- Securities Registration (separate account, unit investment trust) (N-4/A)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
File No. 333-178059

Pre-Effective Amendment No.   1
þ


Post-Effective Amendment No.
o

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
File No. 811-21099

Amendment No. 40
þ


(Check appropriate box or boxes.)


NATIONWIDE VARIABLE ACCOUNT-12
(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



Robert W. Horner, III, Vice President Corporate Governance and Secretary,
One Nationwide Plaza, Columbus, Ohio 43215
(Name and Address of Agent for Service)



Approximate Date of Proposed Public Offering
As soon as possible after effective date.


Title of Securities Being Registered
Individual Flexible Premium Deferred Variable Annuity Contract


The Registrant hereby agrees to amend 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 therefore 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.

 
 
 

Waddell & Reed Advisors Select Preferred Annuity SM New York 2.0
Nationwide Life Insurance Company
Individual Flexible Premium Deferred Variable Annuity Contracts
Issued by Nationwide Life Insurance Company through its Nationwide Variable Account-12
The date of this prospectus is ____________.


The contracts described in this prospectus are only available in the State of New York.  This prospectus contains basic information you should understand about the contracts before investing.  Please read this prospectus carefully and keep it for future reference.
 
Variable annuities are complex investment products with unique benefits and advantages that may be particularly useful in meeting long-term savings and retirement needs.  There are costs and charges associated with these benefits and advantages - costs and charges that are different, or do not exist at all, within other investment products.  With help from financial consultants and advisors, investors are encouraged to compare and contrast the costs and benefits of the variable annuity described in this prospectus against those of other investment products, especially other variable annuity and variable life insurance products offered by Nationwide and its affiliates.  Nationwide offers a wide array of such products, many with different charges, benefit features and underlying investment options.  This process of comparison and analysis should aid in determining whether the purchase of the contract described in this prospectus is consistent with your investment objectives, risk tolerance, investment time horizon, marital status, tax situation and other personal characteristics and needs.
 
The Statement of Additional Information (dated __________), which contains additional information about the contracts and the Variable Account, has been filed with the Securities and Exchange Commission ("SEC") and is incorporated herein by reference.  The table of contents for the Statement of Additional Information is on page 42.
 
To obtain free copies of the Statement of Additional Information or to make any other service requests, please contact Nationwide by one of the methods described in the "Contacting the Service Center" provision on page 12 .
 
Information about Nationwide and the variable annuity contract described in this prospectus (including the Statement of Additional Information) 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, 100 F Street NE, Washington, D.C. 20549-0102.  Additional information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090.  The SEC also maintains a website (www.sec.gov) that contains the prospectus, the Statement of Additional Information, material incorporated by reference, and other information.
 
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 contract contains features that apply credits to the Contract Value.  The benefit of the credits may be more than offset by the additional fees that the Contract Owner will pay in connection with the credits.  A contract without credits may cost less.

The Sub-Accounts available under this contract invest in the underlying mutual funds of the portfolio companies listed below.
 
 
·
Ivy Funds Variable Insurance Portfolios, Inc.
 
 
·
Nationwide Variable Insurance Trust
 
For a complete list of the available Sub-Accounts, please refer to "Appendix A: Underlying Mutual Funds."  For more information on the underlying mutual funds, please refer to the prospectus for the mutual fund.
 
Purchase payments not invested in the Sub-Accounts of the Nationwide Variable Account-12 ( the "Variable Account") may be allocated to the Fixed Account.

 
1
 

Glossary of Special Terms
 
Accumulation Unit - An accounting unit of measure used to calculate the Contract Value allocated to the Variable Account before the Annuitization Date.
 
Annuitant - The person(s) whose length of life determines how long annuity payments are paid.
 
Annuitization Date - The date on which annuity payments begin.
 
Annuity Commencement Date - The date on which annuity payments are scheduled to begin.
 
Annuity Unit - An accounting unit of measure used to calculate the value of variable annuity payments.
 
Co-Annuitant(s) - The person(s) designated by the Contract Owner to receive the Spousal Protection Annuity Option.
 
Contract Anniversary - Each recurring 1-year anniversary of the date the contract was issued.
 
Contract Owner(s) - The person(s) who owns all rights under the contract.  All references in this prospectus to "you" shall mean the Contract Owner.
 
Contract Value - The value of all Accumulation Units in a contract plus any amount held in the Fixed Account.
 
Contract Year - Each year the contract is in force beginning with the date the contract is issued.
 
Current Income Benefit Base - For purposes of the 7% Lifetime Income Option, it is equal to the Original Income Benefit Base adjusted throughout the life of the contract to account for subsequent purchase payments, excess withdrawals, and reset opportunities.  This amount is multiplied by the Lifetime Withdrawal Percentage to arrive at the benefit amount for any given year.
 
Daily Net Assets - A figure that is calculated at the end of each Valuation Date and represents the sum of all the Contract Owners' interests in the variable Sub-Accounts after the deduction of contract and underlying mutual fund expenses.
 
Fixed Account - An investment option that is funded by Nationwide's General Account.  Amounts allocated to the Fixed Account will receive periodic interest, subject to a guaranteed minimum crediting rate that varies depending on the type of allocation (e.g., new purchase payment, transfer, Dollar Cost Averaging allocation, etc.).
 
General Account - All assets of Nationwide other than those of the Variable Account or in other separate accounts that have been or may be established by Nationwide.
 
Individual Retirement Account - An account that qualifies for favorable tax treatment under Section 408(a) of the Internal Revenue Code, but does not include Roth IRAs.
 
Individual Retirement Annuity or IRA - An annuity contract that qualifies for favorable tax treatment under Section 408(b) of the Internal Revenue Code, but does not include Roth IRAs.
 
Investment-Only Contract - A contract purchased by a qualified pension, profit-sharing or stock bonus plan as defined by Section 401(a) of the Internal Revenue Code.

Lifetime Withdrawal Percentage - An age-based percentage used to determine the annual amount available for withdrawal under the 7% Lifetime Income Option.  The applicable percentage is multiplied by the Current Income Benefit Base to arrive at the benefit amount for any given year.
 
Nationwide - Nationwide Life Insurance Company.  All references in this prospectus to "we" or "us" shall mean Nationwide.
 
Net Asset Value - The value of one share of an underlying mutual fund at the close of the New York Stock Exchange.
 
Non-Qualified Contract - A contract which does not qualify for favorable tax treatment as a Qualified Plan, IRA, Roth IRA, SEP IRA, Simple IRA, or Tax Sheltered Annuity.
 
Original Income Benefit Base - For purposes of the 7% Lifetime Income Option, the initial benefit base calculated on the date the contract is issued, which is equal to the Contract Value.
 
Purchase Payment Credit ("PPC") - The amount Nationwide applies to the Contract Value when cumulative purchase payments reach certain aggregate levels.
 
Qualified Plan - A retirement plan that receives favorable tax treatment under Section 401 of the Internal Revenue Code, including Investment-Only Contracts.  In this prospectus, all provisions applicable to Qualified Plans also apply to Investment-Only Contracts unless specifically stated otherwise.
 
Roth IRA - An annuity contract that qualifies for favorable tax treatment under Section 408A of the Internal Revenue Code.
 
SEC - Securities and Exchange Commission.
 
SEP IRA - An annuity contract which qualifies for favorable tax treatment under Section 408(k) of the Internal Revenue Code.
 
Service Center- The department of Nationwide responsible for receiving service requests.  For service requests submitted other than by telephone (including fax requests), the Service Center is Nationwide's mail and document processing facility.  For service requests communicated by telephone, the Service Center is Nationwide's operations processing facility.  Information on how to contact the Service Center is in the "Contacting the Service Center" provision.
 
Simple IRA - An annuity contract which qualifies for favorable tax treatment under Section 408(p) of the Internal Revenue Code.
 
Sub-Accounts - Divisions of the Variable Account, each of which invests in a single underlying mutual fund.
 
Tax Sheltered Annuity - An annuity that qualifies for favorable tax treatment under Section 403(b) of the Internal Revenue Code.  None of the Tax Sheltered Annuities sold under this prospectus are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
 
Valuation Date - Each day the New York Stock Exchange is open for business, or any other day during which there is a sufficient degree of trading of underlying mutual fund shares such that the current Net Asset Value of Accumulation Units or Annuity Units might be materially affected.  Values of the

 
2
 

 

 
Variable Account are determined as of the close of the New York Stock Exchange which generally closes at 4:00 pm EST.
 
Valuation Period - The period of time commencing at the close of a Valuation Date and ending at the close of the New York Stock Exchange for the next succeeding Valuation Date.
 
Variable Account - Nationwide Variable Account-12, a separate account that Nationwide established to hold Contract Owner assets allocated to variable investment options .  The Variable Account is divided into Sub-Accounts, each of which invests in shares of a separate underlying mutual fund.


 
3
 

Table of Contents
Page
Glossary of Special Terms
2
Contract Expenses
6
Underlying Mutual Fund Annual Expenses
7
Example
7
Synopsis of the Contracts
8
Surrenders/Withdrawals
 
Minimum Initial and Subsequent Purchase Payments
 
Dollar Limit Restrictions
 
Credits on Purchase Payments
 
Charges and Expenses
 
Annuity Payments
 
Taxation
 
Death Benefit
 
Right to Examine and Cancel
 
Condensed Financial Information
10
Financial Statements
10
Nationwide Life Insurance Company
10
General Distributor
10
Investing in the Contract
10
The Variable Account and Underlying Mutual Funds
 
The Fixed Account
 
Contacting the Service Center
12
The Contract in General
13
Distribution, Promotional, and Sales Expenses
 
Underlying Mutual Fund Payments
 
Profitability
 
Contract Modification
 
Standard Charges and Deductions
14
Mortality and Expense Risk Charge
 
Administrative Charge
 
Contract Maintenance Charge
 
Contingent Deferred Sales Charge
 
Premium Taxes
 
Short-Term Trading Fees
 
Optional Contract Benefits, Charges, and Deductions
16
Death Benefit Options
 
Spousal Protection Annuity Option
 
7% Lifetime Income Option
 
7% Spousal Continuation Benefit
 
Income Benefit Investment Options
 
Ownership and Interests in the Contract
22
Contract Owner
 
Joint Owner
 
Contingent Owner
 
Annuitant
 
Contingent Annuitant
 
Co-Annuitant
 
Joint Annuitant
 
Beneficiary and Contingent Beneficiary
 
Changes to the Parties to the Contract
 
Operation of the Contract
23
Purchase Payment Credits
 
Pricing
 
Application and Allocation of Purchase Payments
 
Determining the Contract Value
 
   


 
4
 


Table of Contents (continued)
Page
Transfer Requests
 
Transfer Restrictions
 
Transfers Prior to Annuitization
 
Transfers After Annuitization
 
Right to Examine and Cancel
27
Surrender/Withdrawal Prior to Annuitization
28
Partial Withdrawals
 
Full Surrenders
 
Surrender/Withdrawal After Annuitization
28
Withdrawals Under Certain Plan Types
28
Withdrawals Under a Tax Sheltered Annuity
 
Withdrawals Under a Texas Optional Retirement Program or a Louisiana Optional Retirement Plan
 
Loan Privilege
29
Minimum and Maximum Loan Amounts
 
Loan Processing Fee
 
How Loan Requests are Processed
 
Loan Interest
 
Loan Repayment
 
Distributions and Annuity Payments
 
Transferring the Contract
 
Grace Period and Loan Default
 
Assignment
30
Contract Owner Services
30
Asset Rebalancing
 
Dollar Cost Averaging
 
Enhanced Fixed Account Dollar Cost Averaging
 
Dollar Cost Averaging for Living Benefits
 
Fixed Account Interest Out Dollar Cost Averaging
 
Systematic Withdrawals
 
Death Benefits
32
Death of Contract Owner
 
Death of Annuitant
 
Death of Contract Owner/Annuitant
 
Death Benefit Payment
 
Death Benefit Calculations
 
Annuity Commencement Date
35
Annuitizing the Contract
35
Annuitization Date
 
Annuitization
 
Fixed Annuity Payments
 
Variable Annuity Payments
 
Frequency and Amount of Annuity Payments
 
Annuity Payment Options
37
Annuity Payment Options for Contracts with Total Purchase Payments and Contract Value Annuitized Less Than or Equal to $2,000,000
 
Annuity Payment Options for Contracts with Total Purchase Payments and/or Contract Value Annuitized Greater Than $2,000,000
 
Annuitization of Amounts Greater than $5,000,000
 
Statements and Reports
38
Legal Proceedings
38
Table of Contents of Statement of Additional Information
42
Appendix A: Underlying Mutual Funds
43
Appendix B: Condensed Financial Information
46
Appendix C: Contract Types and Tax Information
47

 
5
 

Contract Expenses
 
The following tables describe the fees and expenses that a Contract Owner will pay when buying, owning, or surrendering the contract.
 
The first table describes the fees and expenses a Contract Owner will pay at the time the contract is purchased, surrendered, or when cash value is transferred between investment options.
 
Contract Owner Transaction Expenses
Maximum Contingent Deferred Sales Charge ("CDSC") (as a percentage of purchase payments withdrawn)
8% 1
 
Number of Completed Years from Date of Purchase Payment
0
1
2
3
4
5
6
7
8
CDSC Percentage
8%
8%
7%
7%
6%
5%
4%
2%
0%
 
Maximum Loan Processing Fee                                                                                                                                                  
$25 2
Maximum Premium Tax Charge (as a percentage of purchase payments)                                                                                                                                                  
5% 3

 
The next table describes the fees and expenses that a Contract Owner will pay periodically during the life of the contract (not including underlying mutual fund fees and expenses).
 
Recurring Contract Expenses
Maximum Annual Contract Maintenance Charge                                                                                                                                                 
$50 4
Annual Loan Interest Charge   (assessed as a reduction to the credited interest rate)                                                                                                                                                   
2.25% 5
Variable Account Annual Expenses (assessed as an annualized percentage of Daily Net Assets)
 
Mortality and Expense Risk Charge                                                                                                                                             
1. 10 %
Administrative Charge                                                                                                                                             
0.20%
Death Benefit Options (assessed as an annualized percentage of Daily Net Assets) (eligible applicants may purchase 1 option)
 
Five-Year Enhanced Death Benefit Option Charge                                                                                                                                       
Total Variable Account Charges (including this option only)                                                                                                                                       
0.05%
1.3 5 %
One-Year Enhanced Death Benefit Option Charge                                                                                                                                       
Total Variable Account Charges (including this option only)                                                                                                                                       
0.15%
1.4 5 %
Spousal Protection Annuity Option Charge (assessed as an annualized percentage of Daily Net Assets)
Total Variable Account Charges (including this option only)                                                                                                                                             
0.10%
1. 40 %
 
Additional Optional Riders (assessed annually as a percentage of the Current Income Benefit Base 6 )
   
Maximum 7% Lifetime Income Option Charge                                                                                                                                             
1.50% 7
 
Maximum 7% Spousal Continuation Benefit Charge                                                                                                                                             
0.40% 8
 
 
The next table shows the fees and expenses that a Contract Owner would pay if he/she elected all of the optional benefits under the contract (and the most expensive of mutually exclusive optional benefits).
 
Summary of Maximum Contract Expenses
(annualized rate, as a percentage of the Daily Net Assets)
Mortality and Expense Risk Charge (applicable to all contracts)                                                                                                                                                  
1. 10 %
Administrative Charge (applicable to all contracts)                                                                                                                                                  
0.20%
One-Year Enhanced Death Benefit Option Charge                                                                                                                                                  
0.15%
Spousal Protection Annuity Option Charge                                                                                                                                                  
0.10%
Maximum 7% Lifetime Income Option Charge                                                                                                                                                  
1.50% 9
Maximum 7% Spousal Continuation Benefit Charge                                                                                                                                                  
0.40% 9
Maximum Possible Total Variable Account Charges                                                                                                                                                  
3.4 5 % 10


 
6
 


 
Underlying Mutual Fund Annual Expenses
 
The next table provides the minimum and maximum total operating expenses as of December 31, 201 1 , charged by the underlying mutual funds that you may pay periodically during the life of the contract.  More detail concerning each underlying mutual fund's fees and expenses is contained in the prospectus for each underlying mutual fund.
 
Total Annual Underlying Mutual Fund Operating Expenses
Minimum
Maximum
     
(expenses that are deducted from underlying mutual fund assets, including management fees, distribution (12b-1) fees, and other expenses, as a percentage of average underlying mutual fund average net assets)
0.49%
1.52%
 
The minimum and maximum underlying mutual fund operating expenses indicated above do not reflect voluntary or contractual reimbursements and/or waivers applied to some underlying mutual funds.  Therefore, actual expenses could be lower.  Refer to the underlying mutual fund prospectuses for specific expense information.
 
 
1 The Internal Revenue Code may impose restrictions on surrenders from contracts issued as Tax Sheltered Annuities.
 
2 Nationwide assesses a loan processing fee at the time each new loan is processed. Loans are only available for contracts issued as Tax Sheltered Annuities.
 
3 Nationwide will charge between 0% and 5% of purchase payments for premium taxes levied by state or other government entities.  The amount assessed to the contract will equal the amount assessed by the state or government entity.
 
4 The Contract Maintenance Charge is deducted annually from all contracts containing less than $50,000 on each Contract Anniversary.  This charge is permanently waived for any contract valued at $50,000 or more on any Contract Anniversary.
 
5 The loan interest rate is determined, based on market conditions, at the time of loan application or issuance.  The loan balance in the collateral Fixed Account is credited with interest at 2.25% less than the loan interest rate.  Thus, the net loan interest charge is an annual rate of 2.25%, which is applied against the outstanding loan balance. The Annual Loan Interest Charge will not exceed 2.25%.
 
6 For information about how the Current Income Benefit Base is calculated see "Determination of the Income Benefit Base Prior to the First Withdrawal."
 
7 Currently, the charge associated with the 7% Lifetime Income Option is equal to 1.20% of the Current Income Benefit Base.
 
8 The 7% Spousal Continuation Benefit may only be elected if and when the 7% Lifetime Income Option is elected.  Currently, there is no charge associated with the 7% Spousal Continuation Benefit.
 
9 This charge is a percentage of the Current Income Benefit Base.  For purposes of this table, Nationwide assumes the Current Income Benefit Base is equal to the Daily Net Assets.
 
10 The Maximum Possible Total Variable Account Charges associated with a particular contract may be higher or lower depending on whether the Current Income Benefit Base is higher or lower than the Daily Net Assets.  For purposes of this table, Nationwide assumes the Current Income Benefit Base is equal to the Daily Net Assets.
 
Example
 
This Example is intended to help Contract Owners compare the cost of investing in the contract with the cost of investing in other variable annuity contracts.  These costs include Contract Owner transaction expenses, contract fees, Variable Account annual expenses, and underlying mutual fund fees and expenses.  The Example does not reflect premium taxes and short-term trading fess which, if reflected, would result in higher expenses.
 
The following Example assumes:
 
·
a $10,000 investment in the contract for the time periods indicated;
·
a 5% return each year;
·
the maximum and the minimum fees and expenses of any of the underlying mutual funds;
·
the maximum Contingent Deferred Sales Charge;
·
A $50 Contract Maintenance Charge expressed as a percentage of the average contract account size; and
·
the total Variable Account charges associated with the most expensive allowable combination of optional benefits (3.45% 1 ).
 
For those contracts that do not elect the most expensive combination of optional benefits, the expenses would be lower.
 
 
If you surrender your contract
at the end of the applicable
time period
If you annuitize your contract
at the end of the applicable
time period
If you do not
surrender
your contract
 
1 Yr.
3 Yrs.
5 Yrs.
10 Yrs.
1 Yr.
3 Yrs.
5 Yrs.
10 Yrs.
1 Yr.
3 Yrs.
5 Yrs.
10 Yrs.
Maximum Total Underlying Mutual Fund Operating Expenses (1.52%)
$1,374
$2,410
$3,329
$5,555
*
$1,710
$2,829
$5,555
$574
$1,710
$2,829
$5,555
Minimum Total Underlying Mutual Fund Operating Expenses (0.49%)
1,266
$2,103
$2,847
$4,734
*
$1,403
$2,347
$4,734
$466
$1,403
$2,347
$4,734
 
*The contracts sold under this prospectus do not permit annuitization during the first 2 Contract Years.
 
 
1   The total Variable Account charges associated with the most expensive allowable combination of optional benefits may be higher or lower depending on whether the Current Income Benefit Base is higher or lower than the Daily Net Assets.  For purposes of this table, Nationwide assumes the Current Income Benefit Base is equal to the Daily Net Assets.
 
 
 
7
 
Synopsis of the Contracts
 
The annuity described in this prospectus is intended to provide benefits to a single or joint owner and his/her beneficiaries.  The contracts described in this prospectus are individual flexible purchase payment contracts.
 
The contracts can be categorized as:
·
Charitable Remainder Trusts;
·
Individual Retirement Annuities ("IRAs");
·
Investment-Only Contracts (Qualified Plans);
·
Non-Qualified Contracts;
·
Roth IRAs;
·
Simplified Employee Pension IRAs ("SEP IRAs");
·
Simple IRAs; and
·
Tax Sheltered Annuities (Non-ERISA).
 
For more detailed information with regard to the differences in contract types, see "Appendix C: Contract Types and Tax Information."  Prospective purchasers may apply to purchase a contract through broker dealers that have entered into a selling agreement with Waddell & Reed, Inc .
 
Surrenders/Withdrawals
 
Contract Owners may generally withdraw some or all of their Contract Value at any time prior to annuitization by notifying the Service Center in writing (see "Surrender/Withdrawal Prior to Annuitization").  After the Annuitization Date, withdrawals are not permitted (see "Surrender/Withdrawal After Annuitization").
 
Minimum Initial and Subsequent Purchase Payments
 
For Non-Qualified Contracts and Charitable Remainder Trusts, the minimum initial purchase payment is $10,000.  For all other contract types, the minimum initial purchase payment is $1,000.  A Contract Owner will meet the minimum initial purchase payment requirement by making purchase payments equal to the required minimum over the course of the first Contract Year.
 
The minimum subsequent purchase payment for all contracts is $1,000.  However, for subsequent purchase payments sent via electronic deposit, the minimum subsequent purchase payment is $50.
 
Nationwide reserves the right to refuse any purchase payment that would result in the cumulative total for all contracts issued by Nationwide on the life of any one Annuitant or owned by any one Contract Owner to exceed $1,000,000.   Its decision as to whether or not to accept a purchase payment in excess of that amount will be based on one or more factors, including, but not limited to: age, spouse age (if applicable), Annuitant age, state of issue, total purchase payments, optional benefits elected, current market conditions, and current hedging costs.  All such decisions will be based on internally established actuarial guidelines and will be applied in a non-discriminatory manner.  In the event that we do not accept a purchase payment under these guidelines, we will immediately return the purchase payment in its entirety in the same manner as it was received.  If we accept the purchase payment, it will be applied to the contract immediately and will receive the next calculated Accumulation Unit value (see "Pricing").  Any references in this prospectus to purchase payment amounts in excess of $1,000,000 are assumed to have been approved by Nationwide.
 
Nationwide prohibits subsequent purchase payments made after death of the Contract Owner(s), the Annuitant or Co-Annuitant.  If upon notification of death of the Contract Owner(s), the Annuitant or Co-Annuitant, it is determined that death occurred prior to a subsequent purchase payment being made, Nationwide reserves the right to return the purchase payment.
 
Dollar Limit Restrictions
 
In addition to the potential purchase payment restriction listed above, certain features of the contract have additional purchase payment and/or Contract Value limitations associated with them:
 
Annuitization.   Annuity payment options will be limited if the  Contract Owner submits total purchase payments in excess of $2,000,000.  Furthermore, if the amount to be annuitized is greater than $5,000,000, we may limit both the amount that can be annuitized on a single life and the annuity payment options (see "Annuity Payment Options").
 
Death benefit calculations.   Purchase payments up to $3,000,000 will result in a higher death benefit payment than purchase payments in excess of $3,000,000 (see "Death Benefit Calculations").
 
Optional rider.   If the Contract Owner elects the 7% Lifetime Income Option, subsequent purchase payments may be limited to an aggregate total of $50,000 per calendar year.
 
Credits on Purchase Payments
 
Purchase Payment Credits ("PPCs") are additional credits that Nationwide will apply to a contract when cumulative purchase payments reach certain aggregate levels.
 
Each time a Contract Owner submits a purchase payment, Nationwide will perform a calculation to determine if and how many PPCs are payable as a result of that particular deposit.
 
PPCs are considered earnings, not purchase payments, and they will be allocated in the same proportion that purchase payments are allocated on the date the PPCs are applied.
 
If the Contract Owner cancels the contract pursuant to the contractual free look provision, Nationwide will recapture all PPCs applied to the contract. In those states that require the return of purchase payments for IRAs that are surrendered pursuant to the contractual free look, Nationwide will recapture all PPCs, but under no circumstances will the amount returned to the Contract Owner be less than the purchase payments made to the contract. The Contract Owner will retain any earnings attributable to the PPCs, but all losses   attributable to the PPCs will be incurred by Nationwide.  All PPCs are fully vested after the end of the contractual free look period (see "Purchase Payment Credits").


 
8
 


 
Charges and Expenses
 
Mortality and Expense Risk Charge
 
Nationwide deducts a Mortality and Expense Risk Charge equal to an annualized rate of 1. 10 % of the Daily Net Assets of the Variable Account.
 
The Mortality and Expense Risk Charge compensates Nationwide for providing the insurance benefits under the contract, including the contract's standard death benefit that provides a guaranteed death benefit to the beneficiary(ies) even if the market declines.  It also compensates Nationwide for assuming the risk that Annuitants will live longer than assumed.  Finally, the Mortality and Expense Risk Charge compensates Nationwide for guaranteeing that charges will not increase regardless of actual expenses.  Nationwide may realize a profit from this charge.
 
Administrative Charge
 
Nationwide deducts an Administrative Charge equal to an annualized rate of 0.20% of the Daily Net Assets of the Variable Account.  The Administrative Charge reimburses Nationwide for administrative costs it incurs resulting from providing contract benefits, including preparation of the contract and prospectus, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses.  Nationwide may realize a profit from this charge.
 
Contract Maintenance Charge
 
A $50 Contract Maintenance Charge is assessed on each Contract Anniversary and upon full surrender of the contract.  If, on any Contract Anniversary (or on the date of a full surrender) the Contract Value is $50,000 or more, Nationwide will waive the Contract Maintenance Charge from that point forward.
 
Contingent Deferred Sales Charge
 
Nationwide does not deduct a sales charge from purchase payments upon deposit into the contract.  However, Nationwide may deduct a Contingent Deferred Sales Charge ("CDSC") if any amount is withdrawn from the contract.  This CDSC reimburses Nationwide for sales expenses.  The amount of the CDSC will not exceed 8% of purchase payments withdrawn.
 
Death Benefit Options
 
The contract described in this prospectus contains a standard death benefit (the greater of (i) the Contract Value or (ii) the total purchase payments less amounts withdrawn) at no additional charge. In lieu of the standard death benefit, an applicant may elect 1 of 2 death benefit options at the time of application, as follows:
 
Death Benefit Options
Charge*
Five-Year Enhanced Death Benefit Option
0.05%
One-Year Enhanced Death Benefit Option
0.15%
 
*The charges shown are the annualized rates charged as a percentage of the Daily Net Assets of the Variable Account.
 
 
Spousal Protection Annuity Option
 
A Spousal Protection Annuity Option is available under the contract at the time of application.  If the Contract Owner elects the Spousal Protection Annuity Option, Nationwide will deduct an additional charge at an annualized rate of 0.10% of the Daily Net Assets of the Variable Account.
 
7% Lifetime Income Option
 
The 7% Lifetime Income Option provides for lifetime withdrawals, up to a certain amount each year, even after the Contract Value is $0 , provided that the Contract Owner does not deplete the Current Income Benefit Base by excess withdrawals. Investment restrictions apply .  Additionally, if the Contract Owner delays taking withdrawals for 10 years, Nationwide will guarantee that the Current Income Benefit Base on the 10 th Contract Anniversary will be no less than the Original Income Benefit Base plus simple interest at a rate of 7% annually for each of those 10 years.  The 7% Lifetime Income Option is available under the contract at the time of application.  The Contract Owner (or the Annuitant in the case of a non-natural Contract Owner) must be between age 50 and 85 at the time of application.
 
If the applicant elects the 7% Lifetime Income Option, Nationwide will deduct an additional charge not to exceed 1.50% of the Current Income Benefit Base, which is the amount upon which the annual benefit is based.  Currently, the charge for the 7% Lifetime Income Option is 1.20% of the Current Income Benefit Base.  The charge is deducted on each Contract Anniversary and is taken from the Sub-Accounts proportionally based on contract allocations at the time the charge is deducted.
 
Election of the 7% Lifetime Income Option requires that the Contract Owner, until annuitization, allocate the entire Contract Value to a limited set of investment options. If the Contract Value is greater than $0, then lifetime income withdrawals are paid from the Contract Owner's Contract Value. If the Contract Value is equal to or less than $0, then lifetime income withdrawals are paid from Nationwide's General Account.  Income withdrawal payments paid from the General Account are subject to Nationwide's creditors and ultimately, its overall claims paying ability.   The cost of the 7% Lifetime Income Option may exceed the benefit .
 
Withdrawals in excess of the benefit amount that reduce the Current Income Benefit Base to $0 will automatically terminate the 7% Lifetime Income Option.
 
7% Spousal Continuation Benefit
 
The 7% Spousal Continuation Benefit allows a surviving spouse to continue to receive, for the duration of his/her lifetime, the benefit associated with the 7% Lifetime Income Option, provided that certain conditions are satisfied.  The 7% Spousal Continuation Benefit is only available for election at the time of application if the 7% Lifetime Income Option is elected.
 
If the applicant elects the 7% Spousal Continuation Benefit, Nationwide will deduct an additional charge not to exceed 0.40% of the Current Income Benefit Base.  Currently, there is no charge for the 7% Spousal Continuation Benefit. If this option is elected, the Lifetime Withdrawal Percentages will be

 
9
 

 
reduced. The Contract Owner's spouse (or the Annuitant's spouse in the case of a non-natural Contract Owner) must be between age 50 and 85 at the time of application.  If assessed, the charge is deducted at the same time and in the same manner as the 7% Lifetime Income Option charge. The cost of the 7% Spousal Continuation Benefit (the reduction in the Lifetime Withdrawal Percentages) may exceed the benefit.
 
Charges for Optional Benefits
 
The charges associated with optional benefits are only assessed prior to annuitization.
 
Underlying Mutual Fund Annual Expenses
 
The underlying mutual funds charge fees and expenses that are deducted from underlying mutual fund assets.  These fees and expenses are in addition to the fees and expenses assessed by the contract.  The prospectus for each underlying mutual fund provides information regarding the fees and expenses applicable to the fund (see "The Variable Account and Underlying Mutual Funds").
 
Annuity Payments
 
On the Annuitization Date annuity payments begin (see "Annuity Commencement Date" and "Annuitizing the Contract").  Annuity payments will be based on the annuity payment option chosen prior to annuitization.  Nationwide will send annuity payments no later than 7 days after each annuity payment date.
 
Taxation
 
How distributions from an annuity contract are taxed depends on the type of contract issued and the purpose for which the contract is purchased.   Generally, distributions from an annuity contract, including the payment of death benefits, are taxable to the extent they exceed investment in the contract.   Nationwide will charge against the contract any premium taxes levied by any governmental authority.  Premium tax rates currently range from 0% to 5% (see "Premium Taxes" and "Appendix C: Contract Types and Tax Information").
 
Death Benefit
 
An applicant may elect the standard death benefit (at no additional cost) or may elect the One-Year Enhanced Death Benefit Option or the Five-Year Enhanced Death Benefit Option for an additional charge (see "Death Benefits").
 
Right to Examine and Cancel
 
Under state insurance laws, Contract Owners have the right, during a limited period of time, to examine their contract and decide if they want to keep it or cancel it.  This right is referred to as a "free look" right.  The length of this time period depends on state law and may vary depending on whether your purchase is replacing another annuity contract you own.
 
If the Contract Owner elects to cancel the contract pursuant to the free look provision, Nationwide will return the Contract Value, less any PPCs , withdrawals from the contract, and applicable federal and state income tax withholding (see "Right to Examine and Cancel" and "Purchase Payment Credits").

Condensed Financial Information
 
The value of an Accumulation Unit is determined on the basis of changes in the per share value of the underlying mutual funds and the assessment of Variable Account charges which may vary from contract to contract (see "Determining the Contract Value").  Since this annuity contract was not available as of December 31, 201 1 , there are no Accumulation Unit values available.
 
Financial Statements
 
Financial statements for the Variable Account and consolidated financial statements for Nationwide are located in the Statement of Additional Information.  A current Statement of Additional Information may be obtained, without charge, by contacting the Service Center .
 
Nationwide Life Insurance Company
 
Nationwide, the depositor, is a stock life insurance company organized under Ohio law in March 1929, with its home office at One Nationwide Plaza, Columbus, Ohio 43215.  Nationwide is a provider of life insurance, annuities and retirement products.  It is admitted to do business in all states, the District of Columbia and Puerto Rico.
 
Nationwide is a member of the Nationwide group of companies.  Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company (the "Companies") are the ultimate controlling persons of the Nationwide group of companies.  The Companies were organized under Ohio law in December 1925 and 1933 respectively.  The Companies engage in a general insurance and reinsurance business, except life insurance.
 
General Distributor
 
The contracts are distributed by the general distributor, Waddell & Reed, Inc., 6300 Lamar Avenue, Overland Park, Kansas 66202.
 
Investing in the Contract
 
The Variable Account and Underlying Mutual Funds
 
Nationwide Variable Account-12 is a variable account that invests in the underlying mutual funds listed in "Appendix A: Underlying Mutual Funds."  Nationwide established the Variable Account on July 10, 2001 pursuant to Ohio law.  Although the Variable Account is registered with the SEC as a unit investment trust pursuant to the Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the management of Nationwide or the Variable Account.
 
Income, gains, and losses credited to, or charged against, the Variable Account reflect the Variable Account's own investment experience and not the investment experience of Nationwide's other assets.  The Variable Account's assets are held separately from Nationwide's assets and are not chargeable with liabilities incurred in any other business of Nationwide.  Nationwide is obligated to pay all amounts promised to Contract Owners under the contracts.
 
The Variable Account is divided into Sub-Accounts, each of which invests in shares of a single underlying mutual fund.  Nationwide uses the assets of each Sub-Account to buy shares

 
10
 

 

 
of the underlying mutual funds based on Contract Owner instructions.
 
Contract Owners receive underlying mutual fund prospectuses when they make their initial Sub-Account allocations and any time they change those allocations. Contract Owners can obtain prospectuses for underlying mutual funds free of charge at any other time by contacting the Service Center .  Contract Owners should read these prospectuses carefully before investing.
 
Underlying mutual funds in the Variable Account are NOT publicly traded mutual funds.   They are only available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies, or in some cases, through participation in certain qualified pension or retirement plans.
 
The investment advisors of the underlying mutual funds may manage publicly traded mutual funds with similar names and investment objectives.  However, the underlying mutual funds are NOT directly related to any publicly traded mutual fund.  Contract Owners should not compare the performance of a publicly traded fund with the performance of underlying mutual funds participating in the Variable Account.  The performance of the underlying mutual funds could differ substantially from that of any publicly traded funds.
 
The particular underlying mutual funds available under the contract may change from time to time.  Specifically, underlying mutual funds or underlying mutual fund share classes that are currently available may be removed or closed off to future investment.  New underlying mutual funds or new share classes of currently available underlying mutual funds may be added.  Contract Owners will receive notice of any such changes that affect their contract.   Additionally, the 7% Lifetime Income Option limits the list of Sub-Accounts available in connection with that option.
 
Voting Rights
 
Contract Owners who have allocated assets to the underlying mutual funds are entitled to certain voting rights.  Nationwide will vote Contract Owner shares at special shareholder meetings based on Contract Owner instructions.  However, if the law changes and Nationwide is allowed to vote in its own right, it may elect to do so.
 
Contract Owners with voting interests in an underlying mutual fund will be notified of issues requiring the shareholders' vote as soon as possible before the shareholder meeting.  Notification will contain proxy materials and a form with which to give Nationwide voting instructions.  Nationwide will vote shares for which no instructions are received in the same proportion as those that are received.  What this means to you is that when only a small number of Contract Owners vote, each vote has a greater impact on, and may control the outcome.
 
The number of shares which a Contract Owner may vote is determined by dividing the cash value of the amount they have allocated to an underlying mutual fund by the Net Asset Value of that underlying mutual fund.  Nationwide will designate a date for this determination not more than 90 days before the shareholder meeting.
 
Material Conflicts
 
The underlying mutual funds may be offered through separate accounts of other insurance companies, as well as through other separate accounts of Nationwide.  Nationwide does not anticipate any disadvantages to this.  However, it is possible that a conflict may arise between the interests of the Variable Account and one or more of the other separate accounts in which these underlying mutual funds participate.
 
Material conflicts may occur due to a change in law affecting the operations of variable life insurance policies and variable annuity contracts, or differences in the voting instructions of the Contract Owners and those of other companies.  If a material conflict occurs, Nationwide will take whatever steps are necessary to protect Contract Owners and variable annuity payees, including withdrawal of the Variable Account from participation in the underlying mutual fund(s) involved in the conflict.
 
Substitution of Securities
 
Nationwide may substitute, eliminate, or combine shares of another underlying mutual fund for shares already purchased or to be purchased in the future if either of the following occurs:
 
(1)
shares of a current underlying mutual fund are no longer available for investment; or
 
(2)
further investment in an underlying mutual fund is inappropriate.
 
No substitution of shares may take place without the prior approval of the SEC.  All affected Contract Owners will be notified in the event there is a substitution, elimination or combination of shares.
 
Deregistration of the Variable Account
 
Nationwide may deregister the Variable Account under the 1940 Act in the event the Variable Account meets an exemption from registration under the 1940 Act, if there are no shareholders in the separate account, or for any other purpose approved by the SEC.
 
No deregistration may take place without the prior approval of the SEC.  All affected Contract Owners will be notified in the event Nationwide deregisters the Variable Account.
 
