditors have no recourse against the Company in the event of default by the VIE. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements In addition to the VIEs described above, the Company also holds variable interests, in the form of limited partnership (LP) or similar investments, in a number of tax credit funds. These investments have been held by the Company for periods of 1 to 7 years and allow the Company to experience certain tax credits and other tax benefits from affordable housing projects. The Company also has certain investments in securitization transactions that qualify as VIEs, but for which the Company is not the primary beneficiary. The total exposure to loss on these VIEs where the Company is not the primary beneficiary is $44.2 million as of December 31, 2003. (21) SUBSEQUENT EVENT As discussed in note 2(n), the Company adopted SOP 03-1 effective January 1, 2004. In connection with this adoption, the following cumulative effect adjustments are expected to be recorded in the 2004 consolidated financial statements.
(in millions) JANUARY 1, 2004 ================================================================================================================================== Increase in future policy benefits - ratchet interest crediting $ (12.3) Increase in future policy benefits - secondary guarantees - life insurance (2.4) Increase in future policy benefits - GMDB claim reserves (1.8) Increase in future policy benefits - GMIB claim reserves (1.0) Deferred acquisition costs related to above 12.4 Deferred federal income taxes 1.8 Cumulative effect of adoption of accounting principle, net of tax $ (3.3) ==================================================================================================================================
Under SOP 03-1, the Company's GMDB claim reserves are determined by estimating the expected value of death benefits on contracts that trigger a policy benefit and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company will regularly evaluate estimates used and will adjust the additional liability balance as appropriate, with a related charge or credit to other benefits and claims, if actual experience or other evidence suggests that earlier assumptions should be revised. The following assumptions and methodology were used to determine the GMDB claim reserves upon adoption of SOP 03-1: o Data used was based on a combination of historical numbers and future projections involving 250 stochastically generated investment performance scenarios o Mean gross equity performance of 8.1% o Equity volatility of 18.7% o Mortality - 100% of Annuity 2000 table o Discount rate of 8.0% Lapse rate assumptions vary by duration as shown below:
DURATION 1 2 3 4 5 6 7 8 9 10+ - --------------------------------------------------------------------------------------------------------------------- Minimum 4.50% 5.50% 6.50% 8.50% 10.50% 10.50% 10.50% 17.50% 17.50% 17.50% MAXIMUM 4.50% 8.50% 11.50% 17.50% 22.50% 22.50% 22.50% 22.50% 22.50% 19.50%
GMABs are considered derivatives under SFAS 133 resulting in the related liabilities being recognized at fair value with changes in fair value reported in earnings, and therefore, excluded from the SOP 03-1 claim reserve. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements The GMIB claim reserves will be determined each period by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total assessments. The Company will regularly evaluate estimates used and will adjust the additional liability balance as appropriate, with a related charge or credit to other benefits and claims, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in calculating the GMIB claim reserves are consistent with those used for calculating the GMDB claim reserves. In addition, the calculation of the GMIB claim reserves assumes utilization ranges from a low of 3% when the contract holder's annuitization value is 10% in the money to 100% utilization when the contract holder is 90% in the money. PART C. OTHER INFORMATION Item 26. EXHIBITS (a) Resolution of the Depositor's Board of Directors authorizing the establishment of the Registrant - Attached hereto. (b) Not Applicable. (c) Underwriting or Distribution of contracts between the Depositor and Principal Underwriter - Attached hereto. (d) The form of the contract - Attached hereto. (e) The form of the contract application - Attached hereto. (f) Articles of Incorporation of Depositor - Filed previously with initial registration statement (333-31725) and hereby incorporated by reference. (g) Reinsurance Contracts - Not Applicable. (h) Form of Participation Agreement - Attached hereto. (i) Not Applicable. (j) Not Applicable. (k) Opinion of Counsel - Attached hereto. (l) Not Applicable. (m) Not Applicable. (n) Independent Auditors' Consent - Attached hereto. (o) Not Applicable. (p) Not Applicable. (q) Redeemability Exemption Procedures - Filed previously with registration statement (333-46338) and hereby incorporated by reference. Item 27. DIRECTORS AND OFFICERS OF THE DEPOSITOR Arden L. Shisler, Director and Chairman of the Board W.G. Jurgensen, Director and Chief Executive Officer Mark R. Thresher, President and Chief Operating Officer Patricia R. Hatler, Executive Vice President, General Counsel and Secretary Terri L. Hill, Executive Vice President-Chief Administrative Officer Michael C. Keller, Executive Vice President-Chief Information Officer Kathleen D. Ricord, Executive Vice President-Chief Marketing Officer Robert A. Rosholt, Executive Vice President-Chief Finance and Investment Officer W. Kim Austen, Senior Vice President-Property and Casualty Commercial/Farm Product Pricing David A. Diamond, Senior Vice President Dennis P. Drent, Senior Vice President-Internal Audits Peter A. Golato, Senior Vice President J. Lynn Greenstein, Senior Vice President-Property and Casualty Personal Lines Product Pricing Kelly A. Hamilton, Senior Vice President-NI Finance David K. Hollingsworth, Senior Vice President-President-Nationwide Insurance Sales David R. Jahn, Senior Vice President-Property and Casualty Claims Richard A. Karas, Senior Vice President-Sales-Financial Services M. Eileen Kennedy, Senior Vice President-NF Finance Gale V. King, Senior Vice President-Property and Casualty Human Resources Srinivas Koushik, Senior Vice President-Chief Technology Officer Gregory S. Lashutka, Senior Vice President-Corporate Relations Gary D. McMahan, Senior Vice President Duane C. Meek, Senior Vice President Brian W. Nocco, Senior Vice President and Treasurer Mark D. Phelan, Senior Vice President-Technology and Operations John S. Skubik, Senior Vice President-Consumer Finance Katherine A. Stumph, Senior Vice President-Marketing, Strategy and Urban Market Operations Mark D. Torkos, Senior Vice President-Property and Casualty Systems Richard M. Waggoner, Senior Vice President-Operations Susan A. Wolken, Senior Vice President-Product Management and Nationwide Financial Marketing James G. Brocksmith, Jr., Director Keith W. Eckel, Director James F. Patterson, Director Gerald D. Prothro, Director Joseph A. Alutto, Director Donald L. McWhorter, Director Arden L. Shisler, Director Alex Shumate, Director Lydia M. Marshall, Director David O. Miller, Director Martha J. Miller de Lombera, Director The business address of the Directors and Officers of the Depositor is: One Nationwide Plaza, Columbus, Ohio 43215 Item 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT. * Subsidiaries for which separate financial statements are filed ** Subsidiaries included in the respective consolidated financial statements *** Subsidiaries included in the respective group financial statements filed for unconsolidated subsidiaries **** Other subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ 1717 Advisory Services, Inc. Pennsylvania The company is inactive and formerly registered as an investment advisor. - ------------------------------------------------------------------------------------------------------------------------------------ 1717 Brokerage Services, Inc. Pennsylvania This company is registered as a broker-dealer. - ------------------------------------------------------------------------------------------------------------------------------------ 1717 Capital Management Company Pennsylvania The company is registered as a broker-dealer and investment advisor. - ------------------------------------------------------------------------------------------------------------------------------------ 1717 Insurance Agency of Massachusetts Established to grant proper licensing to former Massachusetts, Inc. Provident Mutual Companies in Massachusetts. - ------------------------------------------------------------------------------------------------------------------------------------ 1717 Insurance Agency of Texas, Inc. Texas Established to grant proper licensing to former Provident Mutual Companies in Texas. - ------------------------------------------------------------------------------------------------------------------------------------ 401(k) Companies, Inc. (The) Texas This company acts as a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ 401(k) Company (The) Texas The company is a third-party administrator providing record keeping services for 401(k) plans. - ------------------------------------------------------------------------------------------------------------------------------------ 401(k) Investment Advisors, Inc. Texas The company is an investment advisor registered with the Securities and Exchange Commission. - ------------------------------------------------------------------------------------------------------------------------------------ 401(k) Investment Services, Inc. Texas The company is a broker-dealer registered with the National Association of Securities Dealers, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Affiliate Agency, Inc. Delaware The company is an insurance agency marketing life insurance and annuity products through financial institutions. - ------------------------------------------------------------------------------------------------------------------------------------ Affiliate Agency of Ohio, Inc. Ohio The company is an insurance agency marketing life insurance and annuity products through financial institutions. - ------------------------------------------------------------------------------------------------------------------------------------ AGMC Reinsurance Ltd. Turks & Caicos The company is in the business of reinsurance of Islands mortgage guaranty risks. - ------------------------------------------------------------------------------------------------------------------------------------ AID Finance Services, Inc. Iowa The company operates as a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ ALLIED Document Solutions, Inc. Iowa The company provides general printing services to its affiliated companies as well as to unaffiliated companies. - ------------------------------------------------------------------------------------------------------------------------------------ ALLIED General Agency Company Iowa The company acts as a general agent and surplus lines broker for property and casualty insurance products. - ------------------------------------------------------------------------------------------------------------------------------------ ALLIED Group Insurance Marketing Iowa The company engages in the direct marketing of Company property and casualty insurance products. - ------------------------------------------------------------------------------------------------------------------------------------ ALLIED Group, Inc. Iowa The company is a property and casualty insurance holding company. - ------------------------------------------------------------------------------------------------------------------------------------ ALLIED Property and Casualty Iowa The company underwrites general property and Insurance Company casualty insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Allied Texas Agency, Inc. Texas The company acts as a managing general agent to place personal and commercial automobile insurance with Colonial County Mutual Insurance Company for the independent agency companies. - ------------------------------------------------------------------------------------------------------------------------------------ Allnations, Inc. Ohio The company engages in promoting, extending, and strengthening cooperative insurance organizations throughout the world. - ------------------------------------------------------------------------------------------------------------------------------------ AMCO Insurance Company Iowa The company underwrites general property and casualty insurance. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ AMH Investments England and Wales The company provides benefits to a number of associates. - ------------------------------------------------------------------------------------------------------------------------------------ American Marine Underwriters, Inc. Florida The company is an underwriting manager for ocean cargo and hull insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Asset Management Holdings, plc England and Wales The company is a holding company of a group engaged in the management of pension fund assets, unit trusts and other collective investment schemes, investment trusts and portfolios for corporate clients. - ------------------------------------------------------------------------------------------------------------------------------------ Audenstar Limited United Kingdom The company is an investment holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Cal-Ag Insurance Services, Inc. California The company is a small captive insurance brokerage firm serving principally, but not exclusively, the "traditional" agent producers of Crestbrook Insurance Company. - ------------------------------------------------------------------------------------------------------------------------------------ CalFarm Insurance Agency California The company was originally incorporated to assist agents and affiliated companies in account completion for marketing products of Crestbrook Insurance Company. The agency also assisted other in-house agencies in a brokerage capacity to accommodate policyholders. - ------------------------------------------------------------------------------------------------------------------------------------ Cap Pro Holding, Inc. Delaware The company operates as a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Coda Capital Management, LLC Pennsylvania The company is a convertible bond manager. - ------------------------------------------------------------------------------------------------------------------------------------ Colonial County Mutual Insurance Texas The company underwrites non-standard automobile and Company motorcycle insurance and various other commercial liability coverages in Texas. - ------------------------------------------------------------------------------------------------------------------------------------ Cooperative Service Company Nebraska The company is an insurance agency that sells and services commercial insurance. The company also provides loss control and compliance consulting services and audit, compilation, and tax preparation services. - ------------------------------------------------------------------------------------------------------------------------------------ Corviant Corporation Delaware The purpose of the company is to create a captive distribution network through which affiliates can sell multi-manager investment products, insurance products and sophisticated estate planning services. - ------------------------------------------------------------------------------------------------------------------------------------ Crestbrook Insurance Company Ohio The company is an Ohio-based multi-line insurance corporation that is authorized to write personal, automobile, homeowners and commercial insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Damian Securities Limited England and Wales The company is engaged in investment holding. - ------------------------------------------------------------------------------------------------------------------------------------ Dancia Life S.A. Luxembourg The purpose of this company is to carry out, on its own behalf or on behalf of third parties, any insurance business including coinsurance, reinsurance relating to human life, whether undertaken in Luxembourg or abroad, all real estate business and all business relating to movable assets, all financial business, and other business related directly to the company's objectives which would promote or facilitate the realization of the company's objectives. - ------------------------------------------------------------------------------------------------------------------------------------ Delfi Realty Corporation Delaware The company is an inactive company. - ------------------------------------------------------------------------------------------------------------------------------------ Depositors Insurance Company Iowa The company underwrites general property and casualty insurance. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ Discover Insurance Agency, LLC California The purpose of the company is to sell property and casualty insurance products including, but not limited to, automobile or other vehicle insurance and homeowner's insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Discover Insurance Agency of Texas, Texas The purpose of the company is to sell property and LLC casualty insurance products including, but not limited to, automobile or other vehicle insurance and homeowner's insurance. - ------------------------------------------------------------------------------------------------------------------------------------ DVM Insurance Agency, Inc. California The company places pet insurance business not written by Veterinary Pet Insurance Company outside of California with National Casualty Company. - ------------------------------------------------------------------------------------------------------------------------------------ Europewide Life, SA Luxembourg The company writes life insurance including coinsurance and reinsurance, with the ability to write policies and contracts. - ------------------------------------------------------------------------------------------------------------------------------------ F&B, Inc. Iowa The company is an insurance agency that places business not written by the Farmland Insurance Companies with other carriers. - ------------------------------------------------------------------------------------------------------------------------------------ Farmland Mutual Insurance Iowa The company provides property and casualty insurance Company primarily to agricultural businesses. - ------------------------------------------------------------------------------------------------------------------------------------ Fenplace Limited England and Wales The company is currently inactive. - ------------------------------------------------------------------------------------------------------------------------------------ Financial Horizons Distributors Alabama The company is an insurance agency marketing life Agency of Alabama, Inc. insurance and annuity products through financial institutions. - ------------------------------------------------------------------------------------------------------------------------------------ Financial Horizons Distributors Ohio The company is an insurance agency marketing life Agency of Ohio, Inc. insurance and annuity products through financial institutions. - ------------------------------------------------------------------------------------------------------------------------------------ Financial Horizons Distributors Oklahoma The company is an insurance agency marketing life Agency of Oklahoma, Inc. insurance and annuity products through financial institutions. - ------------------------------------------------------------------------------------------------------------------------------------ Financial Horizons Distributors Texas The company is an insurance agency marketing life Agency of Texas, Inc. insurance and annuity products through financial institutions. - ------------------------------------------------------------------------------------------------------------------------------------ Financial Horizons Securities Oklahoma The company is a limited broker-dealer doing Corporation business solely in the financial institutions market. - ------------------------------------------------------------------------------------------------------------------------------------ Four P Finance Company Pennsylvania The company is an inactive company. - ------------------------------------------------------------------------------------------------------------------------------------ G.I.L. Nominees Limited England and Wales The company acts as a nominee. The company is dormant within the meaning of Section 249AA of the Companies Act of 1985 (English Law). - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore 1990 Limited England and Wales The company is engaged as a general partner in a limited partnership formed to invest in unlisted securities. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore 1990 Trustee Limited England and Wales The company is dormant within the meaning of Section 249AA of the Companies Act of 1985 (English Law). - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Capital Management Limited England and Wales The company is engaged in investment management and advisory services to business, institutional and private investors. The company has completed the transfer of its investment management activity to Gartmore Investment Limited. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Distribution Services, Delaware The company is a limited broker-dealer. Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Emerging Managers, Delaware The company acquires and holds interest in a LLC registered investment advisor and provides investment management services. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Fund Managers Jersey, Channel The company is engaged in investment administration International Limited Islands and support. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Fund Managers Limited England and Wales The company is engaged in authorized unit trust management and OEIC management. It is also the authorized Corporate Director of the Gartmore OEIC Funds. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Global Asset Management, Delaware The company operates as a holding company. Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Global Asset Management Delaware The company acts as a holding company for the Trust Gartmore Group and as a registered investment advisor. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Global Investments, Inc. Delaware The company acts as a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Global Partners Delaware The partnership is engaged in investment management. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Global Ventures, Inc. Delaware The company acts as a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Group Limited England and Wales The company is a holding company of a group engaged in the management of pension fund assets, unit trusts and other collective investment schemes, investment trusts, and portfolios for corporate clients. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Indosuez UK Recovery Fund England and Wales The company is a general partner in two limited (G.P.) Limited partnerships formed to invest in unlisted securities. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Investment Limited England and Wales The company is engaged in investment management and advisory services to pension funds, unit trusts and other collective investment schemes, investment trusts and portfolios for corporate or other institutional clients. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Investment Management plc England and Wales The company is an investment holding company and provides services to other companies within the Gartmore Group in the UK. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Investment Services GmbH Germany The company is engaged in marketing support. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Investment Services Limited England The company is engaged in investment holding. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Investor Services, Inc. Ohio The company provides transfer and dividend disbursing agent services to various mutual fund entities. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Japan Limited Japan The company is the renamed survivor entity of the merger of Gartmore Investment Management Japan Limited and Gartmore NC Investment Trust Management Company Ltd. The company is engaged in the business of investment management. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Managers (Jersey) Ltd Jersey, Channel The company serves as the manager of four AIB Govett Islands Jersey funds - AIB Grofunds Currency Funds Limited, Govett Securities & Investments Limited, Govett Singapore Growth Fund Limited and Govett Safeguard Funds Limited. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Morley & Associates, Inc. Oregon The company brokers or places book value maintenance agreements (wrap contracts) and guaranteed I contracts (GICs) for collective investment trusts and accounts. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Morley Capital Management, Oregon The company is an investment advisor and stable Inc. value money manager. - -------------------------------------x---------------------------------------------------------------------------------------------- Gartmore Morley Financial Services, Oregon The company is a holding company. Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Mutual Fund Capital Trust Delaware The trust acts as a registered investment advisor. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore No. 1 General Partner Ltd. Scotland The company is a Gartmore No. 1 General Partner to Scottish Limited Partnership, itself a general partner of Gartmore Direct Fund I Limited Partnership, a private equity investment vehicle. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore No. 2 General Partner Ltd. Scotland The company is a Gartmore No. 2 General Partner to Scottish Limited Partnership, itself a general partner of Gartmore Direct Fund I Limited Partnership, a private equity investment vehicle. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Nominees Limited England and Wales The company acts as a nominee. The company is dormant within the meaning of Section 249AA of the Companies Act 1985 (English Law). - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Pension Trustees Limited England and Wales Until April 1999, the company acted as a trustee of the Gartmore Pension Fund established by Gartmore Investment Management plc, which was merged with the National Westminster Bank Pension Fund on April 1, 1999. As a result all assets and liabilities of the Gartmore Pension Fund were transferred to the National Westminster Bank Fund. On November 22, 2000, the company changed its name from Gartmore Pension Fund Trustees Limited to Gartmore Pension Trust Limited. On November 30, 2000, the company became the trustee of the Gartmore Pension Scheme. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Riverview, LLC Delaware The company provides customized solutions, in the form of expert advice and investment management services, to a limited number of institutional investors, through construction of hedge fund and alternative asset portfolios and their integration into the entire asset allocation framework. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore S.A. Capital Trust Delaware The trust acts as a registered investment advisor. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Securities Limited England and Wales The company is engaged in investment holding and is a partner in Gartmore Global Partners. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Separate Accounts LLC Delaware The company acts as an investment advisor registered with the Securities and Exchange Commission. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore Trust Company Oregon The company is an Oregon state bank with trust power. - ------------------------------------------------------------------------------------------------------------------------------------ Gartmore U.S. Limited England and Wales The company is a joint partner in Gartmore Global Partners. - ------------------------------------------------------------------------------------------------------------------------------------ Gates, McDonald & Company Ohio The company provides services to employers for managing workers' and unemployment compensation matters and employee benefits costs. - ------------------------------------------------------------------------------------------------------------------------------------ Gates, McDonald & Company of Nevada The company provides self-insurance administration, Nevada claims examining and data processing services. - ------------------------------------------------------------------------------------------------------------------------------------ Gates, McDonald & Company of New New York The company provides workers' York, Inc. compensation/self-insured claims administration services to employers with exposure in New York. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ GatesMcDonald Health Plus, Inc. Ohio The company provides medical management and cost containment services to employers. - ------------------------------------------------------------------------------------------------------------------------------------ GGI MGT, LLC Delaware The company is a passive investment holder in Newhouse Special Situations Fund I, LLC for the purpose of allocation of earnings to Gartmore management team as it relates to the ownership and management of Newhouse Special Situations Fund I, LLC. - ------------------------------------------------------------------------------------------------------------------------------------ Institutional Concepts, Inc. New York This company holds insurance licenses in numerous states. - ------------------------------------------------------------------------------------------------------------------------------------ Insurance Intermediaries, Inc. Ohio The company is an insurance agency and provides commercial property and casualty brokerage services. - ------------------------------------------------------------------------------------------------------------------------------------ Landmark Financial Services of New New York The company is an insurance agency marketing life York, Inc. insurance and annuity products through financial institutions. - ------------------------------------------------------------------------------------------------------------------------------------ Lone Star General Agency, Inc. Texas The company acts as general agent to market non-standard automobile and motorcycle insurance for Colonial County Mutual Insurance Company. - ------------------------------------------------------------------------------------------------------------------------------------ MedProSolutions, Inc. Massachusetts The company provides third-party administration services for workers compensation, automobile injury and disability claims. - ------------------------------------------------------------------------------------------------------------------------------------ National Casualty Company Wisconsin The company underwrites various property and casualty coverage, as well as individual and group accident and health insurance. - ------------------------------------------------------------------------------------------------------------------------------------ National Casualty Company of England It is organized for profit under the Companies Act America, Ltd. of 1948 of England for the purpose of carrying on the business of insurance, reinsurance, indemnity, and guarantee of any and every kind, except life insurance; to act as underwriting agents and insurance manager in all of the respective branches, and to act as agent or manager for any insurance company, club, or association or for any underwriter or syndicate of underwriters and to purchase, take on, lease or in exchange, hire or otherwise acquire and hold for any estate or interest in any lands, buildings, easements, rights, privileges, concessions, patents, and any real or personal property of any kind necessary or convenient for the purposes in connection with the company's business or any branch or department thereof. This company is currently inactive. - ------------------------------------------------------------------------------------------------------------------------------------ National Deferred Compensation, Ohio The company administers deferred compensation plans Inc. for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Advantage Mortgage Iowa The company is engaged in making residential (1-4 Company family) mortgage loans. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Affinity Insurance Kansas The company is a shell insurer with no active Company of America policies or liabilities. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Affordable Housing, Ohio The company invests in affordable multi-family LLC housing projects throughout the U.S. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Agribusiness Insurance Iowa The company provides property and casualty insurance Company primarily to agricultural businesses. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Arena, LLC Ohio The purpose of the company is to develop Nationwide Arena and to engage in related Arena district development activity. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Asset Management England and Wales The company is a holding company of a group engaged Holdings, Ltd. in the management of pension fund assets, unit trusts and other collective investment schemes, investment trusts and portfolios for corporate clients. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Assurance Company Wisconsin The company underwrites non-standard automobile and motorcycle insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Capital Mortgage, LLC Ohio This company is a holding company that funds/owns commercial mortgage loans for an interim basis, hedges the loans during the ownership period, and then sells the loans as part of a securitization to generate profit. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Cash Management Ohio The company buys and sells investment securities of Company a short-term nature as agent for other corporations, foundations, and insurance company separate accounts. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Community Development Ohio The company holds investments in low-income housing Corporation, LLC funds. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Corporation Ohio The company acts primarily as a holding company for entities affiliated with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Credit Enhancement Ohio The company is currently a shell company. Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Assignment Ohio The company acts as an administrator of structured Company settlements. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Institution Delaware The company engages in the business of an insurance Distributors Agency, Inc. agency. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Institution New Mexico The company engages in the business of an insurance Distributors Agency, Inc. of New agency. Mexico - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Institution Massachusetts The company engages in the business of an insurance Distributors Insurance Agency, Inc. agency. of Massachusetts - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Services Bermuda The company is a long-term insurer that issues (Bermuda) Ltd. variable annuity and variable life products to persons outside the United States and Bermuda. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Services Delaware The Trust's sole purpose is to issue and sell Capital Trust certain securities representing individual beneficial interests in the assets of the Trust. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Services Delaware The Trust's sole purpose is to issue and sell Capital Trust II certain securities representing individual beneficial interests in the assets of the Trust. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Services, Inc. Delaware The company acts primarily as a holding company for companies within the Nationwide organization that offer or distribute long-term savings and retirement products. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Sp. z o.o Poland The company provides distribution services for its affiliate Nationwide Towarzystwo Ubezpieczen na Zycie S.A. in Poland. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Financial Structured Ohio The company serves to capture and report the results Products, LLC of the structured products business unit. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Foundation Ohio The not-for-profit company contributes to non-profit activities and projects. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide General Insurance Company Ohio The company transacts a general insurance business, except life insurance. The corporation primarily provides automobile and fire insurance to select customers. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Global Finance, LLC Ohio The company acts as a support company for Nationwide Global Holdings, Inc. in its international capitalization efforts. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Global Funds Luxembourg This company is formed to issue shares of mutual funds. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Global Holdings, Inc. Ohio The company is a holding company for international operations. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Global Holdings, Inc. - Luxembourg It serves as an extension of Nationwide Global Luxembourg Branch Holdings, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Global Holdings-NGH Brazil The company acts as a holding company. Brazil Participacoes, LTDA - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Home Mortgage Ohio This company performs the marketing function for Distributors, Inc. Nationwide Advantage Mortgage Company. - ------------------------------------------------------------------------------------------------------------------------------------ *Nationwide Indemnity Company Ohio The company is involved in the reinsurance business by assuming business from Nationwide Mutual Insurance Company and other insurers within the Nationwide Insurance organization. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company of Wisconsin The company is an independent agency personal lines America underwriter of property/casualty insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company of Ohio The company transacts general insurance business Florida except life insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Sales Company, Ohio The company provides administrative services for the LLC product sales and distribution channels of Nationwide Mutual Insurance Company and its affiliated and subsidiary insurance companies. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide International California The company is a special risk, excess and surplus Underwriters lines underwriting manager. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Investment Services Oklahoma This is a limited broker-dealer company doing Corporation business in the deferred compensation market and acts as an investment advisor. - ------------------------------------------------------------------------------------------------------------------------------------ **Nationwide Life and Annuity Ohio The company engages in underwriting life insurance Insurance Company and granting, purchasing, and disposing of annuities. - ------------------------------------------------------------------------------------------------------------------------------------ *Nationwide Life and Annuity Delaware The company provides individual life insurance Company of America products. - ------------------------------------------------------------------------------------------------------------------------------------ *Nationwide Life Insurance Company Pennsylvania The company provides individual life insurance and of America group annuity products. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Life Insurance Company Delaware The company insures against personal injury, of Delaware disablement or death resulting from traveling or general accidents and against disablement resulting from sickness, and every type of insurance appertaining thereto. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ **Nationwide Life Insurance Ohio This company provides individual life insurance, Company group life and health insurance, fixed and variable annuity products, and other life insurance products. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Lloyds Texas The company markets commercial property insurance in Texas. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Management Systems, Inc. Ohio The company offers a preferred provider organization and other related products and services. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Martima Vida Previdencia Brazil The company operates as a licensed insurance company S.A. in the categories of life and unrestricted private pension plans in Brazil. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Mortgage Holdings, Inc. Ohio The company acts as a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Mutual Fire Insurance Ohio The company engages in a general insurance and Company reinsurance business, except life insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Mutual Insurance Ohio The company engages in a general insurance and Company reinsurance business, except life insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Properties, Ltd. Ohio The company is engaged in the business of developing, owning and operating real estate and real estate investments. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Property and Casualty Ohio The company engages in a general insurance business, Insurance Company except life insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Provident Distributors, Delaware The company is an inactive company. Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Provident Holding Pennsylvania The company is a holding company for non-insurance Company subsidiaries. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Realty Investors, Ltd. Ohio The company is engaged in the business of developing, owning and operating real estate investments. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Delaware The company markets and administers deferred Inc. compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Alabama The company provides retirement products, Inc. of Alabama marketing/education and administration to public employees and educators. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Arizona The company markets and administers deferred Inc. of Arizona compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Arkansas The company markets and administers deferred Inc. of Arkansas compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Montana The company markets and administers deferred Inc. of Montana compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Nevada The company markets and administers deferred Inc. of Nevada compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, New Mexico The company markets and administers deferred Inc. of New Mexico compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Ohio The company provides retirement products, Inc. of Ohio marketing/education and administration to public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Oklahoma The company markets and administers deferred Inc. of Oklahoma compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, South Dakota The company markets and administers deferred Inc. of South Dakota compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Texas The company markets and administers deferred Inc. of Texas compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Wyoming The company markets and administers deferred Inc. of Wyoming compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Retirement Solutions, Massachusetts The company markets and administers deferred Insurance Agency, Inc. compensation plans for public employees. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Securities, Inc. Ohio The company is a registered broker-dealer and provides investment management and administrative services. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Services Company, LLC Ohio The company performs shared services functions for the Nationwide organization. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Services Sp. z o.o. Poland The company provides services to Nationwide Global Holdings, Inc. in Poland. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Strategic Investment Ohio The company acts as a private equity fund investing Fund, LLC in companies for investment purposes and to create strategic opportunities for Nationwide. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Towarzystwo Ubezpieczen Poland The company is authorized to engage in the business na Zycie S.A. of life insurance and pension products in Poland. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide Trust Company, FSB United States This is a federal savings bank chartered by the Office of Thrift Supervision in the United States Department of the Treasury to exercise custody and fiduciary powers. - ------------------------------------------------------------------------------------------------------------------------------------ Nationwide UK Holding Company, Ltd. England and Wales The company is a holding company of a group engaged in the management of pension fund assets, unit trusts and other collective investment schemes, investment trusts and portfolios for corporate clients. - ------------------------------------------------------------------------------------------------------------------------------------ Newhouse Capital Partners, LLC Delaware The company invests in financial services companies that specialize in e-commerce and promote distribution of financial services. - ------------------------------------------------------------------------------------------------------------------------------------ Newhouse Special Situations Fund I, Delaware The company owns and manages contributed securities LLC to achieve long - term capital appreciation from the contributed securities and through investments in a portfolio of other equity investments in financial service and other related companies as determined by the company to be undervalued or in need of changes in capital structure or to present other special situations that have the potential for significant earnings growth from among other things, major financial service industry trends, unfilled niches and synergies with other firms in the portfolio. - ------------------------------------------------------------------------------------------------------------------------------------ NFS Distributors, Inc. Delaware The company acts primarily as a holding company for Nationwide Financial Services, Inc. distribution companies. - ------------------------------------------------------------------------------------------------------------------------------------ NFSB Investments, Ltd. Bermuda The company buys and sells investment securities for its own account in order to enhance the investment returns of its affiliates. - ------------------------------------------------------------------------------------------------------------------------------------ NGH Luxembourg S. a. r. L. Luxembourg The company acts primarily as a holding company for the European operations for Nationwide Global Holdings, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ NGH Netherlands, B.V. Netherlands The company acts as a holding company for other Nationwide overseas companies. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ NGH UK, Ltd. United Kingdom The company functions as a support company for other Nationwide overseas companies. - ------------------------------------------------------------------------------------------------------------------------------------ NorthPointe Capital, LLC Delaware The company acts as a registered investment advisor. - ------------------------------------------------------------------------------------------------------------------------------------ PanEuroLife Luxembourg The company provides individual life insurance primarily in the United Kingdom, Belgium and France. - ------------------------------------------------------------------------------------------------------------------------------------ Pension Associates, Inc. Wisconsin The company provides pension plan administration and record keeping services, and pension plan and compensation consulting. - ------------------------------------------------------------------------------------------------------------------------------------ PNAM, Inc. Delaware The company is a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Premier Agency, Inc. Iowa This company is an insurance agency. - ------------------------------------------------------------------------------------------------------------------------------------ Provestco, Inc. Delaware The company serves as a general partner in certain real estate limited partnerships invested in by Nationwide Life Insurance Company of America. - ------------------------------------------------------------------------------------------------------------------------------------ Quick Sure Auto Agency, Inc. Texas The company is an insurance agency and operates as an employee agent "storefront" for Titan Insurance Services. - ------------------------------------------------------------------------------------------------------------------------------------ RCMD Financial Services, Inc. Delaware The company is a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Retention Alternatives, Ltd. Bermuda The company is a captive insurer and writes first dollar insurance policies in workers' compensation, general liability and automobile liability for its affiliates in the United States. - ------------------------------------------------------------------------------------------------------------------------------------ RF Advisors, Inc. Pennsylvania The company is an inactive company. - ------------------------------------------------------------------------------------------------------------------------------------ Riverview International Group, Inc. Delaware The company is an investment advisor and a broker dealer. - ------------------------------------------------------------------------------------------------------------------------------------ RP&C International, Inc. Ohio The company is an investment-banking firm, which provides specialist advisory services and innovative financial solutions to public and private companies internationally. - ------------------------------------------------------------------------------------------------------------------------------------ Scottsdale Indemnity Company Ohio The company engages in a general insurance business, except life insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Scottsdale Insurance Company Ohio The company primarily provides excess and surplus lines of property and casualty insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Scottsdale Surplus Lines Insurance Arizona The company provides excess and surplus lines Company coverage on a non-admitted basis. - ------------------------------------------------------------------------------------------------------------------------------------ Siam Ar-Na-Khet Company Limited Thailand The company is a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Software Development Corp. Delaware The company is an inactive company. - ------------------------------------------------------------------------------------------------------------------------------------ TBG Aviation, LLC California The company holds an investment in a leased airplane and maintains an operating agreement with Flight Options. - ------------------------------------------------------------------------------------------------------------------------------------ TBG Danco Insurance Company California The corporation provides for life insurance and individual executive estate planning to maximize benefit value. - ------------------------------------------------------------------------------------------------------------------------------------ TBG Financial and Insurance California The corporation consults with corporate clients and Services Corporation financial institutions on the development and implementation of proprietary and/or private placement insurance products for the financing of executive benefit programs and individual executive's estate planning requirements. As a broker dealer, TBG Financial Services provides complete and flexible access to institutional insurance investment products. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ TBG Financial and Insurance Hawaii The corporation consults with corporate clients and Services Corporation of Hawaii financial institutions on the development and implementation of proprietary, private placement and institutional insurance products. - ------------------------------------------------------------------------------------------------------------------------------------ TBG Insurance Services California The company markets and administers executive Corporation benefit plans. - ------------------------------------------------------------------------------------------------------------------------------------ THI Holdings (Delaware), Inc. Delaware The company acts as a holding company for the Titan, Victoria and Whitehall groups. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Auto Agency, Inc. Michigan The company is an insurance agency that primarily sells non-standard automobile insurance for Titan Insurance Company in Michigan. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Auto Insurance Nevada The company is an insurance agency that operates as an employee agent "storefront" for Titan Indemnity Company in Nevada. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Auto Insurance of Pennsylvania The company is an insurance agency that operates as Pennsylvania, Inc. an employee agent "storefront" for Titan Indemnity Company in Pennsylvania (currently inactive). - ------------------------------------------------------------------------------------------------------------------------------------ Titan Auto Insurance of Arizona, Arizona The company is an insurance agency that operates as Inc. an employee agent "storefront" for Titan Indemnity Company in Arizona. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Auto Insurance of New Mexico, New Mexico The company is an insurance agency that operates as Inc. an employee agent "storefront" for Titan Indemnity Company in New Mexico. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Auto Insurance, Inc. Colorado The company is an insurance agency and operates as an employee agent "storefront" for Titan Indemnity Company in Colorado. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Holdings Service Corporation Texas The company acts as a holding company specifically for Titan corporate employees. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Indemnity Company Texas The company is a multi-line licensed insurance company and is operating primarily as a property and casualty insurance company. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Insurance Company Michigan This is a property and casualty insurance company. - ------------------------------------------------------------------------------------------------------------------------------------ Titan Insurance Services, Inc. Texas The company is a Texas grand fathered managing general agency. - ------------------------------------------------------------------------------------------------------------------------------------ Titan National Auto Call Center, Texas The company is licensed as an insurance agency that Inc. operates as an employee agent "call center" for Titan Indemnity Company. - ------------------------------------------------------------------------------------------------------------------------------------ Vertboise, SA Luxembourg The company acts as a real property holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Veterinary Pet Insurance Company California The company provides pet insurance. - ------------------------------------------------------------------------------------------------------------------------------------ Veterinary Pet Services, Inc. California The company acts as a holding company. - ------------------------------------------------------------------------------------------------------------------------------------ Victoria Automobile Insurance Ohio The company is a property and casualty insurance Company company. - ------------------------------------------------------------------------------------------------------------------------------------ Victoria Financial Corporation Delaware The company acts as a holding company specifically for all Victoria corporate employees. - ------------------------------------------------------------------------------------------------------------------------------------ Victoria Fire & Casualty Company Ohio The company is a property and casualty insurance company. - ------------------------------------------------------------------------------------------------------------------------------------ Victoria Insurance Agency, Inc. Ohio The company is an insurance agency that acts as a broker for independent agents appointed with the Victoria companies in the state of Ohio. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ STATE/COUNTRY OF NO. VOTING PRINCIPAL BUSINESS COMPANY ORGANIZATION SECURITIES (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ------------------------------------------------------------------------------------------------------------------------------------ Victoria National Insurance Company Ohio The company is a property and casualty insurance company. - ------------------------------------------------------------------------------------------------------------------------------------ Victoria Select Insurance Company Ohio The company is a property and casualty insurance company. - ------------------------------------------------------------------------------------------------------------------------------------ Victoria Specialty Insurance Company Ohio The company is a property and casualty insurance company. - ------------------------------------------------------------------------------------------------------------------------------------ VPI Services, Inc. California The company operates as a nationwide pet registry service for holders of Veterinary Pet Insurance policies, including pet indemnification and lost pet recovery program. - ------------------------------------------------------------------------------------------------------------------------------------ Washington Square Administrative Pennsylvania The company provides administrative services to Services, Inc. Nationwide Life and Annuity Company of America. - ------------------------------------------------------------------------------------------------------------------------------------ Western Heritage Insurance Company Arizona The company underwrites excess and surplus lines of property and casualty insurance. - ------------------------------------------------------------------------------------------------------------------------------------ William J. Lynch and Associates, California The company specializes in the analysis and funding Inc. of corporate benefit liabilities. - ------------------------------------------------------------------------------------------------------------------------------------ W.I. of Florida Florida The company is an insurance agency and operates as an employee agent "storefront" for Titan Indemnity Company in Florida. - ------------------------------------------------------------------------------------------------------------------------------------ W.I. of New York New York The company is an insurance agency and operates as an employee agent "storefront" for Titan Indemnity Company in New York (currently inactive). - ------------------------------------------------------------------------------------------------------------------------------------ Whitehall Holdings, Inc. Texas The company acts as a holding company especially for the Titan agencies. - ------------------------------------------------------------------------------------------------------------------------------------ Whitehall Insurance agency of Texas The company is a Texas licensed insurance agency Texas, Inc. (currently inactive). - ------------------------------------------------------------------------------------------------------------------------------------ Whitehall of Indiana, Inc. Indiana The company is an insurance agency and operates as an employee agent "storefront" for Titan Indemnity Company in Indiana. - ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- COMPANY STATE/COUNTRY OF NO. VOTING SECURITIES PRINCIPAL BUSINESS ORGANIZATION (SEE ATTACHED CHART UNLESS OTHERWISE INDICATED) - ----------------------------------------------------------------------------------------------------------------------------------- * MFS Variable Account Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Multi-Flex Variable Account Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VA Separate Account-A Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VA Separate Account-B Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VA Separate Account-C Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VA Separate Account-D Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-II Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-3 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-4 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-5 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-6 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-7 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-8 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-9 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-10 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-11 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-12 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-13 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Variable Account-14 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- Nationwide Variable Account-15 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- Nationwide Variable Account-16 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- Nationwide Variable Account-17 Ohio Issuer of Annuity Contracts - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Provident VA Separate Pennsylvania Issuer of Annuity Contracts Account 1 - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Provident VA Separate Delaware Issuer of Annuity Contracts Account A - ----------------------------------------------------------------------------------------------------------------------------------- Nationwide VL Separate Account-A Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- Nationwide VL Separate Account-B Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VL Separate Account-C Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VL Separate Account-D Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VLI Separate Account Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VLI Separate Account-2 Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VLI Separate Account-3 Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VLI Separate Account-4 Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VLI Separate Account-5 Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide VLI Separate Account-6 Ohio Issuer of Life Insurance Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Provident VLI Separate Pennsylvania Issuer of Life Insurance Account 1 Policies - ----------------------------------------------------------------------------------------------------------------------------------- * Nationwide Provident VLI Separate Delaware Issuer of Life Insurance Account A Policies - -----------------------------------------------------------------------------------------------------------------------------------
(left side) ----------------------- | FARMLAND MUTUAL | | INSURANCE COMPANY | | | | Guaranty Fund |__________________________________________ | ------------- |__________________________________________ | Certificate | | ----------- | | | | Casualty | ----------------------- | | | ____________ | | | ---------------------------- | - ---------------------------- | | NATIONWIDE GENERAL | | | F & B, INC. | | | INSURANCE COMPANY | | | | | | | | | Common Stock: 1 Share | | | Common Stock: 20,000 |___| | ------------- | | | ------------- Shares | | | |___| | | | | Farmland | | | Casualty-100% | | | Mutual-100% | | ---------------------------- | | | | | - ---------------------------- | ---------------------------- | | | NATIONWIDE PROPERTY | | - ---------------------------- | | AND CASUALTY | | | COOPERATIVE SERVICE | | | INSURANCE COMPANY | | | COMPANY | | | | | | | | | Common Stock: 60,000 |___| | Common Stock: 600 Shares | | | ------------- Shares | | | ------------- |___| | | | | | | Casualty-100% | | | Farmland | ---------------------------- | | Mutual-100% | | - ---------------------------- ---------------------------- | | NATIONWIDE ASSURANCE | | | COMPANY | | | (ASSURANCE) | | | | | | Common Stock: 1,750 |___| | ------------- Shares | | | | | | Casualty-100% | | ---------------------------- | | ---------------------------- | | NATIONWIDE AGRIBUSINESS | | | INSURANCE COMPANY | | | | | | Common Stock: 1,000,000 | | | ------------- Shares | | | |___| | Casualty-99.9% | | | Other Capital: | | | -------------- | | | Casualty-Pfd. | | ---------------------------- | | ---------------------------- | | NATIONAL CASUALTY | | | COMPANY | | | (NC) | | | | | | Common Stock: 100 Shares |___| | ------------- | | | | Casualty-100% | ---------------------------- | | ---------------------------- | NCC OF AMERICA, LTD. | | (INACTIVE) | | | | | | NC-100% | | | ----------------------------
NATIONWIDE(R) (middle) ------------------------------------------ | | | | | | __| NATIONWIDE MUTUAL |__________________________________________ __| INSURANCE COMPANY |__________________________________________ | (CASUALTY) | | | | | | | ------------------------------------------ | | | ______________________________________________________________________________________________________________________ | | | | | -------------------------------- | ------------------------------- | | | SCOTTSDALE | | | SCOTTSDALE | | ---------------------------- | | INSURANCE COMPANY | | | INDEMNITY COMPANY | | | NATIONWIDE MANAGEMENT | | | (SIC) | | | | | | SYSTEMS, INC. | | | | | | Common Stock: 50,000 | | | | |___| Common Stock: 30,136 | |___| ------------- Shares | |___| Common Stock: 100 Shares | | | ------------- Shares | | | | | | ------------- | | | | | | | | | | | | Casualty-100% | | | Casualty-100% | | | Casualty-100% | | | (See Page 2) | | ------------------------------- | ---------------------------- | -------------------------------- | | | | ------------------------------- | ---------------------------- | -------------------------------- | | NATIONWIDE | | | NATIONWIDE AFFINITY | | | ALLIED | | | INDEMNITY COMPANY | | | INSURANCE COMPANY | | | GROUP, INC. | | | (NW INDEMNITY) | | | OF AMERICA | | | (AGI) | | | Common Stock: 28,000 | | | |___| | | |___| ------------- Shares | | | Common Stock: 500,000 | |___| Common Stock: 850 Shares | | | | | | ------------- Shares | | | ------------- | | | | | | | | | | | | Casualty-100% | | | Casualty-100% | | | Casualty-100% | | ------------------------------- | ---------------------------- | | (See Page 2) | | | | | | | | ---------------------------- | -------------------------------- | ------------------------------- | | NEWHOUSE CAPITAL | | | | LONE STAR | | | PARTNERS, LLC | | -------------------------------- | | GENERAL AGENCY, INC. | | | | | | RP&C | | | | | | Casualty-70% | | | INTERNATIONAL | | | Common Stock: 1,000 | | | |___| | | |___| ------------- Shares | | | GGV-19% | |___| Common Stock: 963 | | | | | | | | | ------------- Shares | | | | | | Fire-10% | | | | | | Casualty-100% | | ---------------------------- | | Casualty-23.88% | | ------------------------------- | | -------------------------------- | || | ---------------------------- | | || | | | | -------------------------------- | ------------------------------- | | NATIONWIDE LLOYDS | | | NATIONWIDE CAPITAL | | | COLONIAL COUNTY | | | |___| | MORTGAGE, LLC | | | MUTUAL INSURANCE | | | A TEXAS LLOYDS |___| | | | | COMPANY | | | | |___| Mutual-5% | | | | | | | | | | | | Surplus Debentures: | | | | | | NW Indemnity-95% | | | ------------------- | | ---------------------------- | | | | | | | | -------------------------------- | | Assurance | | ---------------------------- | | | Lone Star | | | THI HOLDINGS | | -------------------------------- | | | | | DELAWARE, INC. | | | NATIONWIDE INSURANCE | | ------------------------------- | | (THI) | | | COMPANY OF FLORIDA | | | | | | | | | ------------------------------- | | Common Stock: 100 Shares |___|___| Common Stock: 10,000 | | | NATIONWIDE SERVICES | | | | | | ------------ Shares | | | COMPANY, LLC | | Casualty-100% | | | | | | | | | | | Casualty-100% | | | Single Member Limited | | (See page 3) | | | | |---| Liability Company | ---------------------------- | -------------------------------- | | | | | | Casualty-100% | | -------------------------------- | ------------------------------- | | NATIONWIDE CREDIT | | | | ENHANCEMENT INSURANCE | | ------------------------------- |___| COMPANY | | | AMERICAN MARINE | | | | | UNDERWRITERS, INC. | | Casualty-100% | | | | | | | | Common Stock: 20 Shares | -------------------------------- |___| ------------- | | | | Casualty-100% | | | -------------------------------
(right side) ------------------------------------------ ------------------------ | | | NATIONWIDE | | | | FOUNDATION | | | | | | NATIONWIDE MUTUAL | | MEMBERSHIP | __| FIRE INSURANCE COMPANY | | NONPROFIT | __| (FIRE) | | CORPORATION | | | ------------------------ | | | | ------------------------------------------ | |_________________________________________________________________________________________________ | | | _________________________________________________________________________ | | | | | | | | | | -------------------------------- | -------------------------------- | ------------------------------- | | NATIONWIDE CASH | | | NATIONWIDE | | | | | | MANAGEMANT COMPANY | | | CORPORATION | | | RETENTION | | | | | | Common Stock: 13,642,432 | | | ALTERNATIVES, LTD. | | | | | | ------------- | | | Common Stock: 120,000 SHARES | |___| Common Stock: 100 Shares | | | 13,642,432 | | | ------------- | | | ------------- | | | | | | | | | | | | | | | Fire-100% | | | | | | | | | | | | Casualty-100% | | | Casualty 95.2% | | -------------------------------- | -------------------------------- | | Fire 4.8% | | | | | | | | -------------------------------- | | (See Page 4) | | | | | | -------------------------------- | | | | | | | | NATIONWIDE | | -------------------------------- | | | ARENA LLC | | | ALLNATIONS, INC. | | |---| | | | Common Stock: 12,248 Shares | | | | | | | ------------- | | | | | | | | | | | Casualty-90% | | | Casualty-16.2% | | | | | |___| Fire-16.2% |___ | -------------------------------- | | Preferred Stock: 1,466 Shares| | | | ---------------- | | -------------------------------- | | | | | NATIONWIDE INSURANCE | | | Casualty-6.8% | | | SALES COMPANY, LLC | | | Fire-6.8% | | | (NISC) | | -------------------------------- | | | | |---| Single Member Limited |__ | -------------------------------- | | Liability Company | | | | NATIONWIDE INTERNATIONAL | | | | | | | UNDERWRITERS | | | Casualty-100% | | | | | | -------------------------------- | | | Common Stock: 1,000 | | | | |___| ------------- Shares | | | | | | | | -------------------------------- | | | | | | INSURANCE | | | | Casualty-100% | | | INTERMEDIARIES, INC. | | | -------------------------------- | | | | | | | Common Stock: 1,615 | | | -------------------------------- | | ------------- Shares | | | | CRESTBROOK INSURANCE | | | | | | | COMPANY | | | | | | | | | | NISC-100% | | | | Common Stock: 52,000 | | -------------------------------- | |___| ------------- Shares | | | | | | | -------------------------------- | | | | | | DISCOVER INSURANCE | | | | Casualty-100% | | | AGENCY LLC | | | -------------------------------- | | | | | | | Single Member Limited | | | -------------------------------- | | Liability Company |-- | | NATIONWIDE REALTY | | | | | | INVESTORS, LTD | | | NISC-100% | | | | | | | | | Casualty-95% | | -------------------------------- |---| | | | | NW Indemnity-5% | | -------------------------------- | | | | | DISCOVER INSURANCE | | -------------------------------- | | AGENCY OF | | | | TEXAS, LLC | | -------------------------------- | | | | | NATIONWIDE STRATEGIC | |___| Single Member Limited | | | INVESTMENT FUND, LLC | |___| Liability Company | | | | | | |---| Single Member Limited | | | | | Liability Company | -------------------------------- | | | Casualty-100% | | | -------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line March 31, 2004
Page 1
(left side) ----------------------- | FARMLAND MUTUAL | | INSURANCE COMPANY | | | | Guaranty Fund |__________________________________________ | ------------- |__________________________________________ | Certificate | | ----------- | | | | Casualty | | (See Page 1)| | | ----------------------- _________________________________________________ | | | | | | - ---------------------------- | ---------------------------- | NATIONWIDE INSURANCE | | | AID FINANCE | | COMPANY OF AMERICA | | | SERVICES, INC. | | | | | (AID FINANCE) | | Common Stock: 12,000 | | | | | ------------- Shares |___| | Common Stock: 10,000 | | | | | ------------- Shares | | | | | | | AGI-100% | | | AGI-100% | - ---------------------------- | ---------------------------- | | - ---------------------------- | | | ALLIED DOCUMENT | | ---------------------------- | SOLUTIONS, INC. | | | ALLIED | | | | | GROUP INSURANCE | | Common Stock: 10,000 | | | MARKETING COMPANY | | ------------- Shares |___| | | | | | | Common Stock: 20,000 | | | | | ------------- Shares | | AGI-100% | | | | - ---------------------------- | | Aid Finance-100% | | ---------------------------- - ---------------------------- | | DEPOSITORS | | ---------------------------- | INSURANCE COMPANY | | | PREMIER | | (DEPOSITORS) | | | AGENCY | | | | | INC. | | Common Stock: 300,000 |___|______| | | ------------- Shares | | | Common Stock: 100,000 | | | | | ------------- Shares | | AGI-100% | | | | - ---------------------------- | | AGI-100% | | ---------------------------- - ---------------------------- | | ALLIED PROPERTY | | | AND CASUALTY | | | INSURANCE COMPANY | | | (Allied P & C) |___| | Common Stock: 300,000 | | ------------- Shares | | | | AGI-100% | - ----------------------------
NATIONWIDE(R) (middle) ------------------------------------------ | | | | | | _______________| NATIONWIDE MUTUAL |______________________________________________________ _______________| INSURANCE COMPANY |______________________________________________________ | (CASUALTY) | | (See Page 1) | | | | | ------------------------------------------ |__________________________________________________________________________ | | ---------------------------- | ALLIED | | GROUP, INC. | | (AGI) | | | | Common Stock: 850 Shares | | ------------- | | | | Casualty-100% | ---------------------------- | | | | _______________________________________________________________________________________________________________ | | | | | | ---------------------------- | ---------------------------- | NATIONWIDE MORTGAGE | | | AMCO | | HOLDINGS INC. | | | INSURANCE COMPANY | | (NMH) | | | (AMCO) | ___| |___| ___| | | | AGI-100% | | | Common Stock: 300,000 | | | | | | ------------- Shares | | | | | | | | ---------------------------- | | AGI-100% | | | ---------------------------- | ---------------------------- | | | NATIONWIDE HOME | | ---------------------------- | | MORTGAGE DISTRIBUTORS | | | ALLIED | | | INC. | | | GENERAL AGENCY | |___| | | | COMPANY | | | NMHI-100% | |___| | | | | | | Common Stock: 5,000 | | | | | | ------------- Shares | | ---------------------------- | | | | | | AMCO-100% | | ---------------------------- | ---------------------------- | | NATIONWIDE | | | | ADVANTAGE MORTGAGE | | ---------------------------- | | COMPANY (NAMC) | | | | |___| | | | ALLIED TEXAS | | Common Stock: 115,819 | | | AGENCY, INC. | | ------------- Shares | |___| | | | | | | | NMHI-100% | | | AMCO-100% | | | | | | | 8% Preferred: 39,500 | | | | | ------------- Shares | | ---------------------------- | | | | AGI-24% | | ---------------------------- ---------------------------- | AMCO-76% | | | CALFARM INSURANCE | | CAL-AG INSURANCE | | | | | AGENCY | | SERVICES, INC. | | 7% Preferred: 40,000 | | | | | | | ------------- Shares | |___| Common Stock: 1,000 |___| Common Stock: 100 | | | | ------------- Shares | | ------------- Shares | | AMCO- 25% | | | | | | Allied P&C-50% | | AMCO-100% | | CalFarm Insurance | | Depositors-25% | | | | Agency-100% | ---------------------------- ---------------------------- ---------------------------- | | ---------------------------- | AGMC | | REINSURANCE, LTD. | | | | Common Stock: 11,000 | | ------------- Shares | | | | NAMC-100% | ----------------------------
(right) ------------------------------------------ | | | | | | _______________| NATIONWIDE MUTUAL | _______________| FIRE INSURANCE COMPANY | | (FIRE) | | (See Page 1) | | | | | ------------------------------------------ _____________________________________ | | ---------------------------- | SCOTTSDALE | | INSURANCE COMPANY | | (SIC) | | | | Common Stock: 30,136 | | ------------- Shares | | | | Casualty-100% | ---------------------------- | | | |____________________________________________________________ | | | | | | | | | ---------------------------- ---------------------------- | | SCOTTSDALE | | VETERINARY PET | | | SURPLUS LINES | | SERVICES, INC. | | | INSURANCE COMPANY | | (VPSI) | |___| | | | | | Common Stock: 10,000 | | Common Stock: 5,645,527 | | | ------------- Shares | | ------------- Shares | | | | | | | | SIC-100% | ___| SIC-80.5% | | ---------------------------- | ---------------------------- | | | ---------------------------- | ---------------------------- | | WESTERN | | | VETERINARY PET | | | HERITAGE INSURANCE | | | INSURANCE CO. | | | COMPANY | | | | |___| | |___| | | Common Stock: 4,776,076 | | | VPSI-100% | | ------------- Shares | | | | | | | | | | SIC-100% | | ---------------------------- ---------------------------- | | ---------------------------- | | DVM INSURANCE | | | AGENCY, INC. | |___| | | | VPSI-100% | | | | | ---------------------------- | | ---------------------------- | | VPI SERVICES, INC. | |___| | | VPSI-100% | | | ---------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line March 31, 2004
Page 2 ------------------------- | FARMLAND MUTUAL | | INSURANCE COMPANY | | |______ |Guaranty Fund |______ |Certificate | | | |Casualty | | (See Page 1) | ------------------------- __________________________________________________________________________ | | | | - --------------------------------- | | TITAN INDEMNITY COMPANY | ---------------------------------- | (TITAN) | | VICTORIA FINANCIAL CORP. | | | | (VICTORIA) | |Common Stock: 4,319,951 Shares | | | |------------ | ___|Common Stock: 1,000 Shares| | | | |------------ | | | | | | |THI-100% | | | | - --------------------------------- | |THI-100% | | | ---------------------------------- | | - --------------------------------- | | TITAN INSURANCE COMPANY | | ---------------------------------- | (TITAN INSURANCE) | | | VICTORIA FIRE & | | | | | CASUALTY COMPANY | |Common Stock: 1,000,000 Shares | | | (VICTORIA FIRE) | |------------ | |___| | | | | |Common Stock: 1,500 Shares|___ | | | |------------ | | |Titan-100% | | | | | - --------------------------------- | | | | | | |Victoria-100% | | | | ---------------------------------- | - --------------------------------- | | | TITAN AUTO AGENCY, INC. | | | | (MI) | | ---------------------------------- | | | | | VICTORIA INSURANCE | | |Common Stock: 1,000 Shares | | | AGENCY INC. | | |------------ | | | | | | | |___|Common Stock: 497 Shares Class B|___| | | |------------ 3 Shares Class A| | |Titan Insurance-100% | | | | - --------------------------------- |Victoria-100% of | | |Class A & Class B | | ---------------------------------- | | | ---------------------------------- | | VICTORIA AUTOMOBILE | | | INSURANCE COMPANY | | | | | |Common Stock: 1,500 Shares|___| |------------ | | | | | | | | |Victoria Fire-100% | | ---------------------------------- | | | ---------------------------------- | | VICTORIA NATIONAL | | | INSURANCE COMPANY | | | | | |Common Stock: 1,000 Shares|___| |------------ | | | | | | | | |Victoria Fire-100% | | ---------------------------------- | | | ---------------------------------- | | VICTORIA SELECT | | | INSURANCE COMPANY | | | | | |Common Stock: 1,000 Shares|___| |------------- | | | | | | | | |Victoria Fire-100% | | ---------------------------------- | | | ---------------------------------- | | VICTORIA SPECIALITY | | | INSURANCE COMPANY | | | | | |Common Stock: 1,000 Shares|___| |------------ | | | | | |Victoria Fire-100% | ----------------------------------
NATIONWIDE(R) -------------------------------------- ___________________| NATIONWIDE MUTUAL |_____________________________________________ ___________________| INSURANCE COMPANY |_____________________________________________ | (CASUALTY) | | (See Page 1) | -------------------------------------- | | ------------------------------------ | THI HOLDINGS DELAWARE, INC. | | (THI) | | | |Common Stock: 1,000 Shares| |------------ | | | | | |THI-100% | ------------------------------------ | | | _____________________________________|______________________________________________________________________________ | ---------------------------------- | WHITEHALL HOLDINGS, INC. | | (WHITEHALL) | | | |Common Stock: 1,000 Shares| |------------ | | | | | |THI-100% | ---------------------------------- | | | | | - ---------------------------------- | ---------------------------------- | TITAN AUTO INSURANCE | | | WHITEHALL INSURANCE | | OF ARIZONA, INC. | | | AGENCY OF TEXAS, INC. | | | | | | |Common Stock: 100,000 Shares|___|___|Common Stock: 1,000 Shares|________________________ |------------ | | |------------ | | | | | | | | | | | | | | |Whitehall-100% | | |Whitehall-100% | | - ---------------------------------- | ---------------------------------- | | | | | - ---------------------------------- | ---------------------------------- ---------------------------------- | TITAN AUTO INSURANCE | | | WHITEHALL OF | | TITAN INSURANCE | | OF NEW MEXICO, INC. | | | INDIANA, INC. | | SERVICES INC. | | | | | | | (TITAN SERVICES) | |Common Stock: 1,000 Shares|___|___|Common Stock: 10,000 Shares| ___| | |------------ | | |------------ | | |Common Stock: 1 Share | | | | | | | |------------ | | | | | | | | | |Whitehall-100% | | |Whitehall-100% | | |Whitehall Ins.-100% | - ---------------------------------- | ---------------------------------- | ---------------------------------- | | | | - ---------------------------------- | ---------------------------------- | ---------------------------------- | TITAN AUTO INSURANCE | | | WI OF | | | TITAN NATIONAL AUTO | | (NV) | | | FLORIDA, INC. | | | CALL CENTER, INC. | | | | | | | | | |Common Stock: 1,000 Shares|___|___|Common Stock: 100 Shares| |___|Common Stock: 100 Shares| |------------ | | |------------ | | |------------ | | | | | | | | | | | | | | | | | |Whitehall-100% | | |Whitehall-100% | | |Titan Services-100% | - ---------------------------------- | ---------------------------------- | ---------------------------------- | | | | - ---------------------------------- | ---------------------------------- | ---------------------------------- | TITAN AUTO INSURANCE | | | TITAN AUTO | | | QUICK SURE AUTO | | OF PENNSYLVANIA, INC. | | | INSURANCE, INC | | | AGENCY, INC. | | | | | | | | | |Common Stock: 1,000 Shares|___|___|Common Stock: 1,000 Shares| |___|Common Stock: 1,050 Shares| |------------ | | |------------ | |------------ | | | | | | | | | | | | | | | |Whitehall-100% | | |Whitehall-100% | |Titan Services-100% | - ---------------------------------- | ---------------------------------- ---------------------------------- | | | ---------------------------------- | | WHI OF | | | NEW YORK, INC. | | | | |___|Common Stock: 100 Shares| |------------ | | | | | |Whitehall-100% | ----------------------------------
-------------------------------------- ________________| NATIONWIDE MUTUAL | ________________| FIRE INSURANCE COMPANY | | (CASUALTY) | | (See Page 1) | -------------------------------------- ______________________________________________________________ | | | ---------------------------------- | TITAN HOLDINGS | | SERVICE CORPORATION | | (TITAN HOLDINGS) | | | |Common Stock: 100,00 Share | |------------ | | | |THI-100% | ---------------------------------- Subsidiary Companies __ Solid Line Contractual Association __ Double Line Limited Liability Company __ Dotted Line March 31, 2004 Page 3 ________________________________________________________________________________ | | | | | | | | | --------------------------------- --------------------------------- | | NATIONWIDE TOWARZYSTWO | | NATIONWIDE GLOBAL HOLDINGS, | | | UBEZPIECZEN NA ZYCIE SA | | INC.-LUXEMBOURG BRANCH | | | | | (BRANCH) | | |Common Stock: 1,952,000 Shares | | |___ | |------------ | | | | | | | | | |NGH-100% | | Endowment Capital- | | --------------------------------- --------------------------------- | | | --------------------------------- --------------------------------- | | | | | | | NATIONWIDE | | NGH LUXEMBOURG S.AA,R.L. | | | FINANCIAL SP. Z O.O. | | (LUX SA) | |___| | |Common Stock: 189,595 Shares| | |Common Stock: 40,950 Shares | ___|------------ | | |------------ | | | | | | | | | | | | | | |BRANCH-65% | | |NGH-100% | | |NW Corp.-35% | | --------------------------------- | --------------------------------- | | | --------------------------------- | --------------------------------- | | SIAM AR-NA-KHET | | | NGH UK, LTD. | | | COMPANY LTD. (SIAM) | | | | |---| | | | | | | |___| | | | | | | | | | | | |NGH-48.99% | | | | --------------------------------- | |LUX SA-100% | | --------------------------------- | | | | --------------------------------- | | NATIONWIDE GLOBAL HOLDINGS | | | -NGH BRASIL PARTICIPACOES, | | | LTDA (NGH BRASIL) | |___| | | | Shares | | | ------ |___ | | | | | | | | | | |LUX SA 6,164,899 | | |NGH 1 | | --------------------------------- | | | | | --------------------------------- | | NATIONWIDE MARITIMA VIDA e | | | PREVIDENCIA SA | | | | | |Common Stock: 134,822,225 | | |------------ Shares | | | | | | | | | | | | | | |DPSA-86.4% | | --------------------------------- --------------------------------- | | PANEUROLIFE (PEL) | | --------------------------------- | | | | EUROPE WIDE LIFE SA | |Common Stock: 1,300,000 Shares| | | | |------------ |___|___| | | | | |Common Stock: 65,000 | | | | |------------- |___ |LUX SA-100% | | | Shares | |LUF | | | ------ | --------------------------------- | |LUX Sa-100% 64,999 | | | |NGH 1 | | | | | --------------------------------- | --------------------------------- | VERTBOIS, SA | | | | | --------------------------------- | | | | DANICA LIFE S.A | | | | | | | | | | | | | |___| | | | | | | | | | | PEL-99.99% | | | | LUX SA-.01% | |LUX SA-100% | --------------------------------- --------------------------------- (middle) NATIONWIDE(R) ------------------- | FARMLAND MUTUAL | | INSURANCE COMPANY | -------------------- | |___________|NATIONWIDE MUTUAL |_____________________________________________________ |Guaranty Fund |___________|INSURANCE COMPANY |_____________________________________________________ |Certificate | | (CASUALTY) | | | | (See Page 1) | | |Casualty | -------------------- | | (See Page 1) | | ------------------- | ------------------------------------ | NATIONWIDE CORPORATION (NW CORP) | | Common Stock: 13,642,432 Shares | | ------------- | | | | | | | |Casualty 95.2% | |Fire 4.8% | ------------------------------------ | | ___________________________________________________________________________________________________________ _______ | | | | --------------------------------- --------------------------------- --------------------------------- | | NATIONWIDE GLOBAL | | NATIONWIDE | | NATIONWIDE FINANCIAL | | | HOLDINGS, INC. (NGH) | | SECURITIES, INC. | | SERVICES, INC. (NFS) | | | | | | | | |___|Common Stock: 1 Share | |Common Stock: 7,676 Share | |Common Stock: Control | | |------------ | |------------ | |------------ ------- | | | | | | |Class A Public-100% | | | | | | |Class B NW Corp-100% | | |NW Corp.-100% | |NW Corp.-100% | | (See Page 5) | | --------------------------------- --------------------------------- --------------------------------- | --------------------------------- | | NGH | | | NETHERLANDS B.V. | | | | |___|Common Stock: 40 Shares| | |------------ | | | | | | | | |NGH-100% | | --------------------------------- | --------------------------------- | | NATIONWIDE | | | SERVICES SP. Z O.O. | | | | | |Common Stock: 80 Shares| |___|------------ | | | | | | | | |NGH-100% | | --------------------------------- | --------------------------------- | | NATIONWIDE GLOBAL | | | FINANCE, LLC | | | | |---| Single Member Limited | | | Liability Company | | | | | | | | |NGH-100% | _______| ---------------------------------
(right side) ------------------------- |NATIONWIDE MUTUAL | _________________________________|FIRE INSURANCE COMPANY | _________________________________| (FIRE) | | (See Page 1) | ------------------------- ________________________________________________________________ | | | | --------------------------------- --------------------------------- | GARTMORE GLOBAL ASSET | | GATES, MCDONALD | | MANAGEMENT TRUST | | & COMPANY (GATES) | | (GGAMT) | | | | | _____|Common Stock: 254 Shares| | | | |------------ | | | | | | |NW Corp-100% | | | | | (See Page 7) | | |NW Corp.-100% | --------------------------------- | --------------------------------- | | | --------------------------------- | | MEDPROSOLUTIONS, INC. | | | | | | | |____| | | | | | | | | |Gates-100% | | --------------------------------- | | | --------------------------------- | | GATES, MCDONALD & | | | COMPANY OF NEW YORK, INC. | | | | |____|Common Stock: 3 Shares | | |------------ | | | | | | | | |Gates-100% | | --------------------------------- | | --------------------------------- | | GATES, MCDONALD & | | | COMPANY OF NEVADA | | | | | |Common Stock: 40 Shares| |____|------------ | | | | | | | | |Gates-100% | | --------------------------------- | | --------------------------------- | | GATESMCDONALD | | | HEALTH PLUS, INC. | | | | |____|Common Stock: 200 Shares| |------------ | | | |Gates-100% | --------------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line March 31, 2004 Page 4 (left side) ------------------- | FARMLAND MUTUAL | | INSURANCE COMPANY | | |________________________ |Guaranty Fund |________________________ |Certificate | | | |Casualty | | (See Page 1) | -------------------- __________________________________________________________________________________________________ | | | ------------------------------ ---------------------------------- | ----------------------------- | TBG INSURANCE | | NATIONWIDE LIFE INSURANCE | | | NATIONWIDE FINANCIAL | | SERVICES CORPORATION | | COMPANY (NW LIFE) | | | SERVICES CAPITAL TRUST | | (TGB) | | | | | | ___| | ___| Common Stock: 3,814,779 Shares | |___| | | | | | | ------------ | | | | | | | | | | | | | | | | | | | | | | | |NFS-63% | | | NFS-100% | | | NFS-63% | | ------------------------------ | ---------------------------------- | ----------------------------- | | | | ------------------------------ | | ----------------------------- | | TBG AVATION, LLC | | ---------------------------------- | | CAPITAL PRO HOLDING, INC. | | | | | | NATIONWIDE LIFE AND | | | (CAP PRO) | | | | | | ANNUITY INSURANCE COMPANY | | | | | | | | | | | | | |__| | |__| Common Stock: 66,000 Shares | |___| | | | | | | ------------ | | | | | | | | | | | | |TGB-100% | | | NW Life-100% | | NFS-63% | | ------------------------------ | ---------------------------------- ----------------------------- | | | | ------------------------------ | ---------------------------------- ----------------------------- | | TBG DANCO INSURANCE | | | NATIONWIDE INVESTMENT | | CAPITAL PROFESSIONAL | | | COMPANY | | | SERVICES CORPORATION | | ADVISORS, INC. | | | | | | | | (CPA) | |__| | |__| Common Stock: 5,000 Shares | | | | | | | | ------------ | | | | | | | | | | | | | | | | | | |TGN-100% | | | | | CAP PRO-100% | | ------------------------------ | | NW Life-100% | ----------------------------- | | ---------------------------------- | | ------------------------------ | ----------------------------- | | TGB FINANCIAL & INSURANCE | | ---------------------------------- | CAP PRO INSURANCE | | | SERVICES CORPORATION | | | NATIONWIDE FINANCIAL | | AGENCY SERVICES, INC. | |__| | |__| ASSIGNMENT COMPANY | | | | | | | | | | | | | | | | NW LIFE-100% | | | | | | | ---------------------------------- | | | | | | | | | |TGN-100% | | ---------------------------------- | CPAI-100% | | ------------------------------ | | NATIONWIDE PROPERTIES LTD. | ----------------------------- | | | | | | ------------------------------ | | Units: | ----------------------------- | | TGB FINANCIAL & INSURANCE | |__| ----- | | CAP PRO BROKERAGE | | | SERVICES CORPORATION | | | NW LIFE-97.6% | | SERVICES, INC. | | | OF HAWAII | | | Casualty-2.4% | | | |__| | | ---------------------------------- | | | | | | | | | | | | ---------------------------------- | | | | | | | NATIONWIDE COMMUNITY | | | | |TGN-100% | | | DEVELOPMENT CORP., LLC | | CPAI-100% | | ------------------------------ | | | ----------------------------- | |--| Units: | | | ------------------------------ | | ----- | ----------------------------- | | WILLIAM J. LYNCH & | | | NW LIFE-67% | | CAP PRO ADVISORY | | | ASSOCIATES, INC. | | | NW Indemnity-33% | | SERVICES , INC. | | | | | ---------------------------------- | | | | | | | | |__| | | ---------------------------------- | | | | | | NATIONWIDE AFFORDABLE | | | | | | | HOUSING, LLC | | | |TGN-100% | |--| | | CPAI-100% | ------------------------------ | NW Life-45% | ----------------------------- | NW Indemnity-45% | ----------------------------------
(middle) NATIONWIDE(R) --------------------- ______________________| NATIONWIDE MUTUAL |_________________________________ ______________________| INSURANCE COMPANY |_________________________________ | (CASUALTY) | | | (See Page 1) | | --------------------- | | --------------------------------------------- | NATIONWIDE CORPORATION (NW CORP) | | Common Stock: 13,642,432 | | ------------ Shares | | ------ | | Casualty 95.2% | | Fire 4.8% | --------------------------------------------- | | ------------------------------------ | NATIONWIDE FINANCIAL | | SERVICES, INC. (NFS) | | Common Stock: Control | | ------------ ------- | | Class A Public-100% | | Class B NW Corp-100% | ------------------------------------ | | _________________________________________________________________________________________________________________________ | | | ----------------------------- ---------------------------- ----------------------------------- | NATIONWIDE TRUST | | NFS DISTRIBUTORS, INC. | | NATIONWIDE FINANCIAL | | COMPANY, FSB | | (NFSDI) | | SERVICES CAPITAL TRUST II | | | | | | | | Common Stock: 2,800,000 | | | | | | ------------ Shares | | | | | | | | | | | | | | | | | | NFS-100% | | NFS-100% | | NFS-100% | ----------------------------- ---------------------------- ----------------------------------- | _____________________________________________________________________________________________ | | | | | | ----------------------------- ---------------------------- ----------------------------------- | NATIONWIDE FINANCIAL | | NATIONAL DEFERRED | | | | INSTITUTION DISTRIBUTORS | | COMPENSATION, INC. | | THE 401(K) COMPANIES, INC. | | AGENCY, INC. (NFIDAI) | | | | (401(K)) | | | | | | | | Common Stock: 1,000 Shares| | | | | | ------------ | | | | | | | | | | | | NFSDI-100% | | NFSDI-100% | | NFSDI-100% | ----------------------------- --------------------------- ----------------------------------- | | --------------------------------- | | | FINANCIAL HORIZONS | | | | DISTRIBUTORS AGENCY | | | | OF ALABAMA, INC. | | | | |_| | | Common Stock: 10,000 Shares | | | | ------------ | | | | | | | | | | | | NFIDAI-100% | | | --------------------------------- | | | | --------------------------------- | ----------------------------- -------------------------------- | | LANDMARK FINANCIAL | | | | | 401(k) INVESTMENT | | | SERVICES OF | | | | | SERVICES, INC. | | | | | | FINANCIAL HORIZONS | | | | | NEW YORK, INC. | | _| DISTRIBUTORS | |Common Stock: 1,000,000 Shares|___| | Common Stock: 10,000 Shares |_| _| AGENCY OF OHIO, INC | |------------- | | | ------------ | | | | | | | | | | | | | | | | NFIDAI-100% | | | | |401(k)-100% | | --------------------------------- | ----------------------------- -------------------------------- | | | --------------------------------- | ----------------------------- -------------------------------- | | FINANCIAL HORIZONS | | | | | 401(k) INVESTMENT | | | SECURITIES CORP. | | | | | ADVISORS, INC. | | | | | | FINANCIAL HORIZONS | | | | | Common Stock: 10,000 Shares | | _| DISTRIBUTORS | |Common Stock: 1,000 Shares |___| | ------------ |_| _| AGENCY OF | |------------- | | | | | | OKLAHOMA, INC | | | | | | | | | | | | | NFIDAI-100% | | | | |401(k)-100% | | --------------------------------- | ----------------------------- -------------------------------- | | | --------------------------------- | ----------------------------- -------------------------------- | | AFFILIATE AGENCY, INC. | | | | | THE 401(k) COMPANY | | | | | | | | | | | Common Stock: 100 Shares | | | FINANCIAL HORIZONS |Common Stock: 855,000 Shares | | | ------------ |_| _| DISTRIBUTORS | |------------- |___| | | | _| AGENCY OF TEXAS, INC | | | | | | | | | | | NFIDAI-100% | | | | |401(k)-100% | --------------------------------- | ----------------------------- -------------------------------- | --------------------------------- | ------------------------------ | NATIONWIDE FINANCIAL | | | AFFILIATE AGENCY | | INSTITUTION DISTRIBUTORS | | | OF OHIO, INC. | |INSURANCE AGENCY, INC. OF MASS.| | | | | Common Stock: 100 Shares |_| __| Common Stock: 750 Shares | | ------------ | | | ------------ | | | | | | | NFIDAI-100% | | | NFIDAI-100% | --------------------------------- | ------------------------------ | --------------------------------- | | NATIONWIDE FINANCIAL | | | INSTITUTION DISTRIBUTORS | | | AGENCY, INC. OF NEW MEXICO | | | Common Stock: 100 Shares |_| | ------------ | | | | NFIDAI-100% | ---------------------------------