The Fixed Account
 
The Fixed Account is an investment option that is funded by Nationwide's General Account.  The General Account contains all of Nationwide's assets other than those in this and other Nationwide separate accounts and is used to support Nationwide's annuity and insurance obligations.  The General Account is not subject to the same laws as the Variable Account and the SEC has not reviewed material in this prospectus relating to the Fixed Account.
 
Purchase payments will be allocated to the Fixed Account by election of the Contract Owner.  Nationwide reserves the right to limit or refuse purchase payments and/or transfers allocated to the Fixed Account at its sole discretion.  Generally, Nationwide will invoke this right when interest rates are low by historical standards.

 
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The investment income earned by the Fixed Account will be allocated to the contracts at varying guaranteed interest rate(s) depending on the following categories of Fixed Account allocations:
 
·
New Money Rate – The rate credited on the Fixed Account allocation when the contract is purchased or when subsequent purchase payments are made.  Subsequent purchase payments may receive different New Money Rates than the rate when the contract was issued, since the New Money Rate is subject to change based on market conditions.
 
·
Variable Account to Fixed Rate – Allocations transferred from any of the underlying investment options in the Variable Account to the Fixed Account may receive a different rate.  The rate may be lower than the New Money Rate.  There may be limits on the amount and frequency of movements from the Variable Account to the Fixed Account.
 
·
Renewal Rate – The rate available for maturing Fixed Account allocations which are entering a new guarantee period.  The Contract Owner will be notified of this rate in a letter issued with the quarterly statements when any of the money in the Contract Owner's Fixed Account matures.  At that time, the Contract Owner will have an opportunity to leave the money in the Fixed Account and receive the Renewal Rate or the Contract Owner can move the money to any of the other underlying mutual fund options.
 
·
Dollar Cost Averaging Rate – From time to time, Nationwide may offer a more favorable rate for an initial purchase payment into a new contract when used in conjunction with a dollar cost averaging program.  Rates will vary depending on the Dollar Cost Averaging program elected (see "Contract Owner Services").
 
All of these rates are subject to change on a daily basis; however, once applied to the Fixed Account, the interest rates are guaranteed until the end of the calendar quarter during which the 12-month anniversary of the Fixed Account allocation occurs.
 
Credited interest rates are annualized rates – the effective yield of interest over a 1-year period.  Interest is credited to each contract on a daily basis.  As a result, the credited interest rate is compounded daily to achieve the stated effective yield.
 
The guaranteed rate for any purchase payment will be effective for not less than 12 months.  Nationwide guarantees that the rate will not be less than the minimum interest rate required by applicable state law.
 
Any interest in excess of the minimum interest rate required by applicable state law will be credited to Fixed Account allocations at Nationwide's sole discretion.  The Contract Owner assumes the risk that interest credited to Fixed Account allocations may not exceed the minimum interest rate required by applicable state law for any given year.
 
Nationwide guarantees that the Fixed Account value will not be less than the amount of the purchase payments and PPCs allocated to the Fixed Account, plus interest credited as described above, less any withdrawals  and any applicable charges including CDSC.
 
Fixed Account Interest Rate Guarantee Period
 
The Fixed Account interest rate guarantee period is the period of time that the Fixed Account interest rate is guaranteed to remain the same.  During a Fixed Account interest rate guarantee period, transfers cannot be made from the Fixed Account, and amounts transferred to the Fixed Account must remain on deposit.
 
For new purchase payments allocated to the Fixed Account and transfers to the Fixed Account, the Fixed Account interest rate guarantee period begins on the date of deposit or transfer and ends on the 1-year anniversary of the deposit or transfer.  The guaranteed interest rate period may last for up to 3 months beyond the 1-year anniversary because guaranteed terms end on the last day of a calendar quarter.
 
Contacting the Service Center
 
Requests for service may be made to the Service Center:
 
·
by telephone at 1-866-221-1100 (TDD 1-800-238-3035)
 
·
by mail to P.O. Box 182021, Columbus, Ohio 43215
 
·
by fax at 1-888-634-4472
 
·
by Internet at www.waddell.com.
 
Nationwide reserves the right to restrict or remove the ability to submit service requests via Internet, phone, or fax upon written notice.
 
Not all methods of communication are available for all types of requests.  To determine which methods are appropriate for a particular request, refer to the specific transaction provision in this prospectus, or call the Service Center.  Requests submitted by means other than described in this prospectus could be returned or delayed.
 
Service requests will be effective as of the Valuation Date they are received at the Service Center as long as the request is in good order.  Good order generally means that all necessary information to process the request is complete and  in a form acceptable to Nationwide.  If a request is not in good order, Nationwide will take reasonable actions to obtain the information necessary to process the request.  Requests that are not in good order may be delayed or returned.  Nationwide reserves the right to process any purchase payment or withdrawal submitted incorrectly on the Valuation Date the request is received at the Service Center.
 
Nationwide will use reasonable procedures to confirm that instructions are genuine and will not be liable for following instructions that it reasonably determined to be genuine.  Telephone and computer systems may not always be available.  Any telephone system or computer, whether yours or Nationwide's, can experience outages or slowdowns for a variety of reasons.  The outages or slowdowns could prevent or delay processing.  Although Nationwide has taken precautions to support heavy use, it is still possible to incur an outage or delay.  To avoid technical difficulties, submit transaction requests by mail.

 
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The Contract in General
 
In order to comply with the USA Patriot Act and rules promulgated thereunder, Nationwide has implemented procedures designed to prevent contracts described in this prospectus from being used to facilitate money laundering or the financing of terrorist activities.
 
If the contract described in this prospectus is purchased to replace another variable annuity, be aware that the mortality tables used to determine the amount of annuity payments may be less favorable than those in the contract being replaced.
 
Except with respect to statements relating to age, sex, and identity, Nationwide will not contest the contract after it has been in force during the lifetime of the Annuitant for 2 years after the date of contract issuance. The annuity described in this prospectus is intended to provide benefits to a single individual and his/her beneficiaries.  It is not intended to be used by institutional investors, in connection with other Nationwide contracts that have the same Annuitant, or in connection with other Nationwide contracts that have different Annuitants, but the same Contract Owner.  If Nationwide determines that the risks it intended to assume in issuing the contract have been altered by misusing the contract as described above, Nationwide reserves the right to take any action it deems necessary to reduce or eliminate the altered risk.  Nationwide also reserves the right to take any action it deems necessary to reduce or eliminate altered risk resulting from materially false, misleading, incomplete or otherwise deficient information provided by the Contract Owner.
 
These contracts are offered to customers of various financial institutions and brokerage firms.  No financial institution or brokerage firm is responsible for any of the contractual insurance benefits and features guaranteed under the contracts.   These guarantees are the sole responsibility of Nationwide.
 
In general, deferred variable annuities are long-term investments; they are not intended as short-term investments.  Deferred variable annuities are not intended to be sold to a terminally ill Contract Owner or Annuitant.  Accordingly, Nationwide has designed the contract to offer features, pricing, and investment options that encourage long-term ownership.  It is very important that Contract Owners and prospective Contract Owners understand all the costs associated with owning a contract, and if and how those costs change during the lifetime of the contract.  Contract and optional charges may not be the same in later Contract Years as they are in early Contract Years.  The various contract and optional benefit charges are assessed in order to compensate Nationwide for administrative services, distribution and operational expenses, and assumed actuarial risks associated with the contract.
 
Following is a discussion of some relevant factors that may be of particular interest to prospective investors.
 
Distribution, Promotional, and Sales Expenses
 
Nationwide pays commissions to the firms that sell the contracts.  The maximum gross commission that Nationwide will pay on the sale of the contracts is 6.5% of purchase payments.  Note that the individual registered representatives typically receive only a portion of this amount; the remainder is retained by the firm.  Nationwide may also, instead of a premium-based commission, pay an asset-based commission (sometimes referred to as "trails" or "residuals"), or a combination of the two.
 
In addition to or partially in lieu of commission, Nationwide may also pay the selling firms a marketing allowance, which is based on the firm's ability and demonstrated willingness to promote and market Nationwide's products.  How any marketing allowance is spent is determined by the firm, but generally will be used to finance firm activities that may contribute to the promotion and marketing of Nationwide's products.  For more information on the exact compensation arrangement associated with this contract, please consult your registered representative.
 
Underlying Mutual Fund Payments
 
Nationwide's Relationship with the Underlying Mutual Funds
 
The underlying mutual funds incur expenses each time they sell, administer, or redeem their shares.  The Variable Account aggregates Contract Owner purchase, redemption, and transfer requests and submits net or aggregated purchase/redemption requests to each underlying mutual fund daily.  The Variable Account (not the Contract Owners) is the underlying mutual fund shareholder.  When the Variable Account aggregates transactions, the underlying mutual fund does not incur the expense of processing individual transactions it would normally incur if it sold its shares directly to the public.  Nationwide incurs these expenses instead.
 
Nationwide also incurs the distribution costs of selling the contract (as discussed above), which benefit the underlying mutual funds by providing Contract Owners with Sub-Account options that correspond to the underlying mutual funds.
 
An investment advisor or subadvisor of an underlying mutual fund or its affiliates may provide Nationwide or its affiliates with wholesaling services that assist in the distribution of the contract and may pay Nationwide or its affiliates to participate in educational and/or marketing activities.  These activities may provide the advisor or subadvisor (or their affiliates) with increased exposure to persons involved in the distribution of the contract.
 
Types of Payments Nationwide Receives
 
In light of the above, the underlying mutual funds and their affiliates make certain payments to Nationwide or its affiliates (the "payments").  The amount of these payments is typically based on a percentage of assets invested in the underlying mutual funds attributable to the contracts and other variable contracts Nationwide and its affiliates issue, but in some cases may involve a flat fee.  These payments may be used by us for any corporate purpose, which include reducing the prices of the contracts, paying expenses that Nationwide or its affiliates incur in promoting, marketing, and administering the contracts and the underlying mutual funds, and achieving a profit.

 
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Nationwide or its affiliates receive the following types of payments:
 
·
Underlying mutual fund 12b-1 fees, which are deducted from underlying mutual fund assets;
 
·
Sub-transfer agent fees or fees pursuant to administrative service plans adopted by the underlying mutual fund, which may be deducted from underlying mutual fund assets; and
 
·
Payments by an underlying mutual fund's advisor or subadvisor (or its affiliates).  Such payments may be derived, in whole or in part, from the advisory fee, which is deducted from underlying mutual fund assets and is reflected in mutual fund charges.
 
Furthermore, Nationwide benefits from assets invested in Nationwide's affiliated underlying mutual funds (i.e., Nationwide Variable Insurance Trust) because its affiliates also receive compensation from the underlying mutual funds for investment advisory, administrative, transfer agency, distribution, and/or other services.  Thus, Nationwide may receive more revenue with respect to affiliated underlying mutual funds than unaffiliated underlying mutual funds.
 
Nationwide took into consideration the anticipated payments from the underlying mutual funds when we determined the charges imposed under the contracts (apart from fees and expenses imposed by the underlying mutual funds).  Without these payments, Nationwide would have imposed higher charges under the contract.
 
Amount of Payments Nationwide Receives
 
Most underlying mutual funds or their affiliates have agreed to make payments to Nationwide or its affiliates, although the applicable percentages may vary from underlying mutual fund to underlying mutual fund and some may not make any payments at all.  Because the amount of the actual payments Nationwide and its affiliates receive depends on the assets of the underlying mutual funds attributable to the contract, Nationwide and its affiliates may receive higher payments from underlying mutual funds with lower percentages (but greater assets) than from underlying mutual funds that have higher percentages (but fewer assets).
 
Identification of Underlying Mutual Funds
 
Nationwide may consider several criteria when identifying the underlying mutual funds, including some or all of the following:  investment objectives, investment process, investment performance, risk characteristics, investment capabilities, experience and resources, investment consistency, and fund expenses.  Another factor Nationwide considers during the identification process is whether the underlying mutual fund's advisor or subadvisor is one of our affiliates or whether the underlying mutual fund, its advisor, its subadvisor(s), or an affiliate will make payments to us or our affiliates.
 
There may be underlying mutual funds with lower fees, as well as other variable contracts that offer underlying mutual funds with lower fees.  You should consider all of the fees and charges of the contract in relation to its features and benefits when making your decision to invest.  Please note that higher contract and underlying mutual fund fees and charges have a direct effect on and may lower your investment performance.
 
Profitability
 
Nationwide does consider profitability when determining the charges in the contract.  In early Contract Years, Nationwide does not anticipate earning a profit, since that is a time when administrative and distribution expenses are typically higher.  Nationwide does, however, anticipate earning a profit in later Contract Years.  In general, Nationwide's profit will be greater the higher the investment return and the longer the contract is held.
 
Contract Modification
 
Nationwide may modify the contract, but no modification will affect the amount or term of any contract unless a modification is required to conform the contract to applicable federal or state law.  No modification will affect the method by which Contract Value is determined.
 
Standard Charges and Deductions
 
Mortality and Expense Risk Charge
 
Nationwide deducts a Mortality and Expense Risk Charge that is reflected in the daily unit value calculations. The charge is equal to an annualized rate of 1. 10 % of the Daily Net Assets of the Variable Account.  This fee compensates Nationwide for providing the insurance benefits under the contract, including the contract's standard death benefit.  It also compensates Nationwide for assuming the risk that Annuitants will live longer than assumed.  Finally, the Mortality and Expense Risk Charge compensates Nationwide for guaranteeing that charges will not increase regardless of actual expenses.  Nationwide may realize a profit from this charge.
 
Administrative Charge
 
Nationwide deducts an Administrative Charge that is reflected in the daily unit value calculations. The charge is equal to an annualized rate of 0.20% of the Daily Net Assets of the Variable Account.  This fee reimburses Nationwide for administrative costs it incurs resulting from providing contract benefits, including preparation of the contract and prospectus, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses.  Nationwide may realize a profit from this charge.
 
Contract Maintenance Charge
 
Nationwide deducts a Contract Maintenance Charge of $50 on each Contract Anniversary that occurs before annuitization and upon full surrender of the contract.  This charge reimburses Nationwide for administrative expenses involved in issuing and maintaining the contract.
 
If, on any Contract Anniversary (or on the date of a full surrender), the Contract Value is $50,000 or more, Nationwide will waive the Contract Maintenance Charge from that point forward.
 
The deduction of the Contract Maintenance Charge will be taken proportionally from each Sub-Account and the Fixed Account based on the value in each option as compared to the total Contract Value.

 
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Nationwide will not reduce or eliminate the Contract Maintenance Charge where it would be discriminatory or unlawful.
 
Contingent Deferred Sales Charge
 
No sales charge deduction is made from purchase payments upon deposit into the contracts.  However, if any part of the contract is withdrawn, Nationwide may deduct a CDSC.  The CDSC will not exceed 8% of purchase payments withdrawn.
 
The CDSC is calculated by multiplying the applicable CDSC percentage (noted below) by the amount of purchase payments withdrawn.
 
For purposes of calculating the CDSC, withdrawals are considered to come first from the oldest purchase payment made to the contract, then the next oldest purchase payment, and so forth.  The CDSC applies as follows:
 
Number of Completed Years from Date of Purchase Payment
CDSC
Percentage
0
8%
1
8%
2
7%
3
7%
4
6%
5
5%
6
4%
7
2%
8
0%
 
Earnings are not subject to the CDSC, but may not be distributed prior to the distribution of all purchase payments.  (For tax purposes, a withdrawal is usually treated as a withdrawal of earnings first.)   The CDSC is used to cover sales expenses, including commissions, production of sales material, and other promotional expenses.  If expenses are greater than the CDSC, the shortfall will be made up from Nationwide's general assets, which may indirectly include portions of the Variable Account charges, since Nationwide may generate a profit from these charges.
 
All or a portion of any withdrawal may be subject to federal income taxes.  Contract Owners taking withdrawals before age 59½ may be subject to a 10% penalty tax.
 
Additional purchase payments made to the contract after receiving the benefit of the Spousal Protection Annuity Option (if elected) are subject to the same CDSC provisions that were applicable prior to receiving the benefit of the Spousal Protection Annuity Option (see "Spousal Protection Annuity Option").
 
Waiver of Contingent Deferred Sales Charge
 
The maximum amount that can be withdrawn annually without a CDSC is the greatest of:
 
(1)
10% of the net difference of purchase payments that are subject to CDSC minus purchase payments withdrawn that were subject to CDSC;
 
(2)
any amount withdrawn to meet minimum distribution requirements for this contract under the Internal Revenue Code; or
 
(3)
for those contracts with the 7% Lifetime Income Option, withdrawals up to the annual benefit amount.
 
This CDSC-free withdrawal privilege is non-cumulative.  Free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year.
 
Note: CDSC-free withdrawals do not count as "purchase payments previously withdrawn that were subject to CDSC" and, therefore, do not reduce the amount used to calculate subsequent CDSC-free withdrawal amounts.
 
In addition, no CDSC will be deducted:
 
(1)
upon the annuitization of contracts which have been in force for at least 2 years;
 
(2)
upon payment of a death benefit. However, additional purchase payments made to the contract after receiving the benefit of an increased Contract Value (under the Spousal Protection Annuity Option) are subject to the CDSC provisions of the contract; or
 
(3)
from any values which have been held under a contract for at least 8 years.
 
No CDSC applies to transfers between or among the various investment options in the contract.
 
A contract held by a Charitable Remainder Trust (within the meaning of Internal Revenue Code Section 664) may withdraw CDSC-free the greater of the amount that would otherwise be available for withdrawal without a CDSC; and the difference between:
 
a)
the Contract Value at the close of the day prior to the date of the withdrawal; and
 
b)
the total purchase payments made to the contract (less an adjustment for amounts withdrawn).
 
The CDSC will not be eliminated if to do so would be unfairly discriminatory or prohibited by state law.
 
The waiver of CDSC only applies to partial withdrawals.  If the Contract Owner elects to surrender the contract in full , Nationwide will assess a CDSC on the entire amount withdrawn.  For purposes of the CDSC-free withdrawal privilege, a full surrender is:
 
·
multiple withdrawals taken within a 1-year period that deplete the entire Contract Value; or
 
·
any single withdrawal of 90% or more of the Contract Value.
 
Premium Taxes
 
Nationwide will charge against the Contract Value any premium taxes levied by a state or other government entity.  Premium tax rates currently range from 0% to 5%.  This range is subject to change.  Nationwide will assess premium taxes to the contract at the time Nationwide is assessed the premium taxes by the state.  Premium tax requirements vary from state to state.  Premium taxes may be deducted from death benefit proceeds.

 
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Short-Term Trading Fees
 
Some underlying mutual funds may assess (or reserve the right to assess) a short-term trading fee in connection with transfers from a Sub-Account that occur within 60 days after the date of allocation to the Sub-Account.
 
Short-term trading fees are intended to compensate the underlying mutual fund (and Contract Owners with interests allocated in the underlying mutual fund) for the negative impact on fund performance that may result from frequent, short-term trading strategies.  Short-term trading fees are not intended to affect the large majority of Contract Owners not engaged in such strategies.
 
Any short-term trading fee assessed by any underlying mutual fund available in conjunction with the contracts described in this prospectus will equal 1% of the amount determined to be engaged in short-term trading.  Short-term trading fees will only apply to those Sub-Accounts corresponding to underlying mutual funds that charge such fees (see the underlying mutual fund prospectus).  Any short-term trading fees paid are retained by the underlying mutual fund, not by Nationwide, and are part of the underlying mutual fund's assets.  Contract Owners are responsible for monitoring the length of time allocations are held in any particular underlying mutual fund.  Nationwide will not provide advance notice of the assessment of any applicable short-term trading fee.
 
Currently, none of the underlying mutual funds assess or reserve the right to assess a short-term trading fee.
 
If a short-term trading fee is assessed, the underlying mutual fund will charge the Variable Account 1% of the amount determined to be engaged in short-term trading.  The Variable Account will then pass the short-term trading fee on to the specific Contract Owner that engaged in short-term trading by deducting an amount equal to the short-term trading fee from that Contract Owner's Sub-Account value.  All such fees will be remitted to the underlying mutual fund; none of the fee proceeds will be retained by Nationwide or the Variable Account.
 
When multiple purchase payments (or exchanges) are made to a Sub-Account that is subject to short-term trading fees, transfers will be considered to be made on a first in/first out (FIFO) basis for purposes of determining short-term trading fees.  In other words, units held the longest time will be treated as being transferred first, and units held for the shortest time will be treated as being transferred last.
 
Some transactions are not subject to the short-term trading fees.  Transactions that are not subject to short-term trading fees include:
 
·
scheduled and systematic transfers, such as Dollar Cost Averaging, Asset Rebalancing, and Systematic Withdrawals;
 
·
contract loans or withdrawals, including CDSC-free withdrawals;
 
·
transfers made upon annuitization of the contract;
 
·
withdrawals of Annuity Units to make annuity payments;
 
·
withdrawals of Accumulation Units to pay a death benefit; or
 
·
withdrawals of Accumulation Units to pay the annual Contract Maintenance Charge.
 
New share classes of certain currently available underlying mutual funds may be added as investment options under the contracts.  These new share classes may require the assessment of short-term trading or redemption fees.  When these new share classes are added, new purchase payment allocations and exchange reallocations to the underlying mutual funds in question may be limited to the new share class.
 
Optional Contract Benefits, Charges, and Deductions
 
For an additional charge, the following optional benefits are available to c ontract applicants .  Unless otherwise indicated:
 
(1)
optional benefits must be elected at the time of application;
 
(2)
optional benefits, once elected, may not be terminated; and
 
(3)
the charges associated with the optional benefits will be assessed until annuitization.
 
Death Benefit Options
 
For an additional charge, an applicant may elect 1 of 2 death benefit options to replace the standard death benefit.
 
Five-Year Enhanced Death Benefit Option
 
For an additional charge at an annualized rate of 0.05% of the Daily Net Assets of the Variable Account, an applicant can elect the Five-Year Enhanced Death Benefit Option. Nationwide may realize a profit from the charge assessed for this option.
 
If the Annuitant dies before the Annuitization Date, the death benefit will be the greatest of:
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit;
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn; or
 
(3)
the highest Contract Value on any 5 th Contract Anniversary prior to the Annuitant's 86 th birthday, less an adjustment for amounts subsequently withdrawn, plus purchase payments received after that 5 th Contract Anniversary.
 
The adjustment for amounts withdrawn will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawals.
 
Note: For Contract Owners who have elected this option, if the total of all purchase payments made to the contract is greater than $3,000,000, the death benefit will be adjusted as described in the "Death Benefit Calculations" provision.
 
One-Year Enhanced Death Benefit Option
 
For an additional charge at an annualized rate of 0.15% of the Daily Net Assets of the Variable Account, an applicant can elect the One-Year Enhanced Death Benefit Option.

 
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Nationwide may realize a profit from the charge assessed for this option.
 
If the Annuitant dies before the Annuitization Date, the death benefit will be the greatest of:
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit;
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn; or
 
(3)
the highest Contract Value on any Contract Anniversary prior to the Annuitant's 86 th birthday, less an adjustment for amounts subsequently withdrawn, plus purchase payments received after that Contract Anniversary.
 
The adjustment for amounts withdrawn will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawals.
 
Note: For Contract Owners who have elected this option, if the total of all purchase payments made to the contract is greater than $3,000,000, the death benefit will be adjusted as described in the "Death Benefit Calculations" provision.
 
Spousal Protection Annuity Option
 
For an additional charge at an annualized rate of 0.10% of the Daily Net Assets of the Variable Account, an applicant can elect the Spousal Protection Annuity Option.  The Spousal Protection Annuity Option is not available for contracts issued as Charitable Remainder Trusts.  Nationwide may realize a profit from the charge assessed for this option.
 
The Spousal Protection Annuity Option allows a surviving spouse to continue the contract while receiving the economic benefit of the death benefit upon the death of the other spouse, provided the conditions described below are satisfied:
 
(1)
One or both spouses (or revocable trust of which either or both of the spouses is/are grantor(s)) must be named as the Contract Owner.  For contracts issued as IRAs and Roth IRAs, only the person for whom the IRA or Roth IRA was established may be named as the Contract Owner;
 
(2)
The spouses must be co-Annuitants;
 
(3)
Both spouses must be age 85 or younger at the time the contract is issued;
 
(4)
Both spouses must be named as beneficiaries;
 
(5)
No person other than the spouse may be named as the Contract Owner, Annuitant, or primary beneficiary;
 
(6)
If both spouses are alive upon annuitization, the Contract Owner must specify which spouse is the Annuitant upon whose continuation of life any annuity payments involving life contingencies depend (for IRA and Roth IRA contracts, this person must be the Contract Owner); and
 
(7)
If the Contract Owner requests to add a co-Annuitant after contract issuance, the date of marriage must be after the contract issue date and Nationwide will require the Contract Owner to provide a copy of the marriage certificate.
 
If the co-Annuitant dies before the Annuitization Date, the surviving spouse may continue the contract as its sole Contract Owner.  Additionally, if the death benefit value is higher than the Contract Value at the time of the first co-Annuitant's death, Nationwide will adjust the Contract Value to equal the death benefit value.  The surviving co-Annuitant may then name a new beneficiary but may not name another co-Annuitant.
 
If the marriage terminates due to the death of a spouse, divorce, dissolution, or annulment, the surviving spouse may not elect the Spousal Protection Annuity Option to cover a subsequent spouse.
 
7% Lifetime Income Option
 
The 7% Lifetime Income Option (the "7% Nationwide L.inc Option") provides for lifetime withdrawals, up to a certain amount each year, even after the Contract Value is $0 , provided that the Contract Owner does not deplete the Current Income Benefit Base by taking excess withdrawals. Investment restrictions apply .  The age of the person upon which the benefit depends (the "determining life") must be between 50 and 85 years old at the time of application.  For most contracts, the determining life is that of the Contract Owner.  For those contracts where the Contract Owner is a non-natural person, for purposes of this option, the determining life is that of the Annuitant, and all references in this option to "Contract Owner" shall mean Annuitant.  If, in addition to the Annuitant, a Co-Annuitant or joint annuitant has been elected, the determining life will be that of the younger Annuitant.  The determining life may not be changed.
 
Availability
 
The 7% Nationwide L.inc Option may only be elected at the time of application. The 7% Nationwide L.inc Option is not available on beneficially owned contracts – those contracts that are inherited by a beneficiary and the beneficiary continues to hold the contract as a beneficiary (as opposed to treating the contract as his/her own) for tax purposes. However, contracts that are purchased in the normal course of business with the 7% Lifetime Income Option may keep the 7% Lifetime Income Option even after such contract becomes beneficially owned.  However, once a contract becomes beneficially owned, the contract will not receive the benefit of the RMD privilege discussed later in this section.
 
7% Nationwide L.inc Option Charge
 
In exchange for this lifetime withdrawal benefit, Nationwide will assess an annual charge not to exceed 1.50% of the Current Income Benefit Base.  The current charge for the 7% Nationwide L.inc Option is 1.20% of the Current Income Benefit Base.  The current charge associated with the 7% Nationwide L.inc Option will not change, except, possibly, upon the Contract Owner's election to reset the benefit base, as discussed herein.  If the current charge does change, it will not exceed the maximum charge of 1.50% of the Current Income Benefit Base.
 
The charge will be assessed on each Contract Anniversary and will be deducted via redemption of Accumulation Units.  A prorated charge will also be deducted upon full surrender of the contract.  Accumulation Units will be redeemed proportionally from each Sub-Account in which the Contract

 
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Owner is invested at the time the charge is taken.  Amounts redeemed as the 7% Nationwide L.inc Option charge will not negatively impact calculations associated with other benefits elected or available under the contract, will not be subject to a CDSC, and will not reduce amounts available under the CDSC-free withdrawal privilege.
 
Lifetime Income Option Investment Requirements
 
Election of the 7% Nationwide L.inc Option requires that the Contract Owner, until annuitization, allocate the entire Contract Value to a limited set of investment options currently available in the contract . For the list of investment options available under the 7% Lifetime Income Option, see "Income Benefit Investment Options."  Allocation requests to investment options other than those listed in the "Income Benefit Investment Options" section will not be honored; they will be treated as though no allocation request was submitted.   Nationwide may offer Dollar Cost Averaging for Living Benefits described in the "Contract Owner Services" provision.  Allocation to the Fixed Account is not permitted (except as the originating account when the Contract Owner elects Dollar Cost Averaging for Living Benefits).   Additionally, if this option is elected, contract loans are unavailable.
 
Transfers Among Permitted Investment Options
 
The Contract Owner may reallocate the Contract Value among the limited set of investment options in accordance with the "Transfers Prior to Annuitization" provision.
 
Subsequent Purchase Payments
 
Subsequent purchase payments are permitted under the 7% Nationwide L.inc Option as long as the Contract Value is greater than $0.  There may be instances where a subsequent purchase payment creates a financial risk that Nationwide is unwilling to bear.  If this occurs, Nationwide may exercise its right to refuse subsequent purchase payments which total in aggregate $50,000 or more in any calendar year.  The $50,000 threshold will take into consideration all contracts issued by Nationwide to a particular Contract Owner or using the same determining life.  If Nationwide exercises this right to refuse a purchase payment, the entire purchase payment that causes the aggregate amount to exceed $50,000 will be immediately returned to the Contract Owner in the same form in which it was received.  Generally, Nationwide may invoke this right in times of economic instability.  Contract Owners may contact the Service Center to find out if Nationwide will accept a particular subsequent purchase payment.
 
Determination of the Income Benefit Base Prior to the First Withdrawal
 
Upon contract issuance, the Original Income Benefit Base is equal to the Contract Value.  Thereafter, Nationwide tracks, on a continuous basis, the Current Income Benefit Base which is used to calculate the benefit amount .  The Current Income Benefit Base from the date of contract issuance until the first withdrawal will reflect any additional purchase payments, PPCs ,  and reset opportunities, as described below.
 
Provided no withdrawals are taken from the contract, the Current Income Benefit Base for the 7% Nationwide L.inc Option will equal the greater of:
 
(1)
the highest Contract Value on any Contract Anniversary plus purchase payments submitted and any PPCs applied after that Contract Anniversary; or
 
(2)
the 7% roll-up amount, which is equal to the sum of the following calculations:
 
 
(a)
Original Income Benefit Base with Roll-up : the Original Income Benefit Base, plus 7% of the Original Income Benefit Base for each Contract Anniversary up to and including the 10 th Contract Anniversary; plus
 
 
(b)
Purchase Payments with Roll-up :   any purchase payments submitted after contract issuance and before the 10 th Contract Anniversary, plus any PPCs applied, increased by simple interest at an annual rate of 7% each year through the 10 th Contract Anniversary; plus
 
 
(c)
Purchase Payments with No Roll-up : any purchase payments submitted after the 10 th Contract Anniversary plus any Purchase Payment Credits applied.
 
When a purchase payment and any PPCs are applied on a date other than a Contract Anniversary, simple interest is calculated using a prorated method based upon the number of days from the date of the purchase payment to the next Contract Anniversary.
 
However, if at any time prior to the first withdrawal the Contract Value equals $0, no additional purchase payments will be accepted and no further benefit base calculations will be made.  The Current Income Benefit Base will be set equal to the benefit base calculated on the most recent Contract Anniversary minus adjustments made for excess withdrawals after that date , and the annual benefit amount will be based on that Current Income Benefit Base.  Since the roll-up is only calculated for the first 10 Contract Years or prior to the first withdrawal, whichever comes first , any purchase payments the Contract O wner makes during that time period will increase the Current Income Benefit Base more than purchase payments made after that time period .
 
Lifetime Income Withdrawals
 
At any time after the 7% Nationwide L.inc Option is elected, the Contract Owner may begin taking the lifetime income benefit by taking a withdrawal from the contract.  The first withdrawal under the contract constitutes the first lifetime income withdrawal, even if such withdrawal is taken to meet minimum distribution requirements under the Internal Revenue Code.  Nationwide will surrender Accumulation Units proportionally from the Sub-Accounts as of the date of the withdrawal request.  As with any withdrawal, lifetime income withdrawals reduce the Contract Value and consequently, the amount available for annuitization.
 
At the time of the first withdrawal, the Current Income Benefit Base is locked in and will not change unless the Contract Owner takes excess withdrawals, elects a reset opportunity (both discussed later in this provision), or submits additional purchase payments.  Additional purchase payments submitted after the first withdrawal from the contract will increase the
 

 
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Current Income Benefit Base by the amount of the purchase payment.
 
Simultaneously, the Lifetime Withdrawal Percentage is determined based on the age of the Contract Owner as indicated in the following table:
 
Contract Owner’s Age
(at time of first withdrawal)
Lifetime Withdrawal
Percentage
50 up to 59½
3 .00 %
59½ through 64
4.00 %
65 through 80
5.00 %
81 and older
6.00 %
 
For contracts that elect the 7% Spousal Continuation Benefit, the Lifetime Withdrawal Percentages will be equal to or less than the Lifetime Withdrawal Percentages above (see "7% Spousal Continuation Benefit").
 
A Contract Owner will receive the greatest Lifetime Withdrawal Percentage only if he or she does not take a withdrawal from the contract prior to age 81.   Note: The Internal Revenue Code requires that IRAs, SEP IRAs, Simple IRAs , and Investment-Only Contracts begin distributions no later than April 1 of the calendar year following the calendar year in which the Contract Owner reaches age 70½.   Contract Owners subject to minimum required distribution rules may not be able to take advantage of the Lifetime Withdrawal Percentages available at higher age bands if distributions are taken from the contract to meet these Internal Revenue Code requirements.   Contract Owners who elect not to take minimum required distributions from this contract, i.e ., they take minimum required distributions from other sources, may be able to take
advantage of Lifetime Withdrawal Percentages at the higher age bands.  Consult a qualified tax advisor for more information.
 
At the time of the first withdrawal and on each Contract Anniversary thereafter, the Lifetime Withdrawal Percentage is multiplied by the Current Income Benefit Base to determine the benefit amount for that year.  The benefit amount is the maximum amount that can be withdrawn from the contract before the next Contract Anniversary without reducing the Current Income Benefit Base.  The ability to withdraw the current benefit amount will continue until the earlier of the Contract Owner's death or annuitization.
 
The Contract Owner can elect to set up Systematic Withdrawals or can request each withdrawal separately.  All lifetime income withdrawal requests must be made on a Nationwide form available by contacting the Service Center .
 
Each year's benefit amount is non-cumulative.  A Contract Owner cannot take a previous year's benefit amount in a subsequent year without causing an excess withdrawal (see below) that will reduce the Current Income Benefit Base.  Although withdrawals up to the benefit amount do not reduce the Current Income Benefit Base, they do reduce the Contract Value and the death benefit .

Impact of Withdrawals in Excess of the Withdrawal Percentage Limit
 
The Contract Owner is permitted to withdraw Contract Value in excess of that year's benefit amount provided that the Contract Value is greater than $0.  Withdrawals in excess of the benefit amount will reduce the Current Income Benefit
 
Base, and consequently, the benefit amount calculated for subsequent years.  In the event of excess withdrawals, the Current Income Benefit Base will be reduced by the greater of:
 
(1)
the dollar amount of the withdrawal in excess of the benefit amount; or
 
(2)
a figure representing the proportional amount of the withdrawal.  This amount is determined by the following formula:
 
dollar amount
of the
excess withdrawal
X
Current Income
Benefit Base
prior to the withdrawal
Contract Value (reduced by the amount of the benefit amount withdrawn)
 
In situations where the Contract Value exceeds the existing Current Income Benefit Base, excess withdrawals will typically result in a dollar amount reduction to the new Current Income Benefit Base.  In situations where the Contract Value is less than the existing Current Income Benefit Base, excess withdrawals will typically result in a proportional reduction to the new Current Income Benefit Base.
 
Currently, Nationwide allows for an "RMD privilege" whereby Nationwide permits a Contract Owner to withdraw Contract Value in excess of the benefit amount without reducing the Current Income Benefit Base if such excess withdrawal is for the sole purpose of meeting Internal Revenue Code required minimum distributions for this contract.  This RMD privilege does not apply to beneficially owned contracts.  In order to qualify for the RMD privilege, the Contract Owner must:
 
(1)
be at least 70½ years old as of the date of the request;
 
(2)
own the contract as an IRA, SEP IRA, Simple IRA, Investment-Only Contract , or Tax Sheltered Annuity ; and
 
(3)
submit a completed administrative form in advance of the withdrawal to the Service Center (forms are available via the Service Center) .
 
Nationwide reserves the right to modify or eliminate the RMD privilege if there is any change to the Internal Revenue Code or IRS rules relating to required minimum distributions, including the issuance of relevant IRS guidance.  If Nationwide exercises this right, Nationwide will provide notice to Contract Owners and any withdrawal in excess of the benefit amount will reduce the remaining Current Income Benefit Base.
 
Once the Contract Value falls to $0, the Contract Owner is no longer permitted to submit additional purchase payments or take withdrawals in excess of the benefit amount.  Additionally, there is no Contract Value to annuitize, making

 
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the payment of the benefit associated with this option the only income stream producing benefit remaining in the contract.
 
Reset Opportunities
 
Nationwide offers an automatic reset of the income benefit base.  If, on any Contract Anniversary, the Contract Value exceeds the Current Income Benefit Base, Nationwide will automatically reset the Current Income Benefit Base to equal that Contract Value.  This higher amount will be the new Current Income Benefit Base.  This automatic reset will continue until either the current price or the list of permitted investment options associated with the 7% Nationwide L.inc Option changes.
 
In the event the current price or the list of permitted investment options of the 7% Nationwide L.inc Option changes, the reset opportunities still exist, but are no longer automatic.  An election to reset the Current Income Benefit Base must be made by the Contract Owner to Nationwide.  On or about each Contract Anniversary, Nationwide will provide the Contract Owner with information necessary to make this determination.  Specifically, Nationwide will provide: the Contract Value; the Current Income Benefit Base; the current terms and conditions associated with the 7% Nationwide L.inc Option; and instructions on how to communicate an election to reset the benefit base.
 
If the Contract Owner elects to reset the Current Income Benefit Base, it will be at the then current terms and conditions of the option as described in the most current prospectus.   If Nationwide does not receive a Contract Owner's election to reset the Current Income Benefit Base within 60 days after the Contract Anniversary, Nationwide will assume that the Contract Owner does not wish to reset the Current Income Benefit Base.   If the Current Income Benefit Base is not reset, it will remain the same and the terms and conditions of the 7% Nationwide L.inc Option will not change (as applicable to that particular contract).
 
Contract Owners may cancel the automatic reset feature of the 7% Nationwide L.inc Option by notifying Nationwide as to such election.
 
Settlement Options
 
If, after beginning the lifetime income withdrawals, a Contract Owner's Contract Value falls to $0 and there is still a positive Current Income Benefit Base, Nationwide will provide the Contract Owner with settlement options.  Specifically, Nationwide will provide a notification to the Contract Owner describing the following 3 options, along with instructions on how to submit the election to Nationwide:
 
(1)
The Contract Owner can continue to take annual withdrawals of no more than the annual benefit amount until the death of the Contract Owner;
 
(2)
The Contract Owner can elect the Age Based Lump Sum Settlement Option, as described below; or
 
(3)
If the Contract Owner qualifies after a medical examination, the Contract Owner can elect the Underwritten Lump Sum Settlement Option, as described below.
 
The options above each result in a different amount ultimately received under the 7% Nationwide L.inc Option.  The Underwritten Lump Sum Settlement Option will generally pay a larger amount than the Age Based Lump Sum Settlement Option when a Contract Owner is healthier than the normal population.  Regardless of age or health, the Underwritten Lump Sum Settlement Option amount will never be less than the Age Based Lump Sum Settlement Option amount.  Election of the Age Based Lump Sum Settlement Option enables the Contract Owner to receive payment without a medical exam, which could potentially delay payment.  Before selecting a settlement option, consult with a qualified financial advisor to determine which option is best for you based on your individual financial situation and needs.
 
The Contract Owner will have 60 days from the date of Nationwide's notification letter to make an election.  Once the Contract Owner makes an election, the election is irrevocable.   If the Contract Owner does not make an election within the 60 days of the date of the notification letter, Nationwide will assume that the Contract Owner intends to continue to take withdrawals of the annual benefit amount.   If the Contract Owner had requested Systematic Withdrawals of the annual benefit amount prior to the notice, those Systematic Withdrawals will continue.  If the Contract Owner had not requested Systematic Withdrawals prior to the notice, the Contract Owner may request Systematic Withdrawals by contacting the Service Center .   It is the Contract Owner's responsibility to establish Systematic Withdrawals or otherwise request the annual benefit amount.  Benefit amounts not withdrawn in a given year are forfeited .
 
Age Based Lump Sum Settlement Option.   Under the Age Based Lump Sum Settlement Option, in lieu of taking withdrawals of the annual benefit amount, Nationwide will pay the Contract Owner a lump sum equal to the Contract Owner's most recently calculated annual benefit amount multiplied by the Annual Benefit Multiplier listed below:
 
Contract Owner's Age
(as of the date the Age Based Lump Sum Option is elected)
 
Annual Benefit Multiplier
Up to Age 70
5.5
71-75
4.5
76-80
3.5
81-85
2.5
86-90
2.0
91-95
1.5
96+
1.0
 
For contracts that have elected the 7% Spousal Continuation Benefit, if both spouses are living on the date the Age Based Lump Sum Settlement Option is elected, Nationwide will use the age of the younger spouse minus 3 years to determine the Annual Benefit Multiplier.  If only 1 spouse is living on the date the Age Based Lump Sum Settlement Option is elected, Nationwide will use the age of the living spouse to determine the Annual Benefit Multiplier.
 
Underwritten Lump Sum Settlement Option.   Under the Underwritten Lump Sum Settlement Option, in lieu of taking withdrawals of the annual benefit amount, for those who

 
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qualify based on a medical exam, Nationwide will pay the Contract Owner a lump sum based upon the attained age, sex, and health of the Contract Owner (and spouse if the 7% Spousal Continuation Benefit is elected).  Once Nationwide receives the Contract Owner's election to take the Underwritten Lump Sum Settlement Option, Nationwide will provide the Contract Owner with a medical examination form, which must be completed by a certified physician chosen by the Contract Owner and returned to the Service Center within 30 days.  Upon completion of underwriting by Nationwide, the lump sum settlement amount (determined as of the date that Nationwide received all of the necessary information) is issued to the Contract Owner. If Nationwide does not receive the completed form within the 30-day period, Nationwide will pay the Contract Owner the amount that would be payable under the Age Based Lump Sum Settlement Option.
 
Annuitization
 
If the Contract Owner elects to annuitize the contract, this option will terminate.  Specifically, the charge associated with the option will no longer be assessed and all benefits associated with the 7% Nationwide L.inc Option will terminate.
 
Death of Determining Life
 
For contracts with no 7% Spousal Continuation Benefit, upon the death of the determining life, the benefits associated with the option terminate.  If the Contract Owner is also the Annuitant, the death benefit will be paid in accordance with the "Death Benefits" provision.  If the Contract Owner is not
the Annuitant, the Contract Value will be distributed in accordance with the "Required Distributions" section of "Appendix C: Contract Types and Tax Information."
 
For contracts with the 7% Spousal Continuation Benefit, upon the death of the determining life, the surviving spouse continues to receive the same benefit associated with the 7% Nationwide L.inc Option which had been received by the deceased spouse, for the remainder of the survivor's lifetime.  The Contract Value will reflect the death benefit and Spousal Protection Annuity Option.
 
Tax Treatment
 
Although the tax treatment for withdrawals under withdrawal benefits such as the 7% Nationwide L.inc Option is not clear, Nationwide will treat a portion of each withdrawal as a taxable distribution, as follows:
 
First, we determine which is greater: (1) the Contract Value immediately before the withdrawal; or (2) the guaranteed benefit amount immediately before the withdrawal.  That amount (the greater of (1) or (2)) minus any remaining investment in the contract at the time of the withdrawal will be reported as a taxable distribution.
 
For any withdrawal taken when the Contract Value is less than or equal to the total investment in the contract, Nationwide treats the withdrawal as a tax-free return of investment until the entire investment in the contract has been received tax-free.  Once the entire investment in the contract has been received tax-free, withdrawals will be reported as taxable distributions.  Please consult a qualified tax adviser.

Automatic Termination of the 7% Lifetime Income Option
 
Withdrawals in excess of the benefit amount that reduce the Current Income Benefit Base to $0 will automatically terminate the 7% Lifetime Income Option. If this option terminates, then Nationwide will no longer assess the fee associated with the option.
 
7% Spousal Continuation Benefit
 
At the time the 7% Lifetime Income Option is elected (at time of application) , the Contract Owner may elect the 7% Spousal Continuation Benefit (not available for contracts issued as Charitable Remainder Trusts).  The 7% Spousal Continuation Benefit allows a surviving spouse to continue to receive, for the duration of his/her lifetime, the benefit associated with the 7% Lifetime Income Option, provided certain conditions are met.  Once the 7% Spousal Continuation Benefit is elected, it may not be removed from the contract, except as provided in the "Marriage Termination" section.
 
The charge for the 7% Spousal Continuation Benefit will not exceed 0.40% of the Current Income Benefit Base.  Currently, there is no charge for the 7% Spousal Continuation Benefit.
 
 
If the C ontract O wner elects the 7% Spousal Continuation Benefit, Nationwide will reduce the Lifetime Withdrawal Percentages associated with the 7%  Lifetime Income Option as follows:
 
Contract Owner’s Age
(at time of first withdrawal)
Lifetime Withdrawal
Percentage
50 up to 59½
3.0 0 %
59½ through 64
3. 50 %
65 through 80
4. 50 %
81 and older
5. 50 %
 
The Lifetime Withdrawal Percentage will be based on the age of the younger spouse as of the date of the first withdrawal from the contract.
 
To be eligible for the 7% Spousal Continuation Benefit, the following conditions must be met:
 
(1)
Both spouses must be between 50 and 85 years old at the time of application;
 
(2)
Both spouses must be at least age 50 before either spouse is eligible to begin withdrawals.   Note : the Internal Revenue Code imposes a penalty tax if a distribution is made before the Contract Owner reaches age 59½ unless certain exceptions are met (see "Federal Tax Considerations" in "Appendix C: Contract Types and Tax Information");
 
(3)
If the Contract Owner is a non-natural person, both spouses must be named as Co-Annuitants , except in the case of a non-natural person Contract Owner and/or Joint Owner, and where the Spousal Protection Annuity Option is not used, the spouses must be named as the Annuitant and Contingent Annuitant and as the only primary beneficiaries;
 
(4)
One or both spouses (or a revocable trust of which either or both of the spouses is/are grantor(s)) must be named as the Contract Owner.  For contracts issued as IRAs and Roth IRAs, only the person for whom the IRA or Roth

 
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IRA was established may be named as the Contract Owner ;
 
(5)
Both spouses must be named as primary beneficiaries ;
 
(6)
No person other than the spouse may be named as Contract Owner, Annuitant, or primary beneficiary ; and
 
(7)
If both spouses are alive upon annuitization, the Contract Owner must specify which spouse is the Annuitant upon whose continuation of life any annuity payments involving life contingencies depend (for IRA and Roth IRA contracts, this person must be the Contract Owner).
 
Note: The 7% Spousal Continuation Benefit is distinct from the Spousal Protection Annuity Option associated with the death benefits.  The 7% Spousal Continuation Benefit allows a surviving spouse to continue receiving the lifetime income payments associated with the 7% Lifetime Income Option.  In contrast, the Spousal Protection Annuity Option is a death benefit bump-up feature associated with the death benefits.
 
Marriage Termination
 
If, prior to taking any withdrawals from the contract, the marriage terminates due to divorce, dissolution, or annulment, the Contract Owner may remove the 7%  Spousal Continuation Benefit from the contract.  Nationwide will remove the benefit and the associated charge after the Contract Owner submits to the Service Center a written request and evidence of the marriage termination satisfactory to Nationwide.  Once the 7% Spousal Continuation Benefit is removed from the contract, the benefit may not be re-elected or added to cover a subsequent spouse.
 
If, after taking any withdrawals from the contract, the marriage terminates due to divorce, dissolution, or annulment, the Contract Owner may not remove the 7% Spousal Continuation Benefit from the contract.
 
Risks Associated with Electing the 7% Spousal Continuation Benefit
 
There are situations where a Contract Owner who elects the 7% Spousal Continuation Benefit will not receive the benefits associated with the option.  This will occur if:
 
(1)
the Contract Owner's spouse (Co-Annuitant) dies before him/her;
 
(2)
the contract is annuitized; or
 
(3)
after the first withdrawal, the marriage terminates due to divorce, dissolution, or annulment.
 
Additionally, in the situations described in (1) and (3) above, not only will the Contract Owner not receive the benefit associated with the 7% Spousal Continuation Benefit, but he/she must continue to pay any applicable charge until annuitization (currently, there is no charge for this option).
 
Income Benefit Investment Options
 
The following investment options are the only investment options available for contracts that have elected the 7% Lifetime Income Option:
 
Nationwide Variable Insurance Trust
·
NVIT Investor Destinations Balanced Fund: Class II
·
NVIT Investor Destinations Conservative Fund: Class II
·
NVIT Investor Destinations Moderately Conservative Fund: Class II
 
Ivy Funds Variable Insurance Portfolios, Inc.
·
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Moderate
·
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Moderately Conservative
·
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Conservative
 
Note: Some of the investment options listed above are funds of funds.  Please refer to "Appendix A: Underlying Mutual Funds" for more information.
 
Ownership and Interests in the Contract
 
Contract Owner
 
Prior to the Annuitization Date, the Contract Owner has all rights under the contract, unless a joint owner is named.  If a joint owner is named, each joint owner has all rights under the contract.   Purchasers who name someone other than themselves as the Contract Owner will have no rights under the contract.
 
On the Annuitization Date, the Annuitant becomes the Contract Owner, unless the Contract Owner is a Charitable Remainder Trust.  If the Contract Owner is a Charitable Remainder Trust, the Charitable Remainder Trust continues to be the Contract Owner after annuitization.
 
Contract Owners of Non-Qualified Contracts may name a new Contract Owner at any time before the Annuitization Date.  Any change of Contract Owner automatically revokes any prior Contract Owner designation.  Changes in contract ownership may result in federal income taxation and may be subject to state and federal gift taxes.
 
Joint Owner
 
Joint owners each own an undivided interest in the contract.
 
Non-Qualified Contract Owners can name a joint owner at any time before annuitization.
 
Generally, the exercise of any ownership rights under the contract must be in writing and signed by both joint owners.
 
However, if a written election, signed by both Contract Owners, authorizing Nationwide to allow the exercise of ownership rights independently by either joint owner is submitted, Nationwide will permit joint owners to act independently.  If such an authorization is submitted, Nationwide will not be liable for any loss, liability, cost, or expense for acting in accordance with the instructions of either joint owner.
 
If either joint owner dies before the Annuitization Date, the contract continues with the surviving joint owner as the remaining Contract Owner.
 
Contingent Owner
 
The contingent owner succeeds to the rights of a Contract Owner if a Contract Owner who is not the Annuitant dies before the Annuitization Date, and there is no surviving joint owner.

 
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If a Contract Owner who is the Annuitant dies before the Annuitization Date, the contingent owner will not have any rights under the contract, unless such contingent owner is also the beneficiary.
 
The Contract Owner may name a contingent owner at any time before the Annuitization Date.
 
Annuitant
 
The Annuitant is the person who will receive annuity payments and upon whose continuation of life any annuity payment involving life contingencies depends.  This person must be age 85 or younger at the time of contract issuance, unless Nationwide approves a request for an Annuitant of greater age.
 
Only Non-Qualified Contract Owners may name someone other than himself/herself as the Annuitant.
 
The Contract Owner may not name a new Annuitant without Nationwide's consent.
 
Contingent Annuitant
 
If the Annuitant dies before the Annuitization Date, the contingent annuitant becomes the Annuitant.  The contingent annuitant must be age 85 or younger at the time of contract issuance, unless Nationwide approves a request for a contingent annuitant of greater age.
 
If a contingent annuitant is named, all provisions of the contract that are based on the Annuitant's death prior to the Annuitization Date will be based on the death of the last survivor of the Annuitant and contingent annuitant.
 
Co-Annuitant
 
A Co-Annuitant, if named, must be the Annuitant's spouse.  The Co-Annuitant must be named at the time of application and will receive the benefit of the Spousal Protection Annuity Option (if elected).
 
If either Co-Annuitant dies before the Annuitization Date, the surviving Co-Annuitant may continue the contract and will receive the benefit of the Spousal Protection Annuity Option (if elected).
 
Joint Annuitant
 
The joint annuitant is designated as a second person (in addition to the Annuitant) upon whose continuation of life any annuity payment involving life contingencies depends.  The joint annuitant is named at the time of annuitization.
 
Beneficiary and Contingent Beneficiary
 
The beneficiary is the person who is entitled to the death benefit if the Annuitant dies before the Annuitization Date and there is no joint owner.  The Contract Owner can name more than one beneficiary.  Multiple beneficiaries will share the death benefit equally, unless otherwise specified.
 
A contingent beneficiary will succeed to the rights of the beneficiary if no beneficiary is alive when a death benefit is paid.  The Contract Owner can name more than one contingent beneficiary.  Multiple contingent beneficiaries will share the death benefit equally, unless otherwise specified.

Changes to the Parties to the Contract
 
Prior to the Annuitization Date (and subject to any existing assignments), the Contract Owner may request to change the following:
 
·
Contract Owner (Non-Qualified Contracts only);
 
·
joint owner;
 
·
contingent owner;
 
·
Annuitant (subject to Nationwide's underwriting and approval);
 
·
contingent annuitant (subject to Nationwide's underwriting and approval);
 
·
Co-Annuitant (must be the Annuitant's spouse);
 
·
joint annuitant (subject to Nationwide's underwriting and approval);
 
·
beneficiary; or
 
·
contingent beneficiary.
 
The Contract Owner must submit the request to Nationwide in writing and Nationwide must receive the request at the Service Center before the Annuitization Date. No change will be effective unless and until it is received and recorded at the Service Center. Once Nationwide receives and records the change request, the change will be effective as of the date the written request was signed (unless otherwise specified by the Contract Owner) , whether or not the Contract Owner or Annuitant is living at the time it was recorded.  The change will not affect any action taken by Nationwide before the change was recorded.
 
In addition to the above requirements, any request to change the Contract Owner must be signed by the existing Contract Owner and the person designated as the new Contract Owner.  Nationwide may require a signature guarantee.
 
If the Contract Owner is not a natural person and there is a change of the Annuitant, distributions will be made as if the Contract Owner died at the time of the change, regardless of whether the Contract Owner named a contingent annuitant.
 
Nationwide reserves the right to reject any change request that would alter the nature of the risk that Nationwide assumed when it originally issued the contract.
 
Operation of the Contract
 
Purchase Payment Credits
 
Purchase Payment Credits ("PPCs") are additional credits that Nationwide will apply to a contract when cumulative purchase payments reach certain aggregate levels.  
 
When determining PPCs Nationwide will include the purchase payments in this contract, as well as the purchase payments of any other Nationwide annuity contract issued to an immediate family member made within the 12 months before the purchase of this contract.  Immediate family members include spouses, children, or other family members living within the Contract Owner's household.  In order to be considered for PPCs, the Contract Owner must notify Nationwide in writing

 
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of all Nationwide annuity contracts owned by the Contract Owner or immediate family members.
 
Each time a Contract Owner submits a purchase payment, Nationwide will perform a calculation to determine if and how many PPCs are payable as a result of that particular deposit.  
 
The formula used to determine the amount of the PPC is as follows:
 
(Cumulative Purchase Payments x PPC%)
–
PPCs Paid to Date
=
PPCs Payable
 
Cumulative Purchase Payments = the total of all purchase payments applied to the contract (s) eligible to receive a PPC , including the current deposit, minus any withdrawals.
 
PPC% = either 0.0%, 0.5%, or 1.0%, depending on the level of Cumulative Purchase Payments as follows:
If Cumulative Purchase Payments are . . .
Then the PPC% is . . .
$0 – $499,999
0.0% (no PPC is payable)
$500,000 – $999,999
0.5%
$1,000,000 or more
1.0%
 
PPCs Paid to Date = the total PPCs that Nationwide has already applied to the contract.
 
PPCs Payable = the PPCs that Nationwide will apply to the contract as a result of the current deposit.
 
For example, on March 1, Ms. Z makes an initial deposit of $200,000 to her contract.   Her contract is the only one eligible to receive PPCs.  For this deposit she does not receive a PPC since her Cumulative Purchase Payments are less than $500,000.  
 
On April 1, Ms. Z applies additional purchase payments of $350,000.  Cumulative Purchase Payments now equal $550,000.  Nationwide will apply PPCs to Ms. Z's contract equal to $2,750, which is (0.5% x $550,000) - $0.
 
On May 1, Ms. Z takes a withdrawal of $150,000.  Cumulative Purchase Payments now equal $400,000.  
 
On June 1, Ms. Z applies additional purchase payments of $500,000.  Cumulative Purchase Payments now equal $900,000.  Nationwide will apply PPCs to Ms. Z's contract equal to $1,750, which is ($900,000 x 0.5%) - $2,750.  At this point in time, a total of $4,500 in PPCs have been applied to Ms. Z's contract.
 
On July 1, Ms. Z applies additional purchase payments of $300,000.  Cumulative Purchase Payments now equal $1,200,000.  Nationwide will apply PPCs to Ms. Z's contract equal to $7,500, which is ($1,200,000 x 1.0%) - $4,500.  At this point in time, a total of $12,000 in PPCs have been applied to Ms. Z's contract.
 
For purposes of all benefits and taxes under these contracts, PPCs are considered earnings, not purchase payments, and they will be allocated in the same proportion that purchase payments are allocated on the date the PPCs are applied.  
 
Recapture of Purchase Payment Credits
 
If the Contract Owner cancels the contract pursuant to the contractual free look provision, Nationwide will recapture all PPCs applied to the contract.  The Contract Owner will retain any earnings attributable to the PPCs, but all losses attributable to the PPCs will be incurred by Nationwide.
 
All PPCs are fully vested after the end of the contractual free look period and are not subject to recapture.
 
Pricing
 
Generally, Nationwide prices Accumulation Unit values of the Sub-Accounts on each day that the New York Stock Exchange is open.  (Pricing is the calculation of a new Accumulation Unit value that reflects that day's investment experience.)  
 
Accumulation Units are not priced when the New York Stock Exchange is closed or on the following nationally recognized holidays:
 
· New Year's Day
· Independence Day
· Martin Luther King, Jr. Day
· Labor Day
· Presidents' Day
· Thanksgiving
· Good Friday
· Christmas
· Memorial Day
 
 
Nationwide also will not price purchase payments, withdrawals or transfers if:
 
(1)
trading on the New York Stock Exchange is restricted;
 
(2)
an emergency exists making disposal or valuation of securities held in the Variable Account impracticable; or
 
(3)
the SEC, by order, permits a suspension or postponement for the protection of security holders.
 
Rules and regulations of the SEC will govern as to when the conditions described in (2) and (3) exist.  If Nationwide is closed on days when the New York Stock Exchange is open, Contract Value may change and Contract Owners will not have access to their accounts.
 
Application and Allocation of Purchase Payments
 
Initial Purchase Payments
 
Initial purchase payments will be priced at the Accumulation Unit value next determined no later than 2 business days after receipt of an order to purchase if the application and all necessary information are complete and are received at the Service Center before the close of the New York Stock Exchange, which generally occurs at 4:00 pm EST.  If the order is received after the close of the New York Stock Exchange, the initial purchase payment will be priced within 2 business days after the next business day .
 
If an incomplete application is not completed within 5 business days after receipt at the Service Center , the prospective purchaser will be informed of the reason for the delay.  The purchase payment will be returned unless the prospective purchaser specifically consents to allow Nationwide to hold the purchase payment until the application is completed.
 
Nationwide will immediately allocate initial purchase payments to the investment options based on the instructions contained on the application.
 
Subsequent Purchase Payments
 
Any subsequent purchase payment received at the Service Center (along with all necessary information) before the close of the New York Stock Exchange on any Valuation Date will

 
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be priced at the Accumulation Unit value next determined after receipt of the purchase payment.  If a subsequent purchase payment is received at the Service Center (along with all necessary information) after the close of the New York Stock Exchange, it will be priced at the Accumulation Unit value determined on the following Valuation Date.  
 
Allocation of Purchase Payments
 
Nationwide allocates purchase payments to Sub-Accounts as instructed by the Contract Owner on the application .  Shares of the underlying mutual funds allocated to the Sub-Accounts are purchased at Net Asset Value, then converted into Accumulation Units.
 
Contract Owners can change allocations or make exchanges among the Sub-Accounts after the time of application by submitting a written request to the Service Center .  However, no change may be made that would result in an amount less than 1% of the purchase payments being allocated to any Sub-Account.  In the event that Nationwide receives such a request, Nationwide will inform the Contract Owner that the allocation instructions are invalid and that the contract's allocations among the Sub-Accounts prior to the request will remain in effect.  Certain transactions may be subject to conditions imposed by the underlying mutual funds.
 
Determining the Contract Value
 
The Contract Value is the sum of the value of amounts (including any PPCs applied to the contract) allocated to:
 
(1)
the Sub-Accounts of the Variable Account; and
 
(2)
the Fixed Account.
 
If charges are assessed against the whole Contract Value, Nationwide will deduct a proportionate amount from each Sub-Account and the Fixed Account based on current cash values.
 
Determining Variable Account Value – Valuing an Accumulation Unit
 
Sub-Account allocations are accounted for in Accumulation Units.  Accumulation Unit values (for each Sub-Account) are determined by calculating the N et I nvestment F actor for the underlying mutual funds for the current Valuation Period and multiplying that result with the Accumulation Unit values determined on the previous Valuation Period.   For each Sub-Account, the N et I nvestment F actor is a factor that shows the investment performance of the underlying mutual fund in which a particular Sub-Account invests, including the charges assessed against that Sub-Account for a Valuation Period.
 
Nationwide uses the N et I nvestment F actor as a way to calculate the investment performance of a Sub-Account from Valuation Period to Valuation Period.
 
The N et I nvestment F actor for any particular Sub-Account before the Annuitization Date is determined by dividing (a) by (b), and then subtracting (c) from the result, where:
 
(a)
is the sum of:
 
 
(1)
the Net Asset Value of the underlying mutual fund as of the end of the current Valuation Period; and
 
 
(2)
the per share amount of any dividend or income distributions made by the underlying mutual fund (if the date of the dividend or income distribution occurs during the current Valuation Period).
 
(b)
is the Net Asset Value of the underlying mutual fund determined as of the end of the preceding Valuation Period.
 
(c)
is a factor representing the daily total Variable Account charges, which may include charges for optional benefits elected by the Contract Owner.  The factor is equal to an annualized rate ranging from 1. 30 % to 1.5 5 % of the Daily Net Assets of the Variable Account, depending on which optional benefits the Contract Owner elects.
 
Note: The range shown above reflects only those Variable Account charges that are assessed daily as part of the daily Accumulation Unit calculation.  It does not reflect the cost of other optional benefits that assess charges via the redemption of Accumulation Units (e.g.,   the 7% Lifetime Income Option and the 7% Spousal Continuation Benefit).
 
Based on the change in the N et I nvestment F actor, the value of an Accumulation Unit may increase or decrease.  Changes in the N et I nvestment F actor may not be directly proportional to changes in the Net Asset Value of the underlying mutual fund shares because of the deduction of Variable Account charges.
 
Though the number of Accumulation Units will not change as a result of investment experience, the value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period.
 
Determining Fixed Account Value
 
Nationwide determines the value of the Fixed Account by:
 
(1)
adding all amounts allocated to the Fixed Account, minus amounts previously transferred or withdrawn from the Fixed Account;
 
(2)
adding any interest earned on the amounts allocated to the Fixed Account;
 
(3)
adding any PPCs applied to the Fixed Account; and
 
(4)
subtracting charges deducted in accordance with the contract.
 
Transfer Requests
 
Contract Owners may submit transfer requests in writing, over the telephone, or via the internet to the Service Center .  Nationwide may restrict or withdraw the telephone and/or internet transfer privilege at any time.
 
Generally, Sub-Account transfers will receive the Accumulation Unit value next computed after the transfer request is received at the Service Center .  However, if a contract that is limited to submitting transfer requests via U.S. mail submits a transfer request via the internet or telephone pursuant to Nationwide's 1-day delay policy, the transfer will be executed on the next Valuation Date after the exchange request is received at the Service Center (see "Managers of Multiple Contracts").

 
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Transfer Restrictions
 
Neither the contracts described in this prospectus nor the underlying mutual funds are designed to support active trading strategies that require frequent movement between or among Sub-Accounts (sometimes referred to as "market-timing" or "short-term trading").  A Contract Owner who intends to use an active trading strategy should consult his/her registered representative and request information on other Nationwide variable annuity contracts that offer underlying mutual funds that are designed specifically to support active trading strategies.
 
Nationwide discourages (and will take action to deter) short-term trading in this contract because the frequent movement between or among Sub-Accounts may negatively impact other investors in the contract.  Short-term trading can result in:
 
·
the dilution of the value of the investors' interests in the underlying mutual fund;
 
·
underlying mutual fund managers taking actions that negatively impact performance (keeping a larger portion of the underlying mutual fund assets in cash or liquidating investments prematurely in order to support redemption requests); and/or
 
·
increased administrative costs due to frequent purchases and redemptions.
 
To protect investors in this contract from the negative impact of these practices, Nationwide has implemented, or reserves the right to implement, several processes and/or restrictions aimed at eliminating the negative impact of active trading strategies.
 
Nationwide makes no assurances that all risks associated with short-term trading will be completely eliminated by these processes and/or restrictions.
 
Nationwide cannot guarantee that its attempts to deter active trading strategies will be successful.  If we are unable to deter active trading strategies, the performance of the Sub-Accounts that are actively traded may be adversely impacted.
 
U.S. Mail Restrictions
 
Nationwide monitors transfer activity in order to identify those who may be engaged in harmful trading practices.  Transaction reports are produced and examined.  Generally, a contract may appear on these reports if the Contract Owner (or a third party acting on their behalf) engages in a certain number of "transfer events" in a given period.  A "transfer event" is any transfer, or combination of transfers, occurring on a given trading day (Valuation Period).  For example, if a Contract Owner executes multiple transfers involving 10 underlying mutual funds in 1 day, this counts as 1 transfer event.  A single transfer occurring on a given trading day and involving only 2 underlying mutual funds (or 1 underlying mutual fund if the transfer is made to or from the Fixed Account) will also count as 1 transfer event.

As a result of this monitoring process, Nationwide may restrict the method of communication by which transfer orders will be accepted.  In general, Nationwide will adhere to the following guidelines:
 
Trading Behavior
Nationwide's Response
6 or more transfer events in one calendar quarter
Nationwide will mail a letter to the Contract Owner notifying them that:
(1)they have been identified as engaging in harmful trading practices; and
(2)if their transfer events exceed 11 in 2 consecutive calendar quarters or 20 in one calendar year, the Contract Owner will be limited to submitting transfer requests via U.S. mail on a Nationwide issued form.
More than 11 transfer events in 2 consecutive calendar quarters
OR
More than 20 transfer events in one calendar year
Nationwide will automatically limit the Contract Owner to submitting transfer requests via U.S. mail on a Nationwide issued form.
 
For purposes of Nationwide's transfer policy, U.S. mail includes standard U.S. mail, overnight U.S. mail, and overnight delivery via private carrier.
 
Each January 1 st , Nationwide will start the monitoring anew, so that each contract starts with 0 transfer events each January 1.  See, however, the "Other Restrictions" provision.
 
Managers of Multiple Contracts
 
Some investment advisors/representatives manage the assets of multiple Nationwide contracts pursuant to trading authority granted or conveyed by multiple Contract Owners.  These multi-contract advisors will generally be required by Nationwide to submit all transfer requests via U.S. mail.
 
Nationwide may, as an administrative practice, implement a "1-day delay" program for these multi-contract advisors, which they can use in addition to or in lieu of submitting transfer requests via U.S. mail.  The 1-day delay option permits multi-contract advisors   to continue to submit transfer requests via the internet or telephone.  However, transfer requests submitted by multi-contract advisors via the internet or telephone will not receive the next available Accumulation Unit value.  Rather, they will receive the Accumulation Unit value that is calculated on the following Valuation Date.  Transfer requests submitted under the 1-day delay program are irrevocable.  Multi-contract advisors will receive advance notice of being subject to the 1-day delay program.
 
Other Restrictions
 
Contract Owners that are required to submit transfer requests via U.S. mail will be required to use a Nationwide issued form for their transfer request.  Nationwide will refuse transfer requests that either do not use the Nationwide issued form for their transfer request or fail to provide accurate and complete information on their transfer request form.  In the event that a Contract Owner's transfer request is refused by Nationwide,

 
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they will receive notice in writing by U.S. mail and will be required to resubmit their transfer request on a Nationwide issued form.
 
Nationwide reserves the right to refuse or limit transfer requests, or take any other action it deems necessary, in order to protect Contract Owners, Annuitants, and beneficiaries from the negative investment results that may result from short-term trading or other harmful investment practices employed by some Contract Owners (or third parties acting on their behalf).  In particular, trading strategies designed to avoid or take advantage of Nationwide's monitoring procedures (and other measures aimed at curbing harmful trading practices) that are nevertheless determined by Nationwide to constitute harmful trading practices, may be restricted.
 
Any restrictions that Nationwide implements will be applied consistently and uniformly.
 
Underlying Mutual Fund Restrictions and Prohibitions
 
Pursuant to regulations adopted by the SEC, Nationwide is required to enter into written agreements with the underlying mutual funds which allow the underlying mutual funds to:
 
(1)
request the taxpayer identification number, international taxpayer identification number, or other government issued identifier of any Nationwide Contract Owner;
 
(2)
request the amounts and dates of any purchase, redemption, transfer or exchange request ("transaction information"); and
 
(3)
instruct Nationwide to restrict or prohibit further purchases or exchanges by Contract Owners that violate policies established by the underlying mutual fund (whose policies may be more restrictive than Nationwide's policies).
 
Nationwide is required to provide such transaction information to the underlying mutual funds upon their request.  In addition, Nationwide is required to restrict or prohibit further purchases or requests to exchange into an underlying mutual fund upon instruction from the underlying mutual fund.  Nationwide and any affected Contract Owner may not have advance notice of such instructions from an underlying mutual fund to restrict or prohibit further purchases or requests to exchange into an underlying mutual fund.  If an underlying mutual fund refuses to accept a purchase or request to exchange into the underlying mutual fund submitted by Nationwide, Nationwide will keep any affected Contract Owner in their current underlying mutual fund allocation.
 
Transfers Prior to Annuitization
 
Transfers from the Fixed Account
 
A Contract Owner may request to transfer allocations from the Fixed Account to the Sub-Accounts only upon reaching the end of a Fixed Account interest rate guarantee period.  Fixed Account transfers must be made within 45 days after the end of the interest rate guarantee period.  The Fixed Account interest rate guarantee period is the period of time that the Fixed Account interest rate is guaranteed to remain the same.

Normally, Nationwide will permit 100% of the maturing Fixed Account allocations to be transferred.  However, Nationwide may limit the amount that can be transferred from the Fixed Account.  Nationwide will determine the amount that may be transferred and will declare this amount at the end of the Fixed Account interest rate guarantee period.  The maximum transferable amount will never be less than 10% of the Fixed Account allocation reaching the end of a Fixed Account interest rate guarantee period.
 
Contract Owners who use Dollar Cost Averaging may transfer from the Fixed Account under the terms of that program.
 
Nationwide is required by state law to reserve the right to postpone the transfer of assets from the Fixed Account for a period of up to 6 months from the date of the transfer request.
 
Transfers from the Sub-Accounts
 
A Contract Owner may request to transfer allocations from the Sub-Accounts to the Fixed Account.  Nationwide reserves the right to limit or refuse transfers to the Fixed Account.
 
Transfers Among the Sub-Accounts
 
A Contract Owner may request to transfer allocations among the Sub-Accounts at any time, subject to terms and conditions imposed by this prospectus and the underlying mutual funds.
 
Transfers After Annuitization
 
After annuitization, the portion of the Contract Value allocated to fixed annuity payments and the portion of the Contract Value allocated to variable annuity payments may not be changed.
 
After annuitization, transfers among Sub-Accounts may only be made once per calendar year .
 
Right to Examine and Cancel
 
If the Contract Owner elects to cancel the contract, he/she may return it to the Service Center within a certain period of time known as the "free look" period.  The free look period is 10 days, unless the contract is purchased as a replacement for another annuity contract, in which case it is 60 days.  For ease of administration, Nationwide will honor any free look cancellation for newly issued annuity contracts that are received at the Service Center or postmarked within 30 days after the contract issue date.  Nationwide will also honor any free look cancellation for replacement annuity contracts that are received at the Service Center or postmarked within 60 days after the contract issue date.  The contract issue date is the date the initial purchase payment is applied to the contract.
 
In the event of a free look cancellation, Nationwide will return the Contract Value as of the date of the cancellation, less any withdrawals from the contract and any applicable federal and state income tax withholding.  Nationwide will recapture all of the PPCs applied to the contract.  The Contract Owner will retain any earnings attributable to the PPCs , but all losses attributable to the PPCs will be incurred by Nationwide.
 
Liability of the Variable Account under this provision is limited to the Contract Value in each Sub-Account on the date of revocation.  Any additional amounts refunded to the Contract Owner will be paid by Nationwide.

 
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Surrender/Withdrawal Prior to Annuitization
 
Prior to annuitization and before the Annuitant's death, Contract Owners may generally withdraw some or all of their Contract Value.  Withdrawals from the contract may be subject to federal income tax and/or a tax penalty (see "Appendix C: Contract Types and Tax Information").  Withdrawal requests must be submitted in writing to the Service Center and Nationwide may require additional information.  When taking a full surrender, the contract must accompany the written request.  Nationwide may require a signature guarantee.
 
Nationwide will pay any amounts withdrawn from the Sub-Accounts within 7 days after the request is received at the Service Center .  However, Nationwide may suspend or postpone payment when it is unable to price a purchase payment or transfer (see "Pricing").
 
Nationwide is required by state law to reserve the right to postpone payment of assets in the Fixed Account for a period of up to 6 months from the date of the withdrawal request.
 
Partial Withdrawals
 
If a Contract Owner requests a partial withdrawal, Nationwide will redeem Accumulation Units from the Sub-Accounts and an amount from the Fixed Account.  The amount withdrawn from each investment option will be in proportion to the value in each option at the time of the withdrawal request.
 
Partial withdrawals are subject to the CDSC provisions of the contract.  If a CDSC is assessed, the Contract Owner may elect to have the CDSC deducted from either:
 
(a)
the amount requested; or
 
(b)
the Contract Value remaining after the Contract Owner has received the amount requested.
 
If the Contract Owner does not make a specific election, any applicable CDSC will be deducted from the amount requested by the Contract Owner.
 
The CDSC deducted is a percentage of the amount requested by the Contract Owner.  Amounts deducted for CDSC are not subject to subsequent CDSC.
 
Partial Withdrawals to Pay Investment Advisory Fees
 
Some Contract Owners utilize an investment advisor(s) to manage their assets, for which the investment advisor assesses a fee.  Investment advisors are not endorsed or affiliated with Nationwide and Nationwide makes no representation as to their qualifications.  The fees for these investment advisory services are specified in the respective account agreements and are separate from and in addition to the contract fees and expenses described in this prospectus.  Some Contract Owners authorize their investment advisor to take a partial withdrawal(s) from the contract in order to collect investment advisory fees.  Withdrawals taken from this contract to pay advisory or investment management fees are subject to the CDSC provisions of the contract and may be subject to income tax and/or tax penalties.   In addition, withdrawals taken from the contract to pay advisory or investment management fees may negatively impact the benefit associated with the 7% Lifetime Income Option (see "7% Lifetime Income Option").
 
Full Surrenders
 
Upon full surrender, the Contract Value may be more or less than the total of all purchase payments made to the contract.  The Contract Value will reflect:
 
·
Variable Account charges;
 
·
underlying mutual fund charges;
 
·
a $50 Contract Maintenance Charge (this charge will be waived upon full surrender if the Contract Value is equal to or greater than $50,000 at the time of the full surrender or on any Contract Anniversary prior to the full surrender);
 
·
the investment performance of the underlying mutual funds;
 
·
any outstanding loan balance plus accrued interest;
 
·
amounts allocated to the Fixed Account and any interest credited; and
 
·
PPCs (if applicable).
 