(right side) ------------------------- | NATIONWIDE MUTUAL | ____________| FIRE INSURANCE COMPANY | ____________| (FIRE) | | (See Page 1) | -------------------------- _______________________________________________________________________________________________________________ | | | | | -------------------------------- | ----------------------------- | ------------------------------- | PENSION ASSOCIATES, INC. | | | NATIONWIDE LIFE INSURANCE | | | NATIONWIDE FINANCIAL | | | | | COMPANY OF AMERICA | | | SERVICES, (BERMUDA) LTD. | | Common Stock: 1,000 Shares | | | (NLICA) | | | (NFSB) | | ------------ | | | | | | Common Stock: 250,000 Shares | | | | | | | | | | | | | | | | | | NFS-100% | | | NFS-100% (See Page 6)| | | NFS-100% | -------------------------------- | ----------------------------- | ------------------------------- | | | _______________________________________ | | | | | | | -------------------------------- | ----------------------------- | -------------------------------- | NATIONWIDE RETIREMENT | | | NATIONWIDE FINANCIAL | | | NFSB INVESTMENTS LTD. | | SOLUTIONS, INC. (NRS) | | | STRUCTURED PRODUCTS, LlLC | | | | | | | | | | | Common Stock: 12,000 Shares | | Common Stock: 236,494 Shares | |---| | | | ------------ | | ------------- | | | | | | | | | | | | | | NFSDI-100% | | NFS-100% | | | NFSB-100% | -------------------------------- ----------------------------- | -------------------------------- | | | | -------------------------------- -------------------------------- | ----------------------------- | | NF REINSURANCE, LTD. | | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | | | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | | Common Stock: 250,000 Shares | | ALABAMA | | | NEW MEXICO | |-- | ------------ | | Common Stock: 10,000 Shares |_|_| Common Stock: 1,000 Shares| | | | ------------ | | | ------------ | | | | | | | | | NFS-100% | | NRS-100% | | | NRS-100% | -------------------------------- -------------------------------- | ----------------------------- | -------------------------------- | ----------------------------- | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | ARIZONA | | | SO. DAKOTA | | Common Stock: 1,000 Shares |_|_| Common Stock: 1,000 Shares| | ------------ | | | ------------ | | | | | | | NRS-100% | | | NRS-100% | -------------------------------- | ----------------------------- | -------------------------------- | ----------------------------- | NATIONWIDE RETIREMENT | | | NATIONWIDE RETIREMENT | | SOLUTIONS, INC. OF | | | SOLUTIONS, INC. OF | | ARKANSAS | | | WYOMING | | Common Stock: 50,000 Shares |_|_| Common Stock: 500 Shares | | ------------ | | | ------------ | | | | | | | NRS-100% | | | NRS-100% | -------------------------------- | ----------------------------- | -------------------------------- | ----------------------------- | NATIONWIDE RETIREMENT | | | | | SOLUTIONS, INS. | | | | | AGENCY, INC. | |_| NATIONWIDE RETIREMENT | | Common Stock: 1,000 Shares |_|_| SOLUTIONS, INC. OF | | ------------ | | | OHIO | | | | | | | NRS-100% | | | | -------------------------------- | ----------------------------- | -------------------------------- | ----------------------------- | NATIONWIDE RETIREMENT | | | | | SOLUTIONS, INC. OF | | | | | MONTANA | | | NATIONWIDE RETIREMENT | | | |_| SOLUTIONS, INC. OF | | Common Stock: 500 Shares |_|_| OKLAHOMA | | ------------ | | | | | | | | | | NRS-100% | | | | ------------------------------- | ----------------------------- | -------------------------------- | ----------------------------- | NATIONWIDE RETIREMENT | | | | | SOLUTIONS, INC. OF | | | | | NEVADA | | | NATIONWIDE RETIREMENT | | Common Stock: 1,000 Shares | |_| SOLUTIONS, INC. OF | | ------------ |_|_| TEXAS | | | | | | NRS-100% | | | -------------------------------- ----------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line March 31, 2004
Page 5 (left side) NATIONWIDE(R) --------------------- -------------------------- | FARMLAND MUTUAL |___________| NATIONWIDE MUTUAL |____________________________ | INSURANCE COMPANY |___________| INSURANCE COMPANY |____________________________ | | | (CASUALTY) | | | Guaranty Fund | | (See Page 1) | | | ------------- | -------------------------- | | Certificate | | | ----------- | | | | | | Casualty | | | (See Page 1) | | --------------------- | | | | ------------------------------------------ | NATIONWIDE CORPORATION (NW CORP) | | | | Common Stock: 13,642,432 Shares | | ------------- | | | | | | Shares | | ------ | | Casualty 95.2% | | Fire 4.8% | ------------------------------------------ | | | --------------------------------- | NATIONWIDE FINANCIAL | | SERVICES, INC. (NFS) | | | | Common Stock: Control | | ------------- ------- | | Class A Public - 100% | | Class B NW Corp - 100%| --------------------------------- | | | ---------------------------------- | NATIONWIDE LIFE INSURANCE | | COMPANY OF AMERICA | _______________________________________| (NLICA) | | | | | | | | NFS - 100% | | | ---------------------------------- | | | | | | | | | ----------------------------- ----------------------------- ----------------------- | NATIONWIDE LIFE AND | | NATIONWIDE LIFE INSURANCE | | NATIONWIDE | | ANNUITY COMPANY OF | | COMPANY OF DELAWARE | | PROVIDENT HOLDING | | AMERICA | | | ___| COMPANY |___ | | | | | | (NPHC) | | | | | | | | | NLICA - 100% | | NLICA - 100% | | | NLICA - 100% | ----------------------------- ----------------------------- | ----------------------- | | ----------------------------- | ----------------------- | WASHINGTON SQUARE | | | FOUR P FINANCE | | ADMINISTRATIVE | | | COMPANY | | SERVICES, INC. |__|__| | | | | | | | NPHC - 100% | | | NPHC - 100% | ----------------------------- | ----------------------- | | ----------------------------- | ----------------------- | | | | | | SOFTWARE | | | NATIONWIDE | | DEVELOPMENT | | | PROVIDENT | | CORP. |__|__| DISTRIBUTORS, INC. | | | | | | | | | | | | NPHC - 100% | | | NPHC - 100% | ----------------------------- | ----------------------- | | ----------------------------- | ----------------------- | RF ADVISERS, INC. | | | DELFI REALTY | | | | | CORPORATION | | | | | | | |__|__| | | NPHC - 100% | | | NPHC - 100% | ----------------------------- | ----------------------- | | ----------------------------- | ----------------------- | PNAM, INC. | | | INSTITUTIONAL | | | | | CONCEPTS, INC. | | |__|__| | | | | | | | NPHC - 100% | | | NPHC - 100% | ----------------------------- | ----------------------- | | ----------------------------- | ----------------------- | PROVESTCO, INC. | | | 1717 CAPITAL | | | | | MANAGEMENT COMPANY |___ | |__|__| |___ | | | | | NPHC - 100% | | NPHC - 100% | ----------------------------- -----------------------
(right side) ------------------------------------- | NATIONWIDE MUTUAL | __________| FIRE INSURANCE COMPANY | __________| (FIRE) | | (See Page 1) | ------------------------------------- ----------------------------- ----------------------------- | RCMD FINANCIAL | | 1717 BROKERAGE | | SERVICES, INC. | | SERVICES, INC. | | (RCMD) | | (BSI) | _____| |___| | | | | | | NPHC - 100% | | RCMD - 100% | ----------------------------- ----------------------------- | | | | ----------------------------- ----------------------------- | 1717 ADVISORY | | 1717 INSURANCE | | SERVICES, INC. | | AGENCY OF | | | | MASSACHUSETTS, INC. | | | | | | RCMD - 100% | | BSI - 100% | ----------------------------- ----------------------------- ----------------------------- | | ___| 1717 INSURANCE | ___| AGENCY OF TEXAS, INC. | | | ----------------------------- Subsidiary Companies - Solid Line Contractual Association - Double Line Limited Liability Company - Dotted Line March 31, 2004 Page 6 (left side) --------------------- | FARMLAND MUTUAL | | INSURANCE COMPANY | | | |Guaranty Fund | |------------- |_______________________ |Certificate |_______________________ |----------- | | | |Casualty | | (See Page 1) | --------------------- _______________________________ | _____________ --------------------------- | | | AUDENSTAR LIMITED | --------------------------- | | (AL) | | NATIONWIDE ASSET | | | |__ | MANAGEMENT HOLDINGS, LTD. | | | | | | (NAMHL) | | | | | | | | | GGAMT - 100% | | | | | --------------------------- | | GGAMT - 100% | | | | --------------------------- | --------------------------- | | | | RIVERVIEW INTERNATIONAL | | --------------------------- | | GROUP, INC. | | | GARTMORE GROUP LTD. | | | (RIG) | | | (GGL) | | | |__|__| | | | | | | | | GGAMT - 79% | __| NAMHL - 83% | | | AL - 21% | | --------------------------- | --------------------------- | | | | | --------------------------- | | | | NATIONWIDE UK HOLDING | | --------------------------- | | COMPANY, LTD. | | | GARTMORE RIVERVIEW, LLC | | | (NUKHCL) | | | | | | | | | | | | | | | | | | GGL - 100% | | | | | --------------------------- | | RIG - 70% | | | | --------------------------- | --------------------------- | | | ASSET MANAGEMENT | | | | HOLDINGS PLC | | | _| (AMH) | | || | | | || | | | || | NUKHCL - 100% | | || --------------------------- | || | | || --------------------------- | || | GARTMORE INVESTMENT | | || | MANAGEMENT PLC | | ||_| (GIM) |__|__ | | | | | | AMH - 99.99% | | | | GNL - .01% | | | --------------------------- | | | | | | | | | | | | | | | | |__ | | | --------------------------- | | GARTMORE GLOBAL | | | INVESTMENTS, INC. | |__| (GGL) | | | | | | (See Page 8) | --------------------------- (middle) NATIONWIDE(R) ------------------- __| NATIONWIDE MUTUAL |____________________________________________________________________________ __| INSURANCE COMPANY |____________________________________________________________________________ | (CASUALTY) | | | (See Page 1) | | ------------------- | ---------------------------------------- | NATIONWIDE CORPORATION (NW CORP) | | Common Stock: 13,642,432 | | ------------ Shares | | | | | | Casualty 95.2% | | Fire 4.8% | ---------------------------------------- | | ------------------------------------- | GARTMORE GLOBAL | | ASSET MANAGEMENT | | TRUST (GGAMT) | | | | NW Corp.-100% | ------------------------------------- | | ___________________________________ ________________________________________________________________________________________________ | | | -------------------------- -------------------------- | -------------------------- | | GARTMORE INVESTMENT LTD. | | GARTMORE INVESTMENT | | | GARTMORE FUND | | | (GIL) | | SERVICES LTD. | | | MANAGERS LTD. | |__ | | ___| (GISL) | |__| (GFM) | | | | | | | | | | | | GIM - 99.9% | | | GIM - 80% | | | GIM - 99.99% | | | GNL - 0.1% | | | GNL - 20% | | | GNL - .01% | | -------------------------- | -------------------------- | -------------------------- | | | | | | -------------------------- | -------------------------- | -------------------------- | | GARTMORE JAPAN | | | | | | | | | LIMITED | | | GARTMORE INVESTMENT | | | FENPLACE LIMITED | | | | | | SERVICES GMBH | | | | | | | |__| | | | | | | | | | | | | | | | GIL - 100% | | | | | | GFM - 100% | | | | | | GISL - 100% | | | | | -------------------------- | -------------------------- | -------------------------- | | | | -------------------------- | -------------------------- | -------------------------- | | GARTMORE 1990 LTD. | | | GARTMORE FUND MANAGERS | | | GARTMORE PENSION | | | | | | INTERNATIONAL LIMITED | | | TRUSTEES, LTD. | |___| | |__| (GFMI) | |__| | | | | | | | | | | GIM - 50% | | GISL - 99.99% | | GIM - 99% | | | GSL - 50% | | GSL - .01% | | GSL - 1% | | -------------------------- -------------------------- -------------------------- | | | -------------------------- -------------------------- | | GARTMORE INDOSUEZ UK | | GARTMORE MANAGERS | | | RECOVERY FUND (G.P.) LTD.| | (JERSEY) LTD. | |___| (GENERAL PARTNER) | | | | | | | GFMI - 94% | | | GIM - 50% | | GSL - 3% | | | GNL - 50% | | GIM - 3% | | -------------------------- -------------------------- | | -------------------------- -------------------------- | |GARTMORE 1990 TRUSTEE LTD.| | | | | (GENERAL PARTNER) | | GARTMORE NO. 1 | |___| | | GENERAL PARTNER, LTD. | | | _____| | | GIM - 50% | | | | GSL - 50% | | | -------------------------- | GIM - 100% | -------------------------- -------------------------- | GARTMORE NO. 2 | | GENERAL PARTNER, LTD. | _____| | | | | | | GIM - 100% | --------------------------
------------------------------------- | NATIONWIDE MUTUAL | __________| FIRE INSURANCE COMPANY | __________| (FIRE) | | (See Page 1) | ------------------------------------- _________________________________________________ | | | -------------------------- -------------------------- | | DAMIAN SECURITIES LTD. | | GARTMORE CAPITAL | | | | | MANAGEMENT LTD. | |__| | | (GCM) | | | | | | | | GIM - 50% | | GIM - 99.99% | | | GSL - 50% | | GSL - 0.1% | | -------------------------- -------------------------- | | | -------------------------- -------------------------- | | GARTMORE NOMINEES LTD. | | GARTMORE U.S. LTD. | | | (GNL) | | (GUS) | |__| | | | | | | | | | | | | | | | GIM - 99.99% | | | | | GSL - .01% | | GCM - 100% | | -------------------------- -------------------------- | | | -------------------------- -------------------------- | | GARTMORE SECURITIES LTD. | | GARTMORE GLOBAL PARTNERS | | | (GSL) | | (GENERAL PARTNER) | |__| |_____| | | | | | | | | GIM - 99.99% | | GUS - 50% | | | GNL - .01% | | GSL - 50% | | -------------------------- -------------------------- | | -------------------------- | | GIL NOMINEES LTD. | | | | |__| | | | | GIM - 50% | | GSL - 50% | -------------------------- Subsidiary Companies -- Solid Line Contractual Association -- Double Line Limited Liability Company -- Dotted Line March 31, 2004
Page 7 (left side) NATIONWIDE(R) - ----------------------- ------------------------------------- | FARMLAND MUTUAL | | NATIONWIDE MUTUAL | | INSURANCE COMPANY |______________________| INSURANCE COMPANY |_____________________________________ | |______________________| |_____________________________________ | Guaranty Fund | | (CASUALTY) | | | Certificate | | (See Page 1) | | | | ------------------------------------- | | Casualty | | | (See Page 1) | | - ----------------------- | ------------------------------------ | NATIONWIDE CORPORATION (NW CORP) | | Common Stock: 13,642,432 | | ------------ Shares | | | | Casualty-95.2% | | Fire-4.8% | ------------------------------------ | | ------------------------------------ | GARTMORE GLOBAL | | ASSET MANAGEMENT | | TRUST (GGAMT) | | | | | | NW Corp.-100% | ------------------------------------ | | ------------------------------------ | NATIONWIDE ASSET | | MANAGEMENT HOLDINGS, LTD | | (NAMHL) | | | | | | GGAMT-100% | ------------------------------------ | | ------------------------------------ | GARTMORE GROUP LTD | | (GGL) | | | | | | NAMHL-83% | ------------------------------------ | | ------------------------------------- | GARTMORE GLOBAL | | INVESTMENTS, INC. (GGI) | | | | Common Stock: 958,750 Shares | ____________________________________________________________________| ------------ | | | | GGAMT-100 | | | | Preferred Stock: 500,000 Shares | | | | --------------- | | | | GGAMT-100% | | | ------------------------------------- - -------------------------------- --------------------------------- | GARTMORE MUTUAL FUND | | GARTMORE S.A. CAPITAL | | CAPITAL TRUST | ___| TRUST (GSA) | | | | | |__________________________________________________ | | | | | | DELAWARE BUSINESS TRUST | | | DELAWARE BUSINESS TRUST | - -------------------------------- | --------------------------------- | | | | | --------------------------------- | | GARTMORE SEPARATE | | | ACCOUNTS, LLC | |__| | | | | | | GSA-60% | | --------------------------------- | | | | | --------------------------------- | | GARTMORE EMERGING | |__| MANAGERS, LLC | | (GEM) | __| | | | GSA-100% | | --------------------------------- | | | | | --------------------------------- | | NORTHPOINTE | | | CAPITAL LLC | |--| | | | | | | GEM-65% | | --------------------------------- | | | | | --------------------------------- | | CODA CAPITAL | | | MANAGEMENT LLC | |--| | | | | GEM-79% | ---------------------------------
(right side) ------------------------------------- | NATIONWIDE MUTUAL | __________| FIRE INSURANCE COMPANY | __________| (FIRE) | | (See Page 1) | ------------------------------------- ------------------------------ ------------------------- ------------------------------------ | GARTMORE GLOBAL ASSET | | GGI MGT LLC | | NEWHOUSE S | | MANAGEMENT, INC. | | (GGIMGT) | | SITUATIONS FUND I, LLC | ___________________________________| (GGAMI) |---| |---| | | | | | | GGIMGT-10% | | | | | | Class A Preferred: 10,000 Shares | | GSA-100% | | GGAMI-100% | | GGAMI-75% | ------------------------------ ------------------------ ------------------------------------ | ------------------------------------- | ------------------------------------- ------------------------------------ | GARTMORE | | | GARTMORE MORLEY | | GARTMORE MORLEY CAPITAL | | INVESTORS SERVICES, INC. | | | FINANCIAL SERVICES, INC. | | MANAGEMENT, INC | | |____|____| (MORLEY) |_____| | | Common Stock: 5 Shares | | | | | | Common Stock: 500 Shares | | ------------ | | | Common Stock: 82,343 Shares | | | ------------ | | | | | ------------ | | | | | GGAMI-100% | | | GGAMI-100% | | | Morley-100% | ------------------------------------- | ------------------------------------- | ------------------------------------ | | ------------------------------------- | ------------------------------------- | ------------------------------------ | NATIONWIDE GLOBAL FUNDS | | | GARTMORE GLOBAL | | | GARTMORE | | | | | VENTURES, INC. | | | TRUST COMPANY | | |____|____| (GGV) | |__| | | | | | | | | Common Stock: 2,000 Shares | | LUXEMBOURG SICAV |____| | | | | ------------ | | | | | | | | | | | | | GGAMI-100% | | | Morley-100% | ------------------------------------- | ------------------------------------- | ------------------------------------ | | ------------------------------------- | ------------------------------------- | ------------------------------------ | GARTMORE DISTRIBUTION | | | CORVIANT CORPORATION | | | GARTMORE MORLEY & | | SERVICES, INC. | | | (CC) | | | ASSOCIATES, INC. | | | | | | | | | | |____|____| Common Stock 450,000 shares | |__| Common Stock: 3,500 Shares | | Common Stock: 10,000 Shares | | ------------ | | ------------ | | ------------ | | Series A Preferred 250,000 shares | | | | | | ------------------ | | Morley-100% | | GGAMI-100% | | | | | | | | GGAMI-100% | | | ------------------------------------- -------------------------------------- ------------------------------------ Subsidiary Companies - Solid Line Contractual Association - Double Line Limited Liability Company - Dotted Line March 31, 2004
Page 8 Item 29. INDEMNIFICATION Ohio's General Corporation Law expressly authorizes and Nationwide's Amended and Restated Code of Regulations provides for indemnification by Nationwide of any person who, because such person is or was a director, officer or employee of Nationwide was or is a party; or is threatened to be made a party to: o any threatened, pending or completed civil action, suit or proceeding; o any threatened, pending or completed criminal action, suit or proceeding; o any threatened, pending or completed administrative action or proceeding; o any threatened, pending or completed investigative action or proceeding; , The indemnification will be for actual and reasonable expenses, including attorney's fees, judgments, fines and amounts paid in settlement by such person in connection with such action, suit or proceeding, to the extent and under the circumstances permitted by the Ohio's General Corporation Law. Nationwide has been informed that in the opinion of the Securities and Exchange Commission the indemnification of directors, officers or persons controlling Nationwide for liabilities arising under the Securities Act of 1933 ("Act") is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by a director, officer or controlling person in connection with the securities being registered, the registrant will submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act. Nationwide and the directors, officers and/or controlling persons will be governed by the final adjudication of such issue. Nationwide will not be required to seek the court's determination if, in the opinion of Nationwide's counsel, the matter has been settled by controlling precedent. However, the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding is permitted Item 30. PRINCIPAL UNDERWRITER (a) Nationwide Investment Services Corporation ("NISC") serves as principal underwriter and general distributor for the following separate investment accounts of Nationwide or its affiliates:
Multi-Flex Variable Account Nationwide VL Separate Account-C Nationwide Variable Account Nationwide VL Separate Account-D Nationwide Variable Account-II Nationwide VLI Separate Account-2 Nationwide Variable Account-4 Nationwide VLI Separate Account-3 Nationwide Variable Account-5 Nationwide VLI Separate Account-4 Nationwide Variable Account-6 Nationwide VLI Separate Account-6 Nationwide Variable Account-7 Nationwide VLI Separate Account-7 Nationwide Variable Account-8 Nationwide Variable Account-9 Nationwide Variable Account-10 Nationwide Variable Account-11 Nationwide Variable Account-13 Nationwide Variable Account-14 Nationwide VA Separate Account-A Nationwide VA Separate Account-B Nationwide VA Separate Account-C
(b) Directors and Officers of NISC: Mark R. Thresher, Director and Chairman of the Board Richard A. Karas, Director and Vice Chairman Rhodes B. Baker, President William G. Goslee, Senior Vice President M. Eileen Kennedy, Director, Senior Vice President and Treasurer Thomas E. Barnes, Vice President and Secretary Kevin S. Crossett, Vice President Trey Rouse, Vice President Peter R. Salvator, Vice President Barbara J. Shane, Vice President-Compliance Officer Karen R. Tackett, Vice President Alan A. Todryk, Vice President-Taxation Carol L. Dove, Vice President and Assistant Treasurer Glenn W. Soden, Associate Vice President and Assistant Secretary Dina A. Tantra, Assistant Secretary Mark D. Maxwell, Assistant Secretary E. Gary Berndt, Assistant Treasurer The business address of the Directors and Officers of Nationwide Investment Services Corporation is: One Nationwide Plaza, Columbus, Ohio 43215 (c)
----------------------------- ------------------------- ----------------------- ----------------- ------------------- NAME OF PRINCIPAL NET UNDERWRITING COMPENSATION ON BROKERAGE COMPENSATION UNDERWRITER DISCOUNTS AND REDEMPTION OR COMMISSIONS COMMISSIONS ANNUITIZATION ----------------------------- ------------------------- ----------------------- ----------------- ------------------- ----------------------------- ------------------------- ----------------------- ----------------- ------------------- Nationwide Investment N/A N/A N/A N/A Services Corporation ----------------------------- ------------------------- ----------------------- ----------------- -------------------
Item 31. LOCATION OF ACCOUNTS AND RECORDS M. Eileen Kennedy Nationwide Life Insurance Company One Nationwide Plaza Columbus, OH 43215 Item 32. MANAGEMENT SERVICES Not Applicable. Item 33.FEE REPRESENTATION Nationwide represents that the fees and charges deducted under the contract in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred and risks assumed by Nationwide. SIGNATURES As required by the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant, NATIONWIDE VLI SEPARATE ACCOUNT-7, certifies that it meets the requirements of the Securities Act Rule 485(a) for effectiveness of this Registration Statement and has caused this Registration Statement to be signed on its behalf in the City of Columbus, and State of Ohio, on this 6th day of August, 2004. NATIONWIDE VLI SEPARATE ACCOUNT-7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Registrant) NATIONWIDE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Depositor) By: /s/ MICHAEL R. MOSER, ESQ. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Michael R. Moser, Esq. As required by the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities indicated on this 6th day of August, 2004.
W. G. JURGENSEN - ------------------------------------------------------------------------- W. G. Jurgensen, Director and Chief Executive Officer JOSEPH A. ALUTTO - ------------------------------------------------------------------------- Joseph A. Alutto, Director JAMES G. BROCKSMITH, JR. - ------------------------------------------------------------------------- James G. Brocksmith, Jr., Director KEITH W. ECKEL - ------------------------------------------------------------------------- Keith W. Eckel, Director LYDIA M. MARSHALL - ------------------------------------------------------------------------- Lydia M. Marshall, Director DONALD L. MCWHORTER - ------------------------------------------------------------------------- Donald L. McWhorter, Director DAVID O. MILLER - ------------------------------------------------------------------------- David O. Miller, Director JAMES F. PATTERSON - ------------------------------------------------------------------------- James F. Patterson, Director MARTHA J. MILLER DE LOMBERA - ------------------------------------------------------------------------- Martha J. Miller de Lombera, Director GERALD D. PROTHRO - ------------------------------------------------------------------------- Gerald D. Prothro, Director ARDEN L. SHISLER - ------------------------------------------------------------------------- Arden L. Shisler, Director ALEX SHUMATE - ------------------------------------------------------------------------- Alex Shumate, Director By /s/ MICHAEL R. MOSER ------------------------------------------------------ Michael R. Moser Attorney-in-Fact
EX-99.C 3 item26c.txt MARKETING COORDINATION AND ADMINISTRATIVE SERVICES AGREEMENT This Agreement entered into this 27 day of July, 2000, between Nationwide Life Insurance Company ("Nationwide"), and Nationwide Investment Services Corporation ("NISC"). Nationwide proposes to develop, issue and administer, and NISC proposes to provide the exclusive national distribution services for certain annuity and life products (the "Products"). The parties hereby agree as follows: A. ADMINISTRATION OF PRODUCTS 1. Appointment of Product Administration Nationwide is hereby appointed Product Administrator for the Products. 2. Duties of Nationwide Nationwide will perform in a proper and timely manner, those functions enumerated in the column marked "Nationwide" in the "Analysis of Administrative Functions," attached hereto as EXHIBIT A, and incorporated herein by reference. 3. Duties of NISC NISC will perform in a proper and timely manner, those functions enumerated in the column marked "NISC" in the "Analysis of Administrative Functions," attached hereto as EXHIBIT A, and incorporated herein by reference. B. MARKETING COORDINATION AND SALES ADMINISTRATION 1. Distribution of Products The Products will be distributed through registered representatives of NASD broker-dealer firms, appointed by Nationwide, who shall be duly qualified and licensed as agents (the "Agents"), in accordance with applicable state insurance authority. 2. NISC shall be the exclusive National Distributor of the Products. 3. Appointment and Termination of Agents Appointment and termination of Agents shall be processed and executed by Nationwide. NISC reserves the right to require Nationwide to consult with it regarding licensing decisions. 4. Advertising NISC shall not print, publish or distribute any advertisement, circular or document relating to the Products or relating to Nationwide unless such advertisement, circular or document has been approved in writing by Nationwide. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within five (5) business days. Neither Nationwide nor any of its affiliates shall print, publish or distribute any advertisement, circular or document relating to the Products or relating to NISC unless such advertisement, circular or document has been approved in writing by NISC. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within five (5) business days. However, nothing herein shall prohibit any person from advertising the Products on a generic basis. 5. Marketing Conduct The parties will jointly develop standards, practices and procedures respecting the marketing of the Products. Such standards, practices and procedures are intended to help Nationwide meet its obligations as an issuer under the securities laws, to assure compliance with state insurance laws, and to help NISC meet its obligations under the securities laws as National Distributor. These standards, practices and procedures are subject to continuing review and neither Nationwide nor NISC will object unreasonably to changes to such standards, practices and procedures recommended by the other to comply with the intent of this provision. 6. Sales Material and Other Documents a. Sales Material 1) Nationwide shall develop and prepare all promotional material to be used in the distribution of the Products, in consultation with NISC. 2) Nationwide is responsible for the printing and the expense of providing such promotional material. 3) Nationwide is responsible for approval of such promotional material by state insurance regulators, where required. 4) NISC and Nationwide agree to abide by the Advertising and Sales Promotion Material Guidelines, attached hereto as EXHIBIT B, and incorporated herein by reference. b. Prospectuses 1) Nationwide is responsible for the preparation and regulatory clearance of any required registration statements and prospectuses for the Products. 2) Nationwide is responsible for the printing of Product prospectuses in such quantities as the parties agree are necessary to assure sufficient supplies. 3) Nationwide is responsible for supplying Agents with sufficient quantities of Product prospectuses. c. Contracts, Applications and Related Forms 1) Nationwide, in consultation with NISC, is responsible for the design and printing of adequate supplies of Product applications, contracts, related forms, and such service forms as the parties agree are necessary. 2) Nationwide is responsible for supplying adequate quantities of all such forms to the Agents. 7. Appointment of Agents a. NISC will assist Nationwide in facilitating the appointment of Agents by Nationwide. b. Nationwide will forward all appointment forms and applications to the appropriate states and maintain all contacts with the states. c. Nationwide will maintain appointment files on Agents, and NISC will have access to such files as needed. 8. Licensing and Appointment Guide Nationwide shall provide to NISC a Licensing and Appointment Guide (as well periodic updates thereto), setting forth the requirements for licensing and appointment, in such quantities as NISC may reasonably require. 9. Other a. Product Training Nationwide is responsible for any Product training for the Agents. b. Field Sales Material 1) Nationwide, in consultation with NISC, is responsible for the development, printing and distribution of non-public field sales material to be used by Agents. 2) NISC shall have the right to review all field sales materials and to require any modification mandated by regulatory requirements. c. Production Reports Nationwide will deliver to NISC the items listed in Production Reports to be Provided, attached hereto as EXHIBIT C, and incorporated herein by reference. d. Customer Service Each party will notify the other of all material pertinent inquiries and complaints it receives, from whatever source and to whomever directed, and will consult with the other in responding to such inquiries and complaints. e. Records and Books All books and records maintained by Nationwide in connection with the offer and sale of variable annuity interests funded by a Separate Account are maintained and preserved in conformity with the requirements of Rule 17a-3 and 17a-4 under the 1934 Exchange Act, to the extent such requirements are applicable to the variable annuity operations. All such books and records are maintained and held by Nationwide on behalf of and as agent for NISC, whose property they are and shall remain. Such books and records are at all times subject to inspection by the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. C. GENERAL PROVISIONS 1. Waiver The forbearance or neglect of either party to insist upon strict compliance by the other with any of the provisions of this Agreement, whether continuing or not, or to declare a forfeiture of termination against the other, shall not be construed as a waiver of any rights or privileges of the forbearing party in the event of a further default or failure of performance. 2. Limitations Neither party shall have authority on behalf of the other to: make, alter or discharge any contractual terms of the Products; waive any forfeiture; extend the time of making any contributions to the products; guarantee dividends; alter the forms which either may prescribe; nor substitute other forms in place of those prescribed by the other. 3. Binding Effect This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective successors and assigns, provided that neither party shall assign or sub-contract this Agreement or any rights or obligations hereunder without prior written consent of the other. 4. Indemnification Each party ("Indemnifying Party") hereby agrees to release, indemnify and hold harmless the other party, its officers, directors, employers, agents, servants, predecessors or successors from any claims or liability arising out of the acts or omissions of the Indemnifying Party not authorized by this Agreement, including the violation of any federal or state law or regulation. 5. Notices All notices, requests, demands and other communication under this Agreement shall be in writing and shall be deemed to have been given on the date of service if served personally on the party to whom notice is to be given, or on the date of mailing if sent postage prepaid by First Class Mail, Registered or Certified mail, by overnight mail, properly addressed as follows: TO NATIONWIDE: Nationwide Life Insurance Company Michael C. Butler, Vice President-Sales Three Nationwide Plaza Columbus, Ohio 43215 TO NISC: Nationwide Investment Services Corporation. Barbara Shane, Vice President-Compliance Officer Two Nationwide Plaza Columbus, Ohio 43215 6. Amendment This Agreement may not be amended or modified except by a written amendment executed by the parties. Any amendments to this Agreement are subject to prior approval by the Ohio Department of Insurance. 7. Governing Law This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio. 8. Arbitration The parties agree that misunderstandings or disputes arising from this Agreement shall be decided by arbitration, conducted upon request of either party before three arbitrators (unless the parties agree on a single arbitrator) designated by the American Arbitration Association, and in accordance with the rules of such Association. The expenses of the arbitration proceedings conducted hereunder shall be borne equally by both parties. 9. Confidentiality Any information, documents and materials, whether printed or oral, furnished by either party or its agents or employees to the other shall be held in confidence. No such information shall be given to any third party, other than to such sub-contractors of NISC as may be permitted herein, or under requirements of a lawful authority, without the express written consent of the other party. D. TERM OF AGREEMENT This Agreement, including the Exhibits attached hereto, shall remain in full force and effect until terminated, and may be amended only by mutual agreement of the parties in writing. Any decision by either party to cease issuance or distribution of any specific Product shall not effect a termination of the Agreement unless such termination is mutually agreed upon, or unless notice is given pursuant to Section E.2. hereof. E. TERMINATION 1. Either party may terminate this Agreement for cause at any time, upon written notice to the other, if the other knowingly and willfully: (a) fails to comply with the laws or regulations of any state or governmental agency or body having jurisdiction over the sale of insurance or securities; (b) misappropriates any money or property belonging to the other; (c) subjects the other to any actual or potential liability due to misfeasance, malfeasance, or nonfeasance; (d) commits any fraud upon the other; (e) has an assignment for the benefit of creditors; (f) incurs bankruptcy; or (g) commits a material breach of this Agreement. 2. Either party may terminate this Agreement, without regard to cause, upon six months prior written notice to the other. 3. In the event of termination of this Agreement, the following conditions shall apply: a) The parties irrevocably acknowledge the continuing right to use any Product trademark that might then be associated with any Products, but only with respect to all business in force at the time of termination. b) In the event this Agreement is terminated the parties will use their best efforts to preserve in force the business issued pursuant to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first above written. NATIONWIDE LIFE INSURANCE COMPANY By: __________________________ Michael C. Butler Title: Vice President - Sales NATIONWIDE INVESTMENT SERVICES CORPORATION By: ________________________ Barbara Shane Title: Vice President - Compliance Officer EXHIBIT A ANALYSIS OF ADMINISTRATIVE FUNCTIONS A. PRODUCT UNDERWRITING/ISSUE NATIONWIDE NISC
- - Establishes underwriting criteria for application - Consults with regard to new business processing and rejections. procedures and processing.
- - Reviews the completed application. Applies underwriting/issue criteria to application. - - Notifies Agent and/or customer of any error or missing data necessary to underwrite application and establish records for owner of Product ("Contract Owner"). - - Prepares policy data page for approved business and mails with policy to Contract Owner. - - Establishes and maintains all records required for each Contract Owner, as applicable. - - Prepares and mails confirmation and other statements to Contract Owners and Agents, as required. - - Prints, provides all forms ancillary to issue of contract/policy forms for Products. - - Maintains supply of approved specimen policy forms and all ancillary forms, distributes same to Agents. B. BILLING AND COLLECTION NATIONWIDE - - Receives premium/purchase payments and reconciles amount received with remittance media. - - Updates Contract Owner records to reflect receipt of premium/purchase payment and performs accounting/ investment allocation of each payment received. - - Deposits all cash received under the Products in accordance with the terms of the Products. C. BANKING NATIONWIDE - - Balances, edits, endorses and prepares daily deposit. - - Places deposits in depository account. - - Prepares daily cash journal summary reports and maintains same for review by NISC. D. PRICING/VALUATION/ACCOUNTING/TRADING
NATIONWIDE NISC - - Maintains and makes available, as reasonably - Cooperates in annual audit of separate requested, records used in determining "Net Amount Available account financials conducted for purposes of for Investment." financial statement certification and publication. - - Collects information needed in determining Variable - Will clear and settle Mutual Fund trades Account unit values from the Funds including daily net asset on behalf of the separate accounts using the value, capital gains or dividend distributions, and the National Securities Clearing Corporation FUND/Serv number of Fund Shares acquired or sold during the System. immediately preceding valuation period. - - Performs daily unit valuation calculation.
E. CONTRACT OWNER SERVICE/ RECORD MAINTENANCE
NATIONWIDE NISC - - Receives and processes all Contract Owner - Accommodates customer service function by service requests, including but not limited to providing any supporting information or documentation informational requests, beneficiary changes, and which may be in the control of NISC. transfers of Contract Value among eligible investment options. - - Maintains daily records of all changes made to Contract Owner accounts. - - Researches and responds to all Contract Owner/Agent inquiries. - - Keeps all required Contract Owner records. - - Maintains adequate number of toll free lines to service Contract Owner/Agent inquiries.
F. DISBURSEMENTS (SURRENDERS, DEATH CLAIMS, LOANS) NATIONWIDE NISC - - Receives and processes surrenders, loans, and death claims in accordance with established guidelines. - - Prepares checks for surrenders, loans, and death claims, and forwards to Contract Owner or Beneficiary. Prepares and mails confirmation statement of disbursement to Contract Owner/ Beneficiary with copy to Agent. G. COMMISSIONS
NATIONWIDE NISC - - Ascertains, on receipt of applications, whether - Receives and performs record keeping for writing Agent is appropriately licensed. investment company payments made under a 12b-1 Plan. - - Pays commissions and other fees in accordance with agreements relating to same.
H. PROXY PROCESSING NATIONWIDE NISC - - Receives record date information from Funds Receives proxy solicitation materials from Funds. - - Prepares Voting Instruction cards and mails solicitation, if necessary. - - Tabulates and votes all Fund Shares in accordance with SEC requirements. I. PERIODIC REPORTS TO CONTRACT OWNERS NATIONWIDE NISC - - Prepares and mails quarterly and annual Statements of Account to Contract Owners. - - Prepares and mails all semi-annual and annual reports of Variable Account(s) to Contract Owners.
J. REGULATORY/STATEMENT REPORTS NATIONWIDE NISC - - Prepares and files Separate Account Annual - Prepares and files periodic FOCUS Reports Statements. with the NASDR and SEC, as applicable. - - Prepares and mails the appropriate, required IRS - Prepares and files annual audited financial reports at the Contract Owner level. Files same with statements with required regulatory agencies. required regulatory agencies. - - Prepares and files form N-SAR for the Separate Account.
K. PREMIUM TAXES NATIONWIDE NISC - - Collects, pays and accounts for premium taxes as appropriate. - - Prepares and maintains all premium tax records by state. - - Maintains liabilities in General Account ledger for accrual of premium tax collected. - - Integrates all company premium taxes due and performs related accounting. L. FINANCIAL AND MANAGEMENT REPORTS
NATIONWIDE NISC - - Provides periodic reports in accordance with the - Provides periodic reports in accordance with Schedule of Reports to be prepared jointly by Nationwide the Schedule of Reports to be prepared jointly by and NISC. (See EXHIBIT C) Nationwide and NISC. (See EXHIBIT C)
M. AGENT LICENSE RECORDKEEPING
NATIONWIDE NISC - - Receives, establishes, processes, and maintains - Maintains securities registrations and Agent appointment records. assumes supervisory responsibility for representatives of affiliated sales and marketing companies involved in the wholesale distribution of Nationwide variable contract products. - Maintains training, supervisory, and other required records for and on behalf of registered representatives of NISC.
EXHIBIT B ADVERTISING AND SALES PROMOTION MATERIAL GUIDELINES FOR APPROVAL BY NATIONWIDE AND NISC In order to assure compliance with state and federal regulatory requirements and to maintain control over the distribution of promotional materials dealing with the Products, Nationwide and NISC require that all variable contract promotional materials be reviewed and approved by both Nationwide and NISC prior to their use. These guidelines are intended to provide appropriate regulatory and distribution controls. 1. Sufficient lead time must be allowed in the submission of all promotional material. Nationwide and NISC shall approve in writing all promotional material. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within five (5) days. 2. All promotional material will be submitted in "draft" form to permit any changes or corrections to be made prior to the printing. 3. Nationwide and NISC will provide each other with details as to each and every use of all promotional material submitted. Approval for one use will not constitute approval for any other use. Different standards of review may apply when the same advertising material is intended for different uses. The following information will be provided for each item of promotional material: a. In what jurisdiction(s) the material will be used. b. Whether distribution will be to broker/dealer, entity, participant, etc. c. How the material will be used (e.g., brochure, mailing, web site, etc.) d. The projected date of initial use. 4. Each party will advise the other of the date it discontinues the use of any material. 5. Any changes to previously approved promotional material must be resubmitted, following these procedures. When approved material is to be put to a different use, request for approval of the material for the new use must be submitted. 6. Nationwide will assign a form number to each item of advertising and sales promotional material. This number will appear on each piece of advertising and sales promotional material. It will be used to aid in necessary filings, and to maintain appropriate controls. 7. Nationwide and NISC will provide written approval for all material to be used. 8. Nationwide will be responsible to effect necessary state filings. 9. NISC will coordinate SEC/NASD filings of sales and promotional material. 10. All telephone communication and written correspondence regarding promotional materials should be directed to Office of Product and Market Compliance, Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43215 EXHIBIT C PRODUCTION REPORTS TO BE PROVIDED Nationwide agrees to provide the following reports to NISC:
1. Daily Receipt Report: Indicates which Agents are generating sales 2. Daily Approval Report: Indicates which applications have been approved 3. Daily Activity Summary: Indicates top firms' sales and liquidation by month, year-to-date as well as total assets by firm. 4. Dealer Activity Indicates top firms' sales and Summary by Territory liquidation by month, year-to-date 5. Summary of Sales by Indicates sales by territory/dealer/branch, including Territory and Dealer: non-commissionable amounts and actual commission payments, as well as chargebacks (Internal use only) 6. Commission Report: Indicates commission paid and chargebacks, matched to Commission checks.
In addition, Nationwide will provide reports detailing current appointments and other information, as reasonably requested by NISC. EX-99.D 4 item26d.txt PLEASE READ YOUR POLICY CAREFULLY This policy is a legal contract between the Owner (you, your) and Nationwide Life Insurance Company (we, our, us, the Company). INSURING AGREEMENT: We issue this policy in consideration of your application and the payment of the Initial Premium. We agree to pay the death Proceeds to the Beneficiary upon receiving proof that the Insured has died while this policy is in force and before the Maturity Date. We agree to pay the maturity Proceeds to you if the Insured is living on the Maturity Date. You and we are bound by the conditions and provisions of this policy. - -------------------------------------------------------------------------------- THE CASH SURRENDER VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY. IT MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE POLICY. REFER TO THE NONFORFEITURE PROVISIONS ON PAGE 9 FOR DETAILS. THERE IS NO GUARANTEED CASH SURRENDER VALUE. THE AMOUNT OF THE DEATH BENEFIT MAY BE VARIABLE AND DEPEND ON THE INVESTMENT EXPERIENCE OF THE POLICY. THE DURATION OF THE DEATH BENEFIT WILL BE VARIABLE AND DEPEND ON THE INVESTMENT EXPERIENCE OF THE POLICY. THE DEATH BENEFIT WILL NEVER BE LESS THAN THE SPECIFIED AMOUNT AS LONG AS YOUR POLICY IS IN FORCE. REFER TO THE DEATH BENEFIT PROVISIONS FOR DETAILS. - -------------------------------------------------------------------------------- RIGHT TO EXAMINE POLICY YOU MAY RETURN THIS POLICY TO US WITHIN (1) 10 DAYS AFTER YOU GET IT, OR (2) 45 DAYS AFTER YOU SIGN THE APPLICATION, OR (3) 10 DAYS AFTER WE MAIL OR DELIVER THE NOTICE OF WITHDRAWAL RIGHT, WHICHEVER IS LATEST. THE POLICY, WITH A WRITTEN REQUEST FOR CANCELLATION, MUST BE MAILED OR DELIVERED TO OUR HOME OFFICE OR TO THE REPRESENTATIVE WHO SOLD IT TO YOU. THE RETURNED POLICY WILL BE TREATED AS IF WE NEVER ISSUED IT, AND WE WILL PAY YOU THE AMOUNT SPECIFIED BY THE LAWS OF THE STATE IN WHICH THE POLICY WAS ISSUED. - -------------------------------------------------------------------------------- If you have any questions about your policy or need additional insurance service, contact your representative or write to our Home Office. Signed at our Home Office on the Policy Date. /s/PATRICIA R. HATLER /s/MARK R. THRESHER Secretary President o Adjustable death benefit o Flexible premiums payable during Insured's lifetime until the Maturity Date o Death Proceeds payable at Insured's death prior to the Maturity Date o Maturity Proceeds payable on the Maturity Date o Not eligible for dividends o Investment experience reflected in benefits
________________________________________CONTENTS_____________________________________ PROVISIONS PAGE Annual Report...............................................................................................6 Assignment..................................................................................................7 Beneficiary.................................................................................................7 Cash Surrender Value........................................................................................4 Cash Value..................................................................................................9 Death Benefit...............................................................................................8 Definitions.................................................................................................4 Exchange of Policy.........................................................................................12 Error in Age or Sex.........................................................................................6 Grace Period................................................................................................7 Guaranteed Policy Continuation..............................................................................7 Incontestability............................................................................................5 Insured.....................................................................................................4 Insuring Agreement..........................................................................................1 Loan.......................................................................................................11 Monthly Cost of Insurance...................................................................................9 Nonforfeiture...............................................................................................9 Optional Modes of Settlement...............................................................................13 Owner.......................................................................................................6 Partial Surrender..........................................................................................10 Policy Data Page............................................................................................3 Premium Payments............................................................................................7 Reinstatement...............................................................................................8 Suicide.....................................................................................................5 Termination.................................................................................................6 Transfers..................................................................................................13 Valuation of Assets in a Variable Account..................................................................12 Variable Account...........................................................................................13
FORM: VLO-0742 RIDERS: POLICY DATA PAGE This policy is adjustable. If it is adjusted, new policy data pages will be issued. Definitions and explanations of the following information can be found in the included policy contract.
PREMIUM INFORMATION: Required Initial Premium $ 294.00 Scheduled Premium $ 5,000.00 Premium Mode Annual Policy Continuation Premiums Years 1-5 $ 147.00 Monthly Years 6+ $ 443.96 Monthly COVERAGE INFORMATION: Specified Amount $500,000.00 Minimum Specified Amount $50,000.00 Maturity Date January 1, 2070 Death Benefit Option 1 Guaranteed Policy Continuation Period January 1, 2005-January 1, 2035* Option 3 Interest Rate N/A Option 3 Maximum Increase N/A Internal Revenue Code Life Insurance Qualification Test Guideline Premium/Cash Value Corridor Test
* Coverage may expire prior to the dates shown if the policy continuation premium requirements in the Guaranteed Policy Continuation Provisions are not met. Please see "Guaranteed Policy Continuation and Grace Period Provisions". ISSUE INFORMATION:
Insured: JOHN DOE Issue Age: 35 Owner: JOHN DOE Sex: MALE Policy Number: N000000000 Rate Class: STANDARD Policy Date: JANUARY 1, 2005 Rate Type: NON-TOBACCO
Page 3 INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE This policy is adjustable. If it is adjusted, new policy data pages will be issued. SCHEDULE OF BENEFITS
FORM COVERAGE NUMBER BENEFIT AMOUNT STARTS STOPS** VLO-0742 Flexible Premium Variable Universal Life Specified Amount $500,000.00 1/1/2005 1/1/2070 Rate Class: Standard Rate Class Multiple: 1.00 Rate Type: Non-Tobacco VLO-0743 Policy Guard Rider 1/1/2005 1/1/2070 VLO-0744 Additional Protection Rider $250,000.00 1/1/2005 1/1/2070
**Coverage may expire prior to the dates shown if the Initial Premium plus any additional premiums paid are insufficient to continue coverage to such dates. Please see "Guaranteed Policy Continuation and Grace Period Provisions." Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE LIST OF VARIABLE SUBACCOUNTS AND FUNDS
VARIABLE ACCOUNT TRUST NATIONWIDE VLI SEPARATE ACCOUNT - 7 NATIONWIDE SEPARATE ACCOUNT TRUST (NSAT) SUBACCOUNT/FUND [AIM VI Basic Value Fund - Series I AIM VI Basic Value Fund - Series I AIM VI Capital Appreciation Fund - Series I AIM VI Capital Appreciation Fund - Series I AIM VI Capital Development Fund - Series I AIM VI Capital Development Fund - Series I Amer Century VP Value - Class I American Century Variable Value Portfolio - Class I Amer Century VP Ultra Fund - Class I American Century Variable Ultra Fund - Class I Amer Century VP International - Class I American Century Variable International - Class I Amer Century VP Inflation Protection Fund-Class II American Century Variable Inflation Protection Fund - Class II Dreyfus Stock Index - Initial Shares Dreyfus Stock Index Fund - Initial Shares Dreyfus VIF Appreciation Portfolio Dreyfus Variable Investment Appreciation Fund Dreyfus Sm Cap Stock Index - Service Class Dreyfus Small Cap Stock Index Portfolio - Service Class Federated Quality Bond II - Primary Shares Federated Quality Bond Fund II - Primary Shares Fidelity VIP Equity -Income - Service Class Fidelity Var Ins Equity-Income Portfolio - Service Class Fidelity VIP Growth - Service Class Fidelity Var Ins Growth Portfolio Fund - Service Class Fidelity VIP II Invest. Grade Bond-Service Class Fidelity Var Ins Investment Grade Bond Portfolio - Service Class Fidelity VIP Overseas - Service Class Fidelity Var Ins Overseas Portfolio Fund - Service Class Fidelity VIP II Contrafund - Service Class Fidelity Var Ins Contrafund Portfolio - Service Class Fidelity VIP III Value Strategies - Service Class Fidelity Var Ins Value Strategies Portfolio - Service Class Fidelity VIP III Mid Cap Port - Service Class Fidelity Var Ins Mid Cap Portfolio - Service Class Fr Temp VIPT Foreign Sec. - Class I Franklin Templeton VIPT Foreign Securities Fund-Class I Fr Temp VIPT Rising Divid. Sec. - Class I Franklin Templeton VIPT Rising Dividends Securities - Class I Fr Temp VIPT Sm Cap Value Sec. - Class I Franklin Templeton VIPT Sm Cap Value Securities - Class I Gartmore Emerging Markets Fund Gartmore GVIT Emerging Markets Fund Gartmore Global Health Sciences Fund-Class I Gartmore GVIT Global Health Sciences Fund - Class I Gartmore Global Tech. & Communications Fund Gartmore GVIT Global Technology and Communications Fund Gartmore Government Bond Fund Gartmore GVIT Government Bond Fund Gartmore Mid Cap Growth Fund - Class I Gartmore GVIT Mid Cap Growth Fund - Class I Gartmore Money Market Fund Gartmore GVIT Money Market Fund Gartmore Nationwide(R)Fund - Class I Gartmore GVIT Nationwide(R)Fund - Class I Gartmore US Growth Leaders Fund - Class I Gartmore GVIT U. S. Growth Leaders Fund - Class I Gartmore Aggressive Fund - Class II Gartmore GVIT Investor Destinations Aggressive Fund - Class II Gartmore Conservative Fund - Class II Gartmore GVIT Investor Destinations Conservative Fund-Class II Gartmore Moderate Fund - Class II Gartmore GVIT Investor Destinations Moderate Fund - Class II Gartmore Moderately Aggressive Fund - Class II Gartmore GVIT Investor Destin Moderately Aggress Fund-Class II Gartmore Moderately Conservative Fund - Class II Gartmore GVIT Investor Destin Moderately Conserv Fund-Class II Gartmore Comstock Value Fund Gartmore GVIT Comstock Value Fund (Van Kampen) Gartmore High Income Bond Fund Gartmore GVIT High Income Bond Fund (Federated) Gartmore International Value Fund Gartmore GVIT International Value Fund-Class I (Dreyfus) Gartmore Mid Cap Index Fund Gartmore GVIT Mid Cap Index Fund (Dreyfus) Gartmore Multi Sector Bond Fund - Class I Gartmore GVIT Multi Sector Bond Fund-Class I (Van Kampen) Gartmore Sm Cap Growth Fund - Class I Gartmore GVIT Small Cap Growth Fund-Class I (Multi Managers) Gartmore Sm Cap Value Fund Gartmore GVIT Small Cap Value Fund (Multi Managers) Gartmore Sm Company Fund Gartmore GVIT Small Company Fund (Multi Managers) MFS(R)VIT Invest. Growth Stock Series-Initial Class MFS(R)VIT Investors Growth Stock Series - Initial Class MFS(R)VIT Value Series - Initial Class MFS(R)VIT Value Series - Initial Class Neuberger Berman AMT Fasciano Port.-Class S Neuberger Berman AMT Fasciano Portfolio - Class S Neuberger Berman AMT Limited Mat Bond-Class I Neuberger Berman AMT Limited Maturity Bond Portfolio - Class I Neuberger Berman AMT Soc Responsive Port. Neuberger Berman AMT Socially Responsive Portfolio Oppenheimer Cap Appreciation - Initial Class Oppenheimer VA Cap Appreciation - Initial Class Oppenheimer Global Securities - Initial Class Oppenheimer VA Global Securities Fund - Initial Class Oppenheimer High Income Fund - Initial Class Oppenheimer VA High Income Fund - Initial Class Oppenheimer Main Street(R)Fund - Initial Class Oppenheimer VA Main Street(R)Fund - Initial Class Oppenheimer Main Street(R)Sm Cap - Initial Class Oppenheimer VA Main Street(R)Small Cap Fund - Initial Class Putnam VT Growth & Income - Class IB Putnam VT Growth & Income Fund - Class IB Putnam VT Voyager - Class IB Putnam VT Voyager Fund - Class IB Van Kampen U. S. Real Estate Portfolio - Class I Van Kampen U. S. Real Estate Portfolio - Class I
Van Kampen Core Plus Fixed Income - Class I Van Kampen Core Plus Fixed Income Portfolio - Class I] Nationwide Fixed Account Nationwide Fixed Fund Nationwide Long Term Fixed Account Nationwide Long Term Fixed Fund
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE LIST OF VARIABLE SUBACCOUNTS AND FUNDS
VARIABLE ACCOUNT TRUST NATIONWIDE VLI SEPARATE ACCOUNT - 5 NATIONWIDE SEPARATE ACCOUNT TRUST (NSAT) SUBACCOUNT FUND [W&R Asset Strategy Portfolio W&R Asset Strategy Portfolio W&R Balanced Portfolio W&R Balanced Portfolio W&R Bond Portfolio W&R Bond Portfolio W&R Core Equity Portfolio W&R Core Equity Portfolio W&R Dividend Income Portfolio W&R Dividend Income Portfolio W&R Growth Portfolio W&R Growth Portfolio W&R High Income Portfolio W&R High Income Portfolio W&R International Portfolio W&R International Portfolio W&R International II Portfolio W&R International II Portfolio W&R Limited Term-Bond Portfolio W&R Limited Term-Bond Portfolio W&R Micro Cap Growth Portfolio W&R Micro Cap Growth Portfolio W&R Money Market Portfolio W&R Money Market Portfolio W&R Mortgage Securities Portfolio W&R Mortgage Securities Portfolio W&R Real Estate Securities Portfolio W&R Real Estate Securities Portfolio W&R Science & Technology Portfolio W&R Science & Technology Portfolio W&R Small Cap Growth Portfolio W&R Small Cap Growth Portfolio W&R Small Cap Value Portfolio W&R Small Cap Value Portfolio W&R Value Portfolio W&R Value Portfolio] Nationwide Fixed Account Nationwide Fixed Fund Nationwide Long Term Fixed Account Nationwide Long Term Fixed Fund
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE INVESTMENT ALLOCATION OF NET PREMIUMS PAID
FUND ALLOCATION FACTORS DURING "RIGHT TO AFTER "RIGHT TO EXAMINE POLICY" EXAMINE POLICY" PERIOD PERIOD FUND DREYFUS STOCK INDEX - INITIAL SHARES 20% 20% FIDELITY VIP II CONTRAFUND - SERVICES CLASS 30% 30% NEUBERGER BERMAN AMT SOC RESPONSIVE PORTFOLIO 50% 50% TOTAL 100% 100%
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE INVESTMENT ALLOCATION OF NET PREMIUMS PAID
FUND ALLOCATION FACTORS DURING "RIGHT TO AFTER "RIGHT TO EXAMINE POLICY" EXAMINE POLICY" PERIOD PERIOD FUND W&R BOND FUND 20% 20% W&R MORTGAGE SECURITIES FUND 30% 30% W&R SMALL CAP GROWTH FUND 50% 50% TOTAL 100% 100%
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE EXPENSE CHARGES
Maximum Monthly Policy Expense Charge $20.00 Maximum Percent of Premium Loading 6.00% Maximum Mortality and Expense Risk Charge All Policy Years: 0.60% (annual) of the Variable Account Value (effective monthly rate 0.0498630%) Maximum Monthly Per 1,000 Expense $0.20 per 1,000 Applied to first $250,000 of Specified Amount
MAXIMUM SURRENDER CHARGES* Based on Current Specified Amount
Policy Surrender Policy Surrender Year Charge Year Charge 1 $4,600.00 8 $2,875.00 2 $4,600.00 9 $2,415.00 3 $4,600.00 10 $1,955.00 4 $4,255.00. 11 $1,495.00 5 $3,910.00 12 $ 920.00 6 $3,565.00 13+ $ 0.00 7 $3,220.00
*On any partial surrender after the first policy year, a service charge of $25.00 may be deducted from the partial surrender amount.
GUARANTEED INTEREST CREDITING RATES (PER ANNUM) Applied: Minimum Fixed Accounts Rate 3.00% All Years To Fixed Account Policy Values Minimum Policy Loan Account Rate 3.00% Years 1-10 To Policy Loan 3.65% Years 11+ Account GUARANTEED POLICY LOAN INTEREST RATE (PER ANNUM) Maximum Policy Loan Rate 3.90% All Years To Total Policy Indebtedness MAXIMUM FIXED ACCOUNT TRANSFER RESTRICTIONS Restriction Fixed Account Long Term Fixed Account Fixed Account Value: 20% the greater of $6,000 or 12% Maximum Transfer of Cash Value from the Fixed Accounts as of the end of the prior policy year 20% 20% VARIABLE ACCOUNT VALUE: Maximum transfer of Cash Value from the Variable Account as of the prior Valuation Period
30% 30% CASH VALUE: NO TRANSFERS PERMITTED WHEN ALL FIXED ACCOUNT CASH VALUE EXCEEDS:
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
MINIMUM REQUIRED DEATH BENEFIT IS CALCULATED AS THE CASH VALUE TIMES THE APPLICABLE PERCENTAGE APPLICABLE APPLICABLE PERCENTAGE AGE PERCENTAGE AGE - -------------------- ------------------ ------------------ ------------------ 0-40 250% 70 115% 41 243% 71 113% 42 236% 72 111% 43 229% 73 109% 44 222% 74 107% 45 215% 75 105% 46 209% 76 105% 47 203% 77 105% 48 197% 78 105% 49 191% 79 105% 50 185% 80 105% 51 178% 81 105% 52 171% 82 105% 53 164% 83 105% 54 157% 84 105% 55 150% 85 105% 56 146% 86 105% 57 142% 87 105% 58 138% 88 105% 59 134% 89 105% 60 130% 90 105% 61 128% 91 104% 62 126% 92 103% 63 124% 93 102% 64 122% 94 101% 65 120% 95 100% 66 119% 96 100% 67 118% 97 100% 68 117% 98 100% 69 116% 99 100% 100 100%
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATE PER $1,000
ATTAINED ATTAINED ATTAINED AGE RATE AGE RATE AGE RATE 0 0.21946 36 0.15181 72 3.82531 1 0.08589 37 0.16183 73 4.27496 2 0.08255 38 0.17267 74 4.77159 3 0.08094 39 0.18442 75 5.30541 4 0.07755 40 0.19854 76 5.87273 5 0.07337 41 0.21362 77 6.46949 6 0.06926 42 0.22948 78 7.09999 7 0.06503 43 0.24700 79 7.78478 8 0.06258 44 0.26625 80 8.54719 9 0.06175 45 0.28801 81 9.40949 10 0.06258 46 0.31137 82 10.39219 11 0.06759 47 0.33647 83 11.49452 12 0.07677 48 0.36407 84 12.69877 13 0.08923 49 0.39423 85 13.98063 14 0.10341 50 0.42856 86 15.32656 15 0.11843 51 0.46790 87 16.71803 16 0.13262 52 0.51314 88 18.15093 17 0.14347 53 0.56511 89 19.64760 18 0.13593 54 0.62299 90 21.23308 19 0.13927 55 0.68760 91 22.94958 20 0.14011 56 0.75817 92 24.87004 21 0.13852 57 0.83303 93 27.20130 22 0.13590 58 0.91624 94 30.42889 23 0.13262 59 1.00982 95 35.49222 24 0.12928 60 1.11425 96 44.51508 25 0.12511 61 1.23084 97 62.83141 26 0.12267 62 1.36524 98 83.33333 27 0.12088 63 1.51765 99 83.33333 28 0.12010 64 1.68729 29 0.12010 65 1.87337 30 0.12088 66 2.07520 31 0.12344 67 2.29204 32 0.12678 68 2.52819 33 0.13179 69 2.79081 34 0.13757 70 3.08859 35 0.14436 71 3.42977
Actual monthly cost of insurance rates will be determined by us based on our expectations as to future experiences. However, the actual cost of insurance rates will not be greater than the sum of rates shown above and the monthly flat extra amount, if any. The guaranteed maximum monthly cost of insurance rates shown above are based on the Commissioners Male Non-Smoker 1980 Standard Ordinary Mortality Table, age last birthday. Page 3 (Continued) BASIS OF COMPUTATION
MORTALITY: Commissioners Male Non-Smoker 1980 Standard Ordinary Mortality Table, age last birthday
TABLES FOR SETTLEMENT OPTIONS
FOR FURTHER INFORMATION REFER TO THE "OPTIONAL MODES OF SETTLEMENT PROVISIONS" OPTION 2 OPTION 2 - INCOME FOR A FIXED PERIOD ---------------------------- --------------------------- --------------------------- --------------------------- NUMBER OF YEARS SPECIFIED AMOUNT OF EACH INSTALLMENT NUMBER OF YEARS SPECIFIED AMOUNT OF EACH INSTALLMENT ---------------------------- --------------------------- --------------------------- --------------------------- 1 $84.28 16 $6.30 2 42.66 17 6.00 3 28.79 18 5.73 4 21.86 19 5.49 5 17.70 20 5.27 6 14.93 21 5.08 7 12.95 22 4.90 8 11.47 23 4.74 9 10.32 24 4.60 10 9.39 25 4.46 11 8.64 26 4.34 12 8.02 27 4.22 13 7.49 28 4.12 14 7.03 29 4.02 15 6.64 30 3.93 ---------------------------------------------------------------------------------------------------------------- Annual, semi-annual or quarterly payments are 11.865, 5.969 and 2.994 respectively times the monthly installments. ----------------------------------------------------------------------------------------------------------------
MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS OPTION 3 - LIFE INCOME WITH PAYMENTS GUARANTEED OPTION 3 REFER TO NEXT PAGE MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS OPTION 5 OPTION 5 - JOINT & SURVIVOR LIFE INCOME
------------------------------------------------------------------------------------------------------------------------- M/F 50 55 60 65 70 75 80 85 90 95 100 ------------------------------------------------------------------------------------------------------------------------- 50 $2.86 $2.96 $3.04 $3.11 $3.17 $3.21 $3.24 $3.26 $3.28 $3.29 $3.29 55 $2.92 $3.04 $3.15 $3.26 $3.35 $3.43 $3.48 $3.52 $3.55 $3.56 $3.57 60 $2.96 $3.11 $3.26 $3.41 $3.55 $3.67 $3.77 $3.84 $3.88 $3.91 $3.93 65 $3.00 $3.17 $3.35 $3.55 $3.75 $3.94 $4.10 $4.22 $4.31 $4.37 $4.40 70 $3.02 $3.21 $3.43 $3.67 $3.94 $4.21 $4.47 $4.68 $4.85 $4.96 $5.03 75 $3.04 $3.24 $3.48 $3.77 $4.10 $4.47 $4.85 $5.20 $5.50 $5.72 $5.86 80 $3.05 $3.26 $3.52 $3.84 $4.22 $4.68 $5.20 $5.73 $6.22 $6.63 $6.92 85 $3.06 $3.28 $3.55 $3.88 $4.31 $4.85 $5.50 $6.22 $6.98 $7.67 $8.22 90 $3.07 $3.29 $3.56 $3.91 $4.37 $4.96 $5.72 $6.63 $7.67 $8.73 $9.68 95 $3.07 $3.29 $3.57 $3.93 $4.40 $5.03 $5.86 $6.92 $8.22 $9.68 $11.16 100 $3.07 $3.30 $3.58 $3.94 $4.42 $5.07 $5.96 $7.12 $8.62 $10.46 $12.49 -------------------------------------------------------------------------------------------------------------------------
FOR INFORMATION REGARDING SETTLEMENT OPTIONS 1 AND 4, PLEASE REFER TO THE CONTRACT. Page 3 (Continued) MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS OPTION 3 OPTION 3 - LIFE INCOME WITH PAYMENTS GUARANTEED
---------------- ------------------------- --------------- ------------------------ ---------------- ----------------------- AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD LAST BIRTHDAY YEARS LAST BIRTHDAY YEARS LAST BIRTHDAY YEARS ------------------------------------------------------------------------------------------------------------------------------ Male Female 10 15 20 Male Female 10 15 20 Male Female 10 15 20 ------------------------------------------------------------------------------------------------------------------------------ 5 & 10 & under under $2.33 $2.33 $2.32 35 40 $2.75 $2.75 $2.75 65 70 $4.37 $4.27 $4.12 6 11 $2.33 $2.33 $2.33 36 41 $2.78 $2.78 $2.77 66 71 $4.48 $4.36 $4.19 7 12 $2.34 $2.34 $2.34 37 42 $2.81 $2.80 $2.80 67 72 $4.59 $4.45 $4.26 8 13 $2.35 $2.35 $2.35 38 43 $2.83 $2.83 $2.82 68 73 $4.71 $4.55 $4.33 9 14 $2.36 $2.36 $2.36 39 44 $2.86 $2.86 $2.85 69 74 $4.83 $4.65 $4.40 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 10 15 $2.37 $2.37 $2.37 40 45 $2.89 $2.89 $2.88 70 75 $4.96 $4.75 $4.47 11 16 $2.38 $2.38 $2.38 41 46 $2.92 $2.92 $2.91 71 76 $5.10 $4.86 $4.54 12 17 $2.39 $2.39 $2.39 42 47 $2.96 $2.95 $2.94 72 77 $5.24 $4.97 $4.61 13 18 $2.40 $2.40 $2.40 43 48 $2.99 $2.99 $2.97 73 78 $5.39 $5.07 $4.68 14 19 $2.41 $2.41 $2.41 44 49 $3.03 $3.02 $3.01 74 79 $5.55 $5.18 $4.75 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 15 20 $2.42 $2.42 $2.42 45 50 $3.07 $3.06 $3.04 75 80 $5.71 $5.29 $4.81 16 21 $2.43 $2.43 $2.43 46 51 $3.11 $3.10 $3.08 76 81 $5.87 $5.40 $4.87 17 22 $2.44 $2.44 $2.44 47 52 $3.15 $3.14 $3.12 77 82 $6.05 $5.51 $4.92 18 23 $2.46 $2.45 $2.45 48 53 $3.19 $3.18 $3.16 78 83 $6.22 $5.61 $4.97 19 24 $2.47 $2.47 $2.46 49 54 $3.24 $3.22 $3.20 79 84 $6.40 $5.72 $5.02 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 20 25 $2.48 $2.48 $2.48 50 55 $3.29 $3.27 $3.25 80 85 $6.58 $5.82 $5.06 21 26 $2.49 $2.49 $2.49 51 56 $3.34 $3.32 $3.29 81 86 $6.77 $5.91 $5.10 22 27 $2.51 $2.51 $2.50 52 57 $3.39 $3.37 $3.34 82 87 $6.96 $6.00 $5.13 23 28 $2.52 $2.52 $2.52 53 58 $3.45 $3.42 $3.39 83 88 $7.14 $6.09 $5.16 24 29 $2.54 $2.54 $2.53 54 59 $3.50 $3.48 $3.44 84 89 $7.33 $6.16 $5.18 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 25 30 $2.55 $2.55 $2.55 55 60 $3.56 $3.53 $3.49 85 90 $7.51 $6.24 $5.21 26 31 $2.57 $2.57 $2.57 56 61 $3.63 $3.59 $3.54 86 91 $7.69 $6.30 $5.22 27 32 $2.59 $2.59 $2.58 57 62 $3.69 $3.66 $3.60 87 92 $7.87 $6.36 $5.24 28 33 $2.61 $2.60 $2.60 58 63 $3.76 $3.72 $3.66 88 93 $8.03 $6.41 $5.25 29 34 $2.62 $2.62 $2.62 59 64 $3.84 $3.79 $3.72 89 94 $8.19 $6.46 $5.26 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 30 35 $2.64 $2.64 $2.64 60 65 $3.91 $3.86 $3.78 90 95 $8.34 $6.50 $5.26 31 36 $2.66 $2.66 $2.66 61 66 $3.99 $3.93 $3.84 91 96 $8.48 $6.53 $5.27 32 37 $2.68 $2.68 $2.68 62 67 $4.08 $4.01 $3.91 92 97 $8.61 $6.56 $5.27 33 38 $2.71 $2.70 $2.70 63 68 $4.17 $4.09 $3.98 93 98 $8.73 $6.58 $5.27 34 39 $2.73 $2.73 $2.72 64 69 $4.27 $4.18 $4.05 94 99 $8.84 $6.60 $5.27 95 & 100 & over over $8.94 $6.61 $5.27 ------------------------------------------------------------------------------------------------------------------------------
If the income payable for a specific guaranteed period is equal to that for other guarantee periods the longer period will be deemed to have been elected. RIDERS: POLICY DATA PAGE This policy is adjustable. If it is adjusted, new policy data pages will be issued. Definitions and explanations of the following information can be found in the included policy contract.
PREMIUM INFORMATION: Required Initial Premium $ 294.00 Scheduled Premium $ 5,000.00 Premium Mode Annual Policy Continuation Premiums Years 1-5 $ 147.00 Monthly Years 6+ $ 443.96 Monthly
COVERAGE INFORMATION: Specified Amount $500,000.00 Minimum Specified Amount $50,000.00 Maturity Date January 1, 2070 Death Benefit Option 1 Guaranteed Policy Continuation Period January 1, 2005-January 1, 2035* Option 3 Interest Rate N/A Option 3 Maximum Increase N/A Internal Revenue Code Life Insurance Qualification Test Guideline Premium/Cash Value Corridor Test
* Coverage may expire prior to the dates shown if the policy continuation premium requirements in the Guaranteed Policy Continuation Provisions are not met. Please see "Guaranteed Policy Continuation and Grace Period Provisions". ISSUE INFORMATION:
Insured: JOHN DOE Issue Age: 35 Owner: JOHN DOE Sex: MALE Policy Number: N000000000 Rate Class: STANDARD Policy Date: JANUARY 1, 2005 Rate Type: NON-TOBACCO
Page 3 INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE This policy is adjustable. If it is adjusted, new policy data pages will be issued. SCHEDULE OF BENEFITS
FORM COVERAGE NUMBER BENEFIT AMOUNT STARTS STOPS** VLO-0742 Flexible Premium Variable Universal Life Specified Amount $500,000.00 1/1/2005 1/1/2070 Rate Class: Standard Rate Class Multiple: 1.00 Rate Type: Non-Tobacco VLO-0743 Policy Guard Rider 1/1/2005 1/1/2070 VLO-0744 Additional Protection Rider $250,000.00 1/1/2005 1/1/2070
**Coverage may expire prior to the dates shown if the Initial Premium plus any additional premiums paid are insufficient to continue coverage to such dates. Please see "Guaranteed Policy Continuation and Grace Period Provisions." Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE LIST OF VARIABLE SUBACCOUNTS AND FUNDS
VARIABLE ACCOUNT TRUST NATIONWIDE VLI SEPARATE ACCOUNT - 7 NATIONWIDE SEPARATE ACCOUNT TRUST (NSAT) SUBACCOUNT/FUND [AIM VI Basic Value Fund - Series I AIM VI Basic Value Fund - Series I AIM VI Capital Appreciation Fund - Series I AIM VI Capital Appreciation Fund - Series I AIM VI Capital Development Fund - Series I AIM VI Capital Development Fund - Series I Amer Century VP Value - Class I American Century Variable Value Portfolio - Class I Amer Century VP Ultra Fund - Class I American Century Variable Ultra Fund - Class I Amer Century VP International - Class I American Century Variable International - Class I Amer Century VP Inflation Protection Fund-Class II American Century Variable Inflation Protection Fund - Class II Dreyfus Stock Index - Initial Shares Dreyfus Stock Index Fund - Initial Shares Dreyfus VIF Appreciation Portfolio Dreyfus Variable Investment Appreciation Fund Dreyfus Sm Cap Stock Index - Service Class Dreyfus Small Cap Stock Index Portfolio - Service Class Federated Quality Bond II - Primary Shares Federated Quality Bond Fund II - Primary Shares Fidelity VIP Equity -Income - Service Class Fidelity Var Ins Equity-Income Portfolio - Service Class Fidelity VIP Growth - Service Class Fidelity Var Ins Growth Portfolio Fund - Service Class Fidelity VIP II Invest. Grade Bond-Service Class Fidelity Var Ins Investment Grade Bond Portfolio - Service Class Fidelity VIP Overseas - Service Class Fidelity Var Ins Overseas Portfolio Fund - Service Class Fidelity VIP II Contrafund - Service Class Fidelity Var Ins Contrafund Portfolio - Service Class Fidelity VIP III Value Strategies - Service Class Fidelity Var Ins Value Strategies Portfolio - Service Class Fidelity VIP III Mid Cap Port - Service Class Fidelity Var Ins Mid Cap Portfolio - Service Class Fr Temp VIPT Foreign Sec. - Class I Franklin Templeton VIPT Foreign Securities Fund-Class I Fr Temp VIPT Rising Divid. Sec. - Class I Franklin Templeton VIPT Rising Dividends Securities - Class I Fr Temp VIPT Sm Cap Value Sec. - Class I Franklin Templeton VIPT Sm Cap Value Securities - Class I Gartmore Emerging Markets Fund Gartmore GVIT Emerging Markets Fund Gartmore Global Health Sciences Fund-Class I Gartmore GVIT Global Health Sciences Fund - Class I Gartmore Global Tech. & Communications Fund Gartmore GVIT Global Technology and Communications Fund Gartmore Government Bond Fund Gartmore GVIT Government Bond Fund Gartmore Mid Cap Growth Fund - Class I Gartmore GVIT Mid Cap Growth Fund - Class I Gartmore Money Market Fund Gartmore GVIT Money Market Fund Gartmore Nationwide(R)Fund - Class I Gartmore GVIT Nationwide(R)Fund - Class I Gartmore US Growth Leaders Fund - Class I Gartmore GVIT U. S. Growth Leaders Fund - Class I Gartmore Aggressive Fund - Class II Gartmore GVIT Investor Destinations Aggressive Fund - Class II Gartmore Conservative Fund - Class II Gartmore GVIT Investor Destinations Conservative Fund-Class II Gartmore Moderate Fund - Class II Gartmore GVIT Investor Destinations Moderate Fund - Class II Gartmore Moderately Aggressive Fund - Class II Gartmore GVIT Investor Destin Moderately Aggress Fund-Class II Gartmore Moderately Conservative Fund - Class II Gartmore GVIT Investor Destin Moderately Conserv Fund-Class II Gartmore Comstock Value Fund Gartmore GVIT Comstock Value Fund (Van Kampen) Gartmore High Income Bond Fund Gartmore GVIT High Income Bond Fund (Federated) Gartmore International Value Fund Gartmore GVIT International Value Fund-Class I (Dreyfus) Gartmore Mid Cap Index Fund Gartmore GVIT Mid Cap Index Fund (Dreyfus) Gartmore Multi Sector Bond Fund - Class I Gartmore GVIT Multi Sector Bond Fund-Class I (Van Kampen) Gartmore Sm Cap Growth Fund - Class I Gartmore GVIT Small Cap Growth Fund-Class I (Multi Managers) Gartmore Sm Cap Value Fund Gartmore GVIT Small Cap Value Fund (Multi Managers) Gartmore Sm Company Fund Gartmore GVIT Small Company Fund (Multi Managers) MFS(R)VIT Invest. Growth Stock Series-Initial Class MFS(R)VIT Investors Growth Stock Series - Initial Class MFS(R)VIT Value Series - Initial Class MFS(R)VIT Value Series - Initial Class Neuberger Berman AMT Fasciano Port.-Class S Neuberger Berman AMT Fasciano Portfolio - Class S Neuberger Berman AMT Limited Mat Bond-Class I Neuberger Berman AMT Limited Maturity Bond Portfolio - Class I Neuberger Berman AMT Soc Responsive Port. Neuberger Berman AMT Socially Responsive Portfolio Oppenheimer Cap Appreciation - Initial Class Oppenheimer VA Cap Appreciation - Initial Class Oppenheimer Global Securities - Initial Class Oppenheimer VA Global Securities Fund - Initial Class Oppenheimer High Income Fund - Initial Class Oppenheimer VA High Income Fund - Initial Class Oppenheimer Main Street(R)Fund - Initial Class Oppenheimer VA Main Street(R)Fund - Initial Class Oppenheimer Main Street(R)Sm Cap - Initial Class Oppenheimer VA Main Street(R)Small Cap Fund - Initial Class
Putnam VT Growth & Income - Class IB Putnam VT Growth & Income Fund - Class IB Putnam VT Voyager - Class IB Putnam VT Voyager Fund - Class IB Van Kampen U. S. Real Estate Portfolio - Class I Van Kampen U. S. Real Estate Portfolio - Class I Van Kampen Core Plus Fixed Income - Class I Van Kampen Core Plus Fixed Income Portfolio - Class I] Nationwide Fixed Account Nationwide Fixed Fund Nationwide Long Term Fixed Account Nationwide Long Term Fixed Fund
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE LIST OF VARIABLE SUBACCOUNTS AND FUNDS
VARIABLE ACCOUNT TRUST NATIONWIDE VLI SEPARATE ACCOUNT - 5 NATIONWIDE SEPARATE ACCOUNT TRUST (NSAT) SUBACCOUNT FUND [W&R Asset Strategy Portfolio W&R Asset Strategy Portfolio W&R Balanced Portfolio W&R Balanced Portfolio W&R Bond Portfolio W&R Bond Portfolio W&R Core Equity Portfolio W&R Core Equity Portfolio W&R Dividend Income Portfolio W&R Dividend Income Portfolio W&R Growth Portfolio W&R Growth Portfolio W&R High Income Portfolio W&R High Income Portfolio W&R International Portfolio W&R International Portfolio W&R International II Portfolio W&R International II Portfolio W&R Limited Term-Bond Portfolio W&R Limited Term-Bond Portfolio W&R Micro Cap Growth Portfolio W&R Micro Cap Growth Portfolio W&R Money Market Portfolio W&R Money Market Portfolio W&R Mortgage Securities Portfolio W&R Mortgage Securities Portfolio W&R Real Estate Securities Portfolio W&R Real Estate Securities Portfolio W&R Science & Technology Portfolio W&R Science & Technology Portfolio W&R Small Cap Growth Portfolio W&R Small Cap Growth Portfolio W&R Small Cap Value Portfolio W&R Small Cap Value Portfolio W&R Value Portfolio W&R Value Portfolio] Nationwide Fixed Account Nationwide Fixed Fund Nationwide Long Term Fixed Account Nationwide Long Term Fixed Fund
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE INVESTMENT ALLOCATION OF NET PREMIUMS PAID
FUND ALLOCATION FACTORS DURING "RIGHT TO AFTER "RIGHT TO EXAMINE POLICY" EXAMINE POLICY" PERIOD PERIOD FUND DREYFUS STOCK INDEX - INITIAL SHARES 20% 20% FIDELITY VIP II CONTRAFUND - SERVICES CLASS 30% 30% NEUBERGER BERMAN AMT SOC RESPONSIVE PORTFOLIO 50% 50% TOTAL 100% 100% - -------------------------------------------------------------------------------------------------------------------
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE INVESTMENT ALLOCATION OF NET PREMIUMS PAID
FUND ALLOCATION FACTORS DURING "RIGHT TO AFTER "RIGHT TO EXAMINE POLICY" EXAMINE POLICY" PERIOD PERIOD FUND W&R BOND FUND 20% 20% W&R MORTGAGE SECURITIES FUND 30% 30% W&R SMALL CAP GROWTH FUND 50% 50% TOTAL 100% 100% - -------------------------------------------------------------------------------------------------------------------
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE EXPENSE CHARGES
Maximum Monthly Policy Expense Charge $20.00 Maximum Percent of Premium Loading 6.00% Maximum Mortality and Expense Risk Charge All Policy Years: 0.60% (annual) of the Variable Account Value (effective monthly rate 0.0498630%) Maximum Monthly Per 1,000 Expense $0.20 per 1,000 Applied to first $250,000 of Specified Amount
MAXIMUM SURRENDER CHARGES* Based on Current Specified Amount
Policy Surrender Policy Surrender Year Charge Year Charge 1 $ 0.00 8 $2,875.00 2 $ 460.00 9 $2,415.00 3 $1,150.00 10 $1,955.00 4 $2,127.50 11 $1,495.00 5 $3,910.00 12 $ 920.00 6 $3,565.00 13+ $ 0.00 7 $3,220.00
*On any partial surrender after the first policy year, a service charge of $25.00 may be deducted from the partial surrender amount.
GUARANTEED INTEREST CREDITING RATES (PER ANNUM) Applied: Minimum Fixed Accounts Rate 3.00% All Years To Fixed Account Policy Values Minimum Policy Loan Account Rate 3.00% Years 1-10 To Policy Loan 3.65% Years 11+ Account GUARANTEED POLICY LOAN INTEREST RATE (PER ANNUM) Maximum Policy Loan Rate 3.90% All Years To Total Policy Indebtedness
MAXIMUM FIXED ACCOUNT TRANSFER RESTRICTIONS Restriction Fixed Account Long Term Fixed Account Fixed Account Value: 20% the greater of $6,000 or 12% Maximum Transfer of Cash Value from the Fixed Accounts as of the end of the prior policy year 20% 20% VARIABLE ACCOUNT VALUE: Maximum transfer of Cash Value from the Variable Account as of the prior Valuation Period 30% 30% CASH VALUE: NO TRANSFERS PERMITTED WHEN ALL FIXED ACCOUNT CASH VALUE EXCEEDS:
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST MINIMUM REQUIRED DEATH BENEFIT IS CALCULATED AS THE CASH VALUE TIMES THE APPLICABLE PERCENTAGE
APPLICABLE APPLICABLE AGE PERCENTAGE AGE PERCENTAGE - -------------------- ------------------ ------------------ ------------------ 0-40 250% 70 115% 41 243% 71 113% 42 236% 72 111% 43 229% 73 109% 44 222% 74 107% 45 215% 75 105% 46 209% 76 105% 47 203% 77 105% 48 197% 78 105% 49 191% 79 105% 50 185% 80 105% 51 178% 81 105% 52 171% 82 105% 53 164% 83 105% 54 157% 84 105% 55 150% 85 105% 56 146% 86 105% 57 142% 87 105% 58 138% 88 105% 59 134% 89 105%
60 130% 90 105% 61 128% 91 104% 62 126% 92 103% 63 124% 93 102% 64 122% 94 101% 65 120% 95 100% 66 119% 96 100% 67 118% 97 100% 68 117% 98 100% 69 116% 99 100% 100 100%
Page 3 (Continued) INSURED: JOHN DOE POLICY NUMBER: N000000000 POLICY DATA PAGE
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATE PER $1,000 ATTAINED ATTAINED ATTAINED AGE RATE AGE RATE AGE RATE 0 0.21946 36 0.15181 72 3.82531 1 0.08589 37 0.16183 73 4.27496 2 0.08255 38 0.17267 74 4.77159 3 0.08094 39 0.18442 75 5.30541 4 0.07755 40 0.19854 76 5.87273 5 0.07337 41 0.21362 77 6.46949 6 0.06926 42 0.22948 78 7.09999 7 0.06503 43 0.24700 79 7.78478 8 0.06258 44 0.26625 80 8.54719 9 0.06175 45 0.28801 81 9.40949 10 0.06258 46 0.31137 82 10.39219 11 0.06759 47 0.33647 83 11.49452 12 0.07677 48 0.36407 84 12.69877 13 0.08923 49 0.39423 85 13.98063 14 0.10341 50 0.42856 86 15.32656 15 0.11843 51 0.46790 87 16.71803 16 0.13262 52 0.51314 88 18.15093 17 0.14347 53 0.56511 89 19.64760 18 0.13593 54 0.62299 90 21.23308 19 0.13927 55 0.68760 91 22.94958 20 0.14011 56 0.75817 92 24.87004 21 0.13852 57 0.83303 93 27.20130 22 0.13590 58 0.91624 94 30.42889 23 0.13262 59 1.00982 95 35.49222 24 0.12928 60 1.11425 96 44.51508 25 0.12511 61 1.23084 97 62.83141 26 0.12267 62 1.36524 98 83.33333 27 0.12088 63 1.51765 99 83.33333 28 0.12010 64 1.68729 29 0.12010 65 1.87337 30 0.12088 66 2.07520 31 0.12344 67 2.29204 32 0.12678 68 2.52819 33 0.13179 69 2.79081 34 0.13757 70 3.08859 35 0.14436 71 3.42977
Actual monthly cost of insurance rates will be determined by us based on our expectations as to future experiences. However, the actual cost of insurance rates will not be greater than the sum of rates shown above and the monthly flat extra amount, if any. The guaranteed maximum monthly cost of insurance rates shown above are based on the Commissioners Male Non-Smoker 1980 Standard Ordinary Mortality Table, age last birthday.