Full surrenders are subject to the CDSC provisions of the contract.  The CDSC-free withdrawal privilege does not apply to full surrenders of the contract.  For purposes of the CDSC-free withdrawal privilege, a full surrender is:
 
·
multiple withdrawals taken within a Contract Year that deplete the entire Contract Value; or
 
·
any single net withdrawal of 90% or more of the Contract Value.
 
Surrender/Withdrawal After Annuitization
 
After the Annuitization Date, withdrawals other than regularly scheduled annuity payments are not permitted.
 
Withdrawals Under Certain Plan Types
 
Withdrawals Under a Tax Sheltered Annuity
 
Contract Owners of a Tax Sheltered Annuity may withdraw part or all of their Contract Value before the Annuitant's death, except as provided below:
 
(A)
Contract Value attributable to contributions made under a qualified cash or deferred arrangement (within the meaning of Internal Revenue Code Section 402(g)(3)(A)), a salary reduction agreement (within the meaning of Internal Revenue Code Section 402(g)(3)(C)), or transfers from a Custodial Account (described in Section 403(b)(7) of the Internal Revenue Code), may be withdrawn only:
 
 
(1)
when the Contract Owner reaches age 59½, separates from service, dies, or becomes disabled (within the meaning of Internal Revenue Code Section 72(m)(7)); or
 
 
(2)
in the case of hardship (as defined for purposes of Internal Revenue Code Section 401(k)), provided that any such hardship withdrawal may not include any income earned on salary reduction contributions.

 
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(B)
The withdrawal limitations described in Section A also apply to:
 
 
(1)
salary reduction contributions to Tax Sheltered Annuities made for plan years beginning after December 31, 1988;
 
 
(2)
earnings credited to such contracts after the last plan year beginning before January 1, 1989, on amounts attributable to salary reduction contributions; and
 
 
(3)
all amounts transferred from 403(b)(7) Custodial Accounts (except that earnings and employer contributions as of December 31, 1988 in such Custodial Accounts may be withdrawn in the case of hardship).
 
(C)
Any distribution other than the above, including a ten day free look cancellation of the contract (when available) may result in taxes, penalties, and/or retroactive disqualification of a Tax Sheltered Annuity.
 
In order to prevent disqualification of a Tax Sheltered Annuity after a ten day free look cancellation, Nationwide will transfer the proceeds to another Tax Sheltered Annuity upon proper direction by the Contract Owner.
 
These provisions explain Nationwide's understanding of current withdrawal restrictions.  These restrictions may change.
 
Distributions pursuant to Qualified Domestic Relations Orders will not violate the restrictions stated above.
 
Withdrawals Under a Texas Optional Retirement Program or a Louisiana Optional Retirement Plan
 
Redemption restrictions apply to contracts issued under the Texas Optional Retirement Program or the Louisiana Optional Retirement Plan.
 
The Texas Attorney General has ruled that participants in contracts issued under the Texas Optional Retirement Program may only take withdrawals if:
 
·
the participant dies;
 
·
the participant retires;
 
·
the participant terminates employment due to total disability; or
 
·
the participant that works in a Texas public institution of higher education terminates employment.
 
A participant under a contract issued under the Louisiana Optional Retirement Plan may only take distributions from the contract upon retirement or termination of employment.  All retirement benefits under this type of plan must be paid as lifetime income; lump sum cash payments are not permitted, except for death benefits.
 
Due to the restrictions described above, a participant under either of these plans will not be able to withdraw cash values from the contract unless one of the applicable conditions is met.  However, Contract Value may be transferred to other carriers, subject to any sales charges.
 
Nationwide issues this contract to participants in the Texas Optional Retirement Program in reliance upon and in compliance with Rule 6c-7 of the Investment Company Act of 1940.  Nationwide issues this contract to participants in the Louisiana Optional Retirement Plan in reliance upon and in compliance with an exemptive order that Nationwide received from the SEC on August 22, 1990.
 
Loan Privilege
 
The loan privilege is only available to Contract Owners of Tax Sheltered Annuities.  Contract Owners of Tax Sheltered Annuities may take loans from the Contract Value beginning 30 days after the contract is issued up to the Annuitization Date.  Loans are subject to the terms of the contract, the plan, and the Internal Revenue Code.  Nationwide may modify the terms of a loan to comply with changes in applicable law.   Additionally, contract loans are unavailable if the 7% Lifetime Income Option is elected.
 
Minimum and Maximum Loan Amounts
 
Contract Owners may borrow a minimum of $1,000, unless Nationwide is required by law to allow a lesser minimum amount.  Each loan must individually satisfy the contract minimum amount.
 
Nationwide will calculate the maximum non-taxable loan amount based on information provided by the participant or the employer.  Loans may be taxable if a participant has additional loans from other plans.
 
The total of all outstanding loans must not exceed the following limits:
 
Contract Values
Maximum Outstanding Loan Balance Allowed
Up to $20,000
up to 80% of Contract Value (not more than $10,000)
$20,000 and over
up to 50% of Contract Value (not more than $50,000*)
 
 
*The $50,000 limit will be reduced by the highest outstanding balance owed during the previous 12 months.
 
For salary reduction Tax Sheltered Annuities, loans may be secured only by the Contract Value.
 
Loan Processing Fee
 
Nationwide charges a loan processing fee at the time each new loan is processed.  The loan processing fee will not exceed $25 per loan processed.  This fee compensates Nationwide for expenses related to administering and processing loans.
 
The fee is taken from the Sub-Accounts and the Fixed Account in proportion to the Contract Value at the time the loan is processed.
 
How Loan Requests are Processed
 
All loans are made from the collateral Fixed Account.  Nationwide transfers Accumulation Units in proportion to the assets in each Sub-Account to the collateral Fixed Account until the requested amount is reached.
 
If there are not enough Accumulation Units available in the contract to reach the requested loan amount, Nationwide next transfers Contract Value from the Fixed Account.  Contract Value transferred from the Fixed Account to meet the

 
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requested loan amount is not subject to the Fixed Account transfer limitations otherwise applicable under the contract.
 
No CDSC will be deducted on transfers related to loan processing.
 
Loan Interest
 
The outstanding loan balance in the collateral Fixed Account is credited with interest until the loan is repaid in full.  The credited interest rate will be 2.25% less than the loan interest rate fixed by Nationwide.  The credited interest rate is guaranteed never to fall below the minimum interest rate required by applicable state law.
 
Specific loan terms are disclosed at the time of loan application or issuance.
 
Loan Repayment
 
Loans must be repaid in 5 years.  However, if the loan is used to purchase the Contract Owner's principal residence, the Contract Owner has 15 years to repay the loan.
 
Contract Owners must identify loan repayments as loan repayments or they will be treated as purchase payments and will not reduce the outstanding loan.  Loan repayments must be substantially level and made at least quarterly.
 
Loan repayments will consist of principal and interest in amounts set forth in the loan agreement.  Repayments are allocated to the Sub-Accounts in accordance with the contract, unless Nationwide and the Contract Owner have agreed to amend the contract at a later date on a case by case basis.
 
Distributions and Annuity Payments
 
Distributions made from the contract while a loan is outstanding will be reduced by the amount of the outstanding loan plus accrued interest if:
 
·
the Contract Owner takes a full surrender of the contract;
 
·
the Contract Owner/Annuitant dies;
 
·
the Contract Owner who is not the Annuitant dies prior to annuitization; or
 
·
the Contract Owner annuitizes the contract.
 
Transferring the Contract
 
Nationwide reserves the right to restrict any transfer of the contract while the loan is outstanding.
 
Grace Period and Loan Default
 
If a loan payment is not made when due, interest will continue to accrue.  A grace period may be available (please refer to the terms of the loan agreement).  If a loan payment is not made by the end of the applicable grace period, the entire loan will be treated as a deemed distribution and will be taxable to the borrower.  This deemed distribution may also be subject to an early withdrawal tax penalty by the Internal Revenue Service.
 
After default, interest will continue to accrue on the loan.  Defaulted amounts, plus interest, are deducted from the Contract Value when the participant is eligible for a distribution of at least that amount.  Additional loans are not available while a previous loan is in default.
 
Assignment
 
Investment-Only Contracts, IRAs, Roth IRAs, SEP IRAs, Simple IRAs , and Tax Sheltered Annuities may not be assigned, pledged or otherwise transferred except where allowed by law.
 
A Non-Qualified Contract Owner may assign some or all rights under the contract subject to Nationwide’s consent.  Additionally, Nationwide reserves the right to refuse to recognize assignments on a non-discriminatory basis.  Nationwide is not responsible for the validity or tax consequences of any assignment and Nationwide is not liable for any payment or settlement made before the assignment is recorded.  Assignments will not be recorded until Nationwide receives sufficient direction from the Contract Owner and the assignee regarding the proper allocation of contract rights.
 
Contract Owner Services
 
Asset Rebalancing
 
Asset Rebalancing is the automatic reallocation of Contract Values to the Sub-Accounts on a predetermined percentage basis.  Asset Rebalancing is not available for assets held in the Fixed Account.  Requests for Asset Rebalancing must be on a Nationwide form and submitted to the Service Center .  Once Asset Rebalancing is elected, it will only be terminated upon specific instruction from the Contract Owner; manual transfers will not automatically terminate the program.
 
Asset Rebalancing occurs every 3 months or on another frequency if permitted by Nationwide.  If the last day of the 3-month period falls on a Saturday, Sunday, recognized holiday, or any other day when the New York Stock Exchange is closed, Asset Rebalancing will occur on the next business day.  Each Asset Rebalancing reallocation is considered a transfer event.
 
Asset Rebalancing may be subject to employer limitations or restrictions for contracts issued to a Tax Sheltered Annuity plan.  Contract Owners should consult a financial advisor to discuss the use of Asset Rebalancing.
 
Nationwide reserves the right to stop establishing new Asset Rebalancing programs.
 
Dollar Cost Averaging
 
Dollar Cost Averaging is a long-term transfer program that allows the Contract Owner to make regular, level investments over time.  Dollar Cost Averaging involves the automatic transfer of a specific amount from the Fixed Account and/or certain Sub-Accounts into other Sub-Accounts.  With this service, the Contract Owner benefits from the ability to invest in the Sub-Accounts over a period of time, thereby smoothing out the effects of market volatility.  Nationwide does not guarantee that this program will result in profit or protect Contract Owners from loss.

 
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Contract Owners direct Nationwide to automatically transfer specified amounts from the Fixed Account and the following Sub-Account:
 
Ivy Funds Variable Insurance Portfolios, Inc.
 
·
Money Market
 
to any other Sub-Account(s).  Dollar Cost Averaging transfers may not be directed to the Fixed Account.  Transfers from the Fixed Account must be equal to or less than 1/30 th of the Fixed Account value at the time the program is requested. Contract Owners that wish to utilize Dollar Cost Averaging should first inquire whether any Enhanced Fixed Account Dollar Cost Averaging programs are available.
 
Transfers occur monthly or on another frequency if permitted by Nationwide.  Nationwide will process transfers until either the value in the originating investment option is exhausted, or the Contract Owner instructs Nationwide to stop the transfers.  When a Contract Owner instructs Nationwide to stop the transfers, all amounts remaining in the originating Fixed Account or Sub-Account will remain allocated to the Fixed Account or Sub-Account, unless Nationwide is instructed otherwise.  Dollar Cost Averaging transfers are not considered transfer events.
 
Nationwide reserves the right to stop establishing new Dollar Cost Averaging programs.   Nationwide is required by state law to reserve the right to postpone transfer of assets from the Fixed Account for a period of up to 6 months from the date of the transfer request.
 
Nationwide is required by state law to reserve the right to postpone transfer of assets from the Fixed Account for a period of up to 6 months from the date of the transfer request.
 
Enhanced Fixed Account Dollar Cost Averaging
 
Nationwide may, periodically, offer Dollar Cost Averaging programs with an enhanced interest rate referred to as "Enhanced Fixed Account Dollar Cost Averaging."  Enhanced Fixed Account Dollar Cost Averaging involves the automatic transfer of a specific amount from an enhanced rate Fixed Account into any Sub-Account(s).  With this service, the Contract Owner benefits from the ability to invest in the Sub-Accounts over a period of time, thereby smoothing out the effects of market volatility.  Nationwide does not guarantee that this program will result in profit or protect Contract Owners from loss.
 
Only new purchase payments to the contract are eligible for Enhanced Fixed Account Dollar Cost Averaging.  Enhanced Fixed Account Dollar Cost Averaging transfers may not be directed to the Fixed Account.  Amounts allocated to the enhanced rate Fixed Account as part of an Enhanced Fixed Account Dollar Cost Averaging program earn a higher rate of interest than assets allocated to the standard Fixed Account.  Each enhanced rate is guaranteed for as long as the corresponding program is in effect.
 
Transfers occur monthly or on another frequency if permitted by Nationwide.  Nationwide will process transfers until either amounts allocated to the Fixed Account as part of an Enhanced Fixed Account Dollar Cost Averaging program are exhausted or the Contract Owner instructs Nationwide to stop the transfers.  When a Contract Owner instructs Nationwide to stop the transfers, Nationwide will automatically reallocate any amount remaining in the enhanced rate Fixed Account according to future investment allocation instructions, unless directed otherwise.  Enhanced Fixed Account Dollar Cost Averaging transfers are not considered transfer events.
 
Nationwide reserves the right to stop establishing new Enhanced Fixed Account Dollar Cost Averaging programs.  Nationwide is required by state law to reserve the right to postpone transfer of assets from the Fixed Account, including transfers as part of an Enhanced Fixed Account Dollar Cost Averaging program, for a period of up to 6 months from the date of the transfer request.
 
Dollar Cost Averaging for Living Benefits
 
Nationwide may periodically offer Dollar Cost Averaging programs with the 7% Lifetime Income Option referred to as "Dollar Cost Averaging for Living Benefits."  Dollar Cost Averaging for Living Benefits involves the automatic transfer of a specific amount from the Fixed Account into another Sub-Account(s).  With this service, the Contract Owner benefits from the ability to invest in the Sub-Account over a period of time, thereby smoothing out the effects of market volatility.  Nationwide does not guarantee that this program will result in profit or protect Contract Owners from loss.
 
Only new purchase payments to the contract are eligible for Dollar Cost Averaging for Living Benefits.  Only those investment options available for the 7% Lifetime Income Option are available for use in Dollar Cost Averaging for Living Benefits -- transfers may not be directed to the Fixed Account or to any investment option that is unavailable with the 7% Lifetime Income Option.   Please refer to the "Income Benefit Investment Options" section for the investment options available for the 7% Lifetime Income Option.
 
Once a Dollar Cost Averaging for Living Benefits program has begun, no transfers among or between Sub-Accounts are permitted until the Dollar Cost Averaging for Living Benefits program is completed or terminated.
 
Transfers occur monthly or on another frequency if permitted by Nationwide.  Nationwide will process transfers until either amounts allocated to the Fixed Account as part of a Dollar Cost Averaging for Living Benefits program are exhausted or the Contract Owner instructs Nationwide to stop the transfers.  When a Contract Owner instructs Nationwide to stop the transfers, Nationwide will automatically reallocate any amount remaining in the Fixed Account according to future investment allocation instructions, unless directed otherwise.  Dollar Cost Averaging for Living Benefits transfers are not considered transfer events.
 
Nationwide reserves the right to stop establishing new Dollar Cost Averaging for Living Benefits programs.  Nationwide is required by state law to reserve the right to postpone transfer of assets from the Fixed Account for a period of up to 6 months from the date of the transfer request.
 
Fixed Account Interest Out Dollar Cost Averaging
 
Nationwide may, periodically, offer a Dollar Cost Averaging program that permits the transfer of interest earned on Fixed Account allocations referred to as "Fixed Account Interest Out Dollar Cost Averaging."  Fixed Account Interest Out Dollar

 
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Cost Averaging involves the automatic transfer of the interest earned on Fixed Account allocations into any other Sub-Account(s).  With this service, the Contract Owner benefits from the ability to invest in the Sub-Accounts over a period of time, thereby smoothing out the effects of market volatility.  Nationwide does not guarantee that this program will result in profit or protect Contract Owners from loss.
 
Fixed Account Interest Out Dollar Cost Averaging transfers may not be directed to the Fixed Account.
 
Transfers occur monthly or on another frequency if permitted by Nationwide.  Nationwide will continue to process transfers until the Contract Owner instructs Nationwide in writing to stop the transfers.  Fixed Account Interest Out Dollar Cost Averaging transfers are not considered transfer events.
 
Nationwide reserves the right to stop establishing new Fixed Account Interest Out Dollar Cost Averaging programs.  Nationwide is required by state law to reserve the right to postpone transfer of assets from the Fixed Account for a period of up to 6 months from the date of the transfer request.
 
Systematic Withdrawals
 
Systematic Withdrawals allow Contract Owners to receive a specified amount (of at least $100) on a monthly, quarterly, semi-annual, or annual basis.  Requests for Systematic Withdrawals and requests to discontinue Systematic Withdrawals must be submitted in writing to the Service Center .
 
The withdrawals will be taken from the Sub-Accounts and the Fixed Account proportionally unless Nationwide is instructed otherwise.
 
Nationwide will withhold federal income taxes from Systematic Withdrawals unless otherwise instructed by the Contract Owner.  The Internal Revenue Service may impose a 10% penalty tax if the Contract Owner is under age 59½ unless the Contract Owner has made an irrevocable election of distributions of substantially equal payments.
 
A CDSC may apply to amounts taken through Systematic Withdrawals.  If the Contract Owner takes Systematic Withdrawals, the maximum amount that can be withdrawn annually without a CDSC is the greater of the amount available under the CDSC-free withdrawal privilege, and a given percentage of the Contract Value that is based on the Contract Owner's age.  This translates into CDSC-free Systematic Withdrawals equal to the greatest of:
 
(1)
10% of the net difference of purchase payments that are subject to CDSC minus purchase payments withdrawn that were subject to CDSC;
 
(2)
an amount withdrawn to meet minimum distribution requirements for this contract under the Internal Revenue Code;
 
(3)
for those contracts with the 7% Lifetime Income Option, withdrawals up to the annual benefit amount; or

(4)
a percentage of the Contract Value based on the Contract Owner's age, as shown in the table below:
 
 
Contract Owner's
Age
Percentage of
Contract Value
Under age 59½
5%
Age 59½ through age 61
7%
Age 62 through age 64
8%
Age 65 through age 74
10%
Age 75 and over
13%
 
The Contract Owner's age is determined as of the date the request for Systematic Withdrawals is recorded by the Service Center .  For joint owners, the older joint owner's age will be used.
 
In any given Contract Year, any amount withdrawn in excess of the greatest of (1), (2), (3), or (4) above will be subject to the CDSC provisions (see "Contingent Deferred Sales Charge").
 
The CDSC-free withdrawal privilege for Systematic Withdrawals is non-cumulative.  Free amounts not taken during any Contract Year cannot be taken as free amounts in a subsequent Contract Year.
 
Nationwide reserves the right to stop establishing new Systematic Withdrawal programs.  Systematic Withdrawals are not available before the end of the free look period.
 
Death Benefits
 
Death of Contract Owner
 
If a Contract Owner (including a joint owner) who is not the Annuitant dies before the Annuitization Date, no death benefit is payable and the surviving joint owner becomes the Contract Owner.
 
If no joint owner is named, the contingent owner becomes the Contract Owner.
 
If no contingent owner is named, the beneficiary becomes the Contract Owner.
 
If no beneficiary survives the Contract Owner, the last surviving Contract Owner's estate becomes the Contract Owner.
 
Distributions will be made pursuant to "Required Distributions for Non-Qualified Contracts" in "Appendix C: Contract Types and Tax Information."
 
Death of Annuitant
 
If the Annuitant who is not a Contract Owner dies before the Annuitization Date, the contingent annuitant becomes the Annuitant and no death benefit is payable.  If no contingent annuitant is named, a death benefit is payable to the beneficiary.  Multiple beneficiaries will share the death benefit equally unless otherwise specified.
 
If no beneficiaries survive the Annuitant, the contingent beneficiary receives the death benefit.  Multiple contingent beneficiaries will share the death benefit equally unless otherwise specified.

 
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If no contingent beneficiaries survive the Annuitant, the last surviving Contract Owner's estate will receive the death benefit.
 
If the Contract Owner is a Charitable Remainder Trust and the Annuitant dies before the Annuitization Date, the death benefit will accrue to the Charitable Remainder Trust.  Any designation in conflict with the Charitable Remainder Trust's right to the death benefit will be void.
 
If the Annuitant dies after the Annuitization Date, any benefit that may be payable will be paid according to the selected annuity payment option.
 
Death of Contract Owner/Annuitant
 
If a Contract Owner (including a joint owner) who is also the Annuitant dies before the Annuitization Date, a death benefit is payable to the surviving joint owner.
 
If there is no surviving joint owner, the death benefit is payable to the beneficiary.  Multiple beneficiaries will share the death benefit equally unless otherwise specified.
 
If no beneficiaries survive the Contract Owner/Annuitant, the contingent beneficiary receives the death benefit.  Multiple contingent beneficiaries will share the death benefit equally unless otherwise specified.
 
If no contingent beneficiaries survive the Contract Owner/Annuitant, the last surviving Contract Owner's estate will receive the death benefit.
 
If the Contract Owner/Annuitant dies after the Annuitization Date, any benefit that may be payable will be paid according to the selected annuity payment option.
 
Death Benefit Payment
 
The recipient of the death benefit may elect to receive the death benefit:
 
(1)
in a lump sum;
 
(2)
as an annuity (see "Annuity Payment Options"); or
 
(3)
in any other manner permitted by law and approved by Nationwide.
 
Nationwide will pay (or will begin to pay) the death benefit after it receives proof of death and the instructions as to the payment of the death benefit.   Death benefit claims must be submitted to the Service Center. If the recipient of the death benefit does not elect the form in which to receive the death benefit payment, Nationwide will pay the death benefit in a lump sum.  Contract Value will continue to be allocated according to the most recent allocation instructions until the death benefit is paid.
 
If the contract has multiple beneficiaries entitled to receive a portion of the death benefit, the Contract Value will continue to be allocated according to the most recent allocation instructions until the first beneficiary provides Nationwide with all of the information necessary to pay that beneficiary's portion of the death benefit proceeds.   After the first beneficiary’s proceeds are paid, the remaining portion(s) of the death benefit proceeds that are allocated to Sub-Accounts will be allocated to the available money market Sub-Account until instructions are received from the remaining beneficiary(ies).  Any Contract Value allocated to the Fixed Account will remain invested and will not be allocated to the available money market Sub-Account.
 
Death Benefit Calculations
 
An applicant may elect either the standard death benefit or 1 of the 2 available death benefit options that are offered under the contract for an additional charge.  If no election is made at the time of application, the death benefit will be the standard death benefit.
 
The value of each component of the applicable death benefit calculation will be determined as of the date of the Annuitant's death, except for the Contract Value component, which will be determined as of the date Nationwide receives:
 
 
(1)
proper proof of the Annuitant's death;
 
 
(2)
an election specifying the distribution method; and
 
 
(3)
any state required form(s).
 
Nationwide reserves the right to refuse purchase payments in excess of $1,000,000.  If you do not submit purchase payments in excess of $1,000,000, or if Nationwide has refused to accept purchase payments in excess of $1,000,000, the references in this provision to purchase payments in excess of $1,000,000 will not apply to your contract.
 
Standard Death Benefit
 
If the Annuitant dies prior to the Annuitization Date and the total of all purchase payments made to the contract is less than or equal to $3,000,000, the standard death benefit will be the greater of:
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit; or
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn.
 
The adjustment for amounts withdrawn will reduce item (2) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawal(s).
 
If the Annuitant dies prior to the Annuitization Date and the total of all purchase payments made to the contract is greater than $3,000,000, the standard death benefit will be determined using the following formula:
 
(A x F) + B(1 - F), where
 
 
A = the greater of:
 
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit; or
 
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn.
 
The adjustment for amounts withdrawn will reduce item (2) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawal(s).
 
 
B = the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit; and

 
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F = the ratio of $3,000,000 to the total of all purchase payments made to the contract.

The practical effect of this formula is that the beneficiary recovers a lesser percentage of purchase payments in excess of $3,000,000 than for purchase payments up to $3,000,000.  In no event will the beneficiary receive less than the Contract Value.
 
The Spousal Protection Annuity Option, if elected, allows a surviving spouse to continue the contract while receiving the economic benefit of the death benefit upon the death of the other spouse.
 
Five-Year Enhanced Death Benefit Option
 
For an additional charge at an annualized rate of 0.05% of the Daily Net Assets of the Variable Account, an applicant can elect the Five-Year Enhanced Death Benefit Option.
 
If the Annuitant dies prior to the Annuitization Date and the total of all purchase payments made to the contract is less than or equal to $3,000,000, the death benefit will be the greatest of:
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit;
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn; or
 
(3)
the highest Contract Value on the 5 th Contract Anniversary prior to the Annuitant's 86 th birthday, less an adjustment for amounts subsequently withdrawn, plus purchase payments received after the 5 th Contract Anniversary.
 
The adjustment for amounts withdrawn will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawal(s).
 
If Nationwide does not receive all information necessary to pay the death benefit within one year of the Annuitant's death, the death benefit will be the greater of (1) or (2) above.
 
If the Annuitant dies prior to the Annuitization Date and the total of all purchase payments made to the contract is greater than $3,000,000, the death benefit will be determined using the following formula:
 
(A x F) + B (1 - F), where
 
 
A = the greatest of:
 
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit;
 
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn; or
 
 
(3)
the highest Contract Value on the 5 th Contract Anniversary prior to the Annuitant's 86 th birthday, less an adjustment for amounts subsequently withdrawn, plus purchase payments received after the 5 th Contract Anniversary.
 
The adjustment for amounts withdrawn will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawal(s).
 
If Nationwide does not receive all information necessary to pay the death benefit within one year of the Annuitant's death, the calculation for A above will be the greater of (1) or (2) above.
 
 
B = the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit; and
 
 
F = the ratio of $3,000,000 to the total of all purchase payments made to the contract.
 
The practical effect of this formula is that the beneficiary recovers a lesser percentage of purchase payments in excess of $3,000,000 than for purchase payments up to $3,000,000.  In no event will the beneficiary receive less than the Contract Value.
 
The Spousal Protection Annuity Option, if elected, allows a surviving spouse to continue the contract while receiving the economic benefit of the death benefit upon the death of the other spouse.
 
One-Year Enhanced Death Benefit Option
 
For an additional charge at an annualized rate of 0.15% of the Daily Net Assets of the Variable Account, an applicant can elect the One-Year Enhanced Death Benefit Option at the time of application. The One-Year Enhanced Death Benefit Option is only available for contracts with Annuitants age 80 or younger at the time of application.
 
If the Annuitant dies prior to the Annuitization Date and the total of all purchase payments made to the contract is less than or equal to $3,000,000, the death benefit will be the greatest of:
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit;
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn; or
 
(3)
the highest Contract Value on any Contract Anniversary prior to the Annuitant's 86 th birthday, less an adjustment for amounts subsequently withdrawn, plus purchase payments received after that Contract Anniversary.
 
The adjustment for amounts withdrawn will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawal(s).
 
If Nationwide does not receive all information necessary to pay the death benefit within one year of the Annuitant's death, the death benefit will be the greater of (1) or (2) above.
 
If the Annuitant dies prior to the Annuitization Date and the total of all purchase payments made to the contract is greater than $3,000,000, the death benefit will be determined using the following formula:

 
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(A x F) + B (1 - F), where
 
 
A = the greatest of:
 
 
(1)
the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit;
 
 
(2)
the total of all purchase payments, less an adjustment for amounts withdrawn; or
 
 
(3)
the highest Contract Value on any Contract Anniversary prior to the Annuitant's 86 th birthday, less an adjustment for amounts subsequently withdrawn, plus purchase payments received after that Contract Anniversary.
 
The adjustment for amounts withdrawn will reduce items (2) and (3) above in the same proportion that the Contract Value was reduced on the date(s) of the partial withdrawal(s).
 
If Nationwide does not receive all information necessary to pay the death benefit within one year of the Annuitant's death, the calculation for A above will be the greater of (1) or (2) above.
 
 
B = the Contract Value as of the date that Nationwide receives all the information necessary to pay the death benefit; and
 
 
F = the ratio of $3,000,000 to the total of all purchase payments made to the contract.
 
The practical effect of this formula is that the beneficiary recovers a lesser percentage of purchase payments in excess of $3,000,000 than for purchase payments up to $3,000,000.  In no event will the beneficiary receive less than the Contract Value.
 
The Spousal Protection Annuity Option, if elected, allows a surviving spouse to continue the contract while receiving the economic benefit of the death benefit upon the death of the other spouse.
 
Annuity Commencement Date
 
The Annuity Commencement Date is the date on which annuity payments are scheduled to begin.  Generally, the Contract Owner designates the Annuity Commencement Date at the time of application.  If no Annuity Commencement Date is designated at the time of application, Nationwide will establish the Annuity Commencement Date as the date the Annuitant reaches age 90 for Non-Qualified Contracts and the date the Contract Owner reaches age 70½ for all other contract types.
 
The Contract Owner may change the Annuity Commencement Date before annuitization.  This change must be submitted in writing to the Service Center and approved by Nationwide.  The Annuity Commencement Date may not be later than the first day of the first calendar month after the Annuitant's 90 th birthday (or the 90 th birthday of the oldest Annuitant if there are joint annuitants) unless approved by Nationwide.

Annuity Commencement Date and the 7% Lifetime Income Option
 
If the Contract Owner elected the 7% Lifetime Income Option, Nationwide will, approximately 3 months before the Annuity Commencement Date, notify the Contract Owner of the impending Annuity Commencement Date and give the Contract Owner the opportunity to defer the Annuity Commencement Date in order to preserve the benefit associated with the 7% Lifetime Income Option.  Deferring the Annuity Commencement Date may have negative tax consequences (see "7% Lifetime Income Option" and "Appendix C: Contract Types and Tax Information").  Consult a qualified tax advisor.
 
Annuitizing the Contract
 
Annuitization Date
 
The Annuitization Date is the date that annuity payments begin.  Annuity payments will not begin until the Contract Owner affirmatively elects to begin annuity payments by contacting the Service Center .  If the Contract Owner has elected the 7% Lifetime Income Option, an election to begin annuity payments will terminate all benefits, conditions, guarantees, and charges associated with the 7% Lifetime Income Option.
 
The Annuitization Date will be the first day of a calendar month unless otherwise agreed.  The Annuitization Date must be at least 2 years after the contract is issued, but may not be later than either:
 
·
the age (or date) specified in your contract; or
 
·
the age (or date) specified by state law, where applicable.
 
If the contract is issued to fund a Tax Sheltered Annuity, annuitization may occur during the first 2 years subject to Nationwide's approval.
 
On the Annuitization Date, the Annuitant becomes the Contract Owner unless the Contract Owner is a Charitable Remainder Trust.
 
The Internal Revenue Code may require that distributions be made prior to the Annuitization Date specified above (see "Appendix C: Contract Types and Tax Information").
 
Annuitization
 
Annuitization is the period during which annuity payments are received.  It is irrevocable once payments have begun.  Upon arrival of the Annuitization Date, the Annuitant must choose:
 
(1)
an annuity payment option; and
 
(2)
either a fixed payment annuity, variable payment annuity, or an available combination.
 
Actual purchase rates used to determine annuity payments will be those in effect on the Annuitization Date.
 
Any allocations in the Fixed Account that are to be annuitized as a variable payment annuity must be moved to the Variable Account prior to the Annuitization Date.  There are no restrictions on Fixed Account transfers made in anticipation of annuitization.

 
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Nationwide guarantees that each payment under a fixed payment annuity will be the same throughout annuitization.  Under a variable payment annuity, the amount of each payment will vary with the performance of the underlying mutual funds chosen by the Contract Owner.
 
Fixed Annuity Payments
 
Fixed annuity payments provide for level annuity payments.  Premium taxes are deducted prior to determining fixed annuity payments.  The fixed annuity payments will remain level unless the annuity payment option provides otherwise.
 
Variable Annuity Payments
 
Variable annuity payments will vary depending on the performance of the underlying mutual funds selected.  The underlying mutual funds available during annuitization are those underlying mutual funds shown in "Appendix A: Underlying Mutual Funds."
 
First Variable Annuity Payment
 
The following factors determine the amount of the first variable annuity payment:
 
·
the portion of purchase payments allocated to provide variable annuity payments;
 
·
the Variable Account value on the Annuitization Date;
 
·
the adjusted age and sex of the Annuitant (and joint annuitant, if any) in accordance with the contract;
 
·
the annuity payment option elected;
 
·
the frequency of annuity payments;
 
·
the Annuitization Date;
 
·
the assumed investment return (the net investment return required to maintain level variable annuity payments);
 
·
the deduction of applicable premium taxes; and
 
·
the date the contract was issued.
 
Subsequent Variable Annuity Payments
 
Variable annuity payments after the first will vary with the performance of the underlying mutual funds chosen by the Contract Owner after the investment performance is adjusted by the assumed investment return factor.
 
The dollar amount of each subsequent variable annuity payment is determined by taking the portion of the first annuity payment funded by a particular Sub-Account divided by the Annuity Unit value for that Sub-Account as of the Annuitization Date.  This establishes the number of Annuity Units provided by each Sub-Account for each variable annuity payment after the first.
 
The number of Annuity Units comprising each variable annuity payment, on a Sub-Account basis, will remain constant, unless the Contract Owner transfers value from one underlying mutual fund to another.  After annuitization, transfers among Sub-Accounts may only be made once per calendar year .
 
The number of Annuity Units for each Sub-Account is multiplied by the Annuity Unit value for that Sub-Account for the Valuation Period for which the payment is due.  The sum of these results for all the Sub-Accounts in which the Contract Owner invests establishes the dollar amount of the variable annuity payment.
 
Subsequent variable annuity payments may be more or less than the previous variable annuity payment, depending on whether the net investment performance of the elected underlying mutual funds is greater or lesser than the assumed investment return.
 
Assumed Investment Return
 
An assumed investment return is the net investment return required to maintain level variable annuity payments. Nationwide uses a 3.5% assumed investment return factor.  Therefore, if the net investment performance of each Sub-Account in which the Contract Owner invests exactly equals 3.5% for every payment period, then each payment will be the same amount.  To the extent that investment performance is not equal to 3.5% for given payment periods, the amount of the payments in those periods will not be the same.  Payments will increase from one payment date to the next if the annualized net rate of return is greater than 3.5% during that time.  Conversely, payments will decrease from one payment to the next if the annualized net rate of return is less than 3.5% during that time.
 
Nationwide uses the assumed investment rate of return to determine the amount of the first variable annuity payment.
 
Value of an Annuity Unit
 
Annuity Unit values for Sub-Accounts are determined by:
 
(1)
multiplying the Annuity Unit value for each Sub-Account for the immediately preceding Valuation Period by the N et I nvestment F actor for the Sub-Account for the subsequent Valuation Period; and then
 
(2)
multiplying the result from (1) by a factor to neutralize the assumed investment return factor.
 
The Net Investment Factor for any particular Sub-Account on or after the Annuitization Date is determined by dividing (a) by (b), and then subtracting (c) from the result, where:
 
 
(a)
is the sum of:
 
 
(1)
the Net Asset Value of the underlying mutual fund as of the end of the current Valuation Period; and
 
 
(2)
the per share amount of any dividend or income distributions made by the underlying mutual fund (if the date of the dividend or income distribution occurs during the current Valuation Period).
 
(b)
is the Net Asset Value of the underlying mutual fund determined as of the end of the preceding Valuation Period.
 
(c)
is a factor equal to an annualized rate of 1.30% of the Daily Net Assets of the Variable Account.
 
Based on the change in the Net Investment Factor, the value of an Annuity Unit may increase or decrease.  Changes in the Net Investment Factor may not be directly proportional to changes

 
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in the Net Asset Value of the underlying mutual fund shares because of the deduction of Variable Account charges.
 
Though the number of Annuity Units will not change as a result of investment experience, the value of an Annuity Unit may increase or decrease from Valuation Period to Valuation Period.
 
 
Frequency and Amount of Annuity Payments
 
Annuity payments are based on the annuity payment option elected.
 
If no purchase payments are received in the 3 years before the Annuitization Date and if the net amount to be annuitized is less than $2,000, Nationwide reserves the right to pay this amount in a lump sum instead of periodic annuity payments.
 
Nationwide reserves the right to change the frequency of payments if the amount of any payment becomes less than $20.  The payment frequency will be changed to an interval that will result in payments of at least $20.
 
Nationwide will send annuity payments no later than 7 days after each annuity payment date.
 
Annuity Payment Options
 
The Annuitant must elect an annuity payment option before the Annuitization Date.  If the Annuitant does not elect an annuity payment option, a variable payment life annuity with a guarantee period of 240 months will be assumed as the automatic form of payment upon annuitization.  Once elected or assumed, the annuity payment option may not be changed.
 
The annuity payment options available may be limited based on the Annuitant's age (and the joint annuitant's age, if applicable) or requirements under the Internal Revenue Code.
 
Nationwide reserves the right to refuse purchase payments in excess of $1,000,000.  If you do not submit purchase payments in excess of $1,000,000, or if Nationwide has refused to accept purchase payments in excess of $1,000,000, the references in this provision to purchase payments in excess of $1,000,000 will not apply to your contract.  If you are permitted to submit purchase payments in excess of $1,000,000, additional restrictions apply, as follows.
 
Annuity Payment Options for Contracts with Total Purchase Payments and Contract Value Annuitized Less Than or Equal to $2,000,000
 
If, at the Annuitization Date, the total of all purchase payments made to the contract and the Contract Value annuitized is less than or equal to $2,000,000, the annuity payment options available are:
 
·
Single Life;
 
·
Standard Joint and Survivor; and
 
·
Single Life with a 10 or 20 Year Term Certain.
 
Each of the annuity payment options is discussed more thoroughly below.

Single Life
 
The Single Life annuity payment option provides for annuity payments to be paid during the lifetime of the Annuitant.
 