BASIS OF COMPUTATION MORTALITY: Commissioners Male Non-Smoker 1980 Standard Ordinary Mortality Table, age last birthday
Page 3 (Continued) TABLES FOR SETTLEMENT OPTIONS FOR FURTHER INFORMATION REFER TO THE "OPTIONAL MODES OF SETTLEMENT PROVISIONS" OPTION 2 OPTION 2 - INCOME FOR A FIXED PERIOD
---------------------------- --------------------------- --------------------------- --------------------------- NUMBER OF YEARS SPECIFIED AMOUNT OF EACH INSTALLMENT NUMBER OF YEARS SPECIFIED AMOUNT OF EACH INSTALLMENT ---------------------------- --------------------------- --------------------------- --------------------------- 1 $84.28 16 $6.30 2 42.66 17 6.00 3 28.79 18 5.73 4 21.86 19 5.49 5 17.70 20 5.27 6 14.93 21 5.08 7 12.95 22 4.90 8 11.47 23 4.74 9 10.32 24 4.60 10 9.39 25 4.46 11 8.64 26 4.34 12 8.02 27 4.22 13 7.49 28 4.12 14 7.03 29 4.02 15 6.64 30 3.93 ---------------------------- --------------------------- --------------------------- --------------------------- Annual, semi-annual or quarterly payments are 11.865, 5.969 and 2.994 respectively times the monthly installments. ----------------------------------------------------------------------------------------------------------------
MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS OPTION 3 OPTION 3 - LIFE INCOME WITH PAYMENTS GUARANTEED REFER TO NEXT PAGE MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS OPTION 5 OPTION 5 - JOINT & SURVIVOR LIFE INCOME
------------------------------------------------------------------------------------------------------------------------- M/F 50 55 60 65 70 75 80 85 90 95 100 ------------------------------------------------------------------------------------------------------------------------- 50 $2.86 $2.96 $3.04 $3.11 $3.17 $3.21 $3.24 $3.26 $3.28 $3.29 $3.29 55 $2.92 $3.04 $3.15 $3.26 $3.35 $3.43 $3.48 $3.52 $3.55 $3.56 $3.57 60 $2.96 $3.11 $3.26 $3.41 $3.55 $3.67 $3.77 $3.84 $3.88 $3.91 $3.93 65 $3.00 $3.17 $3.35 $3.55 $3.75 $3.94 $4.10 $4.22 $4.31 $4.37 $4.40 70 $3.02 $3.21 $3.43 $3.67 $3.94 $4.21 $4.47 $4.68 $4.85 $4.96 $5.03 75 $3.04 $3.24 $3.48 $3.77 $4.10 $4.47 $4.85 $5.20 $5.50 $5.72 $5.86 80 $3.05 $3.26 $3.52 $3.84 $4.22 $4.68 $5.20 $5.73 $6.22 $6.63 $6.92 85 $3.06 $3.28 $3.55 $3.88 $4.31 $4.85 $5.50 $6.22 $6.98 $7.67 $8.22 90 $3.07 $3.29 $3.56 $3.91 $4.37 $4.96 $5.72 $6.63 $7.67 $8.73 $9.68 95 $3.07 $3.29 $3.57 $3.93 $4.40 $5.03 $5.86 $6.92 $8.22 $9.68 $11.16 100 $3.07 $3.30 $3.58 $3.94 $4.42 $5.07 $5.96 $7.12 $8.62 $10.46 $12.49 -------------------------------------------------------------------------------------------------------------------------
FOR INFORMATION REGARDING SETTLEMENT OPTIONS 1 AND 4, PLEASE REFER TO THE CONTRACT. Page 3 (Continued) MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS OPTION 3 OPTION 3 - LIFE INCOME WITH PAYMENTS GUARANTEED
---------------- ------------------------- --------------- ------------------------ ---------------- ----------------------- AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD LAST BIRTHDAY YEARS LAST BIRTHDAY YEARS LAST BIRTHDAY YEARS ------------------------------------------------------------------------------------------------------------------------------ Male Female 10 15 20 Male Female 10 15 20 Male Female 10 15 20 ------------------------------------------------------------------------------------------------------------------------------ 5 & 10 & under under $2.33 $2.33 $2.32 35 40 $2.75 $2.75 $2.75 65 70 $4.37 $4.27 $4.12 6 11 $2.33 $2.33 $2.33 36 41 $2.78 $2.78 $2.77 66 71 $4.48 $4.36 $4.19 7 12 $2.34 $2.34 $2.34 37 42 $2.81 $2.80 $2.80 67 72 $4.59 $4.45 $4.26 8 13 $2.35 $2.35 $2.35 38 43 $2.83 $2.83 $2.82 68 73 $4.71 $4.55 $4.33 9 14 $2.36 $2.36 $2.36 39 44 $2.86 $2.86 $2.85 69 74 $4.83 $4.65 $4.40 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 10 15 $2.37 $2.37 $2.37 40 45 $2.89 $2.89 $2.88 70 75 $4.96 $4.75 $4.47 11 16 $2.38 $2.38 $2.38 41 46 $2.92 $2.92 $2.91 71 76 $5.10 $4.86 $4.54 12 17 $2.39 $2.39 $2.39 42 47 $2.96 $2.95 $2.94 72 77 $5.24 $4.97 $4.61 13 18 $2.40 $2.40 $2.40 43 48 $2.99 $2.99 $2.97 73 78 $5.39 $5.07 $4.68 14 19 $2.41 $2.41 $2.41 44 49 $3.03 $3.02 $3.01 74 79 $5.55 $5.18 $4.75 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 15 20 $2.42 $2.42 $2.42 45 50 $3.07 $3.06 $3.04 75 80 $5.71 $5.29 $4.81 16 21 $2.43 $2.43 $2.43 46 51 $3.11 $3.10 $3.08 76 81 $5.87 $5.40 $4.87 17 22 $2.44 $2.44 $2.44 47 52 $3.15 $3.14 $3.12 77 82 $6.05 $5.51 $4.92 18 23 $2.46 $2.45 $2.45 48 53 $3.19 $3.18 $3.16 78 83 $6.22 $5.61 $4.97 19 24 $2.47 $2.47 $2.46 49 54 $3.24 $3.22 $3.20 79 84 $6.40 $5.72 $5.02 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 20 25 $2.48 $2.48 $2.48 50 55 $3.29 $3.27 $3.25 80 85 $6.58 $5.82 $5.06 21 26 $2.49 $2.49 $2.49 51 56 $3.34 $3.32 $3.29 81 86 $6.77 $5.91 $5.10 22 27 $2.51 $2.51 $2.50 52 57 $3.39 $3.37 $3.34 82 87 $6.96 $6.00 $5.13 23 28 $2.52 $2.52 $2.52 53 58 $3.45 $3.42 $3.39 83 88 $7.14 $6.09 $5.16 24 29 $2.54 $2.54 $2.53 54 59 $3.50 $3.48 $3.44 84 89 $7.33 $6.16 $5.18 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 25 30 $2.55 $2.55 $2.55 55 60 $3.56 $3.53 $3.49 85 90 $7.51 $6.24 $5.21 26 31 $2.57 $2.57 $2.57 56 61 $3.63 $3.59 $3.54 86 91 $7.69 $6.30 $5.22 27 32 $2.59 $2.59 $2.58 57 62 $3.69 $3.66 $3.60 87 92 $7.87 $6.36 $5.24 28 33 $2.61 $2.60 $2.60 58 63 $3.76 $3.72 $3.66 88 93 $8.03 $6.41 $5.25 29 34 $2.62 $2.62 $2.62 59 64 $3.84 $3.79 $3.72 89 94 $8.19 $6.46 $5.26 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ 30 35 $2.64 $2.64 $2.64 60 65 $3.91 $3.86 $3.78 90 95 $8.34 $6.50 $5.26 31 36 $2.66 $2.66 $2.66 61 66 $3.99 $3.93 $3.84 91 96 $8.48 $6.53 $5.27 32 37 $2.68 $2.68 $2.68 62 67 $4.08 $4.01 $3.91 92 97 $8.61 $6.56 $5.27 33 38 $2.71 $2.70 $2.70 63 68 $4.17 $4.09 $3.98 93 98 $8.73 $6.58 $5.27 34 39 $2.73 $2.73 $2.72 64 69 $4.27 $4.18 $4.05 94 99 $8.84 $6.60 $5.27 95 & 100 & over over $8.94 $6.61 $5.27 ------------------------------------------------------------------------------------------------------------------------------
If the income payable for a specific guaranteed period is equal to that for other guarantee periods the longer period will be deemed to have been elected. Page 3 (Continued) DEFINITIONS ATTAINED AGE: Attained Age is the Issue Age plus the number of full years since the Policy Date. BENEFICIARY: The Beneficiary is the person to whom the Proceeds are paid upon the Insured's death while your policy is in force. The Beneficiary is named in the application, unless changed. CASH SURRENDER VALUE: The Cash Surrender Value of your policy on any date is the Cash Value minus any Indebtedness minus any surrender charge. CASH VALUE: Your policy's Cash Value is the sum of the values in the Variable Account, Fixed Accounts, and the Policy Loan Account. Refer to the Nonforfeiture Provision for details. COMPANY: The Company is the Nationwide Life Insurance Company. "We," "our", and "us" refer to the Company. CONTINGENT BENEFICIARY: The Contingent Beneficiary will become the Beneficiary if the named Beneficiary dies prior to the date of the death of the Insured. The Contingent Beneficiary is named in the application, unless changed. CONTINGENT OWNER: The Contingent Owner will become the Owner if the named Owner dies prior to the date of the death of the Insured. The Contingent Owner is named in the application, unless changed. FIXED ACCOUNT: A Fixed Account is an investment option which is funded by the General Account of the Company. FUND: A Fund is the underlying mutual fund in which Subaccount assets are invested. Excepting Managed Account Option Subaccounts, there is a Fund that corresponds to each Subaccount in a Variable Account. Managed Account Option Subaccounts may hold more than one Fund. The Funds are listed on the Policy Data Page with the corresponding Subaccounts. GENERAL ACCOUNT: The General Account is made up of all of our assets other than those held in any separate investment account. HOME OFFICE: The Home Office of the Company is at One Nationwide Plaza, Columbus, Ohio. INDEBTEDNESS: Indebtedness is any amount you owe us as a result of a policy loan. Indebtedness consists of principal amount plus accrued interest. INITIAL INVESTMENT DATE: The Initial Investment Date is the later of the Policy Date or the date we receive the Initial Premium at our Home Office. INITIAL PREMIUM: The Initial Premium is the premium required for coverage to become effective on the Policy Date. It is shown on the Policy Data Page. INSURED: The Insured is the person whose life is covered by this insurance policy and is named in the application. ISSUE AGE: Issue Age is the Insured's age on the last birthday on or before the Policy Date. It is shown on the Policy Data Page. MANAGED ACCOUNT OPTION: A Managed Account Option is a Subaccount that holds more than one Fund or assets other than Funds. MATURITY DATE: The Maturity Date is the policy anniversary, from the Policy Date, on or next following the Insured's 100th birthday. MINIMUM REQUIRED DEATH BENEFIT: 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. MINIMUM SPECIFIED AMOUNT: The Minimum Specified Amount is shown on the Policy Data Page. Changes to the policy which result in a Specified Amount below the Minimum Specified Amount will not be processed. Refer to Specified Amount Decreases and Partial Surrender Provisions for details. NET AMOUNT AT RISK: The Net Amount at Risk on a monthly anniversary from the Policy Date is the death benefit minus the Cash Value, calculated prior to deduction of the base policy cost of insurance charge. On any other day, the Net Amount at Risk is the death benefit minus the Cash Value. NET PREMIUM: The Net Premium is equal to the actual premium minus the percent of premium charge. The percent of premium charge is shown on the Policy Data Page. The Company may, at its sole discretion, apply a lower percent of premium charge. OWNER: The Owner has all rights under this policy and is named in the application unless later changed and endorsed on this policy. "You" or "your" refer to the Owner of this policy. PARTIAL SURRENDER AMOUNT: This is the amount requested by you as a partial surrender. We reserve the right to deduct a fee from this amount. The maximum fee is shown on the Policy Data Page. POLICY DATA PAGE: The Policy Data Page contains more detailed information about the policy, some of which is unique and particular to the Owner, the Beneficiary, and the Insured. POLICY DATE: The Policy Date is the date on which your policy becomes in force and insurance coverage takes effect. It is shown on the Policy Data Page. Policy years and policy months are measured from the Policy Date. POLICY LOAN ACCOUNT: The Policy Loan Account is that portion of the Cash Value which results from policy loans. PROCEEDS: Proceeds may constitute the amount of money payable to the Beneficiary if the Insured dies while your policy is in force, or the amount of money payable to you upon a surrender or the Maturity Date. RIDER: A Rider is an optional benefit or feature available for purchase with the policy. SEC: The SEC is Securities and Exchange Commission. SPECIFIED AMOUNT: The Specified Amount is a dollar amount used to determine the death benefit of your policy. It is shown on the Policy Data Page. SUBACCOUNT: A Subaccount is a part of a Variable Account. We use Subaccounts to account for your allocations of Net Premium and Cash Value among the Variable Account investment options available under your policy. The Subaccounts are listed on the Policy Data Page. VALUATION DATE: A valuation date is any day on which the Home Office and the New York Stock Exchange are both open for business. Orders to purchase, redeem, and/or transfer among the Sub-Accounts must be received by the time we specify for that Subaccount. Any orders that are received after the specified time will be processed and valued as of the next valuation date. VALUATION PERIOD: A Valuation Period is the interval of time between a valuation date and the next valuation date. VARIABLE ACCOUNT: A Variable Account is a separate investment account of the Company that funds specified, non-guaranteed investment options available under the policy. The Variable Accounts are listed on the Policy Data Page. GENERAL POLICY PROVISIONS ENTIRE CONTRACT: The entire contract consists of this policy, the Policy Data Page, any attached Riders or endorsements, and the attached copy of any written application, including any written supplemental applications. No agent, registered representative, or other person may change this policy or waive any of its provisions. Any agreement, including but not limited to maturity extension, to alter this policy must be in writing, signed by our president or secretary and attached to or endorsed on your policy. We will not be bound by any promise or representations made by any agent or other persons. APPLICATION: All statements made in an application are considered representations and not warranties. In issuing this policy, we have relied on the statements made in any application to be true and complete. No such statement will be used to void the policy or to deny a claim unless that statement is a material misrepresentation. INCONTESTABILITY: We will not contest payment of the Proceeds upon the Insured's death based on the initial Specified Amount after this policy has been in force during the Insured's lifetime for two years from the Policy Date. For any increase in Specified Amount requiring evidence of insurability, we will not contest payment of the Proceeds based on such an increase after it has been inforce during the Insured's lifetime for two years from its effective date of the increase. SUICIDE: If the Insured commits suicide, while sane or insane, within two years from the Policy Date, we will not pay the Proceeds normally payable on the Insured's death. Instead, we will pay the Beneficiary an amount equal to all premiums paid prior to the Insured's death, less any Indebtedness, and less any partial surrenders. For any increase in Specified Amount requiring evidence of insurability, if the Insured commits suicide, while sane or insane, within two years from the effective date of any such increase, we will not pay the Proceeds associated with such an increase. Instead, our liability with respect to such an increase will be limited to its cost of insurance charges. INTERAL REVENUE CODE LIFE INSURANCE QUALIFICATION TEST: At time of policy issue, you must choose either the Guideline Premium or Cash Value Accumulation Test. You cannot change the test once we issue the policy. The two tests are defined in Section 7702 of the Internal Revenue Code and are used to define the Minimum Required Death Benefit and premium limitations. 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 adjusted death benefit will be (1) multiplied by (2) and then the result added to (3) where: 1. is the Net Amount at Risk at the time of the Insured's death; 2. is the ratio of the monthly cost of insurance applied in the policy month of death and the monthly cost of insurance that should have been applied at the true age and sex in the policy month of death; and 3. is the Cash Value at the time of the Insured's death. The Cash Value will be adjusted to reflect the cost of insurance charges based on the correct age and sex from the Policy Date. EFFECTIVE DATE OF COVERAGE: The effective date of coverage of any person insured under your policy is as follows: 1. the Policy Date is the effective date for all coverage provided in the original application; 2. for any increase or addition to coverage, the effective date will be the monthly anniversary, from the Policy Date, on or next following the date we approve the supplemental application; and 3. for any insurance that has been reinstated, the effective date will be the monthly anniversary, from the Policy Date, on or next following the date we approve your request for reinstatement. TERMINATION: All coverage under your policy will terminate when any one of the following events occurs: 1. you request in writing that the coverage terminates; 2. the Insured dies; 3. the policy matures; 4. the grace period ends; or 5. you surrender the policy for its Cash Surrender Value. ANNUAL REPORT: We will send you a report at least once a year which shows the current Cash Value, Cash Surrender Value, amount of insurance, premiums paid, minimum monthly premiums, all charges since the last report and outstanding policy Indebtedness. The report will also include any other information required by laws and regulations, both federal and state. We will mail this report to you at your address in the application or another address you specify. ILLUSTRATION OF BENEFITS AND VALUES: We will provide a projection of illustrative future benefits and values under this policy at any time. Your written request and payment of a service fee set by us at the time of the request will be required. NONPARTICIPATION: This is a nonparticipating policy on which no dividends are payable. Your policy will not share in our profits or surplus earnings. CURRENCY: Any money we pay, or that is paid to us, must be denominated in United States currency. SIGNATURE GUARANTEE AND REQUIRED DOCUMENTATION: For your protection, a written request for a surrender, a partial surrender, policy loan, or a change in ownership must be signed. We may require the signature to be guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia, or Pacific Stock Exchanges, or by a commercial bank or a savings and loans, which is a member of the Federal Deposit Insurance Corporation. In some cases, we may require additional documentation of a customary nature. OWNER, BENEFICIARY AND ASSIGNMENT PROVISIONS OWNER: While the Insured is living, all rights in your policy belong to you. OWNERSHIP AT YOUR DEATH: You may name a Contingent Owner who will become the Owner of the policy if you die before the Insured. If there is no Contingent Owner at the time of your death and you predecease the Insured, your estate will become the Owner of the policy. DESIGNATING AND CHANGING OWNERSHIP: You may name a Contingent Owner or a new Owner at any time while the Insured is living. If a new Owner is named, any earlier designation of Owner(s) or Contingent Owner(s) is automatically revoked. Any change must be in a written form satisfactory to us and recorded at our Home Office. Once recorded, the change will take effect as of the date you signed it. The change will not affect any payment made or any action we take before it was recorded. We may require that you send us your policy for endorsement before making a change. BENEFICIARY: The Beneficiary is the person(s) who is entitled to receive the Proceeds upon the death of the Insured. The Contingent Beneficiary is the person(s) entitled to receive the Proceeds if no Beneficiary is alive at the time of the death of the Insured. DESIGNATING AND CHANGING THE BENEFICIARY AND THE CONTINGENT BENEFICIARY: You may designate on the application one or more Beneficiary(ies), and one or more Contingent Beneficiaries. While the Insured is alive, you may change any Beneficiary or Contingent Beneficiary designation. Any change must be in a written form satisfactory to us. We must receive the change at our Home Office. We may require that we receive the policy for endorsement before we record the change. Once we record the change, the change will be effective as of the date it was signed; provided, however, that we will not be liable to any person for any action or payment we make prior to recording the change. PAYMENTS TO THE BENEFICIARY: We will pay the Proceeds, upon the Insured's death, to the Beneficiary(ies) that survives the Insured. If no Beneficiary survives the Insured, the Contingent Beneficiary(ies) becomes the Beneficiary(ies) and will be paid the Proceeds. If no Beneficiary or Contingent Beneficiary survives the Insured, we will deem you (or your estate) to be the Beneficiary and pay you (or your estate) the death benefit Proceeds. If there are multiple payees of the Proceeds, we will pay them on a pro-rata basis, unless you instruct us prior to the Insured's death to pay them on some other basis. ASSIGNMENT: While the Insured is living, you may assign any or all rights under your policy. We will not be bound by any assignment unless it is in a written form acceptable to us and is recorded at our Home Office. An assignment will not affect any payments made or actions taken by us before we record it. The assignment will be subject to any Indebtedness owed to us before it was recorded. The interest of any Beneficiary will be subject to the rights of any assignee of record at our Home Office. We will not be responsible for the sufficiency or validity of any assignment. PREMIUM PROVISIONS PREMIUM PAYMENTS: The Initial Premium is due on the Policy Date. It will be credited on the Initial Investment Date. Any due and unpaid monthly deductions will be subtracted from the Cash Value at this time. Insurance will not be effective until the Initial Premium is paid. The Initial Premium is shown on the Policy Data Page. Premiums other than the Initial Premium may be paid at any time while your policy is in force subject to the limits described below. Planned premium payment reminder notices will be furnished upon request. You may pay the Initial Premium to us at our Home Office or to an authorized agent. All premiums after the first are payable at our Home Office. Premium receipts will be furnished upon request. LIMITS: Each premium payment must be at least $50. Additional premium payments may be made at any time while your policy is in force. However, we reserve the right to require satisfactory evidence of insurability before accepting any additional premium payment which results in any increase in the Net Amount at Risk. Also, we will refund any portion of any premium payment which is determined to be in excess of the premium limit established by law to qualify your policy as a contract for life insurance. We may also require that any existing policy Indebtedness is repaid prior to accepting any additional premium payments. LAPSE PROVISIONS LAPSE: Your policy will remain in force so long as the Cash Surrender Value, on the monthly anniversary from the Policy Date, is sufficient to cover the deduction for charges. Otherwise, your policy will lapse, subject to the Guaranteed Policy Continuation Provision and a grace period. When your policy lapses, insurance coverage and any Riders you have selected will have no value. GUARANTEED POLICY CONTINUATION PROVISION: During the guaranteed policy continuation period, your policy will not lapse while the sum of all your premium payments (including the Initial Premium), minus any Indebtedness and partial surrenders, is greater than or equal to the sum of the "Policy Continuation Premiums" (as shown on the Policy Data Page) due through the most recent monthly anniversary from the Policy Date. This amount may vary by policy duration, and it may be affected by any changes to your policy. GRACE PERIOD: Before the end of a grace period, your policy will not lapse if you pay the greater of enough premium to cover four times the current monthly deduction for charges or enough premium to maintain the Guaranteed Policy Continuation Provision, if applicable. We will pay the Proceeds upon the Insured's death during a grace period, so long as your policy has been in force during the Insured's lifetime for two years from the Policy Date. Also, you may surrender your policy for its Cash Surrender Value during a grace period. We will send you a notice at the start of a grace period. From the date on which the notice is postmarked, the grace period will last for 61 days. REINSTATEMENT: Within three years of the end of a grace period (and before the Maturity Date), you may request to reinstate your policy that has lapsed. You must submit your request in writing. We may require you to provide further evidence of insurability that is satisfactory to us. You will need to pay enough premium to cover the monthly deductions for charges while your policy was within a grace period, and to cover three times the current monthly deduction for charges from the date we reinstate your policy. That date will be on the next monthly anniversary from the Policy Date after which we approved your request for reinstatement. For your policy to be reinstated, you will also either need to repay any Indebtedness, or have it reinstated. Upon reinstatement, the Cash Value of your policy, before any premium payments or loan repayments, will be set equal to the lesser of the Cash Value at the end of the grace period, or the surrender charge for the year from the Policy Date in which we reinstate your policy. DEATH BENEFIT PROVISIONS DEATH BENEFIT: If the Insured dies while the policy is in force prior to the Maturity Date, your policy will provide a death benefit. The death benefit will be determined in accordance with one of the following options, whichever is in effect on the date of the Insured's death, subject to the Minimum Required Death Benefit. The current option in effect is shown on the Policy Data Page. OPTION 1: The death benefit will be the Specified Amount on the date of death; OPTION 2: The death benefit will be the Specified Amount plus the Cash Value on the date of death; OPTION 3: The death benefit will be the Specified Amount plus the accumulated premium account on the date of death. The accumulated premium account is all premium payments accumulated to the date of death less any partial surrenders accumulated to the 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 or greater than the Option 3 maximum increase 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. DEATH PROCEEDS: The actual amount of money payable to the Beneficiary if the Insured dies while your policy is in force prior to the Maturity Date equals: 1. the death benefit provided by your policy; plus 2. any insurance on the Insured's life that may be provided by Riders; minus 3. any Indebtedness; minus 4. any due and unpaid monthly deductions accruing during the grace period. We will pay these Proceeds to the Beneficiary after we receive at our Home Office proof of death satisfactory to us and such other information as we may reasonably require. Such Proceeds will be adjusted under certain conditions. Refer to the Incontestability, Suicide, and Error in Age or Sex Provisions. MATURITY DATE EXTENSION: If the Insured is alive on the original Maturity Date of the policy, you may extend the Maturity Date. Unless you elect otherwise, the Maturity Date will be extended until the date the Insured dies and the following will apply: 1. No premium payments will be allowed after the original Maturity Date. 2. Increases to the Specified Amount will not be permitted after the original Maturity Date. 3. Death Benefit Option changes will not be permitted after the original Maturity Date. 4. On the original Maturity Date, 100% of the Cash Value in the Subaccounts will be transferred to the Fixed Account, which is funded by the General Account of the Company, and transfers out of the Fixed Account will not be permitted. 5. No further monthly deductions will be taken after the original Maturity Date. The cost of insurance charges will be zero after the original Maturity Date. 6. The Specified Amount for Maturity Date Extension will be equal to the Specified Amount at the Insured's Attained Age 85, less items (a) and (b) where: (a) is any decrease to the Specified Amount after the Insured's Attained Age 85; and (b) is an adjustment for partial surrenders taken after Insured's Attained Age 85. The amount of the adjustment varies based on the Death Benefit Option and the Insured's Attained Age, and is defined within the chart below:
INSURED'S ATTAINED AGE 86-90 91 AND OLDER DEATH BENEFIT OPTION 1 Amount by which the Amount proportionate to base policy Specified the ratio of the surrender Amount is reduced due to the contract value prior to the surrender. to the surrender. DEATH BENEFIT OPTION 2 OR 3 0 0
DEATH BENEFIT OPTION CHANGES: After the first policy year, you may change the death benefit option under your policy from Option 1 to Option 2, Option 2 to Option 1, Option 3 to Option 1 or Option 3 to Option 2. We will adjust the Specified Amount such that the Net Amount at Risk remains constant before and after the death benefit option change. The effective date of change will be the monthly anniversary from the Policy Date on or next following the date we approve the request for change. Only one change of option is permitted in a policy year. We will refuse a death benefit option change which would reduce the Specified Amount to a level where the total premiums already paid exceeds the premium limit, if any, established by law to qualify your policy as a contract for life insurance. In order for a death benefit option change to become effective, the Cash Surrender Value, after the change, must be sufficient to keep the policy in force for at least three months. SPECIFIED AMOUNT INCREASES: At any time after the first year from the Policy Date, you may request an increase in Specified Amount. Your request must be in writing to our Home Office on our official forms. Any increase shall be subject to the following conditions: 1. you must provide evidence of insurability satisfactory to us; 2. the increase must be for a minimum of $10,000; 3. the Cash Surrender Value is sufficient to keep this policy in force with the new Specified Amount for at least three months; and 4. age limits are the same as for a new issue. An approved increase will have an effective date of the monthly anniversary from the Policy Date on or next following the date we approve the supplemental application unless you request a different date. We reserve the right to limit the number of increases in Specified Amount to one each year from the Policy Date. SPECIFIED AMOUNT DECREASES: At any time after the first year from the Policy Date, you may request a decrease in the Specified Amount. Any decrease will be effective on the monthly anniversary from the Policy Date, on or next following our receipt of your request unless you request a different date. Any such decrease shall reduce 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. We reserve the right to limit the number of decreases in the Specified Amount to one each year from the Policy Date. We will refuse a request for a decrease which would: 1. reduce the Specified Amount below the Minimum Specified Amount; or 2. disqualify this policy as a contract for life insurance. NONFORFEITURE PROVISIONS CASH VALUE: The Cash Value of your policy is the sum of the Cash Value in each Subaccount, the Fixed Accounts, and the Policy Loan Account. The Cash Value in each Subaccount on the Initial Investment Date is equal to the portion of the Net Premium allocated to the Subaccount minus a pro-rata monthly deduction for the month following the Policy Date. The Cash Value in each Subaccount on each subsequent Valuation Period is equal to (1) plus (2) plus (3) minus (4) minus (5) minus (6), where: (1) is the Cash Value in the Subaccount on the preceding Valuation Period multiplied by its net investment factor for the current Valuation Period; (2) is any Net Premiums or other amounts allocated to the Subaccount during the current Valuation Period; (3) is any amounts transferred to the Subaccount during the current Valuation Period; (4) is any amounts transferred from the Subaccount during the current Valuation Period; (5) is the portion of any monthly deductions which are due and charged to the Subaccount during the current Valuation Period; and (6) is any Partial Surrender Amount allocated to the Subaccount during the current Valuation Period. The Cash Value in the Policy Loan Account is zero, unless you take a policy loan. If you take a policy loan, then the Cash Value in the Policy Loan Account on the loan date is equal to the amount of the loan. The loan amount is transferred from a Variable Account in proportion to the Cash Value in each Subaccount on the date of the loan. Loan amounts will be transferred from the Fixed Accounts only when insufficient amounts are available in the Variable Account. Then, loan amounts will be transferred from the Fixed Accounts based on each Fixed Account's transfer restriction level. Loan amounts will be transferred from Fixed Accounts with a lower percentage transfer restriction level only when insufficient amounts are available in Fixed Accounts with a higher percentage transfer restriction level. Fixed Account transfer restriction levels are stated on the Policy Data Page. The Cash Value in the Policy Loan Account on each subsequent Valuation Period is equal to (1) plus (2) plus (3) minus (4) minus (5) where: (1) is the Cash Value in the Policy Loan Account on the preceding Valuation Period; (2) is any interest credited during the current Valuation Period; (3) is any amounts transferred to the Policy Loan Account because of additional policy loans and any due and unpaid loan interest during the current Valuation Period; (4) is the amount of any loan repayments you make during the current Valuation Period; and (5) is any amount of interest transferred from the Policy Loan Account to the Variable Account or a Fixed Account during the current Valuation Period. THE CASH VALUE IN A FIXED ACCOUNT IS ZERO UNLESS SOME OR ALL OF THE CASH VALUE IS ALLOCATED TO A FIXED ACCOUNT. THE CASH VALUE IN A FIXED ACCOUNT ON THE INITIAL INVESTMENT DATE IS EQUAL TO THE PORTION OF THE NET PREMIUM ALLOCATED TO THE PARTICULAR FIXED ACCOUNT MINUS A PRO-RATA MONTHLY DEDUCTION FOR THE MONTH FOLLOWING THE POLICY DATE. THE CASH VALUE IN A FIXED ACCOUNT ON EACH SUBSEQUENT VALUATION DAY IS EQUAL TO: 1. the Cash Value in this Fixed Account on the preceding Valuation Day; plus 2. any interest credited during the current Valuation Period; plus 3. any Net Premiums or other amounts allocated to this Fixed Account during the current Valuation Period; minus 4. any amounts transferred from this Fixed Account during the current Valuation Period; minus 5. the portion of any monthly deductions which are due and charged to this Fixed Account during the current Valuation Period; minus 6. any Partial Surrender Amounts allocated to this Fixed Account during the current Valuation Period. MONTHLY DEDUCTION: The monthly deduction for each month from the Policy Date, shall be calculated as: 1. the Mortality and Expense Risk Charges. The mortality and expense charges are shown on the Policy Data Page; plus 2. the monthly expense charges. These charges will not exceed the Maximum Monthly Policy Expense Charges shown on the Policy Data Page; plus 3. the monthly cost of any additional benefits provided by any Riders; plus 4. the monthly cost of insurance. The monthly deductions other than the Mortality and Expense Risk Charge will be charged proportionately to the Cash Values in each Subaccount and each Fixed Account, unless otherwise elected. If one Variable Account holds interests in another, monthly deductions will be charged in only one. The Mortality and Expense Risk Charge will be charged proportionately to the Cash Values in each Subaccount only, unless otherwise elected. MONTHLY COST OF INSURANCE: A deduction will be made on the Policy Date, and each monthly anniversary from the Policy Date, for the monthly cost of insurance. This monthly deduction will be charged proportionately to the Cash Values in each Subaccount and the Fixed Accounts, unless otherwise elected. If one Variable Account holds interests in another, monthly cost of insurance will be charged in only one. The monthly cost of insurance for each policy month is determined by multiplying the monthly cost of insurance rate by the Net Amount at Risk. The monthly cost of insurance rate is described under the Cost of Insurance Rates Provision. If there have been increases in the Specified Amount, then the Cash Value shall be first considered a part of the initial Specified Amount. If the Cash Value exceeds the initial Specified Amount, it shall then be considered a part of the increases in Specified Amount in the order of the increases. COST OF INSURANCE RATES: A separate monthly cost of insurance rate is used to obtain the monthly cost of insurance for the Insured's initial Specified Amount and each increase in Specified Amount. Each rate is based on the Insured's Issue Age, sex, underwriting class, and any substandard rating at the time the initial Specified Amount was issued, or increase took effect, and on the duration since that time. Monthly cost of insurance rates will be determined by us from time to time, based on our expectations as to future experience. Any change in cost of insurance rates will be on a uniform basis for Insureds of the same Issue Age, sex, underwriting class, and any substandard rating whose policies have been in force for the same length of time. These rates will never be greater than the Guaranteed Maximum Monthly Cost of Insurance Rates shown on the Policy Data Page. The basis for these Guaranteed Maximum Cost of Insurance Rates is shown in the Basis of Computation on the Policy Data Page. INTEREST CREDITING: Any Cash Value allocated to the Policy Loan Account will be credited interest daily. The guaranteed minimum annual effective rate is shown on the Policy Data Page. Interest in excess of the minimum guaranteed rate may be credited. Any Cash Value allocated to the Fixed Accounts will be credited interest daily. The guaranteed minimum annual effective rate for each Fixed Account is shown on the Policy Data Page. Interest in excess of the minimum guaranteed rate may be credited. Each Fixed Accounts may credit a different rate. The current interest rate in effect at the time of transfer to the Fixed Accounts will be guaranteed through the end of the calendar quarter. Thereafter, any excess interest rates will be guaranteed for the following three months. Where required, we have filed our method for determining current interest rates with the Insurance Department of the state in which this policy was delivered. MINIMUM LEGAL VALUES: The cash surrender, loan and other values in your policy are at least as large as those set by law in the state where it is delivered. Where required, we have given the insurance regulator a detailed statement of how we compute values and benefits. CONTINUATION OF INSURANCE: If the premium payments are not made, insurance coverage under this policy and any benefits provided by any Rider will be continued in force. Such coverage will be continued as provided in the Grace Period Provision. This provision will neither continue the policy beyond the Maturity Date, nor continue any Rider beyond the date for its termination, as provided in the Rider. SURRENDER CHARGE: When this policy lapses or is surrendered, a surrender charge is deducted from the Cash Value. Surrender charges are calculated separately for the initial Specified Amount and each increase in Specified Amount. The amount and duration of the surrender charges for each segment of coverage are shown in the Table of Surrender Charges on the Policy Data Page. COMPLETE SURRENDER: Your policy may be surrendered for its Cash Surrender Value at any time while it is in force. You must submit a written request on a form acceptable to us. We may also require the return of your policy. The date of surrender will be the date we receive your written request at our Home Office. The Cash Surrender Value will be determined as of the end of the Valuation Period during which your request is received. All coverage will end on the date of surrender. PARTIAL SURRENDER: A partial surrender may be made at any time while this policy is in force. You must submit a written request. We may also require that this policy be sent to us. We reserve the right to limit the number of partial surrenders in a policy year to one a year from the Policy Date. In addition, a partial surrender will be allowed only if after the partial surrender, this policy continues to qualify as a contract for life insurance. We reserve the right to deduct a fee from the Partial Surrender Amount you requested. The maximum fee is shown on the Policy Data Page. When a partial surrender is made, we will reduce the Cash Value by the Partial Surrender Amount. We will also reduce the Specified Amount by the amount necessary to prevent an increase in the Net Amount at Risk. However, the reduction to the Specified Amount will not be greater than the Partial Surrender Amount. Any such decrease to the Specified Amount as a result of an ordinary partial surrender will reduce insurance in the following order: 1. against the insurance provided by the most recent increase; 2. against the next most recent increase successively; and 3. against the insurance under the original application. We will allocate partial surrenders first among the Subaccounts in proportion to the Cash Value in each Subaccount as of the partial surrender date, unless otherwise elected. Partial surrenders will be transferred from the Fixed Accounts only when insufficient amounts are available in the Variable Subaccounts. Then, partial surrenders will be transferred from the Fixed Accounts based on each Fixed Account's transfer restriction level. Partial surrenders will be transferred from the Fixed Accounts with a lower percentage transfer restriction level only when insufficient amounts are available in the Fixed Accounts with a higher percentage transfer restriction level. Fixed Account transfer restrictions are stated on the Policy Data Page. A partial surrender is subject to the following conditions: 1. the minimum partial surrender is $200; 2. during each of the first ten years from the Policy Date, the sum of all partial surrenders in a policy year cannot exceed 10% of the Cash Surrender Value as of the beginning of that year. 3. after the completion of ten years from the Policy Date, the maximum amount of a partial surrender is the Cash Surrender Value less the greater of $500 or three monthly deductions; 4. a partial surrender may not reduce the Specified Amount below the Minimum Specified Amount; 5. a partial surrender will not be permitted if it violates the definition of life insurance under section 7702 of the Internal Revenue Code; and 6. Nationwide reserves the right to defer payment for a period permitted by law, but not more than six months from the date of the written partial surrender request. CHANGES IN POLICY COST FACTORS: Changes in cost of insurance rates, credited interest rates or other policy expense charges will be by class and will be based on changes in future expectations for factors such as: 1. investment earnings; 2. mortality; 3. persistency; 4. expenses; and 5. taxes. Any changes will be determined in accordance with the procedures on file, if required, with the insurance regulator in the state in which this policy was delivered. LOAN PROVISIONS POLICY LOAN: You may request a loan at any time while your policy is in force. All loans must be requested in writing on a form acceptable to us. The loan date is the date we process the loan. MAXIMUM AND MINIMUM LOAN VALUE: A loan may not increase Indebtedness to exceed the maximum loan value as of the date of any loan. The maximum loan value is (1) plus (2) plus (3) minus (4) on the loan date, where: 1. is 90% of the Cash Value in the Variable Accounts; 2. is 100% of the Cash Value in the Fixed Accounts; 3. is 100% of the Cash Value in the Policy Loan Account; and 4. is 100% of the surrender charge. The minimum loan amount is $200. LOAN COLLATERAL AND CREDITED INTEREST: You must assign your policy to us as collateral for a loan. We will establish a Policy Loan Account equal to the amount of the loan. We will credit the Policy Loan Account with interest daily at the rate shown on the Policy Data Page. LOAN INTEREST ON INDEBTEDNESS: The loan interest rate is shown on the Policy Data Page. Interest is charged daily against Indebtedness and is payable at the end of each year from the Policy Date. Unpaid interest will be added to the existing Indebtedness as of the due date and will be charged interest at the same rate as the rest of the loan. LOAN REPAYMENT: All or part of a loan may be repaid to us at any time while your policy is in force during the Insured's lifetime. The minimum repayment is $50. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Any Indebtedness that exists at the end of the grace period may not be repaid unless this policy is reinstated. EFFECT OF LOAN: When you take a loan, we will transfer an amount equal to the policy loan from a Subaccount or a Fixed Account to the Policy Loan Account. Any loan interest that becomes due and unpaid will also be transferred. Amounts transferred to the Policy Loan Account will earn interest daily from the date of transfer. When you repay part or all of a loan, we will transfer an amount equal to the amount you repay from the Policy Loan Account to a Subaccount or a Fixed Account. We reserve the right to require that any loan repayments resulting from loans transferred from a Fixed Account must be allocated to the corresponding Fixed Account. Unless you specify otherwise, we will allocate loans among the Subaccounts in proportion to the Cash Value in each Subaccount as of the loan date. Loan amounts will be transferred from a Fixed Account only when insufficient amounts are available in the Subaccounts. Then, loans will be transferred from the Fixed Accounts based on each Fixed Account's transfer restriction level. Loan amounts will be transferred from Fixed Accounts with a lower percentage transfer restriction level only when insufficient amounts are available in Fixed Accounts with a higher percentage transfer restriction level. Fixed Account transfer restriction levels are stated on the Policy Data Page. Any loan interest which becomes due and is unpaid will be transferred to the Policy Loan Account in proportion to the Cash Values in each Subaccount. Unless specified, loan repayments will be allocated among the Subaccounts using the Fund allocation factors in effect on the date of the repayment, subject to any other restrictions the Company may impose. Since the amount you borrow is removed from a Subaccount or a Fixed Account, a loan will have a permanent effect on any death benefit and Cash Surrender Value of this policy. The effect may be favorable or unfavorable. This is true whether you repay the loan or not. If not repaid, Indebtedness will reduce the amount of any Proceeds. TERMINATION OF POLICY: If the total Indebtedness ever equals or exceeds the Cash Value less the surrender charge, your policy may lapse, as described in the Lapse Provisions. EXCHANGE OF POLICY PROVISIONS RIGHT OF EXCHANGE: Within 24 months from the Policy Date, you may exchange this policy for a new policy on the life of the Insured. We will not require evidence of insurability for this exchange. A new policy means the policy for which this policy may be exchanged. CONDITIONS: Your right to make this exchange is subject to the following conditions: 1. You must ask for the exchange in writing to our Home Office on our official forms. 2. You must surrender this policy to us. 3. We must have your written request and this policy at our Home Office while this policy is in force and not in a grace period. 4. You must pay us any money due on the exchange. EXCHANGE DATE: The exchange date will be the later of: 1. the date we receive this policy and your written request at our Home Office; or 2. the date we receive at our Home Office any sum due to be paid for such an exchange. This new policy will take effect on the exchange date only if the Insured is alive. This policy will terminate when the new policy takes effect. NEW POLICY: The new policy may be a Flexible Premium Adjustable Life Insurance Policy offered by us on the Policy Date. The new policy will have a death benefit on the exchange date not more than the death benefit of this policy immediately prior to the exchange date. The new policy will have the same Policy Date and Issue Age as this policy. The initial Specified Amount and any increase in Specified Amount will have the same rate class as the one in this policy. Any Indebtedness may be transferred to the new policy. EXCHANGE AT OTHER TIMES: After 24 months from the Policy Date, you may exchange this policy for a new policy, subject to our approval. You must furnish any evidence of insurability we require and pay all costs associated with the exchange. VALUATION OF ASSETS IN A VARIABLE ACCOUNT DETERMINING INVESTMENT RESULTS: The Cash Value will change with a change in the investment results of the Subaccounts. An index called an accumulation unit value measures changes in a Subaccount's investment experience. Each Subaccount has its own accumulation unit value. For each Subaccount, the accumulation unit value was initially set at $10.00. The accumulation unit value for a Subaccount in each subsequent Valuation Period is equal to (1), multiplied by (2), where: (1) is the Subaccount's accumulation unit value for the preceding Valuation Period; and (2) is the Subaccount's net investment factor for the subsequent Valuation Period. NET INVESTMENT FACTOR: Because the net investment factor may be greater than or less than one, the accumulation unit value may increase or decrease from one Valuation Period to the next; however, the accumulation unit value remains constant throughout a Valuation Period. The net investment factor for a Subaccount for a Valuation Period is obtained by dividing (1) by (2), where: (1) is the net of: (a) the net asset value per underlying investment measurement unit of the Fund or Managed Account Option held in the Subaccount at the end of the current Valuation Period; plus (b) the per underlying investment measurement unit amount of any dividend and capital gains distributions made by a security held in the Subaccount if the "ex-dividend" date occurs during the current Valuation Period; plus or minus (c) a per underlying investment measurement unit charge or credit for taxes reserved for, if any, which is determined by the Company to have resulted from the investment operations of the Subaccount. (2) is the net of: (a) the net asset value per share of the Fund held in the Subaccount determined as of the end of the immediately preceding Valuation Period; plus or minus (b) the per underlying investment measurement unit charge or credit for taxes reserved for in the immediately preceding Valuation Period. THE VARIABLE ACCOUNT, ALLOCATIONS, TRANSFERS AND CHANGES VARIABLE ACCOUNT: A Variable Account is a separate investment account for the Company. One or more are named on the Policy Data Page. The Variable Account is subject to the laws of Ohio. We own the assets of the Variable Account; we keep them separate from the assets of our General Account. We maintain assets which are at least equal to the reserves and other liabilities of the Variable Account. Such assets will not be charged with liabilities that arise from any other business we conduct. We may transfer to our General Account assets which exceed the reserves and other liabilities of a Variable Account. We will determine the value of the assets in the Variable Account at the end of each Valuation Period. SUBACCOUNTS: The Variable Account may have multiple Subaccounts. We list them on the Policy Data Page. You determine, using Fund or Managed Account Option allocation factors, expressed as percentages, how Net Premiums will be allocated among the Subaccounts. You may choose to allocate nothing to a particular Subaccount. Any allocation you make must be at least 1%; you may not choose a fractional percent. The sum of the Fund and Managed Account Option allocation factors, together with your Fixed Account allocating must equal 100%. In states that require a full refund of premiums during the "Right to Examine Policy" period, Net Premiums will be allocated to a Subaccount that invest in a money market Fund or to a Fixed Account. The day following the end of this period, the Cash Value in that Subaccount will be transferred to the variable Subaccounts according to your chosen Fund allocation factors. Also, any subsequent Net Premiums will be allocated according to your chosen factors. Fund allocation factors during and immediately after the "Right to Examine Policy" period, are shown on the Policy Data Page. After the "Right to Examine Policy" period has expired, you may transfer amounts among the Subaccounts. Transfers will take effect on the date your written request is received at our Home Office, subject to any restrictions imposed by a Fund. You may change the allocation for future Net Premiums at any time while your policy is in force. To do so, you must notify us in writing in a form that meets our approval. The change will take effect on the date we receive your written request at our Home Office. Income and realized and unrealized gains and losses from assets in each Subaccount are credited to, or charged against, the Subaccount. This is without regard to income, gains, or losses in our other Subaccounts, separate investment accounts, or our General Account. RIGHT TO TRANSFER: You may transfer amounts among the Subaccounts on a daily basis. Transfers may be made via any method deemed acceptable by us. We reserve the right to refuse or limit any transfer request, or take any action we deem necessary with respect to transfers among specified Subaccounts in order to protect policy Owner and Beneficiaries from negative investment results that may arise from harmful investment practices employed by certain Owners or their representative. Our failure to exercise our rights under this section shall not be construed as a waiver of our rights. CHANGES OF SUBACCOUNT INVESTMENTS: A Managed Account Option Subaccount or a Subaccount holding one Fund might, in our judgment, become unsuitable for investment under the policy. This might happen because of a change in investment policy, a change in the laws or regulations, the investment option is no longer available for investment, or for some other reason. If this occurs, we have the right to substitute another investment option. However, we would first notify you and seek any required approvals from the SEC and the Superintendent of Insurance of the State of Ohio. OTHER CHANGES: To the extent permitted by applicable laws and regulations (including any order of the SEC), we may make changes as follows: 1. A Variable Account may be operated as a management company under the Investment Company Act of 1940, or in any other form permitted by law, if we deem it to be in the best interest of the policy Owners. 2. A Variable Account may be deregistered under the Investment Company Act of 1940 in the event registration is no longer required. 3. A Variable Account may be combined with other separate investment accounts. 4. The provisions of this and other policies may be modified to comply with any other applicable federal or state laws. In the event of such changes, we may make appropriate endorsement on this and other policies having an interest in a Variable Account and take other actions as may be necessary to effect such a change. FIXED ACCOUNT PROVISIONS FIXED ACCOUNT: The Fixed Accounts are funded by the General Account of the Company. The Fixed Accounts are credited with interest as described under the Nonforfeiture Provisions but the crediting rate may vary among Fixed Accounts. In addition to allocating your Net Premiums to one or more of the Subaccounts described above, you may direct all or part of your Net Premiums into one or more of the Fixed Accounts identified on the Policy Data Page. RIGHT TO TRANSFER: You may transfer amounts between the Fixed Accounts and the Subaccounts, subject to the limits below, without penalty or adjustment. We reserve the right to refuse or limit the number of transfers between the Fixed Accounts. FIXED ACCOUNT RESTRICTIONS: We reserve the right to limit the amount transferred into or out of a Fixed Account during a policy year. The restrictions include limits on the amount of Fixed Account Cash Value, Subaccount Cash Value, or Policy Cash Value you may transfer to or from the Fixed Accounts. The maximum restrictions applicable to each Fixed Account are stated on the Policy Data Page. Transfers to the Fixed Accounts may not be made prior to the first policy anniversary or within 12 months of any prior transfer. PROCEEDS AND SETTLEMENT PROVISIONS PAYMENT OF PROCEEDS: Unless an optional mode of settlement is elected, we will pay the Proceeds in a lump sum. If you elect an optional mode of settlement, we will pay the Proceeds from our General Account, and the sum will no longer be affected by the investment experience of any Subaccount. OPTIONAL MODES OF SETTLEMENT: One or a combination of settlement options may be chosen. A settlement option may be chosen only if the total amount placed under the option is at least $2,000.00, and each payment is at least $20.00. A settlement option election may be changed at any time by a proper written request to our Home Office. Once recorded, it will become effective on the date it was requested. We may require proof of the age of any person to be paid under a settlement option. While this policy is in force, you may choose or change settlement options at any time. If no settlement option has been chosen prior to the Insured's death, the Beneficiary may choose one. A change of Beneficiary automatically revokes any option in effect. Settlement option payments are not assignable. To the extent allowed by law, settlement option payments are not subject to the claims of creditors or to legal process. Under Options 2, 3, 4, and 5, payments will be made at the beginning of each 12, 6, 3, or 1 month interval beginning on the date of the Insured's death, on the Maturity Date, or on the date of surrender, as applicable. Under Option 1 and 6, payments will be made at the end of every 12, 6, 3, or 1 month interval from the date of the Insured's death, on the Maturity Date, or on the date of surrender, as applicable. Under Options 1, 2, and 4, withdrawal of any outstanding balance may be made by written request to our Home Office. No amount left with us under Options 3, 5, or 6 may be withdrawn. Options 1, 2, 4, and the guaranteed period of Option 3, provide for payment of interest at a guaranteed minimum interest rate of 2 1/2% per year, compounded annually. Any interest to be paid in excess of this rate will be determined once a year. OPTION 1 - INTEREST INCOME: The Proceeds remain with us to earn interest. This interest may be left to accumulate or be paid periodically as stated above. OPTION 2 - INCOME FOR A FIXED PERIOD: Proceeds remaining with us will be paid over a specified number of years (not exceeding 30 years). Each payment consists of a portion of the Proceeds plus a portion of the interest credited on the outstanding balance. The amount payable monthly for each $1,000 left with us will be at least the amount shown in the Option 2 Table. OPTION 3 - LIFE INCOME WITH PAYMENTS GUARANTEED: Payments are made for a guaranteed period of 10, 15, or 20 years, and thereafter for the remainder of a payee's lifetime. The amount payable monthly for each $1,000 left with us is shown in the Option 3 Table, according to the payee's age on the effective date of the option. OPTION 4 - FIXED INCOME FOR VARYING PERIODS: The Proceeds may be left on deposit with us at interest with payments of a fixed amount being paid at specified intervals until principal and interest have been exhausted. The last payment will be for the balance only. The total amount payable each year may not be less than 5% of the original Proceeds. (i.e., not less than $50 per annum of each $1,000 of original Proceeds.) OPTION 5 - JOINT AND SURVIVOR LIFE INCOME: Equal payments will be made for the longer of the lives of two named payees. In other words, when one payee dies, the same payment continues to be paid for the remainder of the surviving payee's life. We will furnish values for other age combinations (than those shown in Option 5 Table) upon request. OPTION 6 - ALTERNATE LIFE INCOME: We will use the Proceeds to purchase an annuity. The amount payable will be 102% of our current individual immediate annuity purchase rate on the date of the Insured's death, on the Maturity Date, or on the date of surrender, as applicable. We reserve the right to change our current annuity rates at any time. However, once this option has been selected, any revision in rates will not affect payment to a payee or payees. Upon request, we will quote the amount currently payable under this settlement option. For "Settlement Option" Tables, please see Policy Data Pages. POSTPONEMENT OF PAYMENTS: We will normally pay any amount payable upon the Insured's death, or on maturity, surrender, any partial surrender or policy loan, within seven days after we receive your written request, proof of death or any other information we may reasonably require to pay a claim. However, such payments may be postponed if: 1. the New York Stock Exchange is closed (except for customary holiday closings); or 2. the SEC requires trading be restricted or declares an emergency; or 3. the SEC lets us defer payments for the protection of our policy Owners. NATIONWIDE LIFE INSURANCE COMPANY ENDORSEMENTS (Endorsements may be made only by the Company at the Home Office) [GRAPHIC OMITTED][GRAPHIC OMITTED] FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY o Adjustable death benefit o Flexible premiums payable during Insured's lifetime until the Maturity Date o Death Proceeds payable at Insured's death prior to the Maturity Date o Maturity Proceeds payable on the Maturity Date o Not eligible for dividends o Investment experience reflected in benefits POLICY GUARD RIDER ATTACHED TO AND MADE A PART OF THIS POLICY ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY COLUMBUS, OHIO 43215-2220 GENERAL PROVISIONS This Rider is part of the policy to which it is attached. This Rider is subject to the terms and provisions of the policy except where otherwise provided. All terms not specifically defined in this Rider have the meaning set forth in the policy. DEFINITIONS AGE 75: Age 75 means the policy anniversary on or next following an Insured's 75th birthday. EFFECTIVE DATE: The Effective Date of this Rider is the Policy Date unless a different date is shown on the Policy Data Page. RIDER CHARGE RATE: This rate varies by Attained Age and is the percentage of the Cash Value taken as the charge for invoking this Rider. SPECIAL FIXED ACCOUNT: An account funded by the General Account of The Company that credits interest at the guaranteed fixed rate of the base policy. For additional definitions, please see the base policy. BENEFITS Upon Invocation, this Rider will provide lapse protection for policies with outstanding Indebtedness by providing a guaranteed paid-up insurance benefit. REQUIREMENTS To invoke this Rider, the policy must meet all of the following requirements: 1. The policy has reached its 15th anniversary. 2. If attached to an individual policy, the Insured must be at least Age 75. If attached to a survivorship policy, the younger Insured must be at least Age 75. 3. The Cash Value is at least $100,000. 4. All amounts that may be withdrawn from the policy without the imposition of federal income tax must be taken as partial surrenders. 5. The policy is issued under the Guideline Premium/ Cash Value Corridor Test of Section 7702 of the Internal Revenue Code. This Rider is not available on Cash Value Accumulation Test policies. 6. The Indebtedness becomes more than a specified percentage of the policy's Cash Value. This percentage is called the "Trigger Point" and varies by Attained Age of the Insured(s). The Trigger Points are shown in the attached table. The first time the requirements for invoking this Rider are met, a letter will be sent to the Owner at which time you may choose to invoke this Rider. If the policy meets all of the above requirements and the Owner does not choose to invoke the Rider, you still have the right to invoke the Rider at a later date as long as the policy stays in force and provided that the above requirements are still met. NOTICE TO INVOKE Before we take any action to invoke this Rider, we must receive at our Home Office a written notice from the policy Owner directing us to invoke this Rider. RIDER COST There is no charge for this Rider unless the Owner invokes it. If this Rider is invoked, the one-time Rider charge is the product of (1) multiplied by (2), where: 1. is the Cash Value; and 2. is the Rider Charge Rate for the Insured's Attained Age which is shown in the Policy Data Pages. If the Cash Value minus Indebtedness is not enough to cover the Rider charge, the Owner will be required to pay back enough of the Indebtedness in the form of a loan repayment such that there is enough Cash Value minus Indebtedness to cover the entire Rider charge. There are no periodic charges. TEST FOR 7702 COMPLIANCE When the requirements for invoking this Rider have been met, and the Owner elects to invoke this Rider, the death benefit will be adjusted in two steps in compliance with Section 7702 of the Internal Revenue Code: 1. If the Death Benefit Option is not already Option 1, it will be converted to Option 1, with a death benefit equal to the Specified Amount as of the date of the conversion. 2. If the policy is not at its Minimum Required Death Benefit, the Specified Amount will be set equal to minimum of (A) and (B), where: A. is the Specified Amount immediately before Invocation; and B. Minimum Required Death Benefit immediately after Rider charge. If this adjusted Specified Amount is not compliant with Section 7702 of the Internal Revenue Code, the Owner will not be allowed to invoke this Rider. OPERATION OF THE POLICY UPON INVOKING THE RIDER After the Rider charge is taken from the Cash Value as described in the Rider Cost Provision and the death benefit is adjusted as described in the Test for 7702 Compliance Provision: 1. The Indebtedness will continue to grow at the policy's loan charged rate. 2. The Policy Loan Account will continue to grow at the policy's loan credited rate. 3. The Cash Value minus Policy Loan Account remaining after the one-time Rider charge will be placed in the Special Fixed Account and will continue to grow at the guaranteed fixed crediting rate of the base policy. 4. No monthly deductions or additional charges will be taken from the policy's Cash Value. 5. The policy is locked so no further loans or partial surrenders may be taken (with the exception of a complete surrender). 6. No further premium payments or loan repayments (with exception of minimum loan repayments required to pay the one-time Rider charge) will be allowed. 7. The death benefit will continue to be defined as the maximum of (A) and (B) where: A. is the adjusted Specified Amount after invoking the Rider; and B. is the Minimum Required Death Benefit. 8. The death Proceeds will continue to be defined as outlined in the base policy. The policy will be guaranteed and placed in a "paid-up" status. EFFECT ON OTHER RIDERS Invoking this rider will affect other policy Riders. 1. Maturity Extension a. Maturity Extension for Cash Value will not be affected. b. Maturity Extension for Specified Amount will be affected if there is a change in Death Benefit Option and/or a reduction in Specified Amount at the time of Invocation. This will result in reduced benefits paid under the Maturity Extension for Specified Amount. 2. Long Term Care a. Prior to Invocation, this Rider will not affect the Long Term Care Rider. b. After this Rider is invoked, the policy Owner will no longer be eligible for Long Term Care benefits and the Long Term Care Rider will terminate. 3. Spouse Rider a. Prior to Invocation, this Rider will not affect the Spouse Rider. b. After this Rider is invoked, the policy Owner will no longer be eligible for Spouse Rider benefits and the Spouse Rider will terminate. 4. Waiver of Monthly Deductions a. Prior to Invocation, this Rider will not affect the Waiver of Monthly Deductions Rider. b. After this Rider is invoked, the policy Owner will no longer be eligible for Waiver of Monthly Deductions benefits and the Waiver of Monthly Deductions Rider will terminate. 5. Policy Split Option Rider a. Prior to Invocation, this Rider will not affect the Policy Split Option Rider. b. After this Rider is invoked, the policy Owner will no longer be eligible for Policy Split Option benefits and the Policy Split Option Rider will terminate. ERROR IN AGE OR SEX If the Insured's age and/or sex has been misstated on the application, the charges and benefits payable will be adjusted to reflect the difference in age and/or sex. INCONTESTABILITY This Rider will not be contestable after it has been in force during the life of the Insured (in the case of a survivorship policy, both Insureds) for two years from its Effective Date. TERMINATION This Rider will terminate on the earliest of the following dates: 1. the date the policy terminates; or 2. the monthly anniversary day on or next following the receipt at our Home Office of the Owner's written request to terminate this Rider. We may ask for return of this policy for our endorsement. 3. the policy anniversary on or next following the Insured's 100th birthday (younger Insured's 100th birthday if attached to a survivorship policy). /s/PATRICIA R. HATLER /s/MARK R. THRESHER Secretary /s/President RIDER TRIGGER POINTS The Rider Trigger Points vary by Attained Age. For a survivorship policy, Attained Age refers to the younger Insured's Attained Age. - ----------------------- ----------------------- ATTAINED AGE TRIGGER POINT - ----------------------- ----------------------- 75 95% - ----------------------- ----------------------- 76 95% - ----------------------- ----------------------- 77 95% - ----------------------- ----------------------- 78 95% - ----------------------- ----------------------- 79 95% - ----------------------- ----------------------- 80 95% - ----------------------- ----------------------- 81 95% - ----------------------- ----------------------- 82 95% - ----------------------- ----------------------- 83 95% - ----------------------- ----------------------- 84 96% - ----------------------- ----------------------- 85 96% - ----------------------- ----------------------- 86 96% - ----------------------- ----------------------- 87 96% - ----------------------- ----------------------- 88 96% - ----------------------- ----------------------- 89 97% - ----------------------- ----------------------- 90 97% - ----------------------- ----------------------- 91 97% - ----------------------- ----------------------- 92 98% - ----------------------- ----------------------- 93 98% - ----------------------- ----------------------- 94 98% - ----------------------- ----------------------- 95 99% - ----------------------- ----------------------- 96 99% - ----------------------- ----------------------- 97 99% - ----------------------- ----------------------- 98 99% - ----------------------- ----------------------- 99 99% - ----------------------- ----------------------- ADJUSTED SALES LOAD LIFE INSURANCE RIDER ATTACHED TO AND MADE A PART OF THIS POLICY ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY COLUMBUS, OHIO 43215-2220 GENERAL PROVISIONS This rider is part of the policy to which it is attached. This rider is subject to the terms and provisions of the policy except where it provides otherwise. This rider is issued in consideration of an application and the payment of the monthly cost for this rider. The effective date of this rider is the Policy Date. This rider has no surrender values and no loan values. DEFINITIONS Under this rider: ACCUMULATED GROSS PREMIUM - The total gross premium, including the Initial Premium, which is paid at any time during the Rider Adjustment Period. RIDER ADJUSTMENT PERCENTAGE - The percentage by which the percent of premium loading charge will be reduced on a current basis, as shown on the Policy Data Page. RIDER ADJUSTMENT PERIOD - The number of years from the Policy Date during which the percent of premium loading charge will be adjusted, as shown on the Policy Data Page. RIDER CHARGE PERIOD - The number of years from the Policy Date over which the cost for this rider will be taken. The maximum Rider Charge Period is shown on the Policy Data Page. BENEFIT We will credit the policy's Cash Value with an amount equal to the product of 1) times 2), where: 1) is the Rider Adjustment Percentage, shown on the Policy Data Page; and 2) is the amount of any premium payment made, including the Initial Premium, during the Rider Adjustment Period. The credit to the policy's Cash Value will be made at the same time that the Net Premium is credited to the policy's Cash Value. TERMINATION This rider will terminate on the date the policy terminates. RIDER COST The monthly cost for this rider is equal to the product of 1) times 2), where: 1) is the Rider Charge, shown on the Policy Data Page; and 2) is the Accumulated Gross Premium. The monthly cost for this rider will be included in the monthly deduction from the policy during the Rider Charge Period. FORFEITURE OF BENEFIT If the policy terminates in full within the first ten policy years, a portion, or all, of the amount credited to the policy as a result of the percent of premium loading charge adjustment will be subject to forfeiture. Secretary President CHILDREN'S INSURANCE RIDER ATTACHED TO AND MADE A PART OF THIS POLICY ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY Columbus, Ohio 43215-2220 GENERAL PROVISIONS This Rider is part of the policy to which it is attached. This Rider is subject to the terms and provisions of the policy except where it provides otherwise. This Rider is issued in consideration of an application and the payment of the monthly cost for this Rider. The effective date of this Rider is the Policy Date unless a different date is shown on the Policy Data Page. This Rider has no loan values. This Rider has no Surrender Values except as paid-up insurance. DEFINITIONS Under this Rider: INSURED CHILD--Insured Child means a child, stepchild, or legally adopted child of the Insured who is at least 15 days old and: 1. is named in the application and is less than 18 years of age on the date the application is signed; or 2. is born to the Insured and Insured's spouse after the date of the application; or 3. is legally adopted by the Insured after the date of the application but before the child's 18th birthday. A child ceases to be an Insured Child on the Policy Anniversary on or next following his or her 22nd birthday. BENEFICIARY--Beneficiary means the person to whom the proceeds of this Rider will be paid upon the death of an Insured Child. Unless otherwise provided, the Beneficiary under this Rider will be the Insured, if living. If the Insured is not living, the Beneficiary will be the estate of the deceased Insured Child. CHILD'S DEATH BENEFIT--Child's Death Benefit means an amount equal to $1,000 times the number of units for this Rider. The number of units is shown on the Policy Data Page. EXPIRY DATE--Expiry Date means the Policy Anniversary on or next following an Insured Child's 22nd Birthday or on the termination date of this Rider, if earlier. BENEFIT This Rider provides level term insurance on each Insured Child until such child's Expiry Date for an amount equal to a Child's Death Benefit. We will pay a Child's Death Benefit to the Beneficiary under this Rider upon receipt at our Home Office of proof of the death of an Insured Child. The death must occur while this Rider is in force and before such child's Expiry Date. PAID-UP INSURANCE BENEFITS If the Insured dies while this Rider is in force, the insurance under this Rider will continue as paid-up term insurance on the life of each Insured Child. "Paid-Up" means no further charges are required for this insurance. "Each Insured Child" means any Insured Child living on the Insured's death and any child born to the Insured and Insured's spouse after the date of death who reaches 15 days of age. The amount of coverage for each Insured Child will be equal to the Child's Death Benefit. This paid-up term insurance will remain in effect until the earlier of: 1. the Policy Anniversary on or next following an Insured's Child's 22nd birthday; or 2. the Policy Anniversary on which the Insured would have reached Attained Age 65; or 3. the Policy Anniversary on which the policy was scheduled to mature. Each Insured Child will be the Owner of the insurance on his or her life. If the child dies while it is in force, the amount payable will be paid to his or her estate. This paid-up term insurance may be surrendered at any time for its cash value. On the date of surrender, the cash value will equal the present value of future paid-up insurance benefits. However, if it is surrendered within 31 days after a Policy Anniversary, the cash value will not be less than it would have been on that Policy Anniversary. To calculate such a value, we use mortality rates from the Commissioners 1980 Standard Ordinary Mortality Table for males. We assume that interest will be earned at an annual rate of 4% and death benefits will be paid immediately. We will furnish such values on request. CONVERSION The insurance provided by this Rider on an Insured Child may be converted, without evidence of insurability, to a new policy on the life of such Insured Child. The new policy may be any level premium, level benefit, permanent plan of Whole Life or Endowment Insurance which we issue on the date of conversion. The amount of the new policy cannot be less than our minimum issue limit for the selected policy and not more than 5 times the Child's Death Benefit, or $25,000. We will always make available a plan to which the Insured Child may convert. While this Rider is in force, an Insured Child may convert on one of the following dates: 1. the date the Insured Child marries; or 2. the Policy Anniversary on or next following the Insured Child's 18th or 22nd birthday. An Insured Child may also convert on the date this Rider terminates. Any policy issued under this provision is also subject to the following conditions: 1. The application for conversion must be received within 31 days of the date on which the conversion is permitted and must be on a form satisfactory to us. 2. The first premium for the converted policy must be received with the application for conversion. 3. The effective date of the new policy is the date of the occasion on which the conversion right is based. Coverage under this Rider for the Insured Child will cease on the date of conversion. 4. Riders may be added to the new policy only with our consent. 5. The premium for the new policy will be based on the rates in effect on the date of conversion for the amount of insurance selected and the Insured Child's Attained Age and sex. The rate class of the new policy will be the rate class of the Insured Child under this Rider. 6. The Incontestability and Suicide provisions of the new policy will be effective from the effective date of this Rider. EXTENDED COVERAGE We will pay a death benefit equal to the amount which would have been paid had the term insurance been in force if : 1. any Insured Child dies within 31 days after his or her Expiry Date; and 2. before any new policy provided by the conversion privilege becomes effective. INCONTESTABILITY With respect to the insurance on each Insured Child named in the application, we will not contest this Rider after it has been in force during that Insured Child's lifetime for 2 years from its effective date. This Rider will be incontestable immediately as to the insurance on an Insured Child born to or adopted by the Insured after the effective date. SUICIDE EXCLUSION If the Insured dies of suicide within 2 years of the effective date of this Rider, the insurance provided by this Rider may be converted as stated in the Conversion Provision. If an Insured Child dies of suicide within 2 years of the effective date of this Rider, we will pay nothing. ERROR IN AGE OR SEX If the Insured Child's Age was misstated in the application, such that the Child would not be covered on the date of death, the death benefit, if any, will be equal to the cost of insurance paid since the Policy Anniversary on or next following the youngest Insured Child's 22nd birthday. There will be no adjustment of benefits due to a misstatement of sex. TERMINATION This Rider will terminate on the earliest of the following dates: 1. the Policy Anniversary on or next following the Insured's 65th birthday; or 2. the date the policy terminates; or 3. the Monthly Anniversary Day on or next following the receipt at our Home Office of the Owner's written request to terminate this Rider. We may ask for the return of the policy for our endorsement; 4. the Policy Anniversary on or next following the youngest Insured Child's 22nd birthday. The termination of the policy due to the Insured's death will not affect the insurance provided in the Paid-Up Insurance Benefit Provision. DEATH OF AN INSURED CHILD DURING GRACE PERIOD If an Insured Child dies during the Grace Period, we will pay the death benefit for such child, less the premium needed to cover the monthly deductions through the policy month in which the child died. REINSTATEMENT If the policy to which this Rider is attached is reinstated, then this Rider may be reinstated at the same time. Evidence of insurability, satisfactory to us, will be required for each Insured Child to be covered. If we are not satisfied with the evidence of insurability furnished as to any child, we may, upon reinstating this Rider, exclude such child from coverage by endorsement. No benefits will be payable as a result of the death of any child if such death occurred after the end of the Grace Period and before the date of reinstatement. RIDER COST The monthly cost for this Rider is equal to the product of (1) times (2), where: 1. is the number of units for this Rider shown on the Policy Data Page; 2. is the rate per unit for this Rider shown on the attached page. The Rider cost will not change as the number of children insured under this Rider changes. The monthly cost for this Rider will be included in the monthly deduction from the policy Contract Value as long as this Rider is in force. /s/PATRICIA R. HATLER /s/MARK R. THRESHER Secretary President CHILDREN'S INSURANCE RIDER Monthly Rate Per Unit: $0.43. LONG TERM CARE RIDER Attached to and made a part of this policy issued by NATIONWIDE LIFE INSURANCE COMPANY Columbus, Ohio 43215-2220 GENERAL PROVISIONS NOTICE TO BUYER: THIS POLICY MAY NOT COVER ALL THE COSTS ASSOCIATED WITH LONG TERM CARE INCURRED BY THE BUYER DURING THE PERIOD OF COVERAGE. THE BUYER IS ADVISED TO REVIEW CAREFULLY ALL POLICY LIMITATIONS. CONSIDERATION. The issuance of this Long Term Care Rider is based upon your responses to the questions on your application. A copy of your application was retained by you when you applied. If your answers are incorrect or untrue, the Company has the right to deny benefits or rescind your policy. The best time to clear up any questions is before a claim arises! If, for any reason, any of your answers are incorrect, contact the Company at the address shown on the Outline of Coverage. TAXATION. This Long Term Care Rider is intended to be a qualified long-term care insurance contract under Section 7702B(b) of the Internal Revenue Code. BENEFITS PAID UNDER THIS RIDER MAY BE TAXABLE. IF SO, YOU OR YOUR BENEFICIARY MAY INCUR A TAX OBLIGATION. AS WITH ALL TAX MATTERS, YOU SHOULD CONSULT YOUR PERSONAL TAX ADVISOR TO ASSESS THE IMPACT OF THIS BENEFIT. RIDER VALUES. This rider has no Cash Surrender Value and no loan values. NET AMOUNT AT RISK. The Net Amount at Risk of the rider on a Monthly Anniversary Day is the lesser of the Net Amount at Risk on the base policy (including the Additional Protection Rider Net Amount at Risk) and the Long Term Care Specified Amount. COST OF INSURANCE. The monthly rider charge will be determined based on our expectations of future experience. The monthly charge for this rider is equal to the product of A times B times C where: A. is the Net Amount at Risk of the Long Term Care Rider; B. is the per thousand of Net Amount at Risk charge based on the Insured's Attained Age, class, sex, and product; and C. is a factor based on the substandard rating of the Insured. The per thousand of Net Amount at Risk charge will not be greater than the rate shown in the Table of Guaranteed Rider Cost rates. Any change in cost of insurance rates will be on a uniform basis for Insured's of the same sex, Attained Age, product, and rate class whose policies have been in force for the same duration. EFFECTIVE DATE. The effective date of coverage under this rider will be as follows: 1. For all coverage provided in the original application, the effective date will be the Policy Date. 2. For any rider issued after the Policy Date, the effective date will be the date shown on a supplement to the Policy Data Pages. 3. For any insurance that has been reinstated, the effective date will be the date we approve the reinstatement. RIGHT TO EXAMINE RIDER. To be certain that you are satisfied with this rider, you have a 30 day "free look." Within 30 days after you receive the rider, you may return it to our Home Office or to the representative who delivered it. We will then void the rider as if it had never been in force and refund all rider charges. RENEWABILITY. We will not cancel or reduce coverage under this rider. Unless the Owner requests termination of this rider, it will remain in force as long as the policy remains in force. LAPSE PROTECTION. If the contract value is insufficient to cover monthly deductions while the Insured is receiving rider benefits, we will not lapse the policy and monthly deductions will be waived. REPRESENTATIONS AND CONTESTABILITY. All statements submitted in the application for this rider by or on behalf of the Insured will, in the absence of fraud, be deemed representations and not warranties. The validity of this rider with respect to the Insured will not be contestable after it has been in force for two years during the lifetime of the Insured. REINSTATEMENT. If this rider terminates, as provided in the Grace Period section of the policy, it may be reinstated along with the policy at any time within 5 years after the date of termination and prior to the Maturity Date. The reinstatement is subject to: 1. receipt of evidence of insurability satisfactory to us; and 2. payment of a premium sufficient to keep this policy and all attached riders in force for a minimum of 3 months. This rider will be reinstated within 45 days of the date we receive the reinstatement application and the reinstatement premium unless we mail a written notice of denial to the Owner within 45 days. Notice will be sent to the last known address of the Owner. ERROR IN AGE OR SEX. If there is an error in the age or sex of the Insured, the benefits provided by this rider will be the amount that the most recent rider cost of insurance charge would provide at the correct age or sex. However, if an Insured's correct age on the date coverage became effective was such that we would not have granted coverage, we will only be liable for the return of any premiums on account of such a person. CONFORMITY WITH STATE STATUTES. If any provision of this rider is in conflict with the laws of the state in which the Insured resides on the rider effective date, the provision is automatically amended to meet the minimum requirements of such laws. TERMINATION OF RIDER. This rider terminates: 1. on the Monthly Anniversary Day on or next following the date we receive written request by the Owner; 2. upon termination of this policy; 3. when this policy matures; or 4. when the Insured dies. Coverage will terminate at midnight on any given termination date. DEFINITIONS ACCUMULATED VALUE is determined without deduction of any surrender charge. In some policies to which this rider may be attached, Accumulated Value is synonymous with "Cash Value" or "Contract Value." The calculation of the Accumulated Value is explained in the policy. ACTIVITIES OF DAILY LIVING. Activities of Daily Living refers to those activities which measure the Insured's ability for self care. The six key Activities of Daily Living used in this rider to determine the level of care needed by the Insured are: 1. bathing; 2. continence; 3. dressing; 4. eating; 5. using the toilet facilities; and 6. transferring. ADULT DAY CARE is a community based group program that provides health, social, and related support services in a facility which is licensed or certified by the state as an Adult Day Care Center for impaired adults. BATHING. Washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower. COGNITIVE IMPAIRMENT. A severe deficiency in the Insured's short or long term memory, orientation as to person, place and time, deductive or abstract reasoning, or judgment as it relates to safety awareness. Included are nervous or mental disorders of organic origin, including Alzheimer's Disease and senile dementia, which are determined by clinical diagnosis or tests. CONTINENCE. The ability to maintain control of bowel and bladder function; or, when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for catheter or colostomy bag). CUSTODIAL CARE. Custodial Care means personal assistance and care provided in a Long Term Care Facility to the Insured who is admitted as a resident patient and who is under the care of a physician. Custodial Care includes assistance in the Activities of Daily Living. Persons eligible for Custodial Care are those who are unable to care for themselves due to age, illness, or mental impairment, but who do not require Skilled Nursing Care or Intermediate Care. Custodial Care must be performed under the orders of a physician. DOCTOR OR PHYSICIAN. Doctor or physician means a person who is licensed to practice the healing arts. Doctor or physician does not include you or any close relative. The doctor or physician must perform only those services permitted by his or her license. DRESSING. Putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. EATING. Feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. ELIMINATION PERIOD. An Elimination Period is a period of time following eligibility for Long Term Care Benefits for which no benefits are payable. The Long Term Care Rider will have an Elimination Period of 90 days. Benefits will not be paid until the Elimination Period is satisfied, and benefits will not be retrospectively paid for the Elimination Period. The Elimination Period can be satisfied by any combination of days of Long Term Care Facility stay or days of Home Health Care. These days of care or services need not be continuous, but must be accumulated within a continuous period of 730 days. The Elimination Period has to be satisfied only once while this rider is in effect. HOME HEALTH CARE. Home Health Care means personal assistance and care provided in a private home to the Insured who is under the care of a physician. It is provided by a hospital with a valid operating certificate or by a home health service or agency with a valid certificate. It must be certified, by an attending physician, that confinement in a hospital or Long Term Care Facility is required if Home Health Care is not provided. HOSPITAL. Hospital means a place which, by law, provides care and treatment for sick or injured persons as resident bed patients. It also must have: 1. a registered graduate nurse on duty or on call at all times to supervise 24-hour nursing service; 2. the means for diagnosis, treatment and surgery; and 3. a doctor present or on call at all times to supervise all care. INJURY. Injury means bodily injury to the Insured which is caused solely by an accident without being contributed to in any way by disease. The accident must take place while this rider is in force for the person injured. Injury will include all lesions due to any one accident. INTERMEDIATE CARE. Intermediate Care means medically necessary care provided under the supervision of a registered nurse or a physician in a Long Term Care Facility to the Insured who is admitted as a resident patient. These services are provided to persons who do not require the degree of care and treatment of Skilled Nursing Care but who, because of their mental or physical condition, require care and services above the level of Custodial Care. It must be certified by an attending physician that Intermediate Care in a Long Term Care Facility is medically needed. LONG TERM CARE FACILITY. Long Term Care Facility refers to any facility, other than a hospital, which provides Skilled Nursing Care, Intermediate Care, or Custodial Care, and is licensed by the appropriate state licensing agency. It must also have: 1. a registered graduate nurse on duty at all times to supervise 24-hour nursing service; 2. a doctor to supervise the operation of the facility; 3. a planned program of policies and procedures which was developed with the advice of a professional group of at least one doctor and one nurse; and 4. a doctor available to furnish emergency medical care. Long Term Care Facility does not refer to: 1. a facility which primarily treats drug addicts or alcoholics; 2. a facility which primarily provides domiciliary, residency, or retirement care; or 3. a facility owned or operated by a member of the Insured's immediate family. LONG TERM CARE SPECIFIED AMOUNT. The Long Term Care Specified Amount, chosen at issue, represents the maximum accumulation of Long Term Care Benefits available under the Long Term Care Rider. This amount must be at least 10% of the base policy Specified Amount (including the Additional Protection Rider) and no more than the base policy Specified Amount (including the Additional Protection Rider). PERIOD OF CONFINEMENT. A Period of Confinement begins immediately following an Elimination Period and consists of continuous or consecutive Long Term Care Facility or Home Health Care confinements which: 1. are due to the same or related conditions; 2. are not separated by more than 90 days; and 3. occur while this rider is in force. SICKNESS. Sickness means illness or disease of the Insured which first manifests itself after the effective date of this rider and while this rider is in force. It will also include illness or disease first manifested before the effective date of this rider, but only if the condition is shown on the application and the Company has not excluded it from coverage by name or specific description. Sickness includes any complications or recurrences that relate to the illness. These must occur while the rider is in force. SKILLED NURSING CARE. Skilled Nursing Care means medically necessary care provided or supervised by a registered nurse or a doctor in a Long Term Care Facility to the Insured who is admitted as a resident patient. It must be certified by an attending physician that Skilled Nursing Care in a Long Term Care Facility is medically needed on a daily basis. TOILETING. Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. TRANSFERRING. Moving into or out of a bed, chair or wheelchair. BENEFITS ELIGIBILITY FOR THE PAYMENT OF BENEFITS. In order for benefits to be payable as a result of the Insured's confinement in a Long Term Care Facility, all of the following must be met: 1. The Insured must satisfy the eligibility of the payment of benefits condition. 2. The Elimination Period must be satisfied. 3. Confinement is medically necessary and is based on physical limitations which prohibit daily living in a non-institutional environment. 4. While confined for Skilled Nursing Care or Intermediate Care, the Insured receives a planned program of observation and treatment. This program must: a. be under the supervision of a physician other than the Owner or an employee of the Long Term Care Facility; and b. be continued in accordance with generally accepted standards of medical practice for the Injury or Sickness. 5. While confined in a Long Term Care Facility, the Insured is dependent in performing at least two of the key Activities of Daily Living or is suffering from Cognitive Impairment. In order for Home Health Care benefits to be payable, all the conditions listed below must be met: 1. The Insured must satisfy the eligibility of the payment of benefits condition. 2. The Elimination Period must be satisfied. 3. The attending physician certifies that confinement in hospital or Long Term Care Facility would have been required if Home Health Care were not provided. 