Payments will cease with the last payment before the Annuitant's death.  For example, if the Annuitant dies before the second annuity payment date, the Annuitant will receive only one payment.  The Annuitant will only receive two annuity payments if he or she dies before the third payment date, and so on.  No death benefit will be paid.  No withdrawals other than the scheduled annuity payments are permitted. This option is not available if the Annuitant is 86 or older on the Annuitization Date.  
 
Standard Joint and Survivor
 
The Standard Joint and Survivor annuity payment option provides for annuity payments to continue during the joint lifetimes of the Annuitant and joint annuitant.  After the death of either the Annuitant or joint annuitant, payments will continue for the life of the survivor.
 
Payments will cease with the last payment due prior to the death of the last survivor of the Annuitant and joint annuitant.  As is the case of the Single Life annuity payment option, there is no guaranteed number of payments.  Therefore, it is possible that if the Annuitant dies before the second annuity payment date, the Annuitant will receive only one annuity payment.  No death benefit will be paid. This option is not available if the Annuitant or joint annuitant is 86 or older on the Annuitization Date.
 
No withdrawals other than the scheduled annuity payments are permitted.
 
Single Life with a 10 or 20 Year Term Certain
 
The Single Life with a 10 or 20 Year Term Certain annuity payment option provides that monthly annuity payments will be paid during the Annuitant's lifetime or for the term selected, whichever is longer.  The term may be either 10 or 20 years.
 
If the Annuitant dies before the end of the 10 or 20 year term, payments will be paid to the beneficiary for the remainder of the term.  
 
No withdrawals other than the scheduled annuity payments are permitted.
 
Any Other Option
 
Annuity payment options not set forth in this provision may be available.  Any annuity payment option not set forth in this provision must be approved by Nationwide.
 
Annuity Payment Options for Contracts with Total Purchase Payments and/or Contract Value Annuitized Greater Than $2,000,000
 
If, at the Annuitization Date, the total of all purchase payments made to the contract and/or the Contract Value annuitized is greater than $2,000,000, Nationwide may limit the annuity payment option to the longer of:
 
(1)
a Fixed Life Annuity with a 20 Year Term Certain; or
 
(2)
a Fixed Life Annuity with a Term Certain to Age 95

 
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Annuitization of Amounts Greater than $5,000,000
 
Additionally, we may limit the amount that may be annuitized on a single life to $5,000,000.  If the total amount to be annuitized is greater than $5,000,000 under this contract and/or for all Nationwide issued annuity contracts with the same Annuitant , the Contract Owner must:
 
(1)
reduce the amount to be annuitized to $5,000,000 or less by taking a partial withdrawal from the contract;
 
(2)
reduce the amount to be annuitized to $5,000,000 or less by exchanging the portion of the Contract Value in excess of $5,000,000 to another annuity contract; or
 
(3)
annuitize the portion of the Contract Value in excess of $5,000,000 under an annuity payment option with a term certain, if available.
 
Statements and Reports
 
Nationwide will mail Contract Owners statements and reports.  Therefore, Contract Owners should promptly notify the Service Center of any address change.
 
These mailings will contain:
 
·
statements showing the contract's quarterly activity;
 
·
confirmation statements showing transactions that affect the contract's value.  Confirmation statements will not be sent for recurring transactions (i.e., Dollar Cost Averaging or salary reduction programs).  Instead, confirmation of recurring transactions will appear in the contract's quarterly statements; and
 
·
semi-annual and annual reports of allocated underlying mutual funds.
 
Contract Owners can receive information from Nationwide faster and reduce the amount of mail they receive by signing up for Nationwide's eDelivery program.  Nationwide will notify Contract Owners by email when important documents (statements, prospectuses and other documents) are ready for a Contract Owner to view, print, or download from Nationwide's secure server.  To choose this option, go to www.waddell.com.
 
Contract Owners should review statements and confirmations carefully.  All errors or corrections must be reported to Nationwide immediately to assure proper crediting to the contract.  Unless Nationwide is notified within 30 days of receipt of the statement, Nationwide will assume statements and confirmation statements are correct.
 
IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY OWNER DOCUMENTS
 
When multiple copies of the same disclosure document(s), such as prospectuses, supplements, proxy statements and semi-annual and annual reports are required to be mailed to multiple Contract Owners in the same household, Nationwide will mail only one copy of each document, unless notified otherwise by the Contract Owner(s).  Household delivery will continue for the life of the contracts.

A Contract Owner can revoke their consent to household delivery and reinstitute individual delivery by contacting the Service Center .  Nationwide will reinstitute individual delivery within 30 days after receiving such notification.
 
Legal Proceedings
 
Nationwide Financial Services, Inc. (NFS, or collectively with its subsidiaries, "the Company") was formed in November 1996.  NFS is the holding company for Nationwide Life Insurance Company (NLIC), Nationwide Life and Annuity Insurance Company (NLAIC) and other companies that comprise the life insurance and retirement savings operations of the Nationwide group of companies (Nationwide). This group includes Nationwide Financial Network (NFN), an affiliated distribution network that markets directly to its customer base.  NFS is incorporated in Delaware and maintains its principal executive offices in Columbus, Ohio.
 
The Company is a subject to legal and regulatory proceedings in the ordinary course of its business. The Company's legal and regulatory matters include proceedings specific to the Company and other proceedings generally applicable to business practices in the industries in which the Company operates.  The Company's litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcomes cannot be predicted.  Regulatory proceedings also could affect the outcome of one or more of the Company's litigation matters.  Furthermore, it is often not possible to determine the ultimate outcomes of the pending regulatory investigations and legal proceedings or to provide reasonable ranges of potential losses with any degree of certainty.  Some matters, including certain of those referred to below, are in very preliminary stages, and the Company does not have sufficient information to make an assessment of the plaintiffs' claims for liability or damages.  In some of the cases seeking to be certified as class actions, the court has not yet decided whether a class will be certified or (in the event of certification) the size of the class and class period.  In many of the cases, the plaintiffs are seeking undefined amounts of damages or other relief, including punitive damages and equitable remedies, which are difficult to quantify and cannot be defined based on the information currently available.  The Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory matters is not likely to have a material adverse effect on the Company's consolidated financial position.  Nonetheless, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that such outcomes could materially affect the Company's consolidated financial position or results of operations in a particular quarter or annual period.
 
The financial services industry has been the subject of increasing scrutiny on a broad range of issues by regulators and legislators.  The Company and/or its affiliates have been contacted by, self reported or received subpoenas from state and federal regulatory agencies, including the Securities and Exchange Commission, and other governmental bodies, state securities law regulators and state attorneys general for information relating to, among other things, sales compensation, the allocation of compensation, unsuitable sales or replacement practices, and claims handling and

 
38
 

 

 
escheatment practices.  The Company is cooperating with and responding to regulators in connection with these inquiries and will cooperate with Nationwide Mutual Insurance Company (NMIC) in responding to these inquiries to the extent that any inquiries encompass NMIC's operations.
 
On November 20, 2007, Nationwide Retirement Solutions, Inc. (NRS) and NLIC were named in a lawsuit filed in the Circuit Court of Jefferson County, Alabama entitled Ruth A. Gwin and Sandra H. Turner, and a class of similarly situated individuals v. Nationwide Life Insurance Company, Nationwide Retirement Solutions, Inc., Alabama State Employees Association, PEBCO, Inc. and Fictitious Defendants A to Z. On March 12, 2010, NRS and NLIC were named in a Second Amended Class Action Complaint filed in the Circuit Court of Jefferson County, Alabama entitled Steven E. Coker, Sandra H. Turner, David N. Lichtenstein and a class of similarly situated individuals v. Nationwide Life Insurance Company, Nationwide Retirement Solutions, Inc., Alabama State Employees Association, Inc., PEBCO, Inc. and Fictitious Defendants A to Z claiming to represent a class of all participants in the Alabama State Employees Association, Inc. (ASEA) Plan, excluding members of the Deferred Compensation Committee, ASEA's directors, officers and board members, and PEBCO's directors, officers and board members.  On October 22, 2010, the parties to this action executed a stipulation of settlement that agreed to certify a class for settlement purposes only, that provided for payments to the settlement class, and that provided for releases, certain bar orders, and dismissal of the case, subject to the Circuit Courts' approval.  The Courts have approved the settlement and the settlement amounts have been paid, but have not yet been distributed to class members.  On February 28, 2011, the Court in the Gwin case entered an Order permitting ASEA/PEBCO to assert indemnification claims for attorneys' fees and costs, but barring them from asserting any other claims for indemnification.  On April 22, 2011, ASEA and PEBCO filed a second amended cross claim complaint in the Gwin case against NRS and NLIC seeking indemnification.  These claims seeking indemnification remain severed.   On April 29, 2011, the Companies filed a motion to dismiss ASEA’s and PEBCO’s amended cross complaint or alternatively for summary judgment.   On December 6, 2011 the Court entered an Order that NRS owes indemnification to ASEA and PEBCO for the Coker (Gwin) class action, that NRS does not have a duty to indemnify ASEA and PEBCO for fees associated with the Interpleader action that NRS filed in Montgomery County and dismissing NLIC.  On December 31, 2011, the Court denied the Company’s motion to certify this order for an interlocutory appeal.  NRS continues to defend this case vigorously.
 
On August 15, 2001, NFS and NLIC were named in a lawsuit filed in the United States District Court for the District of Connecticut entitled 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.   In the plaintiffs' sixth amended complaint, filed November 18, 2009, they amended the list of named plaintiffs and claim to represent a class of qualified retirement plan trustees under Employee Retirement Income Security Act of 1974 (ERISA) that purchased variable annuities from NLIC.  The plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts and that NLIC and NFS breached ERISA fiduciary duties by allegedly accepting service payments from certain mutual funds.  The complaint seeks disgorgement of some or all of the payments allegedly received by NFS and NLIC, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys' fees.  On November 6, 2009, the Court granted the plaintiff's motion for class certification and certified a class of "All trustees of all employee pension benefit plans covered by ERISA which had variable annuity contracts with NFS and NLIC or whose participants had individual variable annuity contracts with NFS and NLIC at any time from January 1, 1996, or the first date NFS and NLIC began receiving payments from mutual funds based on a percentage of assets invested in the funds by NFS and NLIC, whichever came first, to the date of November 6, 2009".  On October 20, 2010, the Second Circuit Court of Appeals granted NLIC's 23(f) petition agreeing to hear an appeal of the District Court's order granting class certification.  On October 21, 2010, the District Court dismissed NFS from the lawsuit.  On October 27, 2010, the District Court stayed the underlying action pending a decision from the Second Circuit Court of Appeals.  On February 6, 2012, the Second Circuit Court of Appeals vacated the class certification order that was issued on November 6, 2009 and remanded the case back to the District Court for further consideration.  NLIC continues to defend this lawsuit vigorously.
 
On May 14, 2010, NLIC was named in a lawsuit filed in the Western District of New York entitled Sandra L. Meidenbauer, on behalf of herself and all others similarly situated v. Nationwide Life Insurance Company .  The plaintiff claims to represent a class of all individuals who purchased a variable life insurance policy from NLIC during an unspecified period.  The complaint claims breach of contract, alleging that NLIC charged excessive monthly deductions and costs of insurance resulting in reduced policy values and, in some cases, premature lapsing of policies.  The complaint seeks reimbursement of excessive charges, costs, interest, attorney's fees, and other relief.  NLIC filed a motion to dismiss the complaint on July 23, 2010.  NLIC filed a motion to disqualify the proposed class representative on August 27, 2010.  Plaintiff filed a motion to amend the complaint on September 17, 2010, and NLIC filed an opposition to the motion to amend on November 2, 2010.   On October 13, 2011, plaintiff voluntarily dismissed the lawsuit without prejudice.
 
On October 22, 2010, NRS was named in a lawsuit filed in the U.S. District Court, Middle District of Florida, Orlando Division entitled Camille McCullough, and Melanie Monroe, Individually and on behalf of all others similarly situated v. National Association of Counties, NACo Research Foundation, NACo Financial Services Corp., NACo Financial Center, and Nationwide Retirement Solutions, Inc.   The Plaintiffs' First Amended Class Action Complaint and Demand for Jury Trial was filed on February 18, 2011.  If the Court determined that the Plan was governed by ERISA, then Plaintiffs sought to represent a class of "All natural persons in the U.S. who are currently employed or previously were employed at any point during the six years preceding the date Plaintiffs filed their Original Class Action Complaint, by a government entity that is or was a member of the National Association of Counties, and who participate or participated in

 
39
 

 

 
the Section 457 Deferred Compensation Plan for Public Employees endorsed by the National Association of Counties and administered by Nationwide Retirement Solutions, Inc."  If the Court determined that the Plan was not governed by ERISA, then the Plaintiffs sough to represent a class of " All natural persons in the U.S. who are currently employed or previously were employed at any point during the four years preceding the date Plaintiffs filed their Original Class Action Complaint, by a government entity that is or was a member of the National Association of Counties, and who participate or participated in a Section 457 Deferred Compensation Plan for Public Employees endorsed by the National Association of Counties and administered by Nationwide Retirement Solutions, Inc."  The First Amended Complaint alleged ERISA Violation, Breach of Fiduciary Duty - NACo, Aiding and Abetting Breach of Fiduciary Duty - Nationwide, Breach of Fiduciary Duty - Nationwide, and Aiding and Abetting Breach of Fiduciary Duty - NACo.  The First Amended Complaint asked for actual damages, lost profits, lost opportunity costs, restitution, and/or other injunctive or other relief, including without limitation (a) ordering Nationwide and NACo to restore all plan losses, (b) ordering Nationwide to refund all fees associated with Nationwide's Plan to Plaintiffs and Class members, (c) ordering NACo and Nationwide to pay the expenses and losses incurred by Plaintiffs and/or any Class member as a proximate result of Defendants' breaches of fiduciary duty, (d) forcing NACo to forfeit the fees that NACo received from Nationwide for promoting and endorsing its Plan and disgorging all profits, benefits, and other compensation obtained by NACo from its wrongful conduct, and (e) awarding Plaintiff and Class members their reasonable and necessary attorney's fees and cost incurred in connection with this suit, punitive damages, and pre-judgment and post judgment interest, at the highest rates allowed by law, on the damages awarded.   On March 21, 2011, the Company filed a motion to dismiss the plaintiffs' first amended complaint.   On July 1, 2011, the plaintiffs filed their motion for class certification and later sought to amend their complaint.  On November 25, 2011 the District Court entered an Order granting NACo's motion to dismiss, NRS's motion to dismiss, denying plaintiffs' motion to file an amended complaint, that all other remaining pending motions are moot, dismissing the class-wide claims with prejudice, dismissing individual claims without prejudice, and ordering the Clerk to close this case.  On December 27, 2011, the plaintiffs filed a notice of appeal.   The Company intends to defend this case vigorously.
 
On December 27, 2006, NLIC and NRS were named as defendants in a lawsuit filed in Circuit Court, Cole County Missouri entitled State of Missouri, Office of Administration, and Missouri State Employees Deferred Comp Plan v. NLIC and NRS.   The complaint seeks recovery for breach of contract and breach of the implied covenant of good faith and fair dealing against NLIC and NRS as well as a breach of fiduciary duty against NRS.  The complaint seeks to recover the amount of the market value adjustment withheld by NLIC ($19 million), prejudgment interest, loss of investment income from ING due to the Companies’ assessment of the market value adjustment.  On March 8, 2007 the Companies filed a motion to remove this case from state court to federal court in Missouri.  On March 20, 2007 the State filed a motion to remand to state court and to stay court order.  On April 3, 2007 the case was remanded to state court.  On June 25, 2007 the Companies filed an Answer.  On October 16, 2009, the plaintiff filed a partial motion for summary judgment.  On November 20, 2009, the Companies filed a response to the plaintiff's motion for summary judgment and also filed a motion for summary judgment on behalf of the Companies.  On February 26, 2010, the court denied Missouri's partial motion for summary judgment and granted the Companies’ motion for summary judgment and dismissed the case.  On March 8, 2011, the Missouri Court of Appeals reversed the granting of the Companies’ motion for summary judgment and directed the trial court to enter judgment in favor of the State and against the Companies in the amount of $19 million, plus statutory interest at the rate of 9% per annum from June 2, 2006.  On March 22, 2011, the Companies filed with the Missouri Court of Appeals, a motion for rehearing and an application for transfer to the Supreme Court of Missouri.  On May 3, 2011, the Missouri Court of Appeals for the Western District overruled the Companies’ motion for rehearing and denied the motion to transfer the case to the Missouri Supreme Court.  On June 28, 2011, the Companies’ application to the Missouri Supreme Court to hear a further appeal was denied.  On July 1, 2011, the Companies paid the amount of the judgment plus simple interest at 9%.  On August 9, 2011, the plaintiffs filed a Satisfaction of Judgment.
 
On June 8, 2011, NMIC and NLIC were named in a lawsuit filed in Court of Common Pleas, Cuyahoga County, Ohio entitled Stanley Andrews and Donald Clark, on their behalf and on behalf of the class defined herein v.   Nationwide Mutual Insurance Company and Nationwide Life Insurance Company .  The complaint alleges that Nationwide has an obligation to review the Social Security Administration Death Master File database for all life insurance policyholders who have at least a 70% probability of being deceased according to actuarial tables.  The complaint further alleges that Nationwide is not conducting such a review.  The complaint seeks injunctive relief and declaratory judgment requiring Nationwide to conduct such a review, and alleges Nationwide has violated the covenant of good faith and fair dealing and has been unjustly enriched by not having conducted such reviews.  The complaint seeks certification as a class action.  Nationwide removed the case to federal court on July 6, 2011.  Plaintiffs filed a motion to remand to state court on August 8, 2011.  On October 26, 2011, the Northern District of Ohio remanded the case to Ohio State court.  Nationwide appealed the order to remand on November 4, 2011.  Including Andrews, there are four similar class actions in Ohio: two against Western & Sourther; one against Cincinnati Life.  At the case management conference on November 21, 2011, the State Court order Plaintiffs to file an opposition to the motion to dismissed Nationwide filed in federal court.  Plaintiffs filed their opposition to Nationwide’s motion to dismiss on December 19, 2011.  By order dated January 18, 2012, the State Court issued an order dismissing the lawsuit.  The court issued its opinion on January 23, 2012.  On January 30, 2012, plaintiffs filed their appeal.
 
Waddell & Reed, Inc. is a party to legal proceedings incident to its normal business operations.  While there can be no assurances, none of the currently pending legal proceedings are anticipated to have a materially adverse effect on the
 

 
40
 


 
ability of Waddell & Reed, Inc. to perform the services as distributor of the contracts.
 



 
41
 


 
Table of Contents of Statement of Additional Information
Page
General Information and History
1
Services
1
Purchase of Securities Being Offered
2
Underwriters
2
Advertising
2
Annuity Payments
2
Condensed Financial Information
2
Financial Statements
3
 
Investment Company Act of 1940 Registration File No. 811-21099
Securities Act of 1933 Registration File No. 333 -178059


 
42
 

Appendix A: Underlying Mutual Funds
 
Below is a list of the available Sub-Accounts and information about the corresponding underlying mutual funds in which they invest.  The underlying mutual funds in which the Sub-Accounts invest 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.  Please refer to the prospectus for each underlying mutual fund for more detailed information.
 
Designations Key:
FF:
The underlying mutual fund corresponding to this Sub-Account primarily invests in other mutual funds.  Therefore, a proportionate share of the fees and expenses of any acquired funds are indirectly borne by investors.  As a result, investors in this Sub-Account may incur higher charges than if the assets were invested in an underlying mutual fund that does not invest in other mutual funds.   Please refer to the prospectus for this underlying mutual fund for more information.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Asset Strategy
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks high total return over the long term.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Balanced
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks current income with a secondary goal of long-term capital appreciation.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Bond
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks reasonable return with emphasis on preservation of capital.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Core Equity
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks capital growth.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Dividend Opportunities
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks to provide total return.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Energy
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks to provide long-term capital appreciation.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Global Bond
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks a high level of current income and capital growth (when consistent with a high level of current income).
 
Ivy Funds Variable Insurance Portfolios, Inc. - Global Natural Resources
Investment Advisor:
Waddell & Reed Investment Management Company
Sub-advisor:
Mackenzie Financial Corporation
Investment Objective:
Seeks long-term growth.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Growth
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks capital growth with a secondary objective of current income.
 
Ivy Funds Variable Insurance Portfolios, Inc. - High Income
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks a high level of current income and capital when consistent with its primary objective as a secondary objective.
 
Ivy Funds Variable Insurance Portfolios, Inc. - International Core Equity
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks long-term capital growth.
 
Ivy Funds Variable Insurance Portfolios, Inc. - International Growth
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks long-term capital appreciation and a secondary goal of current income.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Limited-Term Bond
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks to provide a high level of current income consistent with preservation of capital.

 
43
 


 
Ivy Funds Variable Insurance Portfolios, Inc. - Micro Cap Growth
Investment Advisor:
Waddell & Reed Investment Management Company
Sub-advisor:
Wall Street Associates LLC
Investment Objective:
Seeks long-term capital appreciation.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Mid Cap Growth
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks to provide growth of investment.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Money Market
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks maximum current income consistent with stability of principal.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Aggressive
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks maximum growth of capital consistent with a more aggressive level of risk.
Designation: FF
 
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Conservative
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Seeks a high level of total return consistent with a conservative level of risk.
Designation: FF
 
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Moderate
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
The fund seeks a high level of total return consistent with a moderate level of risk.
Designation: FF
 
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Moderately Aggressive
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
The fund seeks growth of capital, but also seeks income consistent with a moderately aggressive level of risk.
Designation: FF
 
Ivy Funds Variable Insurance Portfolios, Inc. - Pathfinder Moderately Conservative
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
The fund seeks a high level of total return consistent with a moderately conservative level of risk.
Designation: FF
 
Ivy Funds Variable Insurance Portfolios, Inc. - Real Estate Securities
Investment Advisor:
Waddell & Reed Investment Management Company
Sub-advisor:
Advantus Capital Management, Inc.
Investment Objective:
Total return through a combination of capital appreciation and current income.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Science and Technology
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Long-term capital growth.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Small Cap Growth
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Capital growth.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Small Cap Value
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Long-term accumulation of capital.
 
Ivy Funds Variable Insurance Portfolios, Inc. - Value
Investment Advisor:
Waddell & Reed Investment Management Company
Investment Objective:
Long-term capital appreciation.
 
Nationwide Variable Insurance Trust - NVIT Investor Destinations Aggressive Fund: Class II
Investment Advisor:
Nationwide Fund Advisors
Investment Objective:
The NVIT Investor Destinations Aggressive Fund seeks maximum growth of capital consistent with a more aggressive level of risk as compared to other Investor Destinations Funds.
Designation: FF

 
44
 


 
Nationwide Variable Insurance Trust - NVIT Investor Destinations Balanced Fund: Class II
Investment Advisor:
Nationwide Fund Advisors
Investment Objective:
The NVIT Investor Destinations Balanced Fund seeks a high level of total return through investment in both equity and fixed-income securities.
Designation: FF
 
Nationwide Variable Insurance Trust - NVIT Investor Destinations Capital Appreciation Fund: Class II
Investment Advisor:
Nationwide Fund Advisors
Investment Objective:
The NVIT Investor Destinations Capital Appreciation Fund seeks growth of capital, but also seeks income consistent with a less aggressive level of risk as compared to other NVIT Investor Destinations Funds.
Designation: FF
 
Nationwide Variable Insurance Trust - NVIT Investor Destinations Conservative Fund: Class II
Investment Advisor:
Nationwide Fund Advisors
Investment Objective:
The NVIT Investor Destinations Conservative Fund seeks a high level of total return consistent with a conservative level of risk as compared to other Investor Destinations Funds.
Designation: FF
 
Nationwide Variable Insurance Trust - NVIT Investor Destinations Moderate Fund: Class II
Investment Advisor:
Nationwide Fund Advisors
Investment Objective:
The NVIT Investor Destinations Moderate Fund seeks a high level of total return consistent with a moderate level of risk as compared to other Investor Destinations Funds.
Designation: FF
 
Nationwide Variable Insurance Trust - NVIT Investor Destinations Moderately Aggressive Fund: Class II
Investment Advisor:
Nationwide Fund Advisors
Investment Objective:
The NVIT Investor Destinations Moderately Aggressive Fund seeks growth of capital, but also seeks income consistent with a moderately aggressive level of risk as compared to other Investor Destinations Funds.
Designation: FF
 
Nationwide Variable Insurance Trust - NVIT Investor Destinations Moderately Conservative Fund: Class II
Investment Advisor:
Nationwide Fund Advisors
Investment Objective:
The NVIT Investor Destinations Moderately Conservative Fund seeks a high level of total return consistent with a moderately conservative level of risk.
Designation: FF


 
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Appendix B: Condensed Financial Information
 
Because the contracts described in this prospectus have not been previously made available for sale, there are no Accumulation Unit values for the year ending December 31, 201 1 .  The Statement of Additional Information is available FREE OF CHARGE upon request by  contacting  the Service Center.
 

 
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Appendix C: Contract Types and Tax Information

The contracts described in this prospectus are classified according to the tax treatment to which they are subject under the Internal Revenue Code (the "Code").  Following is a general description of the various contract types.  Eligibility requirements, tax benefits (if any), limitations, and other features of the contracts will differ depending on contract type.
 
Non-Qualified Contracts
 
A non-qualified contract is a contract that does not qualify for certain tax benefits under the Code, and which is not an IRA, a Roth IRA, a SEP IRA, or a Simple IRA.
 
Upon the death of the owner of a non-qualified contract, mandatory distribution requirements are imposed to ensure distribution of the entire balance in the contract within a required period.
 
Non-qualified contracts that are owned by natural persons allow the deferral of taxation on the income earned in the contract until it is distributed or deemed to be distributed.  Non-qualified contracts that are owned by non-natural persons, such as trusts, corporations and partnerships are generally subject to current income tax on the income earned inside the contract, unless the non-natural person owns the contract as an "agent" of a natural person.
 
Charitable Remainder Trusts
 
Charitable remainder trusts are trusts that meet the requirements of Section 664 of the Code.  Non-qualified contracts that are issued to charitable remainder trusts will differ from other non-qualified contracts in 3 respects:
 
(1)
Waiver of sales charges.  In addition to any sales load waivers included in the contract, charitable remainder trusts may also withdraw the difference between:
 
 
(a)
the contract value on the day before the withdrawal; and
 
 
(b)
the total amount of purchase payments made to the contract (less an adjustment for amounts withdrawn).
 
(2)
Contract ownership at annuitization.  On the annuitization date, if the contract owner is a charitable remainder trust, the charitable remainder trust will continue to be the contract owner and the annuitant will NOT become the contract owner.
 
(3)
Recipient of death benefit proceeds.  With respect to the death benefit proceeds, if the contract owner is a charitable remainder trust, the death benefit is payable to the charitable remainder trust.  Any designation in conflict with the charitable remainder trust's right to the death benefit will be void.
 
While these provisions are intended to facilitate a charitable remainder trust's ownership of this contract, the rules governing charitable remainder trusts are numerous and complex.  A charitable remainder trust that is considering purchasing this contract should seek the advice of a qualified tax and/or financial adviser prior to purchasing the contract.  An annuity that has a charitable remainder trust endorsement is not a charitable remainder trust; the endorsement is merely to facilitate ownership of the contract by a charitable remainder trust.
 
Individual Retirement Annuities (IRAs)
 
IRAs are contracts that satisfy the provisions of Section 408(b) of the Code, including the following requirements:
 
 
·
the contract is not transferable by the owner;
 
 
·
the premiums are not fixed;
 
 
·
if the contract owner is younger than age 50, the annual premium cannot exceed $5,000; if the contract owner is age 50 or older, the annual premium cannot exceed $6,000 (although rollovers of greater amounts from qualified plans and other IRAs can be received);
 
 
·
certain minimum distribution requirements must be satisfied after the owner attains the age of 70½;
 
 
·
the entire interest of the owner in the contract is nonforfeitable; and
 
 
·
after the death of the owner, additional distribution requirements may be imposed to ensure distribution of the entire balance in the contract within the statutory period of time.
 
Depending on the circumstance of the owner, all or a portion of the contributions made to the account may be deducted for federal income tax purposes.
 
IRAs may receive rollover contributions from other Individual Retirement Accounts, other Individual Retirement Annuities, certain 457 governmental plans and qualified retirement plans (including 401(k) plans).
 
When the owner of an IRA attains the age of 70½, the Code requires that certain minimum distributions be made.  In addition, upon the death of the owner of an IRA, mandatory distribution requirements are imposed by the Code to ensure distribution of the entire contract value within the required statutory period.  Due to recent changes in Treasury Regulations, the amount used to compute the mandatory distributions may exceed the contract value.
 
Failure to make the mandatory distributions can result in an additional penalty tax of 50% of the excess of the amount required to be distributed over the amount that was actually distributed.
 
For further details regarding IRAs, please refer to the disclosure statement provided when the IRA was established and the annuity contract's IRA endorsement.
 
As used herein, the term "individual retirement plans" shall refer to both individual retirement annuities and individual retirement accounts that are described in Section 408 of the Code.

 
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Roth IRAs
 
Roth IRA contracts are contracts that satisfy the provisions of Section 408A of the Code, including the following requirements:
 
 
·
the contract is not transferable by the owner;
 
 
·
the premiums are not fixed;
 
 
·
if the contract owner is younger than age 50, the annual premium cannot exceed $5,000; if the contract owner is age 50 or older, the annual premium cannot exceed $6,000 (although rollovers of greater amounts from other Roth IRAs and other individual retirement plans can be received);
 
 
·
the entire interest of the owner in the contract is nonforfeitable; and
 
 
·
after the death of the owner, certain distribution requirements may be imposed to ensure distribution of the entire balance in the contract within the statutory period of time.
 
A Roth IRA can receive a rollover from an individual retirement plan or another eligible retirement plan; however, the amount rolled over from the individual retirement plan or other eligible retirement plan to the Roth IRA is required to be included in the owner's federal gross income at the time of the rollover, and will be subject to federal income tax.
 
There are income limitations on eligibility to participate in a Roth IRA and additional income limitations for eligibility to roll over amounts from an individual retirement plan or other eligible retirement plan to a Roth IRA.
 
For further details regarding Roth IRAs, please refer to the disclosure statement provided when the Roth IRA was established and the annuity contract's IRA endorsement.
 
Simplified Employee Pension IRAs (SEP IRA)
 
A SEP IRA is a written plan established by an employer for the benefit of employees which permits the employer to make contributions to an IRA established for the benefit of each employee.
 
An employee may make deductible contributions to a SEP IRA subject to the same restrictions and limitations as an IRA.  In addition, the employer may make contributions to the SEP IRA, subject to dollar and percentage limitations imposed by both the Code and the written plan.
 
A SEP IRA plan must satisfy:
 
·
minimum participation rules;
 
·
top-heavy contribution rules;
 
·
nondiscriminatory allocation rules; and
 
·
requirements regarding a written allocation formula.
 
In addition, the plan cannot restrict withdrawals of non-elective contributions, and must restrict withdrawals of elective contributions before March 15 th of the following year.
 
When the owner of a SEP IRA attains the age of 70½, the Code requires that certain minimum distributions be made.  Due to recent changes in Treasury Regulations, the amount used to compute the minimum distributions may exceed the contract value.  In addition, upon the death of the owner of a SEP IRA, mandatory distribution requirements are imposed by the Code to ensure distribution of the entire contract value within the required statutory period.
 
Simple IRAs
 
A Simple IRA is an individual retirement annuity that is funded exclusively by a qualified salary reduction arrangement and satisfies:
 
·
vesting requirements;
 
·
participation requirements; and
 
·
administrative requirements.
 
The funds contributed to a Simple IRA cannot be commingled with funds in other individual retirement plans or SEP IRAs.
 
A Simple IRA cannot receive rollover distributions except from another Simple IRA.
 
When the owner of Simple IRA attains the age of 70½, the Code requires that certain minimum distributions be made.  Due to recent changes in Treasury Regulations, the amount used to compute the minimum distributions may exceed the contract value.  In addition, upon the death of the owner of a Simple IRA, mandatory distribution requirements are imposed by the Code to ensure distribution of the entire contract value within the required statutory period.
 
Tax Sheltered Annuities
 
Certain tax-exempt organizations (described in Section 501(c)(3) of the Code) and public school systems may establish a plan under which annuity contracts can be purchased for their employees.  These annuity contracts are often referred to as Tax Sheltered Annuities.
 
Purchase payments made to Tax Sheltered Annuities are excludable from the income of the employee, up to statutory maximum amounts.  These amounts should be set forth in the plan adopted by the employer.
 
Tax Sheltered Annuities may receive rollover contributions from individual retirement accounts, individual retirement annuities, other Tax Sheltered Annuities, certain 457 governmental plans, and qualified retirement plans (including 401(k) plans).
 
The owner's interest in the contract is nonforfeitable (except for failure to pay premiums) and cannot be transferred.
 
When the owner of a Tax Sheltered Annuity attains the age of 70½, the Code requires that certain minimum distributions be made.  Due to recent changes in Treasury Regulations, the amount used to compute the minimum distributions may exceed the contract value.  In addition, upon the death of the owner of a Tax Sheltered Annuity, mandatory distribution requirements are imposed by the Code to ensure distribution of the entire contract value within the required statutory period.

 
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Final 403(b) Regulations issued by the Internal Revenue Service impose certain restrictions on non-taxable transfers or exchanges of one 403(b) Tax Sheltered Annuity contract for another.  Nationwide will no longer issue or accept applications for new and/or in-service transfers to new or existing Nationwide individual 403(b) Tax Sheltered Annuity contracts used for salary reduction plans not subject to ERISA.  Nationwide will continue to accept applications and in-service transfers for individual 403(b) Tax Sheltered Annuity contracts used for 403(b) plans that are subject to ERISA and certain state Optional Retirement Plans and/or Programs that have purchased at least one individual annuity contract issued by Nationwide prior to September 25, 2007.
 
Commencing in 2009, Tax Sheltered Annuities must be issued pursuant to a written plan, and the plan must satisfy various administrative requirements.  You should check with your employer to ensure that these requirements will be satisfied in a timely manner.
 
Investment Only (Qualified Plans)
 
Contracts that are owned by qualified plans are not intended to confer tax benefits on the beneficiaries of the plan; they are used as investment vehicles for the plan.  The income tax consequences to the beneficiary of a qualified plan are controlled by the operation of the plan, not by operation of the assets in which the plan invests.
 
Beneficiaries of qualified plans should contact their employer and/or trustee of the plan to obtain and review the plan, trust, summary plan description and other documents for the tax and other consequences of being a participant in a qualified plan.
 
Federal Tax Considerations
 
Federal Income Taxes
 
The tax consequences of purchasing a contract described in this prospectus will depend on:
 
·
the type of contract purchased;
 
·
the purposes for which the contract is purchased; and
 
·
the personal circumstances of individual investors having interests in the contracts.
 
Existing tax rules are subject to change, and may affect individuals differently depending on their situation.  Nationwide does not guarantee the tax status of any contracts or any transactions involving the contracts.
 
Representatives of the Internal Revenue Service 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 Internal Revenue Service issued formal guidance, in Revenue Ruling 2003-91, that indicates that if the number of underlying mutual funds available in a variable insurance product does not exceed 20, the number of underlying mutual funds alone would not cause the contract to not qualify for the desired tax treatment.  The Internal Revenue Service 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 contract, when determining whether the contract qualifies for the desired tax treatment.  The revenue ruling did not indicate the actual number of underlying mutual funds that would cause the contract 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 investment objectives of underlying mutual funds such that the contract would no longer qualify for tax deferred treatment under Section 72 of the Code, Nationwide will take whatever steps are available to remain in compliance.
 
If the contract is purchased as an investment of certain retirement plans (such as qualified retirement plans, Individual Retirement Accounts, and custodial accounts as described in Sections 401 and 408(a), of the Code), tax advantages enjoyed by the contract owner and/or annuitant may relate to participation in the plan rather than ownership of the annuity contract.  Such plans are permitted to purchase investments other than annuities and retain tax-deferred status.
 
The following is a brief summary of some of the federal income tax considerations related to the types of contracts sold in connection with this prospectus.  In addition to the federal income tax, distributions from annuity contracts may be subject to state and local income taxes.  The tax rules across all states and localities are not uniform and therefore will not be discussed in this prospectus.  Tax rules that may apply to contracts issued in U.S. territories such as Puerto Rico and Guam are also not discussed.  Nothing in this prospectus should be considered to be tax advice.  Purchasers and prospective purchases of the contract should consult a financial consultant, tax adviser or legal counsel to discuss the taxation and use of the contracts.
 
IRAs, SEP IRAs and Simple IRAs
 
Distributions from IRAs, SEP IRAs and Simple IRAs are generally taxed as ordinary income when received.  If any of the amounts contributed to the individual retirement annuity were non-deductible for federal income tax purposes, then a portion of each distribution is excludable from income.
 
If distributions of income from an IRA are made prior to the date that the owner attains the age of 59½ years, the income is subject to the regular income tax, and an additional penalty tax of 10% is generally applicable.  (For Simple IRAs, the 10% penalty is increased to 25% if the distribution is made during the 2-year period beginning on the date that the individual first participated in the Simple IRA.)  The 10% penalty tax can be avoided if the distribution is:
 
·
made to a beneficiary on or after the death of the owner;
 
·
attributable to the owner becoming disabled (as defined in the Code);
 
·
part of a series of substantially equal periodic payments made not less frequently than annually made for the life (or life expectancy) of the owner, or the joint lives (or joint life expectancies) of the owner and his or her designated beneficiary;

 
49
 


 
·
used for qualified higher education expenses; or
 
·
used for expenses attributable to the purchase of a home for a qualified first-time buyer.
 
If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for tax purposes.
 
Roth IRAs
 
Distributions of earnings from Roth IRAs are taxable or non-taxable depending upon whether they are "qualified distributions" or "non-qualified distributions."  A "qualified distribution" satisfies the 5-year rule and meets 1 of the following requirements:
 
·
it is made on or after the date on which the contract owner attains age 59½;
 
·
it is made to a beneficiary (or the contract owner’s estate) on or after the death of the contract owner;
 
·
it is attributable to the contract owner’s disability; or
 
·
it is used for expenses attributable to the purchase of a home for a qualified first-time buyer.
 