4. Personal assistance and care is provided in a private home to the Insured who is under the care of a physician. Such care must be provided by a hospital or by a home health service or agency with a valid certificate of approval. 5. The Insured must be dependent in performing at least two of the Activities of Daily Living or be suffering from Cognitive Impairment. WHEN BENEFITS BEGIN. We will provide a Long Term Care Benefit after the Insured has been continuously confined in a Long Term Care Facility or has been eligible for Home Health Care benefits for a period of time equal to the Elimination Period and a claim for benefits has been approved by us. MAXIMUM MONTHLY LONG TERM CARE BENEFIT. The Maximum Monthly Long Term Care Benefit is equal to the minimum of A and B where: A. is 2% of Long Term Care Specified Amount, and B. is the per diem amount allowed by the Health Insurance Portability and Accountability Act times the number of days in the month. Upon submitting a claim, the policy owner may request a monthly benefit below the Maximum Monthly Long Term Care Benefit amount. Choosing a lesser amount could extend the length of the benefit period. Upon meeting the requirements for Long Term Care Rider benefits, the Long Term Care Rider charges will be waived for the duration of the rider benefit payment period. While receiving rider benefits, loans or partial withdrawals are not permitted. MAXIMUM LIFETIME BENEFIT. The Maximum Lifetime Benefit under any combination of Home Health Care benefits and Long Term Care Facility benefits is equal to the lesser of the Long Term Care Specified Amount and the quantity, base policy Specified Amount (including the Additional Protection Rider) minus policy Indebtedness. THE ACCUMULATED BENEFIT. Upon receiving any benefits under this rider, an Accumulated Benefit Account will be created. This account will grow at 0% interest. The Accumulated Benefit Account has the following financial consequences to future benefits under this policy: 1. If the Insured surrenders the policy for full Cash Surrender Value, the surrender value will be equal to the base policy Cash Surrender Value minus the Accumulated Benefit Account. 2. Upon death of the Insured, the Death Proceeds will be equal to the death benefit minus the Accumulated Benefit Amount, provided this amount is greater than 10% of the quantity, base policy Specified Amount minus policy Indebtedness. If the Death Proceeds are not greater than this amount, we will award the Beneficiary a Death Proceed of 10% of the quantity, base policy Specified Amount minus policy Indebtedness. PREEXISTING CONDITIONS LIMITATION. Preexisting condition refers to any condition for which the Insured received medical advice or treatment in the six months preceding the effective date of this rider. Home Health Care and Long Term Care Facility confinements due to preexisting conditions shown on the application are covered immediately. We will not pay benefits for a Home Health Care or Long Term Care Facility confinement due to a preexisting condition which is not disclosed in the application if the confinement begins during the first six months after the effective date of this rider. EXCLUSIONS. This rider does not cover any expense which results from: 1. suicide, intentionally self-inflicted injuries or attempts at suicide (either while sane or insane); 2. committing or attempting to commit a felony; 3. a condition for which the Insured can receive benefits under Worker's Compensation; 4. a mental, psychoneurotic, or personality disorder without evidence of organic disease (Alzheimer's Disease and senile dementia are not excluded from coverage); 5. alcoholism or drug addiction, unless addiction results from administration of drugs for treatment prescribed by a physician; 6. service in the armed forces or units auxiliary thereto; and 7. war or any act of war, whether declared or undeclared. CLAIMS NOTICE OF CLAIM. Written notice of claim must be given within 30 days after a covered loss starts or as soon as reasonably possible. This notice can be sent to us at our Home Office in Columbus, Ohio. The notice should include your name and policy number. PROOF OF LOSS. Written proof of loss must be given to us at our Home Office in Columbus, Ohio, within 90 days after such loss. If it was not reasonably possible to give written proof in the time required, we shall not reduce or deny the claim for this reason if the proof is given as soon as reasonably possible. In any event, the proof required must be given no later than one year from the time specified unless the Owner was legally incapacitated. PHYSICAL EXAMINATIONS. The Company, at it's own expense, has the right to have the Insured examined as often as it may reasonably require during any Period of Confinement. TIME OF PAYMENT OF CLAIMS. Benefits for any loss covered under this rider will be paid as soon as we receive proper written proof of loss. NOTICE OF RELEASE. The Owner must give immediate notice to us when confinement in a Long Term Care Facility has ceased or when Home Health Care is no longer required. LEGAL ACTIONS. No legal action may be brought to recover under this rider within 60 days after written proof of loss has been given as required by this rider. No such action may be brought after three years from the time written proof of loss is required to be given. /s/PATRICIA R. HATLER Secretary /s/MARK R. THRESHER President SPOUSE LIFE INSURANCE RIDER-RENEWABLE TERM INSURANCE attached to and made a part of this policy issued by NATIONWIDE LIFE INSURANCE COMPANY Columbus, Ohio 43215-2220 GENERAL PROVISIONS This Rider is part of the policy to which it is attached. This Rider is subject to the terms and provisions of the policy except where it provides otherwise. This Rider is issued in consideration of an application and the payment of the monthly cost for this Rider. The Effective Date of this Rider is the Policy Date unless a different date is shown on the Policy Data Page. This Rider has no Surrender Values and no loan values. DEFINITIONS Under this Rider: Spouse-Spouse means a person who is legally married to the Insured and is named on the Policy Data Page. Spouse's Death Benefit-Spouse's Death Benefit means the amount of coverage provided by this Rider on the Spouse's life. It is shown on the Policy Data Page. Rider Anniversary-Rider Anniversary means the same day and month as the Effective Date of this Rider in each succeeding year. Rider years and Rider months are measured from the Effective Date of this Rider. Rider Monthly Anniversary Day - Rider Monthly Anniversary Day means the same day as the Effective Date of this Rider in each succeeding month. Beneficiary-Beneficiary means the person to whom the Spouse's Death Benefit is paid when we receive due proof of the Spouse's death. Unless otherwise provided, the Spouse's Death Benefit will be paid in one sum to the Insured, if living at the time of the Spouse's death; otherwise to the Spouse's estate. BENEFIT We will pay an amount equal to the Spouse's Death Benefit to the Beneficiary upon receipt at our Home Office of due proof of the Spouse's death while both the Policy and Rider are in force. CONVERSION The Spouse may exchange the coverage under this Rider for a new Policy. No evidence of insurability will be required. Such an exchange is called a conversion. A conversion must be applied for in writing to our Home Office on a form satisfactory to us. The first premium for the new Policy must accompany the request and this Rider must be surrendered to us. A conversion can only take place while both the Policy and Rider are in force and prior to the Rider Anniversary on or next following the Spouse's 66th birthday. In addition, if the Insured dies at any time while this Policy and Rider are in force, the Spouse may convert this Rider with proper application within 90 days of the date of the Insured's death. The new Policy may be any level premium , level benefit plan of Whole Life or Endowment Insurance, available under our published rules on the date of conversion. The Policy Date of the new Policy will be the date of conversion. The amount of insurance under the new Policy may not exceed the Spouse's Death Benefit and may not be less than $5,000. The premium rates for the new Policy will be those in effect on its Policy Date, based on the plan and amount of insurance selected, and the Spouse's sex, Attained Age, and rate class under this Rider. Any benefits provided by Rider may be included in the new Policy only with our consent. The Incontestability and Suicide provisions in the new Policy will be operative from the Spouse's Effective Date of coverage under this Rider. If this Rider is converted while monthly deductions are being waived in accordance with a Waiver Benefit contained in this Policy, premiums under the new Policy will not be waived and a Waiver of Premium Rider will not be added to the new Policy. There will always be at least one plan of insurance to which conversion will be permitted. EXTENDED COVERAGE If the Spouse dies within 90 days of the Insured's death and has not converted the coverage under this Rider, we will: 1) assume the Spouse elected to convert; and 2) pay the Spouse's Death Benefit; and 3) deduct the amount of the unpaid premium from the Spouse's Death Benefit. INCONTESTABILITY We will not contest this Rider after it has been in force during the Spouse's lifetime for 2 years from its Effective Date. SUICIDE EXCLUSION We will not pay an amount equal to the Spouse's Death Benefit if the Spouse commits suicide, while sane or insane, within 2 years after the Effective Date of this Rider. Instead, we will pay a sum equal to the total amount of the cost of insurance deducted for this Rider prior to the date of death. ERROR IN AGE OR SEX If the age or sex of the Spouse has been misstated, the affected benefits will be adjusted. The amount of the adjusted Death Benefit will be (1), multiplied by (2), where: 1) is the Spouse's Death Benefit; and 2) is the ratio of the monthly cost of insurance applied in the Policy month of death and the monthly cost of insurance that should have been applied at the true age and sex in the Policy month of death. RENEWAL This Rider will expire at the end of a Rider month unless renewed. It is renewed by the deduction of the monthly cost of this Rider from the Contract Value of your Policy on the Rider Monthly Anniversary Day. No evidence of insurability will be required. This Rider may be renewed while this Policy is in force and before the Rider Anniversary on or next following the Spouse's 70th birthday. TERMINATION This Rider will terminate on the earliest of the following dates: 1) the Rider Anniversary on or next following the Spouse's 70th birthday; 2) the date this Rider is converted to a new Policy; 3) the date the Policy terminates; and 4) the Rider Monthly Anniversary Day on or next following the receipt at our Home Office of the Owner's written request to terminate this Rider. We may ask for the return of the Policy for our endorsement. DEATH OF SPOUSE DURING GRACE PERIOD If the Spouse dies during the Grace Period, we will pay an amount equal to the Spouse's Death Benefit, but deduct from it the premium needed to cover monthly deductions through the Rider month in which the Spouse died. REINSTATEMENT If the Policy to which this Rider is attached is reinstated, we will also reinstate this Rider if we receive proof, satisfactory to us, that the Spouse is still insurable at the same rates. RIDER COST The monthly cost for this Rider is equal to the product of 1), times 2), times 3), times 4), plus 5), where: 1) is the amount of the Spouse's Death Benefit shown on the Policy Data Page; 2) is 0.001; 3) is the rate class multiple for this Rider shown on the Policy Data Page; 4) is the rate per $1,000 based on the Spouse's Attained Age and sex which is shown on the Policy Data Page; 5) is the level amount, if any, which does not vary by the Spouse's Attained Age and is called a flat extra on the Policy Data Page. The monthly cost for this Rider will be included in the monthly deduction from the Policy Contract Value as long as this Rider is in force. /s/PATRICIA R. HATLER Secretary /s/MARK R. THRESHER President ACCIDENTAL DEATH BENEFIT RIDER attached to and made a part of this policy issued by NATIONWIDE LIFE INSURANCE COMPANY Columbus, Ohio 43215-2220 GENERAL PROVISIONS This Rider is part of the policy to which it is attached. This Rider is subject to the terms and provisions of the policy except where it provides otherwise. This Rider is issued in consideration of an application and the payment of the monthly cost for this Rider. The effective date of this Rider is the Policy Date unless a different date is shown on the Policy Data Page. This Rider has no Surrender Values and no loan values. DEFINITIONS Under this Rider: Accidental Death - Accidental Death means the death of the Insured which: 1. was the result, directly and independently of all other causes, of bodily injury caused by external, violent and accidental means; and 2. resulted from a cause other than a risk not assumed. Except for drowning or internal injuries shown by autopsy, there must be a visible contusion or wound on the exterior of the body. BENEFIT We will pay the Beneficiary the amount shown for this Rider on the Policy Data Page when we receive at our Home Office due proof, satisfactory to us, that the Accidental Death of the Insured: 1. occurred while this Rider was in force; and 2. occurred within 90 days after the accident causing the injury which led to the Insured's death. RISKS NOT ASSUMED We will not pay this benefit if the Insured's death results in any way from: 1. suicide; 2. bodily or mental illness, disease or infirmity of any kind or medical or surgical treatment of any of these; 3. infection not caused by an external visible wound which was a result of external, violent and accidental means; 4. the taking or injection of any drug unless prescribed by a licensed physician as a medication; 5. the voluntary taking of any kind of poison or the inhaling of any kind of gas or fumes, except as a direct result of an occupational accident; 6. travel or flight in any aircraft or spacecraft, or descent from while in flight, if the Insured: a) is a pilot, officer or crew member of the craft; b) is giving or receiving aviation training or instruction; c) has any duties on or relating to such craft; or d) was being flown for the purpose of descent from such craft while in flight; 7. the commission of or attempt to commit an assault or felony; 8. participation in a riot or insurrection; 9. war or an act of war or any type of military conflict, declared or undeclared; 10. military service for any country at war, declared or undeclared. EXAMINATION AND AUTOPSY We will have the right and opportunity to examine the Insured's body and to make an autopsy, unless prohibited by law. ERROR IN AGE OR SEX If the age of the Insured has been misstated, the affected benefits will be adjusted. The amount of the adjusted death benefit will be (1), multiplied by (2), where: 1. is the Insured's death benefit; and 2. is the ratio of the monthly cost of insurance applied in the Policy month of death and the monthly cost of insurance that should have been applied at the true age in the Policy month of death. There will be no adjustment of benefits due to a misstatement of sex. INCONTESTABILITY This Rider will not be contestable after it has been in force during the lifetime of the Insured for 2 years from its effective date. TERMINATION This Rider will terminate on the earliest of the following dates: 1. the Policy Anniversary on or next following the Insured's 70th birthday; 2. the date the policy terminates; 3. the Monthly Anniversary Day on or next following the receipt at our Home Office of the Owner's written request to terminate this Rider. We may ask for the return of the policy for our endorsement. RIDER COST The monthly cost for this Rider is equal to the product of (1) times (2) times (3) times (4), where: 1. is the amount of the Accidental Death Benefit shown on the Policy Data Page; 2. is 0.001; 3. is the rate class multiple for this Rider shown on the Policy Data Page; 4. is the rate per $1,000 based on the Insured's Attained Age which is shown in the attached table. The monthly cost for this Rider will be included in the monthly deduction from the policy Contract Value as long as this Rider is in force. /s/PATRICIA R. HATLER Secretary /s/MARK R. THRESHER President VLO-526 ACCIDENTAL DEATH BENEFIT RIDER MONTHLY RATES PER $1,000 OF ACCIDENTAL DEATH BENEFIT
------------------------------ --------------------------------- -------------------------------- ----------------------------- ATTAINED RATES PER ATTAINED RATES PER $1,000 $1,000 AGE (Male & Female) AGE (Male & Female) ------------------------------ --------------------------------- -------------------------------- ----------------------------- 5 $0.05 35 $0.06 6 0.05 36 0.06 7 0.05 37 0.06 8 0.05 38 0.06 9 0.05 39 0.06 10 0.05 40 0.06 11 0.05 41 0.06 12 0.05 42 0.06 13 0.06 43 0.07 14 0.06 44 0.07 15 0.07 45 0.07 16 0.10 46 0.07 17 0.11 47 0.07 18 0.12 48 0.07 19 0.12 49 0.07 20 0.12 50 0.07 21 0.11 51 0.07 22 0.10 52 0.07 23 0.10 53 0.08 24 0.09 54 0.08 25 0.08 55 0.08 26 0.07 56 0.08 27 0.07 57 0.09 28 0.07 58 0.09 29 0.06 59 0.09 30 0.06 60 0.10 31 0.06 61 0.10 32 0.06 62 0.11 33 0.06 63 0.11 34 0.06 64 0.12 65 0.12 *66 0.13 *67 0.14 *68 0.15 *69 0.15 ------------------------------ --------------------------------- -------------------------------- -----------------------------
The rates shown are for a standard premium class. If this Rider is issued in a special premium class, the rates will be a multiple of the standard rate. *Renewal Only PREMIUM WAIVER RIDER ATTACHED TO AND MADE A PART OF THIS POLICY ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY COLUMBUS, OHIO 43215-2220 GENERAL PROVISIONS This Rider is part of the policy to which it is attached. This Rider is subject to the terms and provisions of the policy except where it provides otherwise. This Rider is issued in consideration of an application and the payment of the monthly cost for this Rider. The effective date of this Rider is the Policy Date unless a different date is shown on the Policy Data Page. This Rider has no Cash Surrender Values and no loan values. DEFINITIONS Under this Rider: AGE 65 - Age 65 means the policy anniversary on or next following the Insured's 65th birthday. INJURY - Injury means accidental bodily injury which occurs while this Rider is in effect. MONTHLY PREMIUM WAIVER BENEFIT - The Monthly Premium Waiver Benefit is the lesser of the Specified Premium or the average actual premiums paid over the last 36 months prior to Total Disability. The Monthly Premium Waiver Benefit is credited to the Policy's Cash Value upon the qualifications defined in this Rider. SICKNESS - Sickness means sickness or disease which first manifests itself while this Rider is in effect. SPECIFIED PREMIUM - Specified Premium is the monthly dollar amount specified by the insured, used to determine the Monthly Premium Waiver Benefit of the Policy. It is shown on the Policy Data Page. TOTAL DISABILITY - Total Disability means the Insured's inability due to Injury or Sickness: 1. to perform the material duties of his or her regular occupation during the first 60 months of any one period of disability; and thereafter, 2. to perform the duties of any occupation in which he or she is, or becomes, reasonably fitted by education, training or experience, following the first 60 months of any one continuous period of disability. The total and permanent loss by the Insured of any of the following will also be considered a Total Disability: 1. the entire sight of both eyes; 2. both hands severed above the wrist; 3. both feet severed above the ankle; or 4. one hand severed above the wrist and one foot severed above the ankle. We consider the complete loss of four fingers on one hand as loss of that hand. BENEFIT We will credit the Monthly Premium Waiver Benefit to the Policy's Cash Value when we receive proof, satisfactory to us, that: 1. the Insured has become totally disabled while this Rider is in effect; and 2. the Total Disability has continued for at least six consecutive months. We will credit the Monthly Premium Waiver Benefit after the Total Disability begins and while it continues to Age 65 or up to 2 years beyond disability date if disability occurs after age 63. No Monthly Premium Waiver Benefits will be credited which became due before a Total Disability has existed continuously for six months. RISKS NOT ASSUMED No benefit will be provided by this Rider if Total Disability results in any way from: 1. an intentionally self-inflicted injury; 2. a war, declared or undeclared; or 3. an act of war while the Insured serves in the armed forces of any country, group of countries or international organization at war, declared or undeclared. NOTICE OF CLAIM AND PROOF OF DISABILITY Before we credit any Monthly Premium Waiver Benefits, we must receive at our Home Office a written notice of the claim and proof, satisfactory to us, that the Insured is totally disabled. Such notice and proof must be received: 1. while the Insured is alive and totally disabled; and 2. not later than 12 months after the disability began. Failure to give notice and proof within such time will not invalidate the claim if it is shown that each was given as soon as reasonably possible. PROOF OF CONTINUANCE OF TOTAL DISABILITY At reasonable intervals during the two years following our approval of a Total Disability claim, we may require proof that the Insured has continued to be totally disabled. Thereafter, we will not require such proof more often than once a year. As part of any proof, we have the right to have the Insured examined by one or more physicians named by us. Such examinations will be at our expense. If such proof is not submitted when requested by us, we will deem the Insured no longer totally disabled and no further Monthly Premium Waiver Benefits will be credited to the Policy's Cash Value. POLICY CHANGES AND ADDITIONAL CONTRIBUTIONS While Monthly Premium Waiver Benefits are being credited, we will not allow a change in the Specified Premium. Additional contributions to the Cash Value of the Policy will be allowed, if permitted by law. ERROR IN SEX OR AGE If the Insured's age and/or sex has been misstated on the application, the charges and benefits payable will be adjusted to reflect the difference in age and/or sex. INCONTESTABILITY This Rider will not be contestable after it has been in force during the life of the Insured for 2 years from its effective date, except as to Total Disability of the Insured which begins prior to the end of such 2 year period. TERMINATION This Rider will terminate on the earliest of the following dates: 1. the Policy Anniversary on or next following the Insured's 65th birthday; 2. the date the policy terminates; 3. the Monthly Anniversary Day on or next following the receipt at our Home Office of the Owner's written request to terminate this Rider. We may ask for the return of this Policy for our endorsement. RIDER COST The monthly cost for this Rider is equal to the product of (1) times (2) times (3), where: 1. is the Specified Premium for this Rider; 2. is the rate class multiple for this Rider shown on the Policy Data Page; 3. is the factor based on the Insured's Attained Age and sex which is shown in the attached table. The monthly cost for this Rider will be included in the Monthly Deduction from the policy Cash Value as long as this Rider is in force. /s/PATRICIA R. HATLER /s/MARK R. THRESHER Secretary President PREMIUM WAIVER RIDER FACTORS FOR WAIVER OF MONTHLY DEDUCTIONS
- ---------------------------------- -------------------------------- ------------------------------- -------------------------------- ATTAINED Factors ATTAINED Factors AGE Male AGE Male Female Female - ---------------------------------- -------------------------------- ------------------------------- -------------------------------- 21 .042 .063 46 .053 .078 22 .042 .063 47 .055 .080 23 .042 .063 48 .057 .081 24 .042 .063 49 .059 .082 25 .042 .063 50 .061 .083 26 .042 .063 51 .063 .084 27 .042 .063 52 .074 .090 28 .042 .063 53 .084 .095 29 .042 .063 54 .095 .100 30 .042 .063 55 .105 .105 31 .042 .063 56 .105 .105 32 .042 .063 57 .105 .105 33 .042 .063 58 .105 .105 34 .042 .063 59 .105 .105 35 .042 .063 *60 .105 .105 36 .043 .063 *61 .105 .105 37 .044 .063 *62 .105 .105 38 .045 .063 *63 .105 .105 39 .046 .063 *64 .105 .105 40 .047 .063 41 .048 .066 42 .049 .069 43 .050 .072 44 .051 .074 45 .052 .076 - ---------------------------------- --------------- ---------------- ------------------------------- ---------------- ---------------
The factors shown are for a standard premium class. If this Rider is issued in a special premium class, the factors will be a multiple of the standard factor. *Renewal Only CHANGE OF INSURED RIDER attached to and made a part of this policy issued by NATIONWIDE LIFE INSURANCE COMPANY Columbus, Ohio 43215-2220 GENERAL PROVISIONS This Rider is part of the Policy to which it is attached. This Rider is subject to the terms and provisions of the Policy except where it provides otherwise. This Rider is issued in consideration of an application and the payment of the monthly cost for this Rider. The Effective Date of this Rider is the Rider Policy Date unless a different date is shown on the Policy Data Page. DEFINITION Exchange Date - The Exchange Date is the first Monthly Anniversary Day on or next following the date the exchange conditions are met. BENEFIT The named Insured on this Policy may be exchanged for a new Insured, subject to the following conditions: 1. At the time of the exchange, the new Insured must have the same business relationship to the Owner as did the Insured in this Policy. 2. The exchange must occur within one year following the termination of the business relationship which existed between the Owner and the named Insured at the time that the Policy was issued. 3. The new Insured must submit evidence of insurability satisfactory to the Company. 4. This Policy must be in force and not be in a grace period at the time of the exchange. 5. The Owner must make written application for the exchange. NEW POLICY Coverage on the new Insured will become effective on the Exchange Date. Coverage on the previous named Insured will terminate on the day before the Exchange Date. The Policy Date will not be changed unless the new Insured was born after the Policy Date. In that case, the Policy Date will be the Policy Anniversary on or next following the birthdate of the Insured. The policy charges for the new Insured will reflect the new Insured's attained age, rate type, and rate classification. The Specified Amount of the Policy will be as stated by the Owner in the application for the exchange subject to the following conditions: 1. The Specified Amount must be such that the new Policy will satisfy all requirements imposed by the Securities and Exchange Commission. 2. The Specified Amount must be such that the new policy still satisfies the definition of life insurance. 3. The Specified Amount must satisfy policy minimums. SUICIDE EXCLUSION If the new Insured commits suicide, while sane or insane, within two years of the Exchange Date, we will not pay the Death Benefit. Instead, we will pay an amount equal to the Cash Value as of the Exchange Date, plus the sum of premiums paid since the Exchange Date, less any Indebtedness, and less any partial surrenders. INCONTESTABILITY We will not contest this Policy after it has been in force during the new Insured's lifetime for two years from the Exchange Date. RIDER COST The monthly cost for this Rider is equal to the product of (1) times (2) times (3) where: 1. is the Specified Amount as of the Exchange Date; 2. is 0.001; and 3. is the rate per $1,000 shown on the Policy Data Page. The monthly cost for this Rider will be deducted from the Cash Value during the first twelve months following the exchange. APPLICABLE POLICY PROVISIONS All other terms of the Policy which do not conflict with the terms of this Rider will apply. /s/PATRICIA R. HATLER /s/MARK R. THRESHER Secretary President ADDITIONAL PROTECTION RIDER (ADJUSTABLE TERM INSURANCE - RENEWABLE UNTIL POLICY MATURITY DATE) ATTACHED TO AND MADE A PART OF THIS POLICY ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY COLUMBUS, OHIO 43215-2220 GENERAL PROVISIONS The issue date of this Rider is the Policy Date unless a different date is shown on the Policy Data Page. The Beneficiary for this Rider is the same as the Beneficiary for the policy. This is a nonparticipating Rider; no dividends are payable. This Rider will not share in our profits or surplus earnings. All terms of the policy that do not conflict with the terms of this Rider will apply. DEFINITIONS ACCUMULATED PREMIUM ACCOUNT - Is all premium payments accumulated to the date of death less any partial surrenders accumulated to the date of death. These 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 or greater than the Option 3 Maximum Increase shown on the Policy Data Page. MINIMUM REQUIRED DEATH BENEFIT - Is the dollar amount of the total death benefit for this Rider and the policy to which it is attached, which will qualify both this Rider and the policy as a life insurance contract. TARGET SPECIFIED AMOUNT - A dollar amount used to determine the total death benefit for this Rider and the policy to which it is attached. BENEFIT This Rider provides term life insurance on the Insured. The Insured is the person insured under the policy to which this Rider is attached. Coverage is annually renewable to the Maturity Date of the policy. The amount of coverage provided under this Rider varies from month to month as described below. We will pay the Rider's death benefit to the Beneficiary when we receive satisfactory proof that the death of the Insured occurred while this Rider was in force. RIDER DEATH BENEFIT The Rider's death benefit will be determined at the beginning of each policy month in accordance with one of the following options, whichever is in effect on the date of the Insured's death. The current option in effect is shown on the Policy Data Page. Under DEATH BENEFIT OPTION 1, the Rider death benefit will be equal to (a) minus (b), where: a) is the maximum of (1) or (2), where: 1) is the Target Specified Amount on the date of death; 2) is the Minimum Required Death Benefit on the date of death; and b) is the death benefit provided by the base policy to which this Rider is attached. Under DEATH BENEFIT OPTION 2, the Rider death benefit will be equal to (a) minus (b), where: a) is the maximum of (1) or (2), where: 1) is the Target Specified Amount plus the Cash Value on the date of death; 2) is the Minimum Required Death Benefit on the date of death; and b) is the death benefit provided by the base policy to which this Rider is attached. Under DEATH BENEFIT OPTION 3, the Rider death benefit will be equal to (a) minus (b), where: a) is the maximum of (1) or (2), where: 1) is the Target Specified Amount plus the Accumulated Premium Account on the date of death; 2) is the Minimum Required Death Benefit on the date of death; and b) is the death benefit provided by the base policy to which this Rider is attached. INCREASES AND DECREASES At the time of issue of this Rider, you may request to schedule an increase or decrease to the Target Specified Amount. At any time after issue of this Rider, you may request either an increase or decrease to the Target Specified Amount. Any approved changes will result in a new Target Specified Amount. Your request must be in writing to our Home Office. Increases in the Target Specified Amount will require evidence of insurability satisfactory to us. Any such change will be effective on the monthly anniversary day on or next following our approval of your request. We reserve the right to limit the number of changes to one each policy year. The Target Specified Amount may be decreased at any time, subject to the following conditions: 1. The Target Specified Amount may not be decreased below the Minimum Specified Amount as shown on the Policy Data Page. 2. Decreases that would disqualify the policy as life insurance under Section 7702 of the Internal Revenue Code will not be permitted. 3. Decreases that would cause the policy to become a Modified Endowment Contract require written acknowledgment from the Owner. 4. Decreases on Guideline Premium/Cash Value Corridor Test policies that would result in both a negative Guideline Single Premium and a Guideline Level Premium, that is negative to the extent that the annual sum of GLPs would be negative at some time before maturity, will not be allowed. COST OF INSURANCE The cost of insurance for this Rider is determined on a monthly basis and added to the policy's monthly deduction as long as this Rider remains in force. The monthly cost of insurance charge for this Rider is determined by multiplying the monthly cost of insurance rate by the Rider death benefit. Monthly cost of insurance rates for this Rider will be determined by us from time to time, based on our expectations as to future experience for factors such as mortality, persistency, expenses and taxes. Any change in cost of insurance rates will be on a uniform basis for Insured's of the same sex, Attained Age, Target Specified Amount, rate class and rate type whose Riders have been in force for the same length of time. These rates will never be greater than the Rider Guaranteed Monthly Cost of Insurance Rates shown on the Policy Data Page. The basis for these Guaranteed Maximum Cost of Insurance Rates are also shown on the Policy Data Page. REINSTATEMENT If the policy to which this Rider is attached is reinstated, we will also reinstate this Rider if we receive proof, satisfactory to us, that the Insured is still insurable at the same rates. TERMINATION You may terminate this Rider by written request to us. In order to terminate this Rider, we have the right to require the policy for endorsement. This Rider also terminates on the earliest of the following dates: 1. the date the policy is surrendered or terminated; 2. the expiration of the grace period of the policy; 3. the death of the Insured; 4. the Maturity Date of the policy. INCONTESTABILITY After this Rider has been in force during the lifetime of the Insured for two years from its issue date, we will not contest it for any reason except non-payment of premiums sufficient to cover the cost of insurance for this Rider. SUICIDE If the Insured dies of suicide, while sane or insane, within two years of the issue date of this Rider, we will pay nothing under this Rider except to return the cost of insurance deducted. MISSTATEMENT OF AGE OR SEX If the age or sex of the Insured has been misstated, the Rider death benefit will be adjusted. The adjusted Rider death benefit will be that which the Rider cost of insurance charge would have purchased, based on the Insured's correct age and sex. This Rider cost of insurance charge will be determined on the last monthly anniversary day prior to the death of the Insured. /s/PATRICIA R. HATLER /s/MARK R. THRESHER Secretary President WAIVER RIDER attached to and made a part of this policy issued by NATIONWIDE LIFE INSURANCE COMPANY Columbus, Ohio 43215-2220 GENERAL PROVISIONS This Rider is part of the policy to which it is attached. This Rider is subject to the terms and provisions of the policy except where it provides otherwise. This Rider is issued in consideration of an application and the payment of the monthly cost for this Rider. The effective date of this Rider is the Policy Date unless a different date is shown on the Policy Data Page. This Rider has no Surrender Values and no loan values. DEFINITIONS Under this Rider: AGE 60 AND AGE 65 - Age 60 and Age 65 mean the policy anniversaries on or next following the Insured's 60th and 65th birthdays, respectively. INJURY - Injury means accidental bodily injury which occurs while this Rider is in effect. SICKNESS - Sickness means sickness or disease which first manifests itself while this Rider is in effect. TOTAL DISABILITY - Total Disability means the Insured's inability due to Injury or Sickness: 1. to perform the material duties of his or her regular occupation during the first 24 months of any one period of disability; and thereafter, 2. to perform the duties of any occupation in which he or she is, or becomes, reasonably fitted by education, training or experience, following the first 24 months of any one continuous period of disability. The total and permanent loss by the Insured of any of the following will also be considered a Total Disability: 1. the entire sight of both eyes; 2. both hands severed above the wrist; 3. both feet severed above the ankle; or 4. one hand severed above the wrist and one foot severed above the ankle. We consider the complete loss of four fingers on one hand as loss of that hand. BENEFIT We will waive the Monthly Deductions for this Policy when we receive proof, satisfactory to us, that: 1. the Insured has become totally disabled while this Rider is in effect; and 2. the Total Disability has continued for at least six consecutive months. If Total Disability begins before Age 60, we will waive each Monthly Deduction due after such disability begins and while it continues. If Total Disability begins on or after Age 60 but before Age 65, we will waive each Monthly Deduction due after the Total Disability begins and while it continues, but only to Age 65, or, if longer, during the first 24 months after the date such disability begins. No Monthly Deduction will be waived which became due before a Total Disability has existed continuously for six months. Monthly Deductions which become due before a claim for waiver is approved will be deducted from the Contract Value as stated in this Policy. Once the claim is approved, we will credit to the Contract Value any Monthly Deduction that became due after Total Disability began, plus any interest which we would otherwise have credited. We will not waive any Monthly Deduction which fell due more than 12 months before the date we receive written notice of the claim and proof of the Insured's Total Disability. DISABILITY DURING FIRST THREE POLICY YEARS During the first three Policy years, we will waive the Minimum Monthly Premium, rather than the Monthly Deduction, while the Insured remains disabled. The Contract Value will increase by the amount in which the Minimum Monthly Premium exceeds the Monthly Deduction, just as if the Minimum Monthly Premium had been paid. RISKS NOT ASSUMED No benefit will be provided by this Rider if Total Disability results in any way from: 1. an intentionally self-inflicted injury; 2. a war, declared or undeclared; or 3. an act of war while the Insured serves in the armed forces of any country, group of countries or international organization at war, declared or undeclared. NOTICE OF CLAIM AND PROOF OF DISABILITY Before we waive any Monthly Deduction, we must receive at our Home Office a written notice of the claim and proof, satisfactory to us, that the Insured is totally disabled. Such notice and proof must be received: 1. while the Insured is alive and totally disabled; and 2. not later than 12 months after this Rider terminates; or 3. not later than 12 months after the disability began. Failure to give notice and proof within such time will not invalidate the claim if it is shown that each was given as soon as reasonably possible. If Total Disability begins during a grace period, we will waive Monthly Deductions only if sufficient premium is paid to cover the Monthly Deductions through the policy month in which Total Disability began. PROOF OF CONTINUANCE OF TOTAL DISABILITY At reasonable intervals during the two years following our approval of a Total Disability claim, we may require proof that the Insured has continued to be totally disabled. Thereafter, we will not require such proof more often than once a year. As part of any proof, we have the right to have the Insured examined by one or more physicians named by us. Such examinations will be at our expense. If such proof is not submitted when requested by us, we will deem the Insured no longer totally disabled and no further Monthly Deductions will be waived. POLICY CHANGES AND ADDITIONAL CONTRIBUTIONS While Monthly Deductions are being waived, we will not allow: 1. Changes in the Specified Amount; 2. Changes in the death benefit option; 3. Changes in the Maturity Date; and 4. The addition of riders. Additional contributions to the Contract Value of the policy will be allowed, if permitted by law. ERROR IN SEX OR AGE If the Insured's age has been misstated on the application, the charges and benefits payable will be adjusted to reflect the difference in age. There will be no adjustment of benefits due to a misstatement of sex. INCONTESTABILITY This Rider will not be contestable after it has been in force during the life of the Insured for 2 years from its effective date, except as to Total Disability of the Insured which begins prior to the end of such 2 year period. TERMINATION This Rider will terminate on the earliest of the following dates: 1. the Policy Anniversary on or next following the Insured's 65th birthday; provided that this will not affect any valid claim arising from Total Disability which began before such date; 2. the date the policy terminates; 3. the Monthly Anniversary Day on or next following the receipt at our Home Office of the Owner's written request to terminate this Rider. We may ask for the return of this Policy for our endorsement. RIDER COST The monthly cost for this Rider is equal to the product of (1) times (2) times (3), where: 1. is the Monthly Deduction excluding the cost for this Rider; 2. is the rate class multiple for this Rider shown on the Policy Data Page; 3. is the factor based on the Insured's Attained Age which is shown in the attached table. The monthly cost for this Rider will be included in the Monthly Deduction from the policy Contract Value as long as this Rider is in force. /s/PATRICIA R. HATLER /s/MARK R. THRESHER Secretary President WAIVER OF MONTHLY DEDUCTIONS RIDER FACTORS FOR WAIVER OF MONTHLY DEDUCTIONS
------------------------------ --------------------------------- -------------------------------- ----------------------------- ATTAINED FACTORS ATTAINED FACTORS AGE (MALE & FEMALE) AGE (MALE & FEMALE) ------------------------------ --------------------------------- -------------------------------- ----------------------------- 15 0.0850 40 0.0850 16 0.0850 41 0.0850 17 0.0850 42 0.0850 18 0.0850 43 0.0850 19 0.0850 44 0.0850 20 0.0850 45 0.0850 21 0.0850 46 0.0880 22 0.0850 47 0.0910 23 0.0850 48 0.0940 24 0.0850 49 0.0970 25 0.0850 50 0.1000 26 0.0850 51 0.1175 27 0.0850 52 0.1350 28 0.0850 53 0.1525 29 0.0850 54 0.1700 30 0.0850 55 0.1875 31 0.0850 56 0.2119 32 0.0850 57 0.2363 33 0.0850 58 0.2606 34 0.0850 59 0.2850 35 0.0850 *60 0.1100 36 0.0850 *61 0.1050 37 0.0850 *62 0.1000 38 0.0850 *63 0.0925 39 0.0850 *64 0.1075 ------------------------------ --------------------------------- -------------------------------- -----------------------------
The factors shown are for a standard premium class. If this Rider is issued in a special premium class, the factors will be a multiple of the standard factor. *Renewal Only EX-99.E 5 item26e.txt Item 26 EXHIBIT (e) |_| NATIONWIDE LIFE INSURANCE COMPANY |_| NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY P.O. Box 182835, Columbus, Ohio 43218-2835 VARIABLE LIFE FUND SUPPLEMENT
- ------------------------------------------------------------------------------------------------------------------------------------ PROPOSED INSURED NAME (please print) SOCIAL SECURITY NUMBER John Doe 000 - 00 - 0000 - ------------------------------------------------------------------------- ---------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 1. SUITABILITY (MUST BE ANSWERED TO ISSUE POLICY.) - ------------------------------------------------------------------------------------------------------------------------------------ YES NO a. Do you understand that the Death Benefit and Surrender Value may increase or decrease depending on the investment experience of the Variable Account?................................................................................ |X| |_| b. Do you believe that this policy will meet your insurance needs and financial objectives?........................... |X| |_| c. Have you received a current copy of the prospectus?................................................................ |X| |_| - ------------------------------------------------------------------------------------------------------------------------------------ 2. ALLOCATIONS - ------------------------------------------------------------------------------------------------------------------------------------ FOR CONTRACTS ISSUED IN STATES WHICH REQUIRE A RETURN OF PREMIUM TO A POLICY OWNER EXERCISING THE SHORT TERM RIGHT TO CANCEL; NET PREMIUMS WILL BE ALLOCATED TO THE GARTMORE GVIT MONEY MARKET FUND OR TO THE FIXED ACCOUNT IF SELECTED UNTIL THE END OF THE RIGHT TO CANCEL PERIOD. AT THE END OF THIS PERIOD, YOUR CONTRACT VALUE WILL BE ALLOCATED TO THE SUBACCOUNTS INDICATED BELOW. FOR STATES REQUIRING A RETURN OF CASH VALUE YOUR NET PREMIUM WILL BE ALLOCATED TO THE SUBACCOUNTS AT THE BEGINNING OF THE SHORT TERM RIGHT TO CANCEL PERIOD. YOUR SELECTIONS MUST TOTAL 100%. MINIMUM INITIAL ALLOCATION TO ANY SINGLE SUBACCOUNT IS 1%. NO FRACTIONAL PERCENTAGES. THESE PERCENTAGES WILL APPLY IN FUTURE YEARS BUT MAY BE CHANGED AT ANY TIME BY THE POLICY OWNER. (IF NO ALLOCATION INDICATED, MONEY MARKET WILL BE AUTOMATICALLY SELECTED.) AIM VI (SERIES I) FEDERATED (PRIMARY SHARES) DREYFUS % Basic Value Fund % Quality Bond Fund II % Small Cap Stock Index Port. - Service % Capital Appreciation Fund Shares % Capital Development Fund FIDELITY (SERVICE CLASS) % Stock Index Fund - Initial Shares % VIP Equity-Income Port. % VIF Appreciation Port. - Initial Shares AMERICAN CENTURY % VIP Growth Port. % VP Inflation Protection % VIP Overseas Port. GARTMORE GVIT INVESTOR DESTINATIONS Fund - Class II % VIP II Contrafund(R)Port. % Aggressive Fund - Class II % VP International Fund - Class I % VIP II Investment Grade Bond Port. % Conservative Fund - Class II % VP Ultra Fund - Class I % VIP III Mid Cap Port. % Moderate Fund - Class II % VP Value Fund - Class I % VIP III Value Strategies Port. % Moderately Aggressive Fund - Class II % Moderately Conservative Fund - Class II MFS(R) VIT (INITIAL CLASS) FRANKLIN TEMPLETON VIPT (CLASS I) % Investors Growth Stock Series % Foreign Securities Fund GARTMORE GVIT SUBADVISED FUNDS (CLASS I) % Value Series % Rising Dividends Securities Fund % Fund Name (Subadviser) % Small Cap Value Securities Fund % Comstock Value Fund (Van Kampen) OPPENHEIMER (INITIAL CLASS) % High Income Bond Fund (Federated) % Capital Appreciation Fund/VA GARTMORE GVIT (CLASS I) % International Value Fund (Dreyfus) % Global Securities Fund/VA % Emerging Markets Fund % Mid Cap Index Fund (Dreyfus) % High Income Fund/VA % Global Health Sciences Fund % Multi Sector Bond Fund (Van Kampen) % Main Street(R)Fund/VA % Global Technology and % Small Cap Growth Fund (Multi Managers) % Main Street(R)Small % Communications Fund % Small Cap Value Fund (Multi Managers) % Cap Fund/VA % Government Bond Fund % Small Company Fund (Multi Managers) % Mid Cap Growth Fund PUTNAM VT (CLASS IB) % Money Market Fund NATIONWIDE LIFE INSURANCE CO. % Growth & Income Fund % Nationwide(R)Fund % Fixed Account % Voyager Fund % U. S. Growth Leaders Fund % Long Term Fixed Account * VAN KAMPEN (CLASS I) NEUBERGER BERMAN AMT OTHER AVAILABLE FUNDS % Core Plus Fixed Income Port. % Fasciano Port. - Class S % % U. S. Real Estate Port. % Limited Maturity Bond Port. - % Class I % % Socially Responsive Port. - Trust Class - ---------------------------------------- -------------------------------------------- ----------------------------------------------
*THE LONG TERM FIXED ACCOUNT ENFORCES STRINGENT TRANSFER RESTRICTIONS. PLEASE CONSULT THE PROSPECTUS FOR MORE DETAILS ON THESE RESTRICTIONS.