The 5-year rule generally is satisfied if the distribution is not made within the 5-year period beginning with the first taxable year in which a contribution is made to any Roth IRA established for the owner.
 
A qualified distribution is not included in gross income for federal income tax purposes.
 
A non-qualified distribution is not includable in gross income to the extent that the distribution, when added to all previous distributions, does not exceed the total amount of contributions made to the Roth IRA.  Any non-qualified distribution in excess of total contributions is includable in the contract owner’s gross income as ordinary income in the year that it is distributed to the contract owner.
 
Special rules apply for Roth IRAs that have proceeds received from an individual retirement plan prior to January 1, 1999 if the owner elected the special 4-year income averaging provisions that were in effect for 1998.
 
If non-qualified distributions of income from a Roth IRA are made prior to the date that the owner attains the age of 59½ years, the income is subject to both the regular income tax and an additional penalty tax of 10%.  The penalty tax can be avoided if the distribution is:
 
·
made to a beneficiary on or after the death of the owner;
 
·
attributable to the owner becoming disabled (as defined in the Code);
 
·
part of a series of substantially equal periodic payments made not less frequently than annually made for the life (or life expectancy) of the owner, or the joint lives (or joint life expectancies) of the owner and his or her designated beneficiary;
 
·
for qualified higher education expenses; or
 
·
used for expenses attributable to the purchase of a home for a qualified first-time buyer.
 
If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for tax purposes.
 
Tax Sheltered Annuities
 
Distributions from Tax Sheltered Annuities are generally taxed when received.  A portion of each distribution after the annuitization date is excludable from income based on a formula established pursuant to the Code.  The formula excludes from income the amount invested in the contract divided by the number of anticipated payments until the full investment in the contract is recovered.  Thereafter, all distributions are fully taxable.
 
If a distribution of income is made from a Tax Sheltered Annuity prior to the date that the owner attains the age of 59½, the income is subject to both the regular income tax and an additional penalty tax of 10%.  The penalty tax can be avoided if the distribution is:
 
·
made to a beneficiary on or after the death of the owner;
 
·
attributable to the owner becoming disabled (as defined in the Code);
 
·
part of a series of substantially equal periodic payments made not less frequently than annually made for the life (or life expectancy) of the owner, or the joint lives (or joint life expectancies) of the owner and his or her designated beneficiary; or
 
·
made to the owner after separation from service with his or her employer after age 55.
 
A loan from a Tax Sheltered Annuity generally is not considered to be a distribution, and is therefore generally not taxable.  However, if the loan is not repaid in accordance with the repayment schedule, the entire balance of the loan would be treated as being in default, and the defaulted amount would be treated as being distributed to the participant as a taxable distribution.
 
If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for tax purposes.
 
Non-Qualified Contracts - Natural Persons as Contract Owners
 
Generally, the income earned inside a non-qualified annuity contract that is owned by a natural person is not taxable until it is distributed from the contract.
 
Distributions before the annuitization date are taxable to the contract owner to the extent that the cash value of the contract exceeds the contract owner’s investment in the contract at the time of the distribution.  In general, the investment in the contract is equal to the purchase payments made with after-tax dollars.  Distributions, for this purpose, include full and partial withdrawals, any portion of the contract that is assigned or pledged, amounts borrowed from the contract, or any portion of the contract that is transferred by gift.  For these purposes, a transfer by gift may occur upon annuitization if the contract owner and the annuitant are not the same individual.

 
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With respect to annuity distributions on or after the annuitization date, a portion of each annuity payment is excludable from taxable income.  The amount excludable from each annuity payment is determined by multiplying the annuity payment by a fraction which is equal to the contract owner’s investment in the contract, divided by the expected return on the contract.  Once the entire investment in the contract is recovered, all distributions are fully includable in income.  The maximum amount excludable from income is the investment in the contract.  If the annuitant dies before the entire investment in the contract has been excluded from income, and as a result of the annuitant's death no more payments are due under the contract, then the unrecovered investment in the contract may be deducted on his or her final tax return.
 
In determining the taxable amount of a distribution, all annuity contracts issued after October 21, 1988 by the same company to the same contract owner during the same calendar year will be treated as 1 annuity contract.
 
A special rule applies to distributions from contracts that have investments that were made prior to August 14, 1982.  For those contracts, distributions that are made prior to the annuitization date are treated first as a recovery of the investment in the contract as of that date.  A distribution in excess of the amount of the investment in the contract as of August 14, 1982, will be treated as taxable income.
 
The Code imposes a penalty tax if a distribution is made before the contract owner   reaches age 59½.  The amount of the penalty is 10% of the portion of any distribution that is includable in gross income.  The penalty tax does not apply if the distribution is:
 
·
the result of a contract owner’s death;
 
·
the result of a contract owner’s disability (as defined in the Code);
 
·
one of a series of substantially equal periodic payments made over the life (or life expectancy) of the contract owner or the joint lives (or joint life expectancies) of the contract owner and the beneficiary selected by the contract owner to receive payment under the annuity payment option selected by the contract owner; or
 
·
is allocable to an investment in the contract before August 14, 1982.
 
If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for tax purposes.
 
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
 
The previous discussion related to the taxation of non-qualified contracts owned by individuals.  Different rules (the so-called "non-natural persons" rules) apply if the contract owner is not a natural person.
 
Generally, contracts owned by corporations, partnerships, trusts, and similar entities are not treated as annuity contracts under the Code.  Therefore, income earned under a non-qualified contract that is owned by a non-natural person is taxed as ordinary income during the taxable year that it is earned.  Taxation is not deferred, even if the income is not distributed out of the contract.  The income is taxable as ordinary income, not capital gain.
 
The non-natural persons rules do not apply to all entity-owned contracts.  For purposes of the non-natural persons rule, a contract that is owned by a non-natural person as an agent of an individual is treated as owned by the individual.  This would cause the contract to be treated as an annuity under the Code, allowing tax deferral.  However, this exception does not apply when the non-natural person is an employer that holds the contract under a non-qualified deferred compensation arrangement for one or more employees.
 
The non-natural persons rules also do not apply to contracts that are:
 
·
acquired by the estate of a decedent by reason of the death of the decedent;
 
·
issued in connection with certain qualified retirement plans and individual retirement plans;
 
·
purchased by an employer upon the termination of certain qualified retirement plans; or
 
·
immediate annuities within the meaning of Section 72(u) of the Code.
 
If the annuitant dies before the contract is completely distributed, the balance may be included in the annuitant's gross estate for tax purposes, depending on the obligations that the non-natural owner may have owed to the annuitant.
 
Exchanges
 
As a general rule, federal income tax law treats exchanges of property in the same manner as a sale of the property.  However, pursuant to Section 1035 of the Code, an annuity contract may be exchanged tax-free for another annuity, provided that the obligee (the person to whom the annuity obligation is owed) is the same for both contracts.  If the exchange includes the receipt of property in addition to another annuity contract, such as cash, special rules may cause a portion of the transaction to be taxable.
 
Tax Treatment of a Partial 1035 Exchange With Subsequent Withdrawal
In March 2008, the IRS issued Rev. Proc. 2008-24, which addresses the income tax consequences of the direct transfer of a portion of the cash value of an annuity contract in exchange for the issuance of a second annuity contract.  A direct transfer that satisfies the revenue procedure will be treated as a tax-free exchange under Section 1035 of the Code if, for a period of at least 12 months from the date of the direct transfer, there are no distributions or withdrawals from either annuity contract involved in the exchange.  In addition, the tax-free status of the exchange may still be preserved despite a distribution or withdrawal from either contract if the contract owner can show that between the date of the direct transfer and the distribution or withdrawal, one of the conditions described under Section 72(q)(2) of the Code that would exempt the distribution from the 10% early distribution penalty (such as turning age 59½, or becoming disabled; but not a series of substantially equal periodic payments or an

 
51
 


immediate annuity) or "other similar life event" such as divorce or loss of employment occurred.  Absent a showing of such an occurrence, Rev. Proc. 2008-24 concludes that the direct transfer would fail to qualify as a tax-free 1035 exchange, and the full amount transferred from the original contract would be treated as a taxable distribution, followed by the purchase of a new annuity contract.  Rev. Proc. 2008-24 applies to direct transfers completed on or after June 30, 2008.  Please discuss any tax consequences concerning any contemplated or completed transactions with a professional tax adviser.
 
Taxation of Lifetime Withdrawals Under the 7% Lifetime Income Option
 
While the tax treatment for withdrawals for benefits such as the 7% Lifetime Income Option is not clear under federal tax law, Nationwide intends to treat withdrawals under these options as taxable to the extent that the cash value of the contract exceeds the contract owner's investment at the time of the withdrawal.  Specifically, we intend to treat the following amount of each withdrawal as a taxable distribution:
 
The greater of:
 
(1)
A – C; or
 
(2)
B – C,
 
Where
 
A = the contract value immediately before the withdrawal;
 
 
B = the guaranteed annual benefit amount immediately before the withdrawal; and
 
C = the remaining investment in the contract.
 
In certain circumstances, this treatment could result in the contract value being less than the investment in the contract after such a withdrawal.  If you subsequently withdrawal your contract under such circumstances, you would have a loss that may be deductible.  If you purchase one of these options in an IRA, withdrawals in excess of the annual benefit amount may be required to satisfy the minimum distribution requirements under the Code.  Please consult a qualified tax adviser.
 
Same-Sex Marriages, Domestic Partnership, and Other Similar Relationships
 
Pursuant to Section 3 of the federal Defense of Marriage Act ("DOMA"), same-sex marriages currently are not recognized for purposes of federal law.  Therefore, the favorable income-deferral options afforded by federal tax law to an opposite-sex spouse under Code Sections 72(s) and 401(a)(9) are currently NOT available to a same-sex spouse.  Same-sex spouses who own or are considering the purchase of annuity products that provide benefits based upon status as a spouse should consult a tax advisor.  To the extent that an annuity contract or certificate accords to spouses other rights or benefits that are not affected by DOMA, same-sex spouses remain entitled to such rights or benefits to the same extent as any annuity holder's spouse.
 
Withholding
 
Pre-death distributions from the contracts are subject to federal income tax.  Nationwide will withhold the tax from the distributions unless the contract owner requests otherwise.
 
In addition, under some circumstances, the Code will not permit contract owners to waive withholding.  Such circumstances include:
 
·
if the payee does not provide Nationwide with a taxpayer identification number; or
 
·
if Nationwide receives notice from the Internal Revenue Service that the taxpayer identification number furnished by the payee is incorrect.
 
If a contract owner is prohibited from waiving withholding, as described above, the distribution will be subject to mandatory back-up withholding.  The mandatory back-up withholding rate is established by Section 3406 of the Code and is applied against the amount of income that is distributed.
 
Non-Resident Aliens
 
Generally, a pre-death distribution from a contract to a non-resident alien is subject to federal income tax at a rate of 30% of the amount of income that is distributed.
 
Nationwide is required to withhold this amount and send it to the Internal Revenue Service.  Some distributions to non-resident aliens may be subject to a lower (or no) tax if a treaty applies.  In order to obtain the benefits of such a treaty, the non-resident alien must:
 
(1)
provide Nationwide with a properly completed withholding certificate claiming the treaty benefit of a lower tax rate or exemption from tax; and
 
(2)
provide Nationwide with an individual taxpayer identification number.
 
If the non-resident alien does not meet the above conditions, Nationwide will withhold 30% of income from the distribution.
 
Another exemption from the 30% withholding rate is for the non-resident alien to provide Nationwide with sufficient evidence that:
 
(1)
the distribution is connected to the non-resident alien's conduct of business in the United States;
 
(2)
the distribution is  includable in the non-resident alien's gross income for United States federal income tax purposes; and
 
(3)
provide Nationwide with a properly completed withholding certificate claiming the exemption.
 
Note that for the preceding exemption, the distributions would be subject to the same withholding rules that are applicable to payments to United States persons, including back-up withholding, which is currently at a rate of 28%, if a correct taxpayer identification number is not provided.

 
52
 


 
This prospectus does not address any tax matters that may arise by reason of application of the laws of a non-resident alien’s country of citizenship and/or country of residence. Purchasers and prospective purchasers should consult a financial consultant, tax advisor or legal counsel to discuss the applicability of laws of those jurisdictions to the purchase or ownership of a contract.
 
Federal Estate, Gift and Generation Skipping Transfer Taxes
 
The following transfers may be considered a gift for federal gift tax purposes:
 
·
a transfer of the contract from one contract owner to another; or
 
·
a distribution to someone other than a contract owner.
 
Upon the contract owner's death, the value of the contract may be subject to estate taxes, even if all or a portion of the value is also subject to federal income taxes.
 
Section 2612 of the Code may require Nationwide to determine whether a death benefit or other distribution is a "direct skip" and the amount of the resulting generation skipping transfer tax, if any.  A direct skip is when property is transferred to, or a death benefit or other distribution is made to:
 
a)
an individual who is 2 or more generations younger than the contract owner; or
 
b)
certain trusts, as described in Section 2613 of the Code (generally, trusts that have no beneficiaries who are not 2 or more generations younger than the contract owner).
 
If the contract owner is not an individual, then for this purpose only , "contract owner" refers to any person:
 
·
who would be required to include the contract, death benefit, distribution, or other payment in his or her federal gross estate at his or her death; or
 
·
who is required to report the transfer of the contract, death benefit, distribution, or other payment for federal gift tax purposes.
 
If a transfer is a direct skip, Nationwide may be required to deduct the amount of the transfer tax from the death benefit, distribution or other payment, and remit it directly to the Internal Revenue Service.
 
Charge for Tax
 
Nationwide is not required to maintain a capital gain reserve liability on non-qualified contracts.  If tax laws change requiring a reserve, Nationwide may implement and adjust a tax charge.
 
Diversification
 
Code Section 817(h) contains rules on diversification requirements for variable annuity contracts.  A variable annuity contract that does not meet these diversification requirements will not be treated as an annuity, unless:
 
·
the failure to diversify was accidental;
 
·
the failure is corrected; and
 
·
a fine is paid to the Internal Revenue Service.
 
The amount of the fine will be the amount of tax that would have been paid by the contract owner if the income, for the period the contract was not diversified, had been received by the contract owner.
 
If the violation is not corrected, the contract owner will be considered the owner of the underlying securities and will be taxed on the earnings of his or her contract.  Nationwide believes that the investments underlying this contract meet these diversification requirements.
 
Required Distributions
 
The Code requires that certain distributions be made from the contracts issued in conjunction with this prospectus.  Following is an overview of the required distribution rules applicable to each type of contract.  Please consult a qualified tax or financial adviser for more specific required distribution information.
 
If you purchase the 7% Lifetime Income Option, withdrawals in excess of the annual benefit amount may be required to satisfy the minimum distribution requirements under the Code.  Please consult a qualified tax adviser.
 
Required Distributions – General Information
 
In general, a beneficiary is an individual or other entity that the contract owner designates to receive death proceeds upon the contract owner's death.  The distribution rules in the Code make a distinction between "beneficiary" and "designated beneficiary" when determining the life expectancy that may be used for payments that are made from IRAs, SEP IRAs, Simple IRAs, and Roth IRAs after the death of the annuitant, or that are made from non-qualified contracts after the death of the contract owner.  A designated beneficiary is a natural person who is designated by the contract owner as the beneficiary under the contract.  Non-natural beneficiaries (e.g. charities or certain trusts) are not designated beneficiaries for the purpose of required distributions and the life expectancy of such a beneficiary is 0.
 
Life expectancies and joint life expectancies will be determined in accordance with the relevant guidance provided by the Internal Revenue Service and the Treasury Department, including but not limited to Treasury Regulation 1.72-9 and Treasury Regulation 1.401(a)(9)-9.
 
Required distributions paid upon the death of the contract owner are paid to the beneficiary or beneficiaries stipulated by the contract owner.  How quickly the distributions must be made may be determined with respect to the life expectancies of the beneficiaries.  For non-qualified contracts, the beneficiaries used in the determination of the distribution period are those in effect on the date of the contract owner's death.  For contracts other than non-qualified contracts, the beneficiaries used in the determination of the distribution period do not have to be determined until September 30 of the year following the contract owner's death.  If there is more than one beneficiary, the life expectancy of the beneficiary with the shortest life expectancy is used to determine the

 
53
 

 

 
distribution period.  Any beneficiary that is not a designated beneficiary has a life expectancy of 0.
 
Required Distributions for Non-Qualified Contracts
 
Code Section 72(s) requires Nationwide to make certain distributions when a contract owner dies.  The following distributions will be made in accordance with the following requirements:
 
(1)
If any contract owner dies on or after the annuitization date and before the entire interest in the contract has been distributed, then the remaining interest must be distributed at least as rapidly as the distribution method in effect on the contract owner's death.
 
(2)
If any contract owner dies before the annuitization date, then the entire interest in the contract (consisting of either the death benefit or the contract value reduced by charges set forth elsewhere in the contract) will be distributed within 5 years of the contract owner's death, provided however:
 
 
(a)
any interest payable to or for the benefit of a designated beneficiary may be distributed over the life of the designated beneficiary or over a period not longer than the life expectancy of the designated beneficiary.  Payments must begin within 1 year of the contract owner's death unless otherwise permitted by federal income tax regulations; and
 
 
(b)
if the designated beneficiary is the surviving spouse of the deceased contract owner, the spouse can choose to become the contract owner instead of receiving a death benefit.  Any distributions required under these distribution rules will be made upon that spouse's death.
 
In the event that the contract owner is not a natural person (e.g., a trust or corporation), for purposes of these distribution provisions:
 
(a)
the death of the annuitant will be treated as the death of a contract owner;
 
(b)
any change of annuitant will be treated as the death of a contract owner; and
 
(c)
in either case, the appropriate distribution will be made upon the death or change, as the case may be.
 
These distribution provisions do not apply to any contract exempt from Section 72(s) of the Code by reason of Section 72(s)(5) or any other law or rule.
 
Required Distributions for IRAs, SEP IRAs, Simple IRAs, and Roth IRAs
 
Distributions from IRA, SEP IRA, or Simple IRA must begin no later than April 1 of the calendar year following the calendar year in which the contract owner reaches age 70½.  Distributions may be paid in a lump sum or in substantially equal payments over:
 
(a)
the life of the contract owner or the joint lives of the contract owner and the contract owner's designated beneficiary; or
 
(b)
a period not longer than the period determined under the table in Treasury Regulation 1.401(a)(9)-9, which is the deemed joint life expectancy of the contract owner and a person 10 years younger than the contract owner.  If the designated beneficiary is the spouse of the Co contract owner, the period may not exceed the longer of the period determined under such table or the joint life expectancy of the contract owner and the contract owner's spouse, determined in accordance with Treasury Regulation 1.72-9, or such additional guidance as may be provided pursuant to Treasury Regulation 1.401(a)(9)-9.
 
For IRAs, SEP IRAs, and Simple IRAs, required distributions do not have to be withdrawn from this contract if they are being withdrawn from another IRA, SEP IRA, or Simple IRA of the contract owner.
 
If the contract owner's entire interest in IRA, SEP IRA, or Simple IRA will be distributed in equal or substantially equal payments over a period described in (a) or (b) above, the payments must begin on or before the required beginning date.  The required beginning date is April 1 of the calendar year following the calendar year in which the contract owner reaches age 70½.  The rules for Roth IRAs do not require distributions to begin during the contract owner's lifetime, therefore, the required beginning date is not applicable to Roth IRAs.
 
Due to recent changes in Treasury Regulations, the amount used to compute the minimum distribution requirement may exceed the contract value.
 
If the contract owner dies before the required beginning date (in the case of IRA, SEP IRA or Simple IRA) or before the entire contract value is distributed (in the case of a Roth IRA), any remaining interest in the contract must be distributed over a period not exceeding the applicable distribution period, which is determined as follows:
 
(a)
if the designated beneficiary is the contract owner's spouse, the applicable distribution period is the surviving spouse's remaining life expectancy using the surviving spouse's birthday for each distribution calendar year after the calendar year of the contract owner's death.  For calendar years after the death of the contract owner's surviving spouse, the applicable distribution period is the spouse's remaining life expectancy using the spouse's age in the calendar year of the spouse's death, reduced by 1 for each calendar year that elapsed since the calendar year immediately following the calendar year of the spouse's death;
 
(b)
if the designated beneficiary is not the contract owner's surviving spouse, the applicable distribution period is the designated beneficiary's remaining life expectancy using the designated beneficiary's birthday in the calendar year immediately following the calendar year of the contract owner's death, reduced by 1 for each calendar year that elapsed thereafter; and

 
54
 


 
(c)
if there is no designated beneficiary, the entire balance of the contract must be distributed by December 31 of the 5 th year following the contract owner's death.
 
If the contract owner dies on or after the required beginning date, the interest in the IRA, SEP IRA, or Simple IRA must be distributed over a period not exceeding the applicable distribution period, which is determined as follows:
 
(a)
if the designated beneficiary is the contract owner's spouse, the applicable distribution period is the surviving spouse's remaining life expectancy using the surviving spouse's birthday for each distribution calendar year after the calendar year of the contract owner's death.  For calendar years after the death of the contract owner's surviving spouse, the applicable distribution period is the greater of (a) the contract owner's remaining life expectancy using the contract owner's birthday in the calendar year of the contract owner's death, reduced by one for each year thereafter; or (b) the spouse's remaining life expectancy using the spouse's age in the calendar year of the spouse's death, reduced by 1 for each calendar year that elapsed since the calendar year immediately following the calendar year of the spouse's death;
 
(b)
if the designated beneficiary is not the contract owner's surviving spouse, the applicable distribution period is the greater of (a) the contract owner's remaining life expectancy using the contract owner's birthday in the calendar  year of the contract owner's death, reduced by 1 for each year thereafter; or (b) the designated beneficiary's remaining life expectancy using the designated beneficiary's birthday in the calendar year immediately following the calendar year of the contract owner's death, reduced by 1 for each calendar year that elapsed thereafter; and
 
(c)
if there is no designated beneficiary, the applicable distribution period is the contract owner's remaining life expectancy using the contract owner's birthday in the calendar year of the contract owner's death, reduced by 1 for each year thereafter.
 
If distribution requirements are not met, a penalty tax of 50% is levied on the difference between the amount that should have been distributed for that year and the amount that actually was distributed for that year.
 
For IRAs, SEP IRAs, and Simple IRAs, all or a portion of each distribution will be included in the recipient's gross income and taxed at ordinary income tax rates.  The portion of a distribution that is taxable is based on the ratio between the amount by which non-deductible purchase payments exceed prior non-taxable distributions and total account balances at the time of the distribution.  The owner of an IRA, SEP IRA, or Simple IRA must annually report the amount of non-deductible purchase payments, the amount of any distribution, the amount by which non-deductible purchase payments for all years exceed non taxable distributions for all years, and the total balance of all IRAs, SEP IRAs, or Simple IRAs.
 
Distributions from Roth IRAs may be either taxable or nontaxable, depending upon whether they are "qualified distributions" or "non-qualified distributions."
 
Tax Changes
 
The foregoing tax information is based on Nationwide's understanding of federal tax laws.  It is NOT intended as tax advice.   All information is subject to change without notice.   You should consult with your personal tax and/or financial adviser for more information.
 
In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) was enacted.  EGTRRA made numerous changes to the Code, including the following:
 
·
generally lowering federal income tax rates;
 
·
increasing the amounts that may be contributed to various retirement plans, such as individual retirement plans and qualified plans;
 
·
increasing the portability of various retirement plans by permitting individual retirement plans, qualified plans and certain governmental 457 plans to "roll" money from one plan to another;
 
·
eliminating and/or reducing the highest federal estate tax rates;
 
·
increasing the estate tax credit; and
 
·
for persons dying after 2009, repealing the estate tax.
 
In 2006, the Pension Protection Act of 2006 made permanent the EGTRRA provisions noted above that increase the amounts that may be contributed to various retirement plans and that increase the portability of various retirement plans.  However, all of the other changes resulting from EGTRRA were scheduled to "sunset," or become ineffective, after December 31, 2010 unless they are extended by additional legislation.  The sunset date for many of these provisions was extended to December 31, 2012 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.  However, if these changes are not further extended (or modified) by new legislation, the Code will be restored to its pre-EGTRRA form after December 31, 2012.
 
This creates uncertainty as to future tax requirements and implications.  Please consult a qualified tax or financial adviser for further information relating to these and other tax issues.
 
State Taxation
 
The tax rules across the various states and localities are not uniform and therefore are not discussed in this prospectus.  Tax rules that may apply to contracts issued in U.S. territories such as Puerto Rico and Guam are also not discussed.  Purchasers and prospective purchasers should consult a financial consultant, tax advisor or legal counsel to discuss the taxation and use of the contracts
 
55
 

STATEMENT OF ADDITIONAL INFORMATION
 
_____, ____
 
Individual Flexible Premium Deferred Variable Annuity Contracts
 
Issued by Nationwide Life Insurance Company
through its Nationwide Variable Account-12
 
This Statement of Additional Information is not a prospectus.  It contains information in addition to and more detailed than set forth in the prospectus and should be read in conjunction with the prospectus dated _______, ____.  The prospectus may be obtained from Nationwide Life Insurance Company by writing: P.O. Box 182021, Columbus, Ohio 43218-2021 , or calling 1-866-221-1100, TDD 1-800-238-3035.   Capitalized terms in this Statement of Additional Information correspond to terms defined in the prospectus.

Table of Contents of The Statement of Additional Information
Page
General Information and History
1
Services
1
Purchase of Securities Being Offered
2
Underwriters
2
Advertising
2
Annuity Payments
2
Condensed Financial Information
2
Financial Statements
3
 
General Information and History
 
The Nationwide Variable Account-12 is a separate investment account of Nationwide Life Insurance Company ("Nationwide").  Nationwide is a stock life insurance company organized under the laws of the State of Ohio in March 1929 with its Home Office at One Nationwide Plaza, Columbus, Ohio 43215.  Nationwide provides life insurance, annuities and retirement products.  Nationwide is 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 its common stock is owned by Nationwide Financial Services, Inc. ("NFS"), a holding company.  Nationwide Corporation owns all of NFS's common stock and is a holding company, as well.  All of Nationwide Corporation's common stock is held by Nationwide Mutual Insurance Company (95.2%) and Nationwide Mutual Fire Insurance Company (4.8%), 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 $ 154 .7 billion as of December 31, 2011 .
 
Services
 
Nationwide, which has responsibility for administration of the contracts and the Variable Account, maintains records of the name, address, taxpayer identification number, and other pertinent information for each Contract Owner and the number and type of contract issued to each Contract Owner and records with respect to the Contract Value.
 
The custodian of the assets of the Variable Account is Nationwide.  Nationwide will maintain a record of all purchases and redemptions of shares of the underlying mutual funds.  Nationwide, or its affiliates may have entered into agreements with the underlying mutual funds and/or their affiliates.  The agreements relate to services furnished by Nationwide or an affiliate of Nationwide.  Some of the services provided include distribution of underlying fund prospectuses, semi-annual and annual fund reports, proxy materials and fund communications, as well as maintaining the websites and voice response systems necessary for contract owners to execute trades in the funds.  Nationwide also acts as a limited agent for the fund for purposes of accepting the trades.
 
See "Underlying Mutual Fund Payments" located in the prospectus.
 
Distribution, Promotional and Sales Expenses
 
In addition to or partially in lieu of commission, Nationwide may pay the selling firms a marketing allowance, which is based on the firm's ability and demonstrated willingness to promote and market Nationwide's products.  How any marketing allowance is spent is determined by the firm, but generally will be used to finance firm activities, such as training and education, that may contribute to the promotion and marketing of Nationwide's products.  Nationwide makes certain assumptions about the amount of marketing allowance it will pay and takes these assumptions into consideration when it determines the charges that will be assessed under the contracts.  For the contracts described in the prospectus, Nationwide assumed 0.75% (of the Daily Net Assets of the Variable Account) for marketing allowance when determining the charges for the contracts.  The actual amount of the marketing allowance may be higher or lower than this assumption.  If the actual amount of marketing allowance paid is more that what was assumed, Nationwide will fund the difference.  Nationwide generally does not profit from any excess marketing allowance if the amount assumed was higher than what is actually paid.  Any excess would be spent on additional marketing for the contracts.  For more information about marketing allowance or how a particular selling firm uses marketing allowances, please consult with your registered representative.

 
1
 

 
Independent Registered Public Accounting Firm
 
The financial statements of Nationwide Variable Account-12 and the consolidated financial statements and schedules of Nationwide Life Insurance Company and subsidiaries for the periods indicated have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.   KPMG LLP is located at 191 West Nationwide Blvd., Columbus, Ohio 43215.
 
Purchase of Securities Being Offered
 
The contracts will be sold by licensed insurance agents in the states where the contracts may be lawfully sold. Such agents will be registered representatives of broker-dealers registered under the Securities Exchange Act of 1934 who are members of the Financial Industry Regulatory Authority ("FINRA").
 
Underwriters
 
The contracts, which are offered continuously, are distributed by Waddell & Reed, Inc., 6300 Lamar Avenue, Overland Park, Kansas 66202.  No underwriting commissions were paid by Nationwide to Waddell & Reed, Inc.
 
Advertising
 
Money Market Yields
 
Nationwide 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 7-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
 
Nationwide will advertise historical performance of the Sub-Accounts in accordance with SEC prescribed calculations.  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.
 
Standardized performance will reflect the maximum Variable Account charges possible under the contract, the Contract Maintenance Charge, and the standard CDSC schedule.  Non-standardized performance, which will be accompanied by standardized performance, will reflect other expense structures contemplated under the contract.  The expense assumptions will be stated in the advertisement.
 
Additional Materials
 
Nationwide may provide information on various topics to Contract Owners and prospective Contract Owners in advertising, sales literature or other materials.
 
Performance Comparisons
 
Each Sub-Account may, from time to time, include in advertisements the ranking of its performance figures compared with performance figures of other annuity contracts' Sub-Accounts with the same investment objectives which are created by Lipper Analytical Services, Morningstar, Inc., or other recognized ranking services.
 
Annuity Payments
 
See "Frequency and Amount of Annuity Payments" located in the prospectus.
 
Condensed Financial Information
 
The contracts were not available for sale as of December 31, 2011 .  Therefore, no Condensed Financial Information is available.

 
2
 


 
 
 
 

 

Report of Independent Registered Public Accounting Firm
The Board of Directors of Nationwide Life Insurance Company and Subsidiaries and
Contract Owners of Nationwide Variable Account -12:
We have audited the accompanying statement of assets, liabilities and contract owners’ equity of Nationwide Variable Account -12 (comprised of the sub-accounts listed in note 1(b), (collectively, “the Accounts”)) as of December 31, 2011, and the related statements of operations for the period then ended, the statements of changes in contract owners’ equity for each of the periods in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Accounts’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2011, by correspondence with the transfer agents of the underlying mutual funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Accounts as of December 31, 2011, the results of their operations for the period then ended, the changes in contract owners’ equity for each of the periods in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
March 13, 2012
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS’ EQUITY
December 31, 2011
 
             
Assets:
             
Investments at fair value:
             
   
NVIT Investor Destinations Aggressive Fund - Class II (GVIDA)
        
     348,672 shares (cost $3,766,190)    $ 3,050,880   
NVIT Investor Destinations Balanced Fund - Class II (NVDBL2)
        
     489,454 shares (cost $6,129,691)      6,274,795   
NVIT Investor Destinations Capital Appreciation Fund - Class II (NVDCA2)
        
     775,826 shares (cost $10,837,406)      10,721,912   
NVIT Investor Destinations Conservative Fund - Class II (GVIDC)
        
     628,932 shares (cost $6,200,225)      6,415,110   
NVIT Investor Destinations Moderate Fund - Class II (GVIDM)
        
     3,642,202 shares (cost $38,565,448)      37,623,951   
NVIT Investor Destinations Moderately Aggressive Fund - Class II (GVDMA)
        
     5,073,211 shares (cost $55,762,238)      50,579,916   
NVIT Investor Destinations Moderately Conservative Fund - Class II (GVDMC)
        
     1,462,128 shares (cost $14,598,473)      15,191,507   
Ivy Fund Variable Insurance Portfolios, Inc. - Asset Strategy (WRASP)
        
     14,705,008 shares (cost $143,918,846)      133,928,799   
Ivy Fund Variable Insurance Portfolios, Inc. - Balanced (WRBP)
        
     3,054,139 shares (cost $26,612,812)      27,532,449   
Ivy Fund Variable Insurance Portfolios, Inc. - Bond (WRBDP)
        
     9,713,108 shares (cost $52,687,292)      56,374,882   
Ivy Fund Variable Insurance Portfolios, Inc. - Core Equity (WRCEP)
        
     4,249,698 shares (cost $49,766,365)      49,726,988   
Ivy Fund Variable Insurance Portfolios, Inc. - Dividend Opportunities (WRDIV)
        
     5,556,211 shares (cost $38,382,693)      35,970,907   
Ivy Fund Variable Insurance Portfolios, Inc. - Energy (WRENG)
        
     1,631,002 shares (cost $9,311,267)      9,482,809   
Ivy Funds Variable Insurance Portfolios, Inc.- Global Bond (WRGBP)
        
     183,858 shares (cost $913,356)      901,124   
Ivy Fund Variable Insurance Portfolios, Inc. - Global Natural Resources (WRGNR)
        
     3,943,748 shares (cost $25,915,656)      20,845,470   
Ivy Fund Variable Insurance Portfolios, Inc. - Growth (WRGP)
        
     5,017,782 shares (cost $47,228,448)      51,135,718   
Ivy Fund Variable Insurance Portfolios, Inc. - High Income (WRHIP)
        
     10,598,102 shares (cost $33,832,175)      36,232,790   
Ivy Fund Variable Insurance Portfolios, Inc. - International Growth (WRIP)
        
     1,815,481 shares (cost $16,104,572)      14,262,419   
Ivy Fund Variable Insurance Portfolios, Inc.- International Core Equity (WRI2P)
        
     887,841 shares (cost $16,035,636)      13,026,133   
Ivy Funds Variable Insurance Portfolios, Inc. - Limited-Term Bond (WRLTBP)
        
     291,676 shares (cost $1,479,537)      1,467,949   
Ivy Fund Variable Insurance Portfolios, Inc. - Micro Cap Growth (WRMIC)
        
     280,876 shares (cost $5,193,334)      5,775,897   
Ivy Fund Variable Insurance Portfolios, Inc. - Mid Cap Growth (WRMCG)
        
     3,351,700 shares (cost $22,739,812)      28,046,359   
Ivy Fund Variable Insurance Portfolios, Inc. - Money Market (WRMMP)
        
     26,512,861 shares (cost $26,512,861)      26,512,861   
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Aggressive (WRPAP)
        
     11,554,639 shares (cost $52,941,323)      55,090,210   
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Conservative (WRPCP)
        
     10,906,395 shares (cost $54,011,502)      56,530,026   
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS’ EQUITY
December 31, 2011
 
             
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderate (WRPMP)
        
    85,113,264 shares (cost $405,223,984)      430,800,788   
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderately Aggressive (WRPMAP)
        
    107,733,561 shares (cost $528,224,497)      548,880,945   
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderately Conservative (WRPMCP)
        
    27,295,016 shares (cost $132,433,465)      141,712,996   
Ivy Fund Variable Insurance Portfolios, Inc. - Real Estate Securities (WRRESP)
        
    1,537,105 shares (cost $9,736,351)      10,382,992   
Ivy Fund Variable Insurance Portfolios, Inc. - Science and Technology (WRSTP)
        
    1,963,056 shares (cost $32,570,595)      29,930,328   
Ivy Fund Variable Insurance Portfolios, Inc. - Small Cap Growth (WRSCP)
        
    1,369,989 shares (cost $13,164,813)      12,797,889   
Ivy Fund Variable Insurance Portfolios, Inc. - Small Cap Value (WRSCV)
        
    593,671 shares (cost $8,423,215)      8,650,319   
Ivy Fund Variable Insurance Portfolios, Inc. - Value (WRVP)
        
    4,482,487 shares (cost $27,763,344)      24,972,382   
        
 
 
 
     
Total Investments
       $ 1,960,830,500   
     
Accounts Payable
         (502 ) 
     
        
 
 
 
         $ 1,960,829,998   
        
 
 
 
Contract Owners’ Equity:
            
Accumulation units
         1,955,276,319   
Contracts in payout (annuitization) period (note 1f)
     5,553,679   
        
 
 
 
Total Contract Owners’ Equity (note 5)
       $ 1,960,829,998   
        
 
 
 
See accompanying notes to financial statements.
 