- ------------------------------------------------------------------------------------------------------------------------------------ 3. OPTIONAL ELECTIONS - ------------------------------------------------------------------------------------------------------------------------------------ YES NO a. Do you elect that monthly cost of insurance charges be deducted solely from the Money Market Fund as long as it is adequately funded?............................................................................................................ |X| |_| b. Do you elect Automated Dollar Cost Averaging? (If yes, complete Automated Dollar Cost Averaging form.)............ |_| |X| c. Do you elect Asset Rebalancing? (If yes, complete Asset Rebalancing form.)........................................ |_| |X| - ------------------------------------------------------------------------------------------------------------------------------------ 4. IMPORTANT NOTICE - ------------------------------------------------------------------------------------------------------------------------------------ I UNDERSTAND THAT THE DEATH BENEFIT UNDER A VARIABLE LIFE INSURANCE POLICY MAY INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT RETURN ON THE SUBACCOUNT(S) I SELECT. REGARDLESS OF INVESTMENT RETURN, THE DEATH BENEFIT CAN NEVER BE LESS THAN THE SPECIFIED AMOUNT, AS LONG AS THE POLICY IS IN FORCE. THE CONTRACT VALUE MAY INCREASE OR DECREASE ON ANY DAY, DEPENDING ON THE INVESTMENT RETURN FOR THE POLICY. NO MINIMUM CONTRACT VALUE IS GUARANTEED. ON REQUEST, WE WILL FURNISH ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH BENEFITS AND CONTRACT VALUES FOR A VARIABLE LIFE INSURANCE POLICY AND A FIXED LIFE INSURANCE POLICY FOR THE SAME PREMIUM. - ------------------------------------------------------------------------------------------------------------------------------------
Signed at Any City, Any State on January 3 , 2002 ---------------------------------------------------- ------------------------------------------------- -------------- City and State Month Day Year ---------------------------------------------------- ------------------------------------------------------------------ Any Producer John Doe Signature of Producer Signature of Proposed Insured (or parent if Proposed Insured is under age 15) ---------------------------------------------------- ----------------------------------------------------------------- Signature of Applicant/Owner (if other than Primary Insured) Signature of Joint/Spouse Proposed Insured (if to be Insured)
EX-99.F 6 item26f.txt Exhibit f AMENDED ARTICLES OF INCORPORATION NATIONWIDE LIFE INSURANCE COMPANY First: The name of said Corporation shall be "NATIONWIDE LIFE INSURANCE COMPANY." Second: Said Corporation is to be located, and its principal office maintained in the City of Columbus, Ohio. Third: Said Corporation is formed for the purpose of (a) making insurance upon the lives of individuals and every insurance appertaining thereto or connected therewith on both participating and non-participating plans, (b) granting, purchasing or disposing of annuities on both participating and non-participating plans, (c) taking risks connected with or appertaining to making insurance on life or against accidents to persons, or sickness, temporary or permanent disability on both participating and non-participating plans, (d) investing funds, (e) borrowing money on either a secured or unsecured basis in furtherance of the foregoing, and (f) engaging in all activities permitted life insurance companies under the laws of the State of Ohio. Fourth: No holder of shares of this Corporation shall be entitled as such, as a matter of right, to subscribe for or purchase shares now or hereafter authorized. The capital stock of this Corporation shall be Five Million Dollars ($5,000,000.00) divided into Five Million (5,000,000) Common shares of the par value of One Dollar ($1.00) each, which may be subscribed and purchased, or otherwise acquired for such consideration at not less than par, and under such terms and conditions as the Board of Directors may prescribe. Fifth: Dividends may be declared and paid on the outstanding stock, subject to the restrictions herein contained. Dividends on the capital stock shall be paid only from the earned surplus of the Corporation. Unless those policyholders owning participating insurance policies or contracts shall have received an equitable dividend arising out of savings in mortality, savings in expense loadings and excess interest earnings, if any, from such participating policies, no dividend from such savings and earnings shall be declared or paid on capital stock in an amount in excess of seven percent (7%) per annum, computed on the par value of the stock from date of original issue to date of retirement or date of payment of dividend. * Sixth: The corporate powers and business of the Corporation shall be exercised, conducted and controlled, and the corporate property managed by a Board of Directors consisting of not less than three (3), nor more than twenty-one (21), as may from time to time be fixed by the Code of Regulations of the Corporation. At the first election of directors one-third of the directors shall be elected to serve until the next annual meeting, one-third shall be elected to serve until the second annual meeting, and one-third shall be elected to serve until the third annual meeting; thereafter all directors shall be elected to serve for terms of three (3) years each, and until their successors are elected and qualified. Vacancies in the Board of Directors, arising from any cause, shall be filled by the remaining directors. - 2 - The directors shall be elected at the annual meeting of the stockholders by a majority vote of the stockholders present in person or by proxy, provided that vacancies may be filled as herein provided for. The stockholders of the Corporation shall have the right, subject to the statutes of the State of Ohio and these Articles of Incorporation, to adopt a Code of Regulations governing the transaction of the business and affairs of the Corporation which may be altered, amended or repealed in the manner provided by law. The Board of Directors shall elect from their own number a Chairman of the Board of Directors, a General Chairman, and a President. The Board of Directors shall also elect a Vice President and a Secretary and a Treasurer, or a Secretary-Treasurer. The Board of Directors may also elect or appoint such additional vice presidents, assistant secretaries and assistant treasurers as may be deemed advisable or necessary, and may fix their duties. The Board of Directors may appoint such other officers as may be provided in the Code of Regulations. All officers, unless sooner removed by the Board of Directors, shall hold office for one (1) year, or until their successors are elected and qualified. Other than the Chairman of the Board of Directors, the General Chairman and the President, the officers need not be members of the Board of Directors. Officers shall be elected at each annual organization meeting of the Board of Directors, but elections or appointments to fill vacancies may be had at any meeting of the directors. A majority of the Board of Directors and officers shall, at all times, be citizens of the State of Ohio. * Amended Effective March 14, 1986. Seventh: The annual meeting of the stockholders of the Corporation shall be held at such time as may be fixed in the Code of Regulations of the Corporation. Any meeting of the stockholders, annual or special, may be held in or outside of the State of Ohio. Reasonable notice of all meetings of stockholders shall be given, by mail or publication, or as prescribed by the Code of Regulations or by law. Eighth: These Amended Articles of Incorporation shall supersede and take the place of the Articles of Incorporation and all amendments thereto heretofore filed with the Secretary of State by and on behalf of this Corporation. Amended Effective March 14, 1986 EX-99.H 7 item26h.txt FUND PARTICIPATION AGREEMENT This Agreement dated as of the _____ day of __________, 2004 is made by and among Nationwide Financial Services, Inc. on behalf of its subsidiary life insurance companies listed on Exhibit A (collectively "Nationwide") and the current and any future Nationwide separate accounts as applicable ("Variable Accounts") and _________________ ("Adviser"), _______________ ("Distributor") (collectively "the Company") which serves as adviser and distributor to the mutual funds (the "Funds") listed on Exhibit B. RECITALS WHEREAS, Nationwide is engaged in developing and offering variable annuity and variable life insurance products (collectively "Variable Products ") through its Variable Accounts; and WHEREAS, Nationwide also provides administrative and/or recordkeeping services for the Variable Products and in all other respects provides operational support in connection with the offering and maintenance of the Variable Products; and WHEREAS, Nationwide and the Company mutually desire the inclusion of the Funds as investment options in the Variable Products; and WHEREAS, the Variable Products allow for the allocation of net amounts received by Nationwide and the Variable Accounts to the Company for investment in shares of the Funds; and WHEREAS, selection of investment options is made by contract owners of the Variable Products and such contract owners may reallocate their investments among the investment options in accordance with the terms of the Variable Products; and NOW THEREFORE, Nationwide and the Company, in consideration of the undertaking described herein, agree that the Funds will be available as investment options in the Variable Products offered by Nationwide, subject to the following: REPRESENTATIONS REPRESENTATIONS BY NATIONWIDE Nationwide Financial Services, Inc. represents that it is a holding company duly organized and in good standing under applicable state law. Nationwide represents that its life insurance companies have been duly organized and are in good standing under applicable state law. Nationwide represents that its life insurance company subsidiaries have validly established all separate accounts under applicable state law. Each Variable Account is or will be registered as a unit investment trust in accordance with the provisions of the Investment Company Act of 1940 ("1940 Act"), unless exempt from registration based on Section 3(c) 1 or 3(c) 7 of the 1940 Act, or any other applicable exemption. Nationwide represents that it will amend the registration statements under the Securities Act of 1933 (the "1933 Act") and the 1940 Act for the Variable Products from time to time as required to effect the continuous offering of the Variable Products, unless otherwise exempt. Nationwide will also seek to have the Variable Products approved by state insurance authorities in jurisdictions where those annuity contract or life insurance policies will be offered. Nationwide represents that the annuity contracts and/or life insurance policies are designed to be treated as annuity contracts and/or life insurance policies under the appropriate provisions of the Internal Revenue Code of 1986, as Amended (the "Code"). Nationwide shall make every effort to maintain such treatment, and will promptly notify the Company upon having a reasonable basis for believing that such annuity contracts or life insurance policies have ceased to be so treated or that they might not be so treated in the future. Nationwide represents that it will conduct its activities hereunder in material conformity with all applicable federal and state laws or regulations. REPRESENTATIONS BY THE COMPANY The Fund represents that it is duly organized and validly existing under applicable state law. The Fund represents that its shares are duly authorized for issuance in accordance with applicable law, that the Fund is registered as an open-end management investment company under the 1940 Act, and the Fund will maintain its registration as an investment company under the 1940 Act. The Fund shall take all such actions as are necessary to permit the sale of its shares to the Variable Accounts, including registering its shares sold to the Variable Accounts under the 1933 Act. The Fund will amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund will register and qualify its shares for sale in all states, where applicable, and will promptly notify Nationwide if any shares are not qualified in a particular state. The Fund represents that the Funds are currently qualified as regulated investment companies under Subchapter M of the Code, and that the Funds shall make every effort to maintain such qualification. The Fund shall promptly notify Nationwide upon having a reasonable basis for believing that the Funds have ceased to so qualify, or that they may not qualify as such in the future. The Fund represents that any insurance Funds utilized in the Variable Products currently comply with the diversification requirements pursuant to Section 817(h) of the Code and Section 1.817-5(b) of the Federal Tax Regulations, if required, and that such Funds will make every effort to maintain the Funds' compliance with such diversification requirements, unless the Funds are otherwise exempt from Section 817(h) and/or except as otherwise disclosed in each Fund's prospectus. The Fund will notify Nationwide promptly upon having a reasonable basis for believing any Fund has ceased to comply. The Fund shall make every effort to remedy any failure to comply with Section 817(h) within the time frame set forth by Section 817(h). The Distributor represents that it is registered as a broker-dealer under the Securities and Exchange Act of 1934, as amended (the "1934 Act") and will remain duly registered under all applicable federal and state securities laws, and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD") and serves as principal underwriter/distributor of the Funds and that it will perform its obligations for the Fund in accordance with any applicable state and federal securities laws. The Adviser represents that it is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and will remain duly registered under all applicable federal and state securities laws and that it will perform its obligations for the Fund in accordance with any applicable state and federal securities laws. TRADING Subject to the terms and conditions of this Agreement, Nationwide shall be appointed to, and agrees to act, as a limited agent of the Company for the sole purpose of receiving instructions from duly authorized parties for the purchase and redemption of Fund shares prior to the close of regular trading each Business Day. A "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value as set forth in the Fund's most recent prospectus and Statement of Additional Information. Except as particularly stated in this paragraph, Nationwide shall have no authority to act on behalf of the Company or to incur any cost or liability on its behalf. Both parties agree to follow any written guidelines or standards relating to the sale or distribution of the shares as may be provided in the provisions outlined in Exhibit C, as well as to follow any applicable federal and/or state securities laws, rules or regulations. VOTING For so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for Variable Products, Nationwide shall distribute all proxy material furnished by the Company (provided that such material is received by Nationwide or its designated agent at least 10 Business Days prior to the date scheduled for mailing to contract owners) and shall vote Fund shares in accordance with instructions received from the contract owners who have interests in such Fund shares. Nationwide shall vote the Fund shares for which no instructions have been received in the same proportion as Fund shares for which said instructions have been received from the contract owners, provided that such proportional voting is not prohibited by a contract owner's qualified retirement plan document, if applicable. Nationwide and its agents will in no way recommend an action in connection with or oppose or interfere with the solicitation of proxies in the Fund shares. DOCUMENTS AND OTHER MATERIALS DOCUMENTS PROVIDED BY NATIONWIDE Nationwide agrees to provide the Company, upon written request, any reports indicating the number of contract or policy owners having interests in the Variable Products corresponding to a Variable Account's acquisition of Fund shares and such other information (including books and records) that the Company may reasonably request or as may be necessary or advisable to enable it to comply with any law, regulation or order. DOCUMENTS PROVIDED BY THE COMPANY Within five (5) Business Days after the end of each calendar month, the Company shall provide Nationwide, or its designee, a monthly statement of account, which shall confirm all transactions made during that particular month. The Company shall promptly provide Nationwide with a reasonable quantity (in light of the number of existing contract or policy owners) of the Funds' prospectuses, Statements of Additional Information and any supplements thereto. EXPENSES All expenses incident to the performance by Nationwide under this Agreement shall be paid by Nationwide. Likewise, all expenses incident to the performance by the Fund under this Agreement shall be paid by the Company and/or the Fund. Nationwide is responsible for the expenses of the cost of registration of the Variable Products, unless otherwise exempt and the costs of having the Variable Products approved by state insurance authorities in the applicable jurisdictions. The Company and/or Fund is responsible for the expenses of the cost of registration of the Funds' shares, or preparation of the Funds' prospectuses, statements of additional information, proxy materials, reports and the preparation of other related statements and notices required by law ("Fund Materials") for distribution in reasonable quantities to contract owners except as otherwise mutually agreed upon by the parties to the Agreement. Nationwide is responsible for distributing Fund prospectuses to its existing contract owners. For Nationwide's annual mailing to contract owners of Variable Product prospectuses and Fund prospectuses, the Company will provide updated Fund prospectuses for mailing to contract owners, or if a combined printing is done by Nationwide, the Company will pay the lesser of: (a) The cost to print individual fund prospectuses; or (b) The Company's portion of the total printing costs if Nationwide does not use individual prospectuses, but reprints fund prospectuses in another format; or (c) The Company's portion of the total reproduction costs if Nationwide does not use individual printed prospectuses, but reproduces the prospectuses in another allowable and appropriate medium (i.e. CD Rom or computer diskette) which is mutually agreed upon by both Nationwide and the Company and subject to reasonable costs. FUND SUBSTITUTION Should the removal of a Fund from a Variable Product be desired by the parties, the parties agree to share any reasonable expenses incurred as a result of removing such Fund as an available investment option. The parties agree to provide reasonable advance notice of their election to remove a Fund. The Company acknowledges that Nationwide may need to seek the approval of the Securities and Exchange Commission ("SEC") under Section 26 (c) of the 1940 Act for any fund substitution. MIXED AND SHARED FUNDING The Company represents that it has or will obtain a mixed and shared funding order issued by the SEC under Section 6(c) of the 1940 Act. As set forth in the Notice of the Company's application for the mixed and shared funding order, Nationwide agrees to report any potential or existing conflicts promptly to the Board of Trustees of the Fund (the "Board"), and in particular whenever voting instructions of contract owners are disregarded, and recognizes that it will be responsible for assisting the Board in carrying out its responsibilities under such application. Nationwide agrees to carry out such responsibilities with a view to the interests of existing contract owners. If a majority of the Board, or a majority of Disinterested Board Members, determines that a material irreconcilable conflict exists with regard to contract owner investments in the Fund, the Board shall give prompt notice to all Insurance Companies participating in the Fund ("Participating Companies"). If the Board determines that Nationwide is responsible for causing or creating said conflict, Nationwide shall at its sole cost and expense, and to the extent reasonably practicable (as determined by a majority of the Disinterested Board Members), take such action as is necessary to remedy or eliminate the irreconcilable material conflict. Such necessary action may include, but shall not be limited to: (a) Withdrawing the assets allocable to the Variable Account from the Fund and reinvesting such assets in a different investment medium, or submitting the question of whether such segregation should be implemented to a vote of all affected contract owners; and/or (b) Establishing a new separate account. If a material irreconcilable conflict arises as a result of a decision by Nationwide to disregard contract owner voting instructions and said decision represents a minority position or would preclude a majority vote by all contract owners having an interest in the Fund, Nationwide may be required, at the Board's election, to withdraw the Variable Account's investment in the Fund. For the purpose of this Section, a majority of the Disinterested Board Members shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to bear the expense of establishing a new funding medium for any Variable Product. Nationwide shall not be required by this Section to establish a new funding medium for any Variable Product if an offer to do so has been declined by vote of a majority of the contract owners materially adversely affected by the irreconcilable material conflict. SALES LITERATURE Nationwide and its agents shall make no representations about the Company except those contained in publicly available documents or other documents produced by the Company (or an entity on its behalf). Nationwide agrees to allow a reasonable period of time for the Company to review sales literature relating to the Variable Products, which discusses the Funds. Upon reasonable request, Nationwide agrees to furnish draft copies to the Company and allow a reasonable period of time for the review of such material prior to use and prior to the submission of such material to any applicable regulatory entity. The Company must either provide comments within a reasonable period of time or affirmatively decline to provide comments. The Company and its agents shall make no representations about Nationwide except those contained in publicly available documents or other documents produced by Nationwide (or an entity on its behalf). The Company agrees to allow a reasonable period of time for Nationwide to review sales literature relating to the Funds, which discuss the Variable Products. Upon reasonable request, the Company agrees to furnish draft copies to Nationwide and allow a reasonable period of time for the review of such material prior to use and prior to the submission of such material to any applicable regulatory entity. Nationwide must either provide comments within a reasonable period of time or affirmatively decline to provide comments. PRIVACY AND CONFIDENTIALITY For purposes of this Section, "Customer Information" means non-public personally identifiable information as defined in the Gramm-Leach-Bliley Act and the rules and regulations promulgated thereunder, and each party agrees not to use, disclose or distribute to others any such information except as necessary to perform the terms of this Agreement and each party agrees to comply with all applicable provisions of the Gramm-Leach-Bliley Act. For purposes of this Section, "Confidential Information" means any data or information regarding proprietary or confidential information concerning each of the parties. Confidential Information does not include information that (a) was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of the Receiving Party or by violation of this Agreement; (b) was lawfully received by the Receiving Party from a third party free of any obligation of confidence of such third party; (c) was already in the possession of the Receiving Party prior to receipt thereof directly or indirectly from the Disclosing Party; (d) is required to be disclosed pursuant to applicable laws, regulatory or legal process, subpoena or court order; or, (e) is subsequently and independently developed by employees, consultants or agents of the Receiving Party without reference to or use of the Confidential Information disclosed under this Agreement. Each of the parties warrants to the other that it shall not disclose to any person any Confidential Information which it may acquire in the performance of this Agreement; nor shall it use such Confidential Information for any purposes other than to fulfill its contractual obligations under this Agreement and it will maintain the other party's Customer and Confidential Information with reasonable care, which shall not be less than the degree of care it would use for its own such information. In the event Confidential Information includes Customer Information, the Customer Information clause controls. SECURITY Both Parties will maintain and enforce safety and physical security procedures with respect to its access and maintenance of Confidential Information (in electronic and paper format) that are in accordance with reasonable policies in these regards, and provide reasonably appropriate safeguards against accidental or unlawful destruction, loss, alteration or unauthorized disclosure or access of Confidential Information under this Agreement. ANTI-MONEY LAUNDERING Nationwide agrees that companies listed in Exhibit A will comply with the USA PATRIOT Act as applicable and effective. Further, the Company agrees that it will comply with the USA PATRIOT Act as applicable and effective. INDEMNIFICATION INDEMNIFICATION BY NATIONWIDE - (a) Nationwide agrees to indemnify and hold harmless the Fund, the Distributor, the Adviser, and each of their Directors, Trustees, officers, employees and agents, and any affiliated person of the Fund, Distributor or Adviser within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified Parties" for purposes of this Section) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Nationwide) or litigation expenses (including reasonable legal and other expenses), to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or litigation expenses are related to the sale or acquisition of the Fund's shares or the Variable Products issued by Nationwide and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus (which shall include the portions of any offering memoranda that contain information regarding the Fund, Distributor or Adviser) for the Variable Products issued by Nationwide or sales literature or other promotional material for such Variable Products (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to Nationwide by or on behalf of the Fund for use in the registration statement or prospectus for the Variable Products issued by Nationwide or sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of such Variable Products or Fund shares; or (ii) arise out of or as a result of any untrue statement or misrepresentation (other than misstatements or misrepresentations contained in the registration statement, prospectus or sales literature or other promotional material of the Fund not supplied by Nationwide or persons under its control) or wrongful conduct of Nationwide or any of its affiliates, employees or agents with respect to the sale or distribution of the Variable Products issued by Nationwide or the Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature or other promotional material of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished by or on behalf of Nationwide; or (iv) arise out of or result from any material breach of any representation and/or warranty made by Nationwide in this Agreement or arise out of or result from any other material breach of this Agreement by Nationwide; except to the extent provided in Sections (b) and (c) below. (b) Nationwide shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation expenses to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Indemnified Party's duties or by reason of the Indemnified Party's reckless disregard of obligations or duties under this Agreement. (c) Nationwide shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Party shall have notified Nationwide in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Party shall have received notice of such service on any designated agent). (d) In case any such action is brought against the Indemnified Parties, Nationwide shall be entitled to participate, at its own expense, in the defense of such action. Nationwide shall also be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from Nationwide to such party of Nationwide's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Nationwide will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. If Nationwide assumes the defense or representation of an Indemnified Party, Nationwide shall not consent or agree to any settlement without the prior approval of the Indemnified Party. INDEMNIFICATION BY THE COMPANY (a) The Company agrees to indemnify and hold harmless Nationwide and Nationwide's affiliated principal underwriter of the Variable Products, and each of their Directors, Officers, employees, and agents, and any affiliated person of Nationwide within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified Parties" for purposes of this Section) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company or litigation expenses (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or litigation expenses are related to the sale or acquisition of the Fund's shares or the Variable Products issued by Nationwide and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature or other promotional material of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company or the Fund or the designee of either by or on behalf of Nationwide for use in the registration statement or prospectus for the Fund or in sales literature or other promotional material (or any amendment or supplement) or otherwise for use in the registration statement or prospectus for the Fund or in sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Products issued by Nationwide or Fund shares; or (ii) arise out of or as a result of any untrue statement or misrepresentations (other than misstatements or misrepresentations contained in the registration statement, prospectus or sales literature or other promotional material for the Variable Products not supplied by the Company or any employees or agents thereof) or wrongful conduct of the Company, or the affiliates, employees, or agents of the Company with respect to the sale or distribution of the Variable Products issued by Nationwide or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature or other promotional material covering the Variable Products issued by Nationwide, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to Nationwide by or on behalf of the Fund; or (iv) arise out of or result from any material breach of any representation and/or warranty made by the Company or the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; except to the extent provided in Sections (b) and (c) hereof. (b) The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation expenses to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Indemnified Party's duties or by reason of the Indemnified Party's reckless disregard of obligations or duties under this Agreement. (c) The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Party shall have received notice of such service on any designated agent). (c) In case any such action is brought against the Indemnified Parties, the Company will be entitled to participate, at is own expense, in the defense thereof. The Company shall also be entitled to assume the defense of such action, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expense subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. If the Company assumes the defense or representation of an Indemnified Party, the Company shall not consent or agree to any settlement without the prior approval of the Indemnified Party. APPLICABLE LAW This Agreement shall be construed in accordance with the laws of the State of Ohio. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts and the rules and regulations thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant. TERMINATION This Agreement shall terminate as to the availability of shares of the Funds: (1) at the option of Nationwide or The Company upon at least 90 days advance written notice to the other; (2) at any time upon the Company's election, if the Company determines that liquidation of the Funds is in the best interest of the Funds or their beneficial owners. Reasonable advance notice of election to liquidate shall be provided to Nationwide in order to permit the substitution of Fund shares, if necessary, with shares of another investment company pursuant to the 1940 Act and other applicable securities regulations; (3) at the option of Nationwide, if Fund shares are not reasonably available to meet the requirements of the Variable Products as determined by Nationwide. Reasonable advance notice of election to terminate (and time to cure) shall be furnished by Nationwide; (4) upon a decision by Nationwide, in accordance with the 1940 Act and applicable regulations, to substitute such Fund shares with the shares of another investment company for the Variable Products for which the Fund shares have been selected to serve as the underlying investment medium. Nationwide shall give at least 60 days written notice to the Fund of any proposal to substitute Fund shares; (5) if the applicable annuity contracts and life insurance policies are not treated as annuity contracts or life insurance policies by applicable regulatory entities or under applicable rules and regulations; (6) if the Variable Accounts are not deemed "segregated asset accounts" by the applicable regulatory entities or under applicable rules and regulations; (7) at the option of Nationwide or the Fund, upon institution of relevant formal proceedings against the broker-dealer(s) marketing the Variable Products, the Variable Accounts, Nationwide or the Funds by the NASD, the IRS, the Department of Labor, the SEC, state insurance departments or any other regulatory body; (8) upon assignment of this Agreement unless such assignment is made with the written consent of each party and in accordance with applicable law; (9) in the event Fund shares or the Variable Products are not registered, issued or sold pursuant to federal law and state securities laws, or such laws preclude the use of Fund shares as an underlying investment medium of the Variable Products issued or to be issued by Nationwide. Prompt written notice shall be given by either party to the other in the event the conditions of this provision occur; (10) At the option of Nationwide, if Nationwide shall determine, in its sole judgment reasonably exercised in good faith, that the Fund or the Company has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity is likely to have a material adverse impact upon the business and operation of Nationwide. Nationwide shall notify the Company in writing of such determination and its intent to terminate this Agreement, and after considering the actions taken by the Fund or Company and any other changes in circumstances since the giving of such notice, such determination of Nationwide shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; (11) At the option of the Company, if the Company shall determine, in its sole judgment reasonably exercised in good faith, that Nationwide has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity is likely to have a material adverse impact upon the business and operation of the Fund or The Company. The Company shall notify Nationwide in writing of such determination and its intent to terminate this Agreement, and after considering the actions taken by Nationwide and any other changes in circumstances since the giving of such notice, such determination of the Fund shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; and Notwithstanding any of the foregoing provisions of this section ("Termination"), this Agreement and all related agreements shall remain in force and in effect for so long as allocations to any or all of the Variable Accounts remain invested in Fund shares. NOTICE Each notice required by this Agreement shall be given in writing to: Nationwide Financial Services, Inc. One Nationwide Plaza 1-09-V3 Columbus, Ohio 43215 Attention: Securities Officer Fax Number: 614-677-2295 With a Copy to: Nationwide Financial One Nationwide Plaza, 1-12-04 Columbus, Ohio 43215 Attention: Vice President- Investment and Advisory Services ======================= - ----------------------- Attention: Fax Number: Any party may change its address by notifying the other party(ies) in writing. ASSIGNMENT This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns; provided, however, that neither this Agreement nor any rights, privileges, duties or obligations of the parties may be assigned by any party without the written consent of the other parties or as expressly contemplated by this Agreement. ENFORCEABILITY If any portion of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. REMEDIES NOT EXCLUSIVE The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties to this Agreement are entitled to under state and federal laws. TRADEMARKS Except to the extent required by applicable law, no party shall use any other party's names, logos, trademarks or service marks, whether registered or unregistered, without the prior consent of such party. SURVIVABILITY Sections "Representations," "Privacy/Confidentiality," "Indemnification," and "Trademarks" hereof shall survive termination of this Agreement. In addition, all provisions of this Agreement shall survive termination of this Agreement in the event that any Variable Accounts are invested in a Fund at the time the termination becomes effective and shall survive for so long as such Variable Accounts remain so invested. NON-EXCLUSIVITY Each of the parties acknowledges and agrees that this Agreement and the arrangements described in this Agreement are intended to be non-exclusive and that each of the parties is free to enter into similar agreements and arrangements with other entities. PARTNERSHIPS/JOINT VENTURES Nothing in this Agreement shall be deemed to create a partnership or joint venture by and among the parties hereto. AMENDMENTS TO THIS AGREEMENT This Agreement may not be amended or modified except by a written amendment, which includes any amendments to the Exhibits, executed by all parties to the Agreement. TERMINATION OF PRIOR AGREEMENTS [ADD IF NECESSARY] EXECUTION Each party hereby represents and warrants to the other that the persons executing this Agreement on its behalf are duly authorized and empowered to execute and deliver the Agreement and that the Agreement constitutes a legal, valid and binding obligation, and is enforceable in accordance with its terms. Except as particularly set forth herein, neither party assumes any responsibility hereunder and will not be liable to the other for any damages, loss of data, delay or any other loss whatsoever caused by events beyond its control. This Agreement may be executed by facsimile signature and it may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. NATIONWIDE FINACIAL SERVICES, INC. - --------------------------------- By: William G. Goslee Title: Vice-President THE COMPANY - --------------------------------- By: Title: EXHIBIT A SUBSIDIARY LIFE INSURANCE COMPANIES Nationwide Life Insurance Company Nationwide Life and Annuity Insurance Company Nationwide Life Insurance Company of America Nationwide Life and Annuity Company of America EXHIBIT B FUNDS All current and future funds available for sale through the Variable Products, including but not limited to any funds listed below. EXHIBIT C FUND/SERV PROCESSING PROCEDURES AND MANUAL PROCESSING PROCEDURES The purchase, redemption and settlement of shares of a Fund ("Shares") will normally follow the Fund/SERV-Defined Contribution Clearance and Settlement Service ("DCCS") Processing Procedures below and the rules and procedures of the SCC Division of the National Securities Clearing Corporation ("NSCC") shall govern the purchase, redemption and settlement of Shares of the Funds through NSCC by Nationwide. In the event of equipment failure or technical malfunctions or the parties' inability to otherwise perform transactions pursuant to the FUND/SERV Processing Procedures, or the parties' mutual consent to use manual processing, the Manual Processing Procedures below will apply. It is understood and agreed that, in the context of Section 22 of the Investment Company Act of 1940 (the "1940 Act") and the rules and public interpretations thereunder by the staff of the Securities and Exchange Commission (SEC Staff), receipt by Nationwide of any Instructions from the contract owner prior to the Close of Trade on any Business Day shall be deemed to be receipt by the Funds of such Instructions solely for pricing purposes and shall cause purchases and sales to be deemed to occur at the Share Price for such Business Day, except as provided in 4(c) of the Manual Processing Procedures. Each Instruction shall be deemed to be accompanied by a representation by Nationwide that it has received proper authorization from each contract owner whose purchase, redemption, account transfer or exchange transaction is effected as a result of such Instruction. FUND/SERV-DCCS PROCESSING PROCEDURES 1. On each business day that the New York Stock Exchange (the "Exchange") is open for business on which the Funds determine their net asset values ("Business Day"), the Distributor shall accept, and effect changes in its records upon receipt of purchase, redemption, exchanges, account transfers and registration instructions from Nationwide electronically through Fund/SERV ("Instructions") without supporting documentation from the contract owner. On each Business Day, the Distributor shall accept for processing any Instructions from Nationwide and shall process such Instructions in a timely manner. 2. Distributor shall perform any and all duties, functions, procedures and responsibilities assigned to it under this Agreement and as otherwise established by the NSCC. Distributor shall conduct each of the foregoing activities in a competent manner and in compliance with (a) all applicable laws, rules and regulations, including NSCC Fund/SERV-DCCS rules and procedures relating to Fund/SERV; (b) the then-current Prospectus of a Fund; and (c) any provision relating to Fund/SERV in any other agreement of the Distributor that would affect its duties and obligations pursuant to this Agreement. 3. Confirmed trades and any other information provided by the Distributor to Nationwide through Fund/SERV and pursuant to this Agreement shall be accurate, complete, and in the format prescribed by the NSCC. 4. Trade information provided by Nationwide to the Distributor through Fund/SERV and pursuant to this Agreement shall be accurate, complete and, in the format prescribed by the NSCC. All Instructions by Nationwide regarding each Fund/SERV Account shall be true and correct and will have been duly authorized by the registered holder. 5. For each Fund/SERV transaction, Nationwide shall provide the Funds and the Distributor with all information necessary or appropriate to establish and maintain each Fund/SERV transaction (and any subsequent changes to such information), which Nationwide hereby certifies is and shall remain true and correct. Nationwide shall maintain documents required by the Funds to effect Fund/SERV transactions. Nationwide certifies that all Instructions delivered to Distributor on any Business Day shall have been received by Nationwide from the contract owner by the close of trading (generally 4:00 p.m. Eastern Time ("ET")) on the Exchange (the "Close of Trading") on such Business Day and that any Instructions received by it after the Close of Trading on any given Business Day will be transmitted to Distributor on the next Business Day. MANUAL PROCESSING PROCEDURES 1. On each Business Day, Nationwide may receive Instructions from the contract owner for the purchase or redemption of shares of the Funds based solely upon receipt of such Instructions prior to the Close of Trading on that Business Day. Instructions in good order received by Nationwide prior to the close of trading on any given Business Day (generally, 4:00 p.m. ET (the "Trade Date") and transmitted to the Distributor by no later than 9:30 a.m. ET the Business Day following the Trade Date ("Trade Date plus One" or "T+1"), will be executed at the NAV ("Share Price") of each applicable Fund, determined as of the Close of Trading on the Trade Date. 2. By no later than 6:00 p.m. ET on each Trade Date ("Price Communication Time"), the Distributor will use its best efforts to communicate to Nationwide via electronic transmission acceptable to both parties, the Share Price of each applicable Fund, as well as dividend and capital gain information and, in the case of funds that credit a daily dividend, the daily accrual or interest rate factor, determined at the Close of Trading on that Trade Date. 3. As noted in Paragraph 1 above, by 9:30 a.m. ET on T+1 ("Instruction Cutoff Time") and after Nationwide has processed all approved transactions, Nationwide will transmit to the Distributor via facsimile, telefax or electronic transmission or system-to-system, or by a method acceptable to Nationwide and the Distributor, a report (the "Instruction Report") detailing the Instructions that were received by Nationwide prior to the Funds' daily determination of Share Price for each Fund (i.e., the Close of Trading) on Trade Date. (a) It is understood by the parties that all Instructions from the contract owner shall be received and processed by Nationwide in accordance with its standard transaction processing procedures. Nationwide or its designees shall maintain records sufficient to identify the date and time of receipt of all contract owner transactions involving the Funds and shall make or cause to be made such records available upon reasonable request for examination by the Funds or its designated representative or, by appropriate governmental authorities. Under no circumstances shall Nationwide change, alter or modify any Instructions received by it in good order. (b) Following the completion of the transmission of any Instructions by Nationwide to the Distributor by the Instruction Cutoff Time, Nationwide will verify that the Instruction was received by the Distributor. (c) In the event that an Instruction transmitted by Nationwide on any Business Day is not received by the Distributor by the Instruction Cutoff Time, due to mechanical difficulties or for any other reason beyond Nationwide's reasonable control, such Instruction shall nonetheless be treated by the Distributor as if it had been received by the Instruction Cutoff Time, provided that Nationwide retransmits such Instruction by facsimile transmission to the Distributor and such Instruction is received by the Distributor's financial control representative no later than 9:30 a.m. ET on T+1. In addition, Nationwide will place a phone call to a financial control representative of the Distributor prior to 9:00 a.m. ET on T+1 to advise the Distributor that a facsimile transmission concerning the Instruction is being sent. (d) With respect to all Instructions, the Distributor's financial control representative will manually adjust a Fund's records for the Trade Date to reflect any Instructions sent by Nationwide. (e) By no later than 4:00 p.m. on T+1, and based on the information transmitted to the Distributor pursuant to Paragraph 3(c) above, Nationwide will use its best efforts to verify that all Instructions provided to the Distributor on T+1 were accurately received and that the trades for each Account were accurately completed and Nationwide will use its best efforts to notify Distributor of any discrepancies. 4. As set forth below, upon the timely receipt from Nationwide of the Instructions, the Fund will execute the purchase or redemption transactions (as the case may be) at the Share Price for each Fund computed as of the Close of Trading on the Trade Date. (a) Except as otherwise provided herein, all purchase and redemption transactions will settle on T+1. Settlements will be through net Federal Wire transfers to an account designated by a Fund. In the case of Instructions which constitute a net purchase order, settlement shall occur by Nationwide initiating a wire transfer by 1:00 p.m. ET on T+1 to the custodian for the Fund for receipt by the Funds' custodian by no later than the Close of Business at the New York Federal Reserve Bank on T+1, causing the remittance of the requisite funds to the Distributor to cover such net purchase order. In the case of Instructions which constitute a net redemption order, settlement shall occur by the Distributor causing the remittance of the requisite funds to cover such net redemption order by Federal Funds Wire by 1:00 p.m. ET on T+1, provided that the Fund reserves the right to (i) delay settlement of redemptions for up to seven (7) Business Days after receiving a net redemption order in accordance with Section 22 of the 1940 Act and Rule 22c-1 thereunder, or (iii) suspend redemptions pursuant to the 1940 Act or as otherwise required by law. Settlements shall be in U.S. dollars. (b) Nationwide (and its Variable Accounts) shall be designated as record owner of each account ("Record Owner"). Distributor will provide Nationwide with all written confirmations required under federal and state securities laws. (c) On any Business Day when the Federal Reserve Wire Transfer System is closed, all communication and processing rules will be suspended for the settlement of Instructions. Instructions will be settled on the next Business Day on which the Federal Reserve Wire Transfer System is open. The original T+1 Settlement Date will not apply. Rather, for purposes of this Paragraph 4(c) only, the Settlement Date will be the date on which the Instruction settles. (d) Nationwide shall, upon receipt of any confirmation or statement concerning the accounts by such method acceptable to the Distributor and Nationwide, verify the accuracy of the information contained therein against the information contained in Nationwide's internal record-keeping system and shall promptly advise the Distributor in writing of any discrepancies between such information. The Distributor and Nationwide shall cooperate to resolve any such discrepancies as soon as reasonably practicable. INDEMNIFICATION In the event of any error or delay with respect to both the Fund/SERV Processing Procedures and the Manual Processing Procedures outlined in Exhibit C herein: (i) which is caused by the Funds or the Distributor, the Distributor shall make any adjustments on the Funds' accounting system necessary to correct such error or delay and the responsible party or parties shall reimburse the contract owner and Nationwide, as appropriate, for any losses or reasonable costs incurred directly as a result of the error or delay but specifically excluding any and all consequential punitive or other indirect damages or (ii) which is caused by Nationwide, the Distributor shall make any adjustment on the Funds' accounting system necessary to correct such error or delay and the affected party or parties shall be reimbursed by Nationwide for any losses or reasonable costs incurred directly as a result of the error or delay, but specifically excluding any and all consequential punitive or other indirect damages. In the event of any such adjustments on the Funds' accounting system, Nationwide shall make the corresponding adjustments on its internal record-keeping system. In the event that errors or delays with respect to the Procedures are contributed to by more than one party hereto, each party shall be responsible for that portion of the loss or reasonable cost which results from its error or delay. All parties agree to provide the other parties prompt notice of any errors or delays of the type referred to herein and to use reasonable efforts to take such action as may be appropriate to avoid or mitigate any such costs or losses. EX-99.K 8 item26k.txt August 6, 2004 Board of Directors Nationwide Life Insurance Company One Nationwide Plaza Columbus, Ohio 43215 Re: Nationwide Life Insurance Company Nationwide VLI Separate Account-7 Registration Statement Ladies and Gentlemen: I have acted as counsel to Nationwide Life Insurance Company (the "Company"), an Ohio insurance company, and its Nationwide VLI Separate Account-7 (the "Separate Account") in connection with the registration of an indefinite number of securities issued through the Separate Account with the Securities and Exchange Commission under the Securities Act of 1933, as amended. I have examined the registration statement on Form N-6, including all related documents and exhibits, and reviewed such questions of law as I considered necessary and appropriate. On the basis of such examination and review, it is my opinion that: 1. The Company is a corporation duly organized and validly existing as a stock life insurance company under the laws of the State of Ohio and is duly authorized to issue and sell life insurance and annuity contracts. 2. The Separate Account has been properly created and is a validly existing separate account pursuant to the laws of the State of Ohio. 3. The issuance and sale of the Flexible Premium Variable Universal Life Insurance Policies (the "Policies") have been duly authorized by the Company. The Policies, when issued and sold in the manner stated in the registration statement, will be legal and binding obligations of the Company in accordance with their terms, except that clearance must be obtained, or the contract form must be approved, prior to the issuance thereof in certain jurisdictions. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement filed on Form N-6 for the Policies and the Separate Account. Sincerely, /s/MICHAEL R. MOSER Michael R. Moser Senior Counsel EX-99.N 9 exhibitn.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors of Nationwide Life Insurance Company: We consent to the use of our report for Nationwide Life Insurance Company and subsidiaries dated March 11, 2004, included herein, and to the reference to our firm under the heading "Services" in the Statement of Additional Information (SEC File Number to be assigned by the Securities and Exchange Commission upon filing of the registration statement). Our report covering the December 31, 2001 financial statements for Nationwide Life Insurance Company and subsidiaries refers to a change to the method of accounting for derivative instruments and hedging activities, and for purchased or retained interests in securitized financial assets. KPMG LLP Columbus, Ohio August 6, 2004 -----END PRIVACY-ENHANCED MESSAGE-----