 
 
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENT OF OPERATIONS
Year Ended December 31, 2011
 
                                                                 
Investment Activity:    Total     GVIDA     NVDBL2     NVDCA2     GVIDC     GVIDM     GVDMA     GVDMC  
Reinvested dividends
   $ 20,392,662        58,488        106,053        161,869        117,057        827,149        1,113,873        350,183   
Mortality and expense risk charges (note 2)
     (26,306,399 )      (60,568 )      (71,936 )      (98,996 )      (66,237 )      (555,388 )      (760,731 )      (224,346 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net investment income (loss)
     (5,913,737 )      (2,080 )      34,117        62,873        50,820        271,761        353,142        125,837   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Realized gain (loss) on investments
     996,618        (89,029 )      72,783        33,201        60,920        (811,229 )      (2,231,180 )      (182,472 ) 
Change in unrealized gain (loss) on investments
     (94,489,348 )      (91,515 )      (138,397 )      (358,968 )      (56,719 )      (26,039 )      16,757        137,004   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net gain (loss) on investments
     (93,492,730 )      (180,544 )      (65,614 )      (325,767 )      4,201        (837,268 )      (2,214,423 )      (45,468 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Reinvested capital gains
     25,143,477        -            6,398        8,516        18,648        -            -            -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
   $ (74,262,990 )      (182,624 )      (25,099 )      (254,378 )      73,669        (565,507 )      (1,861,281 )      80,369   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Investment Activity:    WRASP     WRBP     WRBDP     WRCEP     WRDIV     WRENG     WRGBP     WRGNR  
Reinvested dividends
   $ 1,589,708        417,269        1,332,995        187,368        420,571        -            18,331        -       
Mortality and expense risk charges (note 2)
     (2,485,164 )      (455,897 )      (791,894 )      (853,259 )      (650,740 )      (164,467 )      (5,404 )      (392,968 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net investment income (loss)
     (895,456 )      (38,628 )      541,101        (665,891 )      (230,169 )      (164,467 )      12,927        (392,968 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Realized gain (loss) on investments
     1,186,150        501,675        327,795        557,572        536,486        (66,803 )      (3,822 )      (965,309 ) 
Change in unrealized gain (loss) on investments
     (13,166,008 )      (2,243,132 )      1,641,840        (1,673,790 )      (2,850,095 )      (927,563 )      (12,232 )      (4,924,141 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net gain (loss) on investments
     (11,979,858 )      (1,741,457 )      1,969,635        (1,116,218 )      (2,313,609 )      (994,366 )      (16,054 )      (5,889,450 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Reinvested capital gains
     -            2,198,697        329,113        1,676,880        -            -            -            -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
   $ (12,875,314 )      418,612        2,839,849        (105,229 )      (2,543,778 )      (1,158,833 )      (3,127 )      (6,282,418 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENT OF OPERATIONS
Year Ended December 31, 2011
 
                                                                 
Investment Activity:    WRGP     WRHIP     WRIP     WRI2P     WRLTBP     WRMIC     WRMCG     WRMMP  
Reinvested dividends
   $ 216,493        2,549,475        67,505        235,422        20,731        -            1,739        3,640   
Mortality and expense risk charges (note 2)
     (898,028 )      (536,122 )      (238,520 )      (223,860 )      (8,680 )      (94,722 )      (509,636 )      (258,974 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net investment income (loss)
     (681,535 )      2,013,353        (171,015 )      11,562        12,051        (94,722 )      (507,897 )      (255,334 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Realized gain (loss) on investments
     1,107,366        54,725        24,812        (782,142 )      684        112,927        964,081        -       
Change in unrealized gain (loss) on investments
     (2,217,474 )      (834,287 )      (1,283,477 )      (1,637,093 )      (11,588 )      (598,241 )      (2,238,662 )      -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net gain (loss) on investments
     (1,110,108 )      (779,562 )      (1,258,665 )      (2,419,235 )      (10,904 )      (485,314 )      (1,274,581 )      -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Reinvested capital gains
     1,973,940        -            -            -            -            -            1,043,904        -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
   $ 182,297        1,233,791        (1,429,680 )      (2,407,673 )      1,147        (580,036 )      (738,574 )      (255,334 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Investment Activity:    WRPAP     WRPCP     WRPMP     WRPMAP     WRPMCP     WRRESP     WRSTP     WRSCP  
Reinvested dividends
   $ 740,803        555,203        3,932,459        3,676,079        1,346,115        80,868        -            -       
Mortality and expense risk charges (note 2)
     (824,869 )      (652,327 )      (5,053,802 )      (6,146,638 )      (1,726,904 )      (153,670 )      (489,433 )      (221,028 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net investment income (loss)
     (84,066 )      (97,124 )      (1,121,343 )      (2,470,559 )      (380,789 )      (72,802 )      (489,433 )      (221,028 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Realized gain (loss) on investments
     (274,776 )      1,208,298        60,100        122,968        246,655        (507,670 )      81,286        (122,679 ) 
Change in unrealized gain (loss) on investments
     (4,410,889 )      (2,102,687 )      (15,947,006 )      (27,420,594 )      (3,788,334 )      914,717        (3,159,283 )      (1,585,896 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net gain (loss) on investments
     (4,685,665 )      (894,389 )      (15,886,906 )      (27,297,626 )      (3,541,679 )      407,047        (3,077,997 )      (1,708,575 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Reinvested capital gains
     1,475,754        899,922        5,583,812        6,584,903        2,036,943        -            1,177,921        128,126   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
   $ (3,293,977 )      (91,591 )      (11,424,437 )      (23,183,282 )      (1,885,525 )      334,245        (2,389,509 )      (1,801,477 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENT OF OPERATIONS
Year Ended December 31, 2011
 
                 
Investment Activity:    WRSCV     WRVP  
Reinvested dividends
   $ 48,670        216,546   
Mortality and expense risk charges (note 2)
     (149,460 )      (481,731 ) 
    
 
 
   
 
 
 
Net investment income (loss)
     (100,790 )      (265,185 ) 
    
 
 
   
 
 
 
Realized gain (loss) on investments
     73,361        (300,116 ) 
Change in unrealized gain (loss) on investments
     (1,461,318 )      (2,034,238 ) 
    
 
 
   
 
 
 
Net gain (loss) on investments
     (1,387,957 )      (2,334,354 ) 
    
 
 
   
 
 
 
Reinvested capital gains
     -            -       
    
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
   $ (1,488,747 )      (2,599,539 ) 
    
 
 
   
 
 
 
See accompanying notes to financial statements.
 
 
 
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     Total     GVIDA     NVDBL2     NVDCA2  
     2011     2010     2011     2010     2011     2010     2011     2010  
Investment activity:
                                                                
Net investment income (loss)
   $ (5,913,737 )      (4,763,695 )      (2,080 )      (7,081 )      34,117        (1,738 )      62,873        (1,969 ) 
Realized gain (loss) on investments
     996,618        (6,121,064 )      (89,029 )      (167,132 )      72,783        14,562        33,201        37,800   
Change in unrealized gain (loss) on investments
     (94,489,348 )      166,672,171        (91,515 )      535,918        (138,397 )      238,886        (358,968 )      201,800   
Reinvested capital gains
     25,143,477        10,105,038        -            -            6,398        6,993        8,516        5,457   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     (74,262,990 )      165,892,450        (182,624 )      361,705        (25,099 )      258,703        (254,378 )      243,088   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Equity transactions:
                                                                
Purchase payments received from contract owners (note 3)
     464,861,652        360,360,208        120        12,369        1,422,808        1,464,929        7,104,229        1,411,336   
Transfers between funds
     -            -            8,321        (143,920 )      703,382        1,362,351        916,565        21,517   
Redemptions (note 3)
     (79,700,301 )      (60,203,514 )      (74,962 )      (25,073 )      (111,426 )      (35,523 )      (28,429 )      (7,050 ) 
Annuity benefits
     (312,451 )      (322,812 )      -            -            -            -            -            -       
Contract maintenance charges (note 2)
     (7,758,928 )      (4,560,897 )      (633 )      (833 )      (29,076 )      (14,025 )      (29,045 )      (13,318 ) 
Contingent deferred sales charges (note 2)
     (1,202,613 )      (1,388,455 )      (3,500 )      -            (922 )      (2,290 )      (290 )      (127 ) 
Adjustments to maintain reserves
     (8,160 )      (25,318 )      (13 )      3        (71 )      (2,069 )      (17 )      (1,004 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net equity transactions
     375,879,199        293,859,212        (70,667 )      (157,454 )      1,984,695        2,773,373        7,963,013        1,411,354   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     301,616,209        459,751,662        (253,291 )      204,251        1,959,596        3,032,076        7,708,635        1,654,442   
Contract owners’ equity beginning of period
     1,659,213,789        1,199,462,127        3,304,169        3,099,918        4,315,166        1,283,090        3,013,274        1,358,832   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 1,960,829,998        1,659,213,789        3,050,878        3,304,169        6,274,762        4,315,166        10,721,909        3,013,274   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                
Beginning units
     140,364,864        110,418,764        385,733        407,096        346,155        111,210        225,471        112,328   
Units purchased
     56,864,146        46,802,692        6,959        5,319        188,353        248,251        636,655        161,692   
Units redeemed
     (20,882,895 )      (16,856,592 )      (14,723 )      (26,682 )      (28,874 )      (13,306 )      (42,351 )      (48,549 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending units
     176,346,115        140,364,864        377,969        385,733        505,634        346,155        819,775        225,471   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     GVIDC     GVIDM     GVDMA     GVDMC  
     2011     2010     2011     2010     2011     2010     2011     2010  
Investment activity:
                                                                
Net investment income (loss)
   $ 50,820        32,733        271,761        193,506        353,142        266,889        125,837        83,427   
Realized gain (loss) on investments
     60,920        43,181        (811,229 )      (1,511,431 )      (2,231,180 )      (3,396,558 )      (182,472 )      (311,671 ) 
Change in unrealized gain (loss) on investments
     (56,719 )      101,036        (26,039 )      4,560,130        16,757        9,079,091        137,004        1,147,225   
Reinvested capital gains
     18,648        10,727        -            -            -            -            -            -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     73,669        187,677        (565,507 )      3,242,205        (1,861,281 )      5,949,422        80,369        918,981   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Equity transactions:
                                                                
Purchase payments received from contract owners (note 3)
     1,086,407        496,281        2,457,433        4,069,406        609,409        897,709        1,330,164        1,109,244   
Transfers between funds
     1,679,992        61,343        (2,014,614 )      (1,113,878 )      (2,626,420 )      (3,454,277 )      57,234        446,935   
Redemptions (note 3)
     (348,397 )      (168,923 )      (1,304,700 )      (2,070,032 )      (2,573,310 )      (2,347,475 )      (606,762 )      (594,681 ) 
Annuity benefits
     -            -            (5,977 )      (6,755 )      (5,641 )      (6,301 )      -            -       
Contract maintenance charges (note 2)
     (31,155 )      (24,994 )      (243,096 )      (214,003 )      (392,702 )      (418,251 )      (83,188 )      (73,685 ) 
Contingent deferred sales charges (note 2)
     (14,475 )      (4,477 )      (17,463 )      (22,095 )      (42,660 )      (19,959 )      (7,704 )      (14,561 ) 
Adjustments to maintain reserves
     (14 )      (47 )      (283 )      111        (43 )      1,637        (94 )      (60 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net equity transactions
     2,372,358        359,183        (1,128,700 )      642,754        (5,031,367 )      (5,346,917 )      689,650        873,192   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     2,446,027        546,860        (1,694,207 )      3,884,959        (6,892,648 )      602,505        770,019        1,792,173   
Contract owners’ equity beginning of period
     3,969,082        3,422,222        39,318,138        35,433,179        57,472,517        56,870,012        14,421,471        12,629,298   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 6,415,109        3,969,082        37,623,931        39,318,138        50,579,869        57,472,517        15,191,490        14,421,471   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                
Beginning units
     374,312        337,299        4,039,103        3,981,854        6,247,584        6,881,792        1,412,298        1,322,017   
Units purchased
     279,774        154,743        308,856        686,286        138,109        165,811        257,089        329,274   
Units redeemed
     (57,678 )      (117,730 )      (425,196 )      (629,037 )      (686,916 )      (800,019 )      (189,978 )      (238,993 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending units
     596,408        374,312        3,922,763        4,039,103        5,698,777        6,247,584        1,479,409        1,412,298   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     WRASP     WRBP     WRBDP     WRCEP  
     2011     2010     2011     2010     2011     2010     2011     2010  
Investment activity:
                                                                
Net investment income (loss)
   $ (895,456 )      (852,535 )      (38,628 )      64,174        541,101        866,874        (665,891 )      (308,173 ) 
Realized gain (loss) on investments
     1,186,150        1,652,414        501,675        265,064        327,795        177,677        557,572        72,393   
Change in unrealized gain (loss) on investments
     (13,166,008 )      8,977,501        (2,243,132 )      2,871,137        1,641,840        806,557        (1,673,790 )      8,164,478   
Reinvested capital gains
     -            -            2,198,697        344,262        329,113        -            1,676,880        -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     (12,875,314 )      9,777,380        418,612        3,544,637        2,839,849        1,851,108        (105,229 )      7,928,698   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Equity transactions:
                                                                
Purchase payments received from contract owners (note 3)
     6,181,986        9,664,741        1,365,851        1,256,025        4,239,820        4,365,889        3,682,361        2,765,291   
Transfers between funds
     (4,994,031 )      (5,940,676 )      263,243        166,351        3,174,164        9,195,789        (134,605 )      (384,995 ) 
Redemptions (note 3)
     (9,906,236 )      (8,489,740 )      (1,577,045 )      (1,092,881 )      (3,475,393 )      (2,776,004 )      (3,458,820 )      (2,950,134 ) 
Annuity benefits
     (61,096 )      (63,124 )      (16,509 )      (14,751 )      (24,221 )      (26,068 )      (18,499 )      (16,821 ) 
Contract maintenance charges (note 2)
     (33,064 )      (36,094 )      (4,714 )      (4,864 )      (7,175 )      (7,071 )      (6,753 )      (6,943 ) 
Contingent deferred sales charges (note 2)
     (187,764 )      (202,815 )      (19,248 )      (22,492 )      (57,575 )      (77,159 )      (54,739 )      (89,868 ) 
Adjustments to maintain reserves
     (395 )      (2,311 )      821        9,553        20        (1,324 )      (384 )      (4,390 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net equity transactions
     (9,000,600 )      (5,070,019 )      12,399        296,941        3,849,640        10,674,052        8,561        (687,860 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     (21,875,914 )      4,707,361        431,011        3,841,578        6,689,489        12,525,160        (96,668 )      7,240,838   
Contract owners’ equity beginning of period
     155,804,700        151,097,339        27,101,419        23,259,841        49,685,286        37,160,126        49,823,632        42,582,794   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 133,928,786        155,804,700        27,532,430        27,101,419        56,374,776        49,685,286        49,726,964        49,823,632   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                
Beginning units
     7,157,471        7,425,961        1,993,509        1,969,265        4,173,670        3,245,655        3,530,379        3,591,611   
Units purchased
     717,875        840,183        336,100        266,762        1,190,216        1,636,292        595,749        461,675   
Units redeemed
     (1,147,113 )      (1,108,673 )      (339,065 )      (242,518 )      (885,133 )      (708,277 )      (611,358 )      (522,907 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending units
     6,728,233        7,157,471        1,990,544        1,993,509        4,478,753        4,173,670        3,514,770        3,530,379   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     WRDIV     WRENG     WRGBP      WRGNR  
     2011     2010     2011     2010     2011     2010      2011     2010  
Investment activity:
                                                                 
Net investment income (loss)
   $ (230,169 )      (201,715 )      (164,467 )      (111,456 )      12,927        -             (392,968 )      (361,753 ) 
Realized gain (loss) on investments
     536,486        310,249        (66,803 )      (125,023 )      (3,822 )      -             (965,309 )      (1,090,424 ) 
Change in unrealized gain (loss) on investments
     (2,850,095 )      5,131,126        (927,563 )      2,024,232        (12,232 )      -             (4,924,141 )      5,117,103   
Reinvested capital gains
     -            -            -            -            -            -             -            -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     (2,543,778 )      5,239,660        (1,158,833 )      1,787,753        (3,127 )      -             (6,282,418 )      3,664,926   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
                 
Equity transactions:
                                                                 
Purchase payments received from contract owners (note 3)
     1,146,853        1,681,522        875,487        1,151,429        344,447        -             1,842,137        2,723,247   
Transfers between funds
     (1,541,834 )      (1,584,976 )      (531,263 )      (304,457 )      568,127        -             (1,736,964 )      (2,000,374 ) 
Redemptions (note 3)
     (2,426,929 )      (1,691,915 )      (547,969 )      (528,086 )      (8,312 )      -             (1,428,169 )      (1,320,541 ) 
Annuity benefits
     (15,482 )      (15,604 )      (2,114 )      (2,070 )      -            -             (8,343 )      (9,626 ) 
Contract maintenance charges (note 2)
     (6,287 )      (6,469 )      (1,408 )      (1,459 )      (5 )      -             (5,020 )      (5,278 ) 
Contingent deferred sales charges (note 2)
     (38,341 )      (48,703 )      (15,009 )      (16,740 )      -            -             (29,822 )      (37,175 ) 
Adjustments to maintain reserves
     216        (78 )      (731 )      (4,890 )      (9 )      -             (276 )      (8,372 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Net equity transactions
     (2,881,804 )      (1,666,223 )      (223,007 )      293,727        904,248        -             (1,366,457 )      (658,119 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     (5,425,582 )      3,573,437        (1,381,840 )      2,081,480        901,121        -             (7,648,875 )      3,006,807   
Contract owners’ equity beginning of period
     41,396,509        37,823,072        10,864,651        8,783,171        -            -             28,494,316        25,487,508   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 35,970,928        41,396,509        9,482,811        10,864,651        901,121        -             20,845,441        28,494,316   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                 
Beginning units
     3,158,796        3,305,284        893,710        867,964        -            -             1,767,719        1,822,229   
Units purchased
     316,421        307,715        148,246        191,742        109,891        -             239,750        322,463   
Units redeemed
     (553,108 )      (454,203 )      (171,436 )      (165,996 )      (18,375 )      -             (336,792 )      (376,973 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Ending units
     2,922,109        3,158,796        870,520        893,710        91,516        -             1,670,677        1,767,719   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     WRGP     WRHIP     WRIP     WRI2P  
     2011     2010     2011     2010     2011     2010     2011     2010  
Investment activity:
                                                                
Net investment income (loss)
   $ (681,535 )      (534,731 )      2,013,353        1,756,492        (171,015 )      (77,988 )      11,562        (20,614 ) 
Realized gain (loss) on investments
     1,107,366        669,496        54,725        (25,020 )      24,812        (40,115 )      (782,142 )      (653,301 ) 
Change in unrealized gain (loss) on investments
     (2,217,474 )      5,090,587        (834,287 )      2,030,294        (1,283,477 )      2,044,053        (1,637,093 )      2,333,108   
Reinvested capital gains
     1,973,940        -            -            -            -            -            -            -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     182,297        5,225,352        1,233,791        3,761,766        (1,429,680 )      1,925,950        (2,407,673 )      1,659,193   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Equity transactions:
                                                                
Purchase payments received from contract owners (note 3)
     2,288,490        1,638,115        3,184,990        3,875,035        1,063,698        1,367,571        1,540,209        1,019,228   
Transfers between funds
     (1,616,275 )      (1,136,341 )      (126,123 )      1,815,766        (831,976 )      (408,740 )      (429,929 )      (675,937 ) 
Redemptions (note 3)
     (3,824,485 )      (2,776,960 )      (1,955,804 )      (1,896,730 )      (1,184,276 )      (882,904 )      (796,142 )      (725,926 ) 
Annuity benefits
     (28,452 )      (29,045 )      (30,699 )      (31,274 )      (14,085 )      (13,299 )      (3,449 )      (3,597 ) 
Contract maintenance charges (note 2)
     (9,034 )      (9,678 )      (4,751 )      (4,435 )      (2,861 )      (3,120 )      (2,062 )      (2,206 ) 
Contingent deferred sales charges (note 2)
     (63,844 )      (63,385 )      (20,439 )      (50,621 )      (21,603 )      (25,597 )      (15,739 )      (23,910 ) 
Adjustments to maintain reserves
     239        2,577        369        8,484        349        4,891        (120 )      (5,539 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net equity transactions
     (3,253,361 )      (2,374,717 )      1,047,543        3,716,225        (990,754 )      38,802        292,768        (417,887 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     (3,071,064 )      2,850,635        2,281,334        7,477,991        (2,420,434 )      1,964,752        (2,114,905 )      1,241,306   
Contract owners’ equity beginning of period
     54,206,720        51,356,085        33,951,427        26,473,436        16,682,838        14,718,085        15,141,073        13,899,768   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 51,135,656        54,206,720        36,232,761        33,951,427        14,262,404        16,682,838        13,026,168        15,141,073   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                
Beginning units
     4,408,571        4,630,140        2,140,242        1,881,230        1,120,275        1,118,293        994,967        1,023,904   
Units purchased
     515,334        383,864        532,315        590,727        119,504        159,847        167,248        153,100   
Units redeemed
     (797,298 )      (605,433 )      (460,222 )      (331,715 )      (189,307 )      (157,865 )      (153,291 )      (182,037 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending units
     4,126,607        4,408,571        2,212,335        2,140,242        1,050,472        1,120,275        1,008,924        994,967   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     WRLTBP      WRMIC     WRMCG     WRMMP  
     2011     2010      2011     2010     2011     2010     2011     2010  
Investment activity:
                                                                 
Net investment income (loss)
   $ 12,051        -             (94,722 )      (72,537 )      (507,897 )      (423,306 )      (255,334 )      (197,229 ) 
Realized gain (loss) on investments
     684        -             112,927        39,137        964,081        223,080        -            -       
Change in unrealized gain (loss) on investments
     (11,588 )      -             (598,241 )      1,710,031        (2,238,662 )      6,936,151        -            -       
Reinvested capital gains
     -            -             -            -            1,043,904        -            -            -       
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     1,147        -             (580,036 )      1,676,631        (738,574 )      6,735,925        (255,334 )      (197,229 ) 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Equity transactions:
                                                                 
Purchase payments received from contract owners (note 3)
     365,028        -             732,075        802,141        1,808,973        1,345,304        29,602,664        20,465,171   
Transfers between funds
     1,161,654        -             (395,732 )      49,109        (833,218 )      (288,837 )      (6,438,611 )      (7,152,867 ) 
Redemptions (note 3)
     (56,361 )      -             (274,321 )      (204,052 )      (1,846,677 )      (1,061,042 )      (13,012,204 )      (10,008,048 ) 
Annuity benefits
     (147 )      -             (1,079 )      (992 )      (2,168 )      (3,853 )      (28,998 )      (31,410 ) 
Contract maintenance charges (note 2)
     (16 )      -             (996 )      (955 )      (3,396 )      (3,310 )      (4,434 )      (3,601 ) 
Contingent deferred sales charges (note 2)
     (3,353 )      -             (5,292 )      (4,360 )      (33,554 )      (29,132 )      (63,439 )      (78,836 ) 
Adjustments to maintain reserves
     (23 )      -             (39 )      97        (225 )      (2,841 )      (1,808 )      332   
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net equity transactions
     1,466,782        -             54,616        640,988        (910,265 )      (43,711 )      10,053,170        3,190,741   
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     1,467,929        -             (525,420 )      2,317,619        (1,648,839 )      6,692,214        9,797,836        2,993,512   
Contract owners’ equity beginning of period
     -            -             6,301,284        3,983,666        29,695,183        23,002,969        16,714,992        13,721,480   
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 1,467,929        -             5,775,864        6,301,284        28,046,344        29,695,183        26,512,827        16,714,992   
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                 
Beginning units
     -            -             441,697        386,952        1,899,916        1,904,908        1,570,513        1,269,004   
Units purchased
     179,979        -             93,685        124,679        278,938        276,143        6,497,996        4,215,891   
Units redeemed
     (36,492 )      -             (93,427 )      (69,934 )      (346,629 )      (281,135 )      (5,522,621 )      (3,914,382 ) 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending units
     143,487        -             441,955        441,697        1,832,225        1,899,916        2,545,888        1,570,513   
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     WRPAP     WRPCP     WRPMP     WRPMAP  
     2011     2010     2011     2010     2011     2010     2011     2010  
Investment activity:
                                                                
Net investment income (loss)
   $ (84,066 )      (147,150 )      (97,124 )      (137,765 )      (1,121,343 )      (1,805,914 )      (2,470,559 )      (1,564,835 ) 
Realized gain (loss) on investments
     (274,776 )      (334,063 )      1,208,298        136,385        60,100        (85,220 )      122,968        (59,288 ) 
Change in unrealized gain (loss) on investments
     (4,410,889 )      6,740,125        (2,102,687 )      2,272,349        (15,947,006 )      29,505,307        (27,420,594 )      34,616,139   
Reinvested capital gains
     1,475,754        1,241,826        899,922        609,392        5,583,812        2,466,018        6,584,903        3,370,752   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     (3,293,977 )      7,500,738        (91,591 )      2,880,361        (11,424,437 )      30,080,191        (23,183,282 )      36,362,768   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Equity transactions:
                                                                
Purchase payments received from contract owners (note 3)
     1,077,239        1,209,127        8,401,272        12,211,013        123,151,783        118,393,745        215,414,211        124,463,897   
Transfers between funds
     (1,365,099 )      (415,858 )      5,600,423        4,968,422        3,745,000        3,966,523        6,839,456        5,507,567   
Redemptions (note 3)
     (2,132,981 )      (1,625,836 )      (1,221,154 )      (1,573,925 )      (8,822,613 )      (3,832,954 )      (7,032,052 )      (4,046,956 ) 
Annuity benefits
     -            -            -            -            -            -            -            -       
Contract maintenance charges (note 2)
     (371,872 )      (356,900 )      (295,284 )      (171,876 )      (2,590,062 )      (1,336,672 )      (2,865,151 )      (1,437,185 ) 
Contingent deferred sales charges (note 2)
     (26,111 )      (63,426 )      (16,493 )      (56,218 )      (143,586 )      (83,429 )      (153,727 )      (127,939 ) 
Adjustments to maintain reserves
     22        527        (118 )      (67 )      (3,227 )      (12,227 )      (2,780 )      (15,622 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net equity transactions
     (2,818,802 )      (1,252,366 )      12,468,646        15,377,349        115,337,295        117,094,986        212,199,957        124,343,762   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     (6,112,779 )      6,248,372        12,377,055        18,257,710        103,912,858        147,175,177        189,016,675        160,706,530   
Contract owners’ equity beginning of period
     61,202,987        54,954,615        44,152,956        25,895,246        326,887,970        179,712,793        359,864,259        199,157,729   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 55,090,208        61,202,987        56,530,011        44,152,956        430,800,828        326,887,970        548,880,934        359,864,259   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                
Beginning units
     5,863,977        5,999,331        4,173,894        2,640,057        31,449,317        19,221,244        33,709,714        21,078,676   
Units purchased
     230,793        203,704        2,007,164        1,971,750        13,646,122        13,821,694        21,932,163        13,861,230   
Units redeemed
     (509,132 )      (339,058 )      (798,090 )      (437,913 )      (2,472,839 )      (1,593,621 )      (1,944,417 )      (1,230,192 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending units
     5,585,638        5,863,977        5,382,968        4,173,894        42,622,600        31,449,317        53,697,460        33,709,714   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                                 
     WRPMCP     WRRESP     WRSTP     WRSCP  
     2011     2010     2011     2010     2011     2010     2011     2010  
Investment activity:
                                                                
Net investment income (loss)
   $ (380,789 )      (440,454 )      (72,802 )      31,655        (489,433 )      (431,095 )      (221,028 )      (186,272 ) 
Realized gain (loss) on investments
     246,655        (76,138 )      (507,670 )      (573,634 )      81,286        187,600        (122,679 )      (142,161 ) 
Change in unrealized gain (loss) on investments
     (3,788,334 )      7,671,844        914,717        2,591,112        (3,159,283 )      2,587,032        (1,585,896 )      3,504,817   
Reinvested capital gains
     2,036,943        1,199,104        -            -            1,177,921        850,507        128,126        -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     (1,885,525 )      8,354,356        334,245        2,049,133        (2,389,509 )      3,194,044        (1,801,477 )      3,176,384   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Equity transactions:
                                                                
Purchase payments received from contract owners (note 3)
     36,311,759        33,037,196        988,795        855,802        2,463,153        3,574,611        1,147,666        1,190,475   
Transfers between funds
     4,001,553        6,029,953        (421,306 )      (423,306 )      (434,944 )      (1,020,122 )      (461,858 )      (114,441 ) 
Redemptions (note 3)
     (3,024,015 )      (2,471,317 )      (566,788 )      (430,953 )      (1,925,981 )      (1,879,368 )      (1,069,269 )      (736,805 ) 
Annuity benefits
     -            -            (1,944 )      (1,759 )      (13,938 )      (16,022 )      (14,389 )      (13,652 ) 
Contract maintenance charges (note 2)
     (719,350 )      (386,676 )      (1,649 )      (1,679 )      (5,697 )      (5,720 )      (2,715 )      (2,597 ) 
Contingent deferred sales charges (note 2)
     (40,055 )      (92,931 )      (12,132 )      (11,610 )      (30,814 )      (49,136 )      (16,299 )      (25,219 ) 
Adjustments to maintain reserves
     (229 )      603        (42 )      (156 )      (109 )      (2,212 )      643        7,491   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net equity transactions
     36,529,663        36,116,828        (15,066 )      (13,661 )      51,670        602,031        (416,221 )      305,252   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
Net change in contract owners’ equity
     34,644,138        44,471,184        319,179        2,035,472        (2,337,839 )      3,796,075        (2,217,698 )      3,481,636   
Contract owners’ equity beginning of period
     107,068,837        62,597,653        10,063,790        8,028,318        32,268,169        28,472,094        15,015,552        11,533,916   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Contract owners’ equity end of period
   $ 141,712,975        107,068,837        10,382,969        10,063,790        29,930,330        32,268,169        12,797,855        15,015,552   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
CHANGES IN UNITS:
                                                                
Beginning units
     10,120,254        6,475,804        718,974        725,750        1,850,540        1,807,299        1,005,451        981,102   
Units purchased
     4,315,503        4,233,390        111,531        128,225        218,066        295,779        153,346        182,697   
Units redeemed
     (858,689 )      (588,940 )      (113,829 )      (135,001 )      (215,984 )      (252,538 )      (183,277 )      (158,348 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending units
     13,577,068        10,120,254        716,676        718,974        1,852,622        1,850,540        975,520        1,005,451   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT-12
STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY
Years Ended December 31, 2011 and 2010
 
                                                 
     WRSCV     WRVP     WRMSP  
     2011     2010     2011     2010     2011      2010  
Investment activity:
                                                 
Net investment income (loss)
   $ (100,790 )      (133,423 )      (265,185 )      (226,103 )      -             186,391   
Realized gain (loss) on investments
     73,361        (178,096 )      (300,116 )      (518,103 )      -             (662,724 ) 
Change in unrealized gain (loss) on investments
     (1,461,318 )      2,451,917        (2,034,238 )      5,111,311        -             519,774   
Reinvested capital gains
     -            -            -            -            -             -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Net increase (decrease) in contract owners’ equity resulting from operations
     (1,488,747 )      2,140,398        (2,599,539 )      4,367,105        -             43,441   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
             
Equity transactions:
                                                 
Purchase payments received from contract owners (note 3)
     711,168        816,250        918,967        975,947        -             50,162   
Transfers between funds
     (699,997 )      (277,034 )      (1,084,315 )      (1,129,776 )      -             (5,620,814 ) 
Redemptions (note 3)
     (707,606 )      (388,482 )      (2,370,713 )      (1,499,020 )      -             (64,178 ) 
Annuity benefits
     (3,846 )      (3,912 )      (11,375 )      (12,660 )      -             (217 ) 
Contract maintenance charges (note 2)
     (1,703 )      (1,878 )      (4,574 )      (4,942 )      -             (180 ) 
Contingent deferred sales charges (note 2)
     (12,806 )      (10,061 )      (33,815 )      (32,899 )      -             (1,285 ) 
Adjustments to maintain reserves
     256        (4,379 )      (47 )      1,282        -             4,681   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Net equity transactions
     (714,534 )      130,504        (2,585,872 )      (1,702,068 )      -             (5,631,831 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
             
Net change in contract owners’ equity
     (2,203,281 )      2,270,902        (5,185,411 )      2,665,037        -             (5,588,390 ) 
Contract owners’ equity beginning of period
     10,853,608        8,582,706        30,157,813        27,492,776        -             5,588,390   
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Contract owners’ equity end of period
   $ 8,650,328        10,853,608        24,972,402        30,157,813        -             -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
             
CHANGES IN UNITS:
                                                 
Beginning units
     767,001        753,278        2,423,651        2,586,373        -             553,854   
Units purchased
     86,899        130,033        307,517        249,214        -             42,517   
Units redeemed
     (141,654 )      (116,310 )      (537,601 )      (411,936 )      -             (596,371 ) 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Ending units
     712,246        767,001        2,193,567        2,423,651        -             -       
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
See accompanying notes to financial statements.
 
 
 
NATIONWIDE VARIABLE ACCOUNT -12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
(1) Background and Summary of Significant Accounting Policies
(a) Organization and Nature of Operations
Nationwide Variable Account-12 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on July 10, 2001 and commenced operations on October 24, 2002. The Account is registered as a unit investment trust under the Investment Company Act of 1940.
The Company offers Individual Deferred Variable Annuity Contracts and Individual Single Purchase Payment Immediate Variable Annuity Contracts through the Account. The contracts are distributed by the Company and marketed exclusively through Waddell & Reed.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees, are offered for purchase. See note 2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or payout phase may invest in any of the following:
NATIONWIDE FUNDS GROUP
NVIT Investor Destinations Aggressive Fund - Class II (GVIDA)
NVIT Investor Destinations Balanced Fund - Class II (NVDBL2)
NVIT Investor Destinations Capital Appreciation Fund - Class II (NVDCA2)
NVIT Investor Destinations Conservative Fund - Class II (GVIDC)
NVIT Investor Destinations Moderate Fund - Class II (GVIDM)
NVIT Investor Destinations Moderately Aggressive Fund - Class II (GVDMA)
NVIT Investor Destinations Moderately Conservative Fund - Class II (GVDMC)
WADDELL & REED, INC.
Ivy Fund Variable Insurance Portfolios, Inc. - Asset Strategy (WRASP)
Ivy Fund Variable Insurance Portfolios, Inc. - Balanced (WRBP)
Ivy Fund Variable Insurance Portfolios, Inc. - Bond (WRBDP)
Ivy Fund Variable Insurance Portfolios, Inc. - Core Equity (WRCEP)
Ivy Fund Variable Insurance Portfolios, Inc. - Dividend Opportunities (WRDIV)
Ivy Fund Variable Insurance Portfolios, Inc. - Energy (WRENG)
Ivy Funds Variable Insurance Portfolios, Inc. - Global Bond (WRGBP)
Ivy Fund Variable Insurance Portfolios, Inc. - Global Natural Resources (WRGNR)
Ivy Fund Variable Insurance Portfolios, Inc. - Growth (WRGP)
Ivy Fund Variable Insurance Portfolios, Inc. - High Income (WRHIP)
Ivy Fund Variable Insurance Portfolios, Inc - International Growth (WRIP)
Ivy Fund Variable Insurance Portfolios, Inc.- International Core Equity (WRI2P)
Ivy Funds Variable Insurance Portfolios, Inc.- Limited-Term Bond (WRLTBP)
Ivy Fund Variable Insurance Portfolios, Inc. - Micro Cap Growth (WRMIC)
Ivy Fund Variable Insurance Portfolios, Inc.- Mid Cap Growth (WRMCG)
Ivy Fund Variable Insurance Portfolios, Inc. - Money Market (WRMMP)
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Aggressive (WRPAP)
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Conservative (WRPCP)
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderate (WRPMP)
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderately Aggressive (WRPMAP)
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderately Conservative (WRPMCP)
Ivy Fund Variable Insurance Portfolios, Inc. - Real Estate Securities (WRRESP)
Ivy Fund Variable Insurance Portfolios, Inc. - Science and Technology (WRSTP)
Ivy Fund Variable Insurance Portfolios, Inc. - Small Cap Growth (WRSCP)
Ivy Fund Variable Insurance Portfolios, Inc. - Small Cap Value (WRSCV)
Ivy Fund Variable Insurance Portfolios, Inc. - Value (WRVP)
The contract owners’ equity is affected by the investment results of each fund, equity transactions by contract owners and certain contract expenses (see note 2). The accompanying financial statements include only contract owners’ purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company.
A contract owner may choose from among a number of different underlying mutual fund options. The underlying mutual fund options are not available to the general public directly. The underlying mutual funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans.
Some of the underlying mutual funds have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the underlying mutual funds may be similar to, and may in fact be modeled after, publicly traded mutual funds, the underlying mutual funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any corresponding underlying mutual funds may differ substantially.
A purchase payment could be presented as a negative equity transaction in the Statements of Changes in Contract Owners’ Equity if a prior period purchase payment is refunded to a contract owner due to a contract cancellation during the free look period, and/or if a gain is realized by the contract owner during the free look period.
The Company allocates purchase payments to sub-accounts and/or the fixed account as instructed by the contract owner. Shares of the sub-accounts are purchased at Net Asset Value, then converted into accumulation units. Certain transactions may be subject to conditions imposed by the underlying mutual funds, as well as those set forth in the contract.
(c) Security Valuation, Transactions and Related Investment Income
Investments in underlying mutual funds are valued at the closing net asset value per share at December 31, 2011 of such funds. The cost of investments sold is determined on a first in - first out basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed), and dividends and capital gain distributions are accrued as of the ex-dividend date and are reinvested in the underlying mutual funds.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with, operations of the Company which is taxed as a life insurance company under the Internal Revenue Code. The Company does not provide for income taxes within the Account. Taxes are generally the responsibility of the contract owner upon termination or withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(f) Calculation of Annuity Reserves
At each financial reporting date, the separate account financial statement includes an aggregate amount of net assets allocated to future contract benefits for the contracts in the payout (annuitization) period. The payout (annuitization) period begins when amounts accumulated under the contract (the contract value) are applied according to payment method selected by the contract holder.
Annuity reserves are computed for contracts in the variable payout stage according to industry standard mortality tables. The assumed investment return is 3.5% unless the annuitant elects otherwise, in which case the rate may vary from 3.5% to 6.0%, as regulated by the laws of the respective states. The mortality risk is fully borne by the Company and may result in additional amounts being transferred into the Account by the Company to cover greater longevity of annuitants than expected. Conversely, if reserves exceed amounts required, transfers may be made to the Company.
(g) Recently Issued Accounting Standards
FASB ASC 820 was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Account adopted FASB ASC 820 effective January 1, 2008. The adoption of FASB ASC 820 did not have a material impact on the Account’s financial position or results of operations.
In September 2009 the FASB issued ASU 2009-12, which amends FASB ASC 820, Fair Value Measurements and Disclosures. This guidance applies to reporting entities that hold an investment that is required or permitted to be measured or disclosed at fair value on a recurring or nonrecurring basis if the investment does not have a readily determinable fair value and the investee has attributes of an investment company. For these investments, this update allows, as a practical expedient, the use of net asset value (NAV) as the basis to estimate fair value as long as it is not probable, as of the measurement date that the investment will be sold and NAV is not the value that will be used in the sale. The NAVs must be calculated consistent with the American Institute of Certified Public Accountants Audit and Accounting Guide, Investment Companies, which generally requires these investments to be measured at fair value. Additionally, the guidance provided updated disclosures for investments within its scope and noted that if the investor can redeem the investment with the investee on the measurement date at NAV, the investment should likely be classified as Level 2 in the fair value hierarchy. Investments that cannot be redeemed with the investee at NAV would generally be classified as Level 3 in the fair value hierarchy. If the investment is not redeemable with the investee on the measurement date, but will be at a future date, the length of time until the investment is redeemable should be considered in determining classification as Level 2 or 3. This guidance is effective for interim and annual periods ending after December 15, 2009 with early adoption permitted. The Account adopted this guidance effective the period ending December 31, 2009. The adoption of this guidance did not have a material impact on the financial statements of the Account.
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT -12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
In January 2010, the FASB issued ASU 2010-06, which amends FASB ASC 820, Fair Value Measurement and Disclosures. This guidance requires new disclosures and provides amendments to clarify existing disclosures. The new requirements include disclosing transfers in and out of Levels 1 and 2 fair value measurements, the reasons for the transfers, and further disaggregating activity in level 3 fair value measurements. The clarification of existing disclosure guidance includes further disaggregation of fair value measurement disclosures for each class of assets and liabilities and providing disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the new disclosures regarding the activity in Level 3 measurements, which shall be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Account adopted this guidance effective January 1, 2010, except for the new disclosure regarding the activity in Level 3 measurements, which the Account adopted for the fiscal period beginning January 1, 2011.
In May 2011, the FASB issued ASU 2011-04, which amends existing guidance in Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. The guidance in this ASU clarifies existing fair value measurement guidance and expands disclosures primarily related to Level 3 fair value measurements. The ASU will require reporting entities to disclose quantitative information about the unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. The Account will adopt this guidance prospectively for the annual period beginning January 1, 2012. The adoption of this guidance will result in increased disclosures and will have an immaterial impact on the Account’s financial statements.
(h) Subsequent Events
The Company evaluated subsequent events through the date the financial statements were issued with the SEC.
(2) Expenses
The Company does not deduct a sales charge from purchase payments received from the contract owners. However, if any part of the contract value of such contracts is redeemed, the Company will, with certain exceptions, deduct from a contract owners’ contract value a contingent deferred sales charge. For Select Income Annuity contracts, this charge will not exceed 6% of the purchase payments withdrawn and declines a specified percentage each year. After the end of the sixth contract year this charge is 0%. For Select Preferred Annuity contracts this charge will not exceed 8% of the purchase payments redeemed and declines a specified percentage each year. After the end of the seventh contract year this charge is 0%. No sales charges are deducted on redemptions used to purchase units in the fixed investment options of the Company.
The Company may deduct a contract maintenance charge of $50 from deferred annuity contracts, depending on the amount of assets in the contract, which is satisfied by redeeming units. The Company deducts a mortality and expense risk charge assessed through a reduction of the unit value.
The Option table below illustrates the annual rate for all contract level charges by product, as well as the maximum variable account charge per product. The table also summarizes the contract level options available to contract holders.
The options and related charges are described in more detail in the applicable product prospectus.
 
                 
Nationwide Variable Account - 12 Options    Select Income Annuity     Select Preferred Annuity  
     
Variable Account Charges - Recurring
     1.50 %      1.25 % 
Death Benefit Options - Allows enhanced provision in place of the standard death benefit.                 
Five-Year Enhanced
     -            0.05 % 
One-Year Enhanced
     -            0.15 % 
One-Month Enhanced
     -            0.30 % 
Combination Enhanced
     -            0.40 % 
Spousal Protection Annuity Option
     -            0.10 % 
Allows a surviving spouse to continue the contract while receiving the economic benefit of the death benefit upon the death of the other spouse.
                
Beneficiary Protector II Option
     -            0.35 % 
Upon death of the annuitant, in addition to any death benefit payable, the contract will be credited an additional amount.
                
Extra Value Options (EV):
                
Fee assessed to assets of the variable account and to allocations made to the fixed account or guaranteed term options in exchange for application of Extra Value Credit of purchase payments made during the first 12 months contract is in force.
                
3% Extra Value Credit Option
     -            0.50 % 
4% Extra Value Credit Option
     -            0.60 % 
Capital Preservation and Income Options
                
Capital Preservation Plus Option
     -            0.50 % 
P rovides a return of principle over the elected program period.
                
Capital Preservation Plus Lifetime Income Option
     -            1.00 % 
Provides a return of principle over the elected program period and provides for a consistent lifetime income stream regardless of actual value of contract.
                
Lifetime Income Option
                
Provides for lifetime withdrawals even after the contract value is zero .
                
5% (no longer available)
     -            1.00 % 
7% (only available in NY)
     -            1.00 % 
10%
     -            1.20 % 
Spousal Continuation Benefit
                
Allows surviving spouse to continue to receive the lifetime benefit associated with the Lifetime Income Option.
                
5% (no longer available)
     -            0.15 % 
7% (only available in NY)
     -            0.15 % 
10% (not available in NY)
     -            0.30 % 
                      
Maximum Variable Account Charges*
     1.50 %      4.20 % 
* When maximum options are elected. The contract charges indicated in bold, when summarized, represent the Maximum Variable Account Charges
if all optional benefits available under the contract are elected including the most expensive of the mutually exclusive optional benefits.
The following table provides mortality and expense risk charges by asset fee rates for the period ended December 31, 2011.
 
                                                                 
    Total     GVIDA     NVDBL2     NVDCA2     GVIDC     GVIDM     GVDMA     GVDMC  
   
 
 
 
1.25%   $ 11,382,439      $ 4,027      $ 34,134      $ 62,169      $ 43,208      $ 240,024      $ 365,667      $ 104,396   
1.30%     694,331        -            489        3,241        2,369        18,350        25,815        4,954   
1.35%     813,873        -            4,242        2,504        1,854        36,808        71,986        13,334   
1.40%     4,075,482        -            3,741        22,325        5,702        77,034        110,911        19,935   
1.50%     1,773,782        19        1,560        2,184        1,188        24,676        52,131        4,230   
1.55%     705,972        -            4,245        2,543        1,402        5,378        4,075        986   
1.60%     35,132        -            -            -            -            -            385        -       
1.65%     920,165        -            -            902        906        13,433        15,420        5,876   
1.70%     20,708        -            -            -            -            -            -            -       
1.75%     787,485        -            165        -            1,254        11,122        4,816        394   
1.80%     32,072        -            -            -            -            -            -            -       
1.85%     1,770,832        11,168        1,516        -            3,873        45,161        41,907        23,610   
1.90%     449,948        21,860        -            -            18        3,237        4,966        375   
1.95%     241,679        1,686        -            -            -            9,718        15,886        2,211   
2.00%     1,378,574        11,164        11,650        2,400        3,619        34,732        26,129        17,413   
2.05%     57,673        -            7,274        -            -            -            -            3,235   
2.10%     533,196        9,055        2,785        -            844        16,979        12,098        2,506   
2.15%     205,505        -            -            728        -            4,723        4,690        12,547   
2.20%     1,505        -            135        -            -            -            -            67   
2.25%     198,080        1,126        -            -            -            8,070        793        4,320   
2.30%     459        -            -            -            -            135        -            136   
2.35%     83,943        -            -            -            -            2,915        1,615        1,297   
2.40%     20,415        -            -            -            -            -            -            -       
2.45%     22,618        -            -            -            -            2,893        1,441        -       
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT- 12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
                                                                 
2.50%     57,579        -            -            -            -            -            -            2,524   
2.60%     30,163        463        -            -            -            -            -            -       
2.70%     1,061        -            -            -            -            -            -            -       
2.75%     8,100        -            -            -            -            -            -            -       
3.00%     1,168        -            -            -            -            -            -            -       
3.10%     2,460        -            -            -            -            -            -            -       
   
 
 
 
Totals   $ 26,306,399      $ 60,568      $ 71,936      $ 98,996      $ 66,237      $ 555,388      $ 760,731      $ 224,346   
   
 
 
 
                 
    WRASP     WRBP     WRBDP     WRCEP     WRDIV     WRENG     WRGBP     WRGNR  
   
 
 
 
1.25%   $ 307,765      $ 43,394      $ 134,434      $ 100,516      $ 80,578      $ 38,474      $ 1,595      $ 75,667   
1.30%     61,455        12,030        23,907        20,090        13,869        5,540        -            16,827   
1.35%     37,310        6,620        16,745        12,941        10,293        2,736        70        6,423   
1.40%     350,637        70,588        176,067        119,941        96,322        31,932        541        101,410   
1.50%     232,002        50,507        95,720        79,989        61,701        19,965        560        63,845   
1.55%     117,128        19,348        48,458        29,629        29,725        16,060        2,039        24,932   
1.60%     5,873        537        2,622        1,369        611        813        -            1,488   
1.65%     161,667        21,505        47,493        41,775        32,066        15,083        301        38,221   
1.70%     2,721        376        1,346        243        1,711        423        -            1,033   
1.75%     140,836        34,889        54,731        57,725        38,997        8,494        123        24,980   
1.80%     5,985        2,548        1,064        4,978        1,463        -            -            13   
1.85%     432,089        61,042        73,608        137,173        108,530        12,377        175        10,566   
1.90%     112,713        26,613        19,344        47,925        34,897        1,094        -            3,502   
1.95%     57,556        9,124        12,603        23,082        13,956        -            -            274   
2.00%     248,008        48,617        42,671        94,730        69,511        2,661        -            9,945   
2.05%     4,038        1,003        2,139        986        1,883        -            -            -       
2.10%     109,678        18,855        14,897        45,502        33,441        3,524        -            8,806   
2.15%     24,551        9,553        5,628        9,350        7,630        1,786        -            1,608   
2.20%     645        -            -            172        152        -            -            -       
2.25%     23,798        8,252        6,471        9,834        6,265        1,962        -            1,441   
2.30%     36        -            41        -            36        -            -            -       
2.35%     16,862        4,389        4,737        6,753        3,443        40        -            387   
2.40%     8,852        1,488        453        1,733        904        -            -            -       
2.45%     1,186        1,381        620        2,356        471        -            -            252   
2.50%     11,112        1,714        4,259        2,961        803        575        -            610   
2.60%     8,054        905        279        1,090        1,126        928        -            643   
2.70%     385        -            197        -            -            -            -            95   
2.75%     1,205        294        764        195        356        -            -            -       
3.00%     -            -            -            -            -            -            -            -       
3.10%     1,017        325        596        221        -            -            -            -       
   
 
 
 
    $ 2,485,164      $ 455,897      $ 791,894      $ 853,259      $ 650,740      $ 164,467      $ 5,404      $ 392,968   
   
 
 
 
                 
    WRGP     WRHIP     WRIP     WRI2P     WRLTBP     WRMIC     WRMCG     WRMMP  
   
 
 
 
1.25%   $ 100,936      $ 97,506      $ 45,626      $ 40,305      $ 883      $ 17,211      $ 44,932      $ 86,124   
1.30%     22,209        18,742        16,888        8,100        104        4,699        12,168        20,414   
1.35%     16,715        8,149        5,027        4,068        -            2,740        5,923        11,778   
1.40%     105,237        132,994        54,670        52,956        1,490        17,859        57,525        53,047   
1.50%     79,933        85,376        44,023        32,971        771        14,064        38,085        26,888   
1.55%     19,146        40,208        14,504        20,721        3,483        5,411        13,002        7,453   
1.60%     2,096        2,530        945        582        -            848        377        -       
1.65%     47,725        45,099        17,125        18,389        773        10,187        20,135        11,169   
1.70%     107        1,088        79        910        -            -            246        52   
1.75%     69,436        46,382        18,327        17,173        47        9,290        22,871        9,890   
1.80%     10,197        211        -            -            -            -            10        234   
1.85%     158,766        9,500        4,527        9,677        530        1,801        140,200        16,971   
1.90%     56,250        3,565        863        2,156        -            1,231        28,850        1,084   
1.95%     22,916        144        -            338        -            108        18,066        2,542   
2.00%     101,663        15,041        4,396        5,809        599        3,679        56,944        3,916   
2.05%     2,028        151        649        147        -            146        695        240   
2.10%     42,225        15,539        5,326        6,039        -            3,005        36,230        4,967   
2.15%     8,461        1,006        1,590        1,543        -            211        2,235        166   
2.20%     -            -            -            -            -            -            -            -       
2.25%     12,929        1,280        799        1,633        -            357        4,143        362   
2.30%     -            -            -            -            -            -            -            40   
2.35%     6,333        7,181        776        50        -            428        3,311        1,446   
2.40%     2,667        -            -            -            -            -            -            84   
2.45%     1,859        -            -            -            -            918        598        -       
2.50%     1,218        1,441        -            39        -            529        1,691        107   
2.60%     4,768        2,989        2,380        254        -            -            1,399        -       
2.70%     274        -            -            -            -            -            -            -       
2.75%     1,724        -            -            -            -            -            -            -       
3.00%     -            -            -            -            -            -            -            -       
3.10%     210        -            -            -            -            -            -            -       
   
 
 
 
    $ 898,028      $ 536,122      $ 238,520      $ 223,860      $ 8,680      $ 94,722      $ 509,636      $ 258,974   
   
 
 
 
                 
    WRPAP     WRPCP     WRPMP     WRPMAP     WRPMCP     WRRESP     WRSTP     WRSCP  
   
 
 
 
1.25%   $ 465,760      $ 314,923      $ 3,375,293      $ 3,951,892      $ 962,944      $ 35,001      $ 94,323      $ 39,149   
1.30%     24,571        7,206        120,991        152,411        21,462        7,760        21,615        12,674   
1.35%     66,217        27,931        171,990        173,548        65,579        3,764        9,150        5,781   
1.40%     58,307        140,399        698,548        1,015,070        203,854        32,757        129,668        47,571   
1.50%     41,187        37,888        142,258        257,526        70,083        26,613        78,175        40,428   
1.55%     9,861        30,228        69,815        39,821        51,484        12,598        29,823        10,622   
1.60%     5,248        -            796        2,018        1,794        865        2,210        137   
1.65%     18,880        14,213        94,781        79,246        46,344        11,980        40,148        17,698   
1.70%     1,635        1,420        1,529        1,587        1,470        465        979        793   
1.75%     5,004        2,876        51,214        44,687        7,005        8,364        33,711        16,248   
1.80%     -            -            -            -            -            -            407        372   
1.85%     53,468        15,287        91,283        118,142        66,665        1,782        8,195        4,724   
1.90%     2,753        3,695        10,026        15,668        3,733        1,901        5,295        2,005   
1.95%     2,451        239        18,130        12,532        2,406        87        442        427   
2.00%     53,313        32,422        105,438        167,713        128,155        2,500        12,863        7,730   
2.05%     -            -            8,040        8,789        13,974        -            -            -       
2.10%     10,419        6,565        32,063        16,813        31,549        2,793        8,353        4,028   
2.15%     1,149        3,511        23,380        38,402        24,986        2,014        3,760        2,497   
2.20%     -            -            68        -            67        -            -            -       
2.25%     1,575        1,863        30,571        47,342        3,960        1,810        4,782        1,904   
2.30%     -            -            -            -            -            -            -            -       
2.35%     3,071        7,356        -            -            4,240        -            811        1,404   
2.40%     -            -            -            1,451        1,469        -            -            -       
2.45%     -            -            1,878        -            -            248        3,342        2,367   
2.50%     -            4,305        3,729        1,980        12,359        -            687        1,186   
2.60%     -            -            155        -            154        368        584        1,283   
2.70%     -            -            -            -            -            -            110        -       
2.75%     -            -            1,826        -            -            -            -            -       
3.00%     -            -            -            -            1,168        -            -            -       
3.10%     -            -            -            -            -            -            -            -       
   
 
 
 
    $ 824,869      $ 652,327      $ 5,053,802      $ 6,146,638      $ 1,726,904      $ 153,670      $ 489,433      $ 221,028   
   
 
 
 
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT -12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
                     
           WRSCV        WRVP  
        
 
 
 
 
 
1.25%
     $ 30,497         $ 43,086   
 
1.30%
       3,973           9,408   
 
1.35%
       3,583           8,064   
 
1.40%
       30,140           56,304   
 
1.50%
       20,683           46,553   
 
1.55%
       11,534           10,310   
 
1.60%
       611           377   
 
1.65%
       12,544           19,081   
 
1.70%
       -               495   
 
1.75%
       9,239           37,195   
 
1.80%
       355           4,235   
 
1.85%
       13,038           93,481   
 
1.90%
       1,847           32,482   
 
1.95%
       111           14,644   
 
2.00%
       1,112           52,031   
 
2.05%
       243           2,013   
 
2.10%
       3,577           24,735   
 
2.15%
       2,340           5,460   
 
2.20%
       -               199   
 
2.25%
       1,981           8,457   
 
2.30%
       -               35   
 
2.35%
       783           4,315   
 
2.40%
       -               1,314   
 
2.45%
       -               808   
 
2.50%
       -               3,750   
 
2.60%
       1,269           1,072   
 
2.70%
       -               -       
 
2.75%
       -               1,736   
 
3.00%
       -               -       
 
3.10%
       -               91   
        
 
 
 
         $ 149,460         $ 481,731   
          
 
 
 
(3) Related Party Transactions
The Company performs various services on behalf of the mutual fund companies in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, postage, fund transfer agency and various other record keeping and customer service functions. These fees are paid to an affiliate of the Company.
Contract owners may, with certain restrictions, transfer their assets between the Account and a fixed dollar contract (fixed account) maintained in the accounts of the Company. The fixed account assets are not reflected in the accompanying financial statements. In addition, the Account portion of contract owner loans is transferred to the accounts of the Company for administration and collection. Loan repayments are transferred to the Account at the direction of the contract owner. For the years ended December 31, 2011 and 2010, total transfers to the Account from the fixed account were $17,514,493 and $13,928,269, respectively, and total transfers from the Account to the fixed account were $9,900,108 and $4,755,018, respectively. Transfers from the Account to the fixed account are included in redemptions, and transfers to the Account from the fixed account are included in purchase payments received from contract owners, as applicable, on the accompanying Statements of Changes in Contract Owners’ Equity.
For contracts with the Extra Value option, the Company contributed $11,238 and $70,734 to the Account in the form of bonus credits to the contract owner accounts for the years ended December 31, 2011 and 2010, respectively. These amounts are included in purchase payments received from contract owners and are credited at the time the related purchase payment from the contract owner is received.
For Purchase Payment Credits to Select Preferred Annuity contracts, the Company contributed $444,215 and $264,733 to the Account in the form of additional credit to the contract owner accounts for the years ended December 31, 2011 and 2010, respectively. These amounts are included in purchase payments received from contract owners and, as applicable, are applied to a contract when cumulative purchase payments reach certain aggregate levels.
For guaranteed minimum death benefits, the Company contributed $872,952 and $1,747,369 to the Account in the form of additional premium to contract owner accounts for the years ended December 31, 2011 and 2010, respectively. These amounts are included in purchase payments received from contract owners and are credited at time of annuitant death.
(4) Fair Value Measurement
FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Account generally uses the market approach as the valuation technique due to the nature of the mutual fund investments offered in the Account. This technique maximizes the use of observable inputs and minimizes the use of unobservable inputs.
In accordance with FASB ASC 820, the Account categorized its financial instruments into a three level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.
The Account categorizes financial assets recorded at fair value as follows:
• Level 1 – Unadjusted quoted prices accessible in active markets and mutual funds where the value per share (unit) is determined and published and is the basis for current transactions for identical assets or liabilities at the measurement date.
• Level 2 – Unadjusted quoted prices for similar assets or liabilities in active markets or inputs (other than quoted prices) that are observable or that are derived principally from or corroborated by observable market data through correlation or other means.
• Level 3 – Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate about the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs.
The Account recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Level 1 and 2 as of December 31, 2011.
The following table summarizes assets measured at fair value on a recurring basis as of December 31, 2011:
 
                                 
     Level 1      Level 2      Level 3      Total  
         
Separate Account Investments
   $ 1,960,830,500       $ 0       $ 0       $ 1,960,830,500   
The Account did not have any assets or liabilities reported at fair value on a nonrecurring basis required to be disclosed under FASB ASC 820.
The cost of purchases and proceeds from sales of Investments for the year ended December 31, 2011 are as follows:
 
                     
                 
Purchases of
Investments
    
Sales of
Investments
 
NVIT Investor Destinations Aggressive Fund – Class II ( GVIDA )
        $ 115,664       $ 188,420   
NVIT Investor Destinations Balanced Fund – Class II ( NVDBL2 )
          2,579,885         554,635   
NVIT Investor Destinations Capital Appreciation Fund – Class II ( NVDCA2 )
          8,382,690         348,301   
NVIT Investor Destinations Conservative Fund – Class II ( GVIDC )
          3,050,586         608,776   
NVIT Investor Destinations Moderate Fund – Class II ( GVIDM )
          3,264,663         4,121,682   
NVIT Investor Destinations Moderately Aggressive Fund – Class II ( GVDMA )
          3,080,796         7,759,086   
NVIT Investor Destinations Moderately Conservative Fund – Class II ( GVDMC )
          2,754,071         1,938,577   
Ivy Fund Variable Insurance Portfolios, Inc. – Asset Strategy ( WRASP )
          5,462,284         15,361,921   
Ivy Fund Variable Insurance Portfolios, Inc. – Balanced ( WRBP )
          5,153,273         2,971,757   
Ivy Fund Variable Insurance Portfolios, Inc. – Bond ( WRBDP )
          10,286,875         5,560,298   
Ivy Fund Variable Insurance Portfolios, Inc. – Core Equity ( WRCEP )
          5,603,043         4,587,165   
Ivy Fund Variable Insurance Portfolios, Inc. – Dividend Opportunities ( WRDIV )
          1,930,943         5,042,932   
Ivy Fund Variable Insurance Portfolios, Inc. – Energy ( WRENG )
          1,312,968         1,705,285   
Ivy Funds Variable Insurance Portfolios, Inc. – Global Bond ( WRGBP )
          1,057,569         140,390   
Ivy Fund Variable Insurance Portfolios, Inc. – Global Natural Resources ( WRGNR )
          1,743,284         3,511,633   
Ivy Fund Variable Insurance Portfolios, Inc. – Growth ( WRGP )
          4,024,840         5,984,602   
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT -12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
                         
Ivy Fund Variable Insurance Portfolios, Inc. – High Income ( WRHIP )
              8,604,920         5,535,355   
Ivy Fund Variable Insurance Portfolios, Inc. – International Growth ( WRIP )
              1,077,053         2,234,358   
Ivy Fund Variable Insurance Portfolios, Inc. – International Core Equity ( WRI2P )
              2,043,263         1,743,679   
Ivy Funds Variable Insurance Portfolios, Inc. – Limited-Term Bond ( WRLTBP )
              1,766,150         287,297   
Ivy Fund Variable Insurance Portfolios, Inc. – Micro Cap Growth ( WRMIC )
              1,077,673         1,117,830   
Ivy Fund Variable Insurance Portfolios, Inc. – Mid Cap Growth ( WRMCG )
              3,164,508         3,542,226   
Ivy Fund Variable Insurance Portfolios, Inc. – Money Market ( WRMMP )
              29,448,999         19,650,975   
Ivy Fund Variable Insurance Portfolios, Inc. – Pathfinder Aggressive ( WRPAP )
              3,717,186         5,144,323   
Ivy Fund Variable Insurance Portfolios, Inc. – Pathfinder Conservative ( WRPCP )
              19,972,915         6,701,468   
Ivy Fund Variable Insurance Portfolios, Inc. – Pathfinder Moderate ( WRPMP )
              124,342,563         4,542,994   
Ivy Fund Variable Insurance Portfolios, Inc. – Pathfinder Moderately Aggressive ( WRPMAP )
              218,642,649         2,328,276   
Ivy Fund Variable Insurance Portfolios, Inc. – Pathfinder Moderately Conservative ( WRPMCP )
              41,652,332         3,466,525   
Ivy Fund Variable Insurance Portfolios, Inc. – Real Estate Securities ( WRRESP )
              1,263,097         1,351,002   
Ivy Fund Variable Insurance Portfolios, Inc. – Science and Technology ( WRSTP )
              3,512,111         2,774,441   
Ivy Fund Variable Insurance Portfolios, Inc. – Small Cap Growth ( WRSCP )
              1,465,343         1,967,502   
Ivy Fund Variable Insurance Portfolios, Inc. – Small Cap Value ( WRSCV )
              749,518         1,569,770   
Ivy Fund Variable Insurance Portfolios, Inc. – Value ( WRVP )
              1,333,071         4,184,168   
             
 
 
 
       Total       $ 523,636,785       $ 128,527,649   
             
 
 
 
(5) Financial Highlights
The Company offers several variable annuity products through the Account that have unique combinations of features and fees that are assessed to the contract owner. Differences in fee structures result in a variety of contract expense rates, unit fair values and total returns. The following tabular presentation is a summary of units, unit fair values, contract owners’ equity outstanding and contract expense rates for variable annuity contracts as of December 31, 2011, and the investment income ratio and total return for each of the periods in the five year period ended December 31, 2011. The information is presented as a range of minimum to maximum values based upon product grouping. The range is determined by identifying the lowest and the highest contract expense rate for contracts with units outstanding as of the balance sheet date. The unit fair values and total returns related to these identified contract expense rates are also disclosed as a range below. Accordingly, some individual contract amounts may not be within the ranges presented. Total return and investment income ratio for periods with no ending contract owners’ equity were considered to be irrelevant, and therefore are not presented. Contract owner’s equity presented below may not agree to the contract owner’s equity presented in the Statements of Changes due to reserves for annuity contracts in payout.
NATIONWIDE VARIABLE ACCOUNT -12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
                                                 
   
Contract
Expense
Rate*
  Units     Unit
Fair
Value 		    Contract
Owners’
Equity 		    Investment
Income
Ratio** 		    Total
Return*** 		    Inception
Date****
NVIT Investor Destinations Aggressive Fund - Class II (GVIDA)
  
   
2011
  1.25% to 2.60%     377,969      $  8.32 to $ 7.80      $ 3,050,878        1.81%        -5.13% to -6.42%       
2010
  1.25% to 2.60%     385,733        8.77 to 8.34        3,304,169        1.68%        13.20% to 11.65%       
2009
  1.25% to 2.60%     407,096        7.75 to 7.47        3,099,918        1.04%        25.62% to 23.90%       
2008
  1.25% to 2.60%     377,280        6.17 to 6.03        2,299,353        2.10%        -37.63% to -38.49%       
2007
  1.85% to 2.25%     260,941        9.85 to 9.82        2,567,988        1.74%        -1.52% to -1.79%       
NVIT Investor Destinations Balanced Fund - Class II (NVDBL2)
2011
  1.25% to 2.20%     505,634        12.47 to 12.15        6,274,762        2.15%        -0.37% to -1.33%       
2010
  1.25% to 2.10%     346,155        12.52 to 12.34        4,315,166        1.31%        8.44% to 7.51%       
2009
  1.25% to 2.00%     111,210        11.54 to 11.48        1,283,090        1.80%        15.43% to 14.84%      ****
NVIT Investor Destinations Capital Appreciation Fund - Class II (NVDCA2)
2011
  1.25% to 2.15%     819,775        13.10 to 12.78        10,721,909        2.16%        -2.17% to -3.06%       
2010
  1.25% to 2.15%     225,471        13.39 to 13.19        3,013,274        1.27%        10.63% to 9.62%       
2009
  1.25% to 2.00%     112,328        12.10 to 12.04        1,358,832        1.81%        21.03% to 20.41%      ****
NVIT Investor Destinations Conservative Fund - Class II (GVIDC)
2011
  1.25% to 2.10%     596,408        10.81 to 10.39        6,415,109        2.39%        1.65% to 0.77%       
2010
  1.25% to 2.00%     374,312        10.64 to 10.35        3,969,082        2.21%        4.57% to 3.78%       
2009
  1.25% to 2.00%     337,299        10.17 to 9.97        3,422,222        1.94%        7.72% to 6.90%       
2008
  1.25% to 1.85%     264,806        9.45 to 9.35        2,498,076        3.47%        -7.20% to -7.76%       
2007
  1.25% to 1.50%     140,505        10.18 to 10.16        1,429,751        2.87%        1.78% to 1.61%       
NVIT Investor Destinations Moderate Fund - Class II (GVIDM)
2011
  1.25% to 2.45%     3,922,763        9.67 to 9.13        37,608,280        2.13%        -1.29% to -2.48%       
2010
  1.25% to 2.45%     4,039,103        9.80 to 9.37        39,296,310        1.98%        9.53% to 8.20%       
2009
  1.25% to 2.45%     3,981,854        8.94 to 8.66        35,433,179        1.54%        17.65% to 16.22%       
2008
  1.25% to 2.45%     3,924,711        7.60 to 7.45        29,742,274        2.88%        -24.16% to -25.08%       
2007
  1.25% to 2.45%     3,109,641        10.02 to 9.94        31,131,973        2.23%        0.23% to -0.58%       
NVIT Investor Destinations Moderately Aggressive Fund - Class II (GVDMA)
2011
  1.25% to 2.45%     5,698,777        8.93 to 8.44        50,565,308        2.01%        -3.35% to -4.52%       
2010
  1.25% to 2.45%     6,247,584        9.24 to 8.83        57,451,777        1.88%        11.42% to 10.07%       
2009
  1.25% to 2.45%     6,881,792        8.29 to 8.03        56,870,012        1.32%        22.84% to 21.34%       
2008
  1.25% to 2.45%     7,827,936        6.75 to 6.61        52,739,171        2.51%        -32.25% to -33.07%       
2007
  1.25% to 2.45%     6,797,048        9.96 to 9.88        67,676,754        1.91%        -0.35% to -1.17%       
NVIT Investor Destinations Moderately Conservative Fund - Class II (GVDMC)
2011
  1.25% to 2.50%     1,479,409        10.37 to 9.77        15,191,490        2.29%        0.79% to -0.48%       
2010
  1.25% to 2.50%     1,412,298        10.29 to 9.82        14,421,471        2.09%        7.16% to 5.80%       
2009
  1.25% to 2.35%     1,322,017        9.60 to 9.32        12,629,298        1.75%        13.13% to 11.87%       
2008
  1.25% to 2.35%     1,171,429        8.49 to 8.33        9,907,489        3.25%        -16.11% to -17.04%       
2007
  1.25% to 2.10%     824,398        10.12 to 10.06        8,328,962        2.60%        1.15% to 0.57%       
Ivy Fund Variable Insurance Portfolios, Inc. - Asset Strategy (WRASP)
2011
  1.25% to 3.10%     6,728,233        20.08 to 17.32        132,707,453        1.04%        -8.36% to -10.08%       
2010
  1.25% to 3.10%     7,157,471        21.91 to 19.26        154,332,425        1.08%        7.32% to 5.31%       
2009
  1.25% to 3.10%     7,425,961        20.42 to 18.29        149,600,166        0.37%        23.48% to 21.17%       
2008
  1.25% to 3.10%     7,345,272        16.54 to 15.09        120,503,997        0.45%        -26.72% to -28.10%       
2007
  1.25% to 3.10%     6,510,435        22.57 to 20.99        146,284,741        0.72%        42.30% to 39.63%       
Ivy Fund Variable Insurance Portfolios, Inc. - Balanced (WRBP)
2011
  1.25% to 3.10%     1,990,544        13.81 to 11.91        27,171,664        1.50%        2.02% to 0.12%       
2010
  1.25% to 3.10%     1,993,509        13.53 to 11.89        26,715,430        1.95%        15.65% to 13.48%       
2009
  1.25% to 3.10%     1,969,265        11.70 to 10.48        22,895,678        2.05%        11.81% to 9.72%       
2008
  1.25% to 3.10%     2,078,931        10.47 to 9.55        21,806,132        0.11%        -21.99% to -23.45%       
2007
  1.25% to 3.10%     1,940,268        13.41 to 12.48        26,178,502        1.52%        12.24% to 10.12%       
Ivy Fund Variable Insurance Portfolios, Inc. - Bond (WRBDP)
2011
  1.25% to 3.10%     4,478,753        12.68 to 10.93        55,945,243        2.58%        5.97% to 3.99%       
2010
  1.25% to 3.10%     4,173,670        11.97 to 10.51        49,220,990        3.44%        4.71% to 2.75%       
2009
  1.25% to 3.10%     3,245,655        11.43 to 10.23        36,708,343        3.81%        5.82% to 3.84%       
2008
  1.25% to 3.10%     3,140,394        10.80 to 9.85        33,658,749        0.10%        -0.94% to -2.80%       
2007
  1.25% to 3.10%     2,587,073        10.90 to 10.14        28,068,255        4.48%        4.34% to 2.38%       
Ivy Fund Variable Insurance Portfolios, Inc. - Core Equity (WRCEP)
2011
  1.25% to 3.10%     3,514,770        14.23 to 12.27        49,228,864        0.36%        0.39% to -1.48%       
2010
  1.25% to 3.10%     3,530,379        14.17 to 12.45        49,283,140        0.99%        19.38% to 17.15%       
2009
  1.25% to 3.10%     3,591,611        11.87 to 10.63        42,094,848        1.02%        22.47% to 20.18%       
2008
  1.25% to 3.10%     3,761,443        9.69 to 8.84        36,226,405        0.18%        -35.59% to -36.80%       
2007
  1.25% to 3.10%     3,598,596        15.05 to 13.99        54,069,395        0.70%        12.60% to 10.48%       
Ivy Fund Variable Insurance Portfolios, Inc. - Dividend Opportunities (WRDIV)
2011
  1.25% to 2.75%     2,922,109        12.57 to 11.15        35,735,406        1.05%        -5.88% to -7.31%       
2010
  1.25% to 2.75%     3,158,796        13.36 to 12.03        41,110,151        1.13%        14.92% to 13.17%       
2009
  1.25% to 2.75%     3,305,284        11.62 to 10.63        37,543,117        1.00%        16.41% to 14.64%       
2008
  1.25% to 2.75%     3,458,487        9.98 to 9.27        33,886,565        0.08%        -36.72% to -37.68%       
2007
  1.25% to 2.75%     3,179,374        15.78 to 14.88        49,406,307        1.02%        15.25% to 13.49%       
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT -12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
                                                 
   
Contract
Expense
Rate*
  Units     Unit
Fair
Value 		    Contract
Owners’
Equity 		    Investment
Income
Ratio** 		    Total
Return*** 		    Inception
Date****
Ivy Fund Variable Insurance Portfolios, Inc. - Energy (WRENG)
2011
  1.25% to 2.60%     870,520      $ 11.01 to $ 10.19      $ 9,461,034        0.00%        -10.21% to -11.44%       
2010
  1.25% to 2.60%     893,710        12.27 to 11.50        10,838,126        0.28%        20.43% to 18.79%       
2009
  1.25% to 2.60%     867,964        10.19 to 9.68        8,759,950        0.00%        38.73% to 36.83%       
2008
  1.25% to 2.50%     727,472        7.34 to 7.10        5,306,113        0.11%        -46.82% to -47.50%       
2007
  1.25% to 2.50%     414,206        13.81 to 13.52        5,686,493        0.50%        49.40% to 47.50%       
Ivy Funds Variable Insurance Portfolios, Inc. - Global Bond (WRGBP)
2011
  1.25% to 1.85%     91,516        9.86 to 9.82        901,121        2.97%        -1.40% to -1.80%      ****
Ivy Fund Variable Insurance Portfolios, Inc. - Global Natural Resources (WRGNR)
2011
  1.25% to 2.70%     1,670,677        12.60 to 11.43        20,754,800        0.00%        -22.43% to -23.56%       
2010
  1.25% to 2.70%     1,767,719        16.25 to 14.96        28,359,202        0.00%        15.60% to 13.91%       
2009
  1.25% to 2.70%     1,822,229        14.06 to 13.13        25,349,657        0.00%        71.47% to 68.95%       
2008
  1.25% to 2.70%     1,660,068        8.20 to 7.77        13,497,739        1.41%        -61.94% to -62.51%       
2007
  1.25% to 2.70%     1,385,133        21.54 to 20.73        29,602,978        0.03%        41.70% to 39.61%       
Ivy Fund Variable Insurance Portfolios, Inc. - Growth (WRGP)
2011
  1.25% to 3.10%     4,126,607        12.40 to 10.69        50,482,763        0.40%        0.85% to -1.04%       
2010
  1.25% to 3.10%     4,408,571        12.30 to 10.81        53,501,459        0.64%        11.17% to 9.09%       
2009
  1.25% to 3.10%     4,630,140        11.06 to 9.91        50,651,078        0.38%        25.49% to 23.14%       
2008
  1.25% to 3.10%     5,005,777        8.82 to 8.04        43,961,551        0.00%        -37.07% to -38.25%       
2007
  1.25% to 3.10%     5,000,421        14.01 to 13.03        70,111,309        0.00%        24.23% to 21.89%       
Ivy Fund Variable Insurance Portfolios, Inc. - High Income (WRHIP)
2011
  1.25% to 2.60%     2,212,335        16.04 to 14.40        35,705,820        7.10%        3.95% to 2.53%       
2010
  1.25% to 2.60%     2,140,242        15.43 to 14.04        33,390,182        7.42%        13.42% to 11.87%       
2009
  1.25% to 2.60%     1,881,230        13.60 to 12.55        25,935,496        8.91%        44.59% to 42.62%       
2008
  1.25% to 2.60%     1,555,055        9.41 to 8.80        14,978,886        0.64%        -22.80% to -23.85%       
2007
  1.25% to 2.60%     1,479,099        12.18 to 11.56        18,515,978        8.95%        2.56% to 1.15%       
Ivy Fund Variable Insurance Portfolios, Inc. - International Growth (WRIP)
2011
  1.25% to 2.60%     1,050,472        13.18 to 11.83        14,086,777        0.41%        -8.48% to -9.73%       
2010
  1.25% to 2.60%     1,120,275        14.40 to 13.11        16,459,015        0.97%        13.35% to 11.81%       
2009
  1.25% to 2.60%     1,118,293        12.71 to 11.73        14,510,763        1.52%        25.31% to 23.59%       
2008
  1.25% to 2.60%     1,107,240        10.14 to 9.49        11,498,901        0.24%        -42.87% to -43.65%       
2007
  1.25% to 2.60%     1,044,989        17.75 to 16.84        19,081,552        0.68%        19.77% to 18.13%       
Ivy Fund Variable Insurance Portfolios, Inc. - International Core Equity  (WRI2P)
2011
  1.25% to 2.60%     1,008,924        12.79 to 11.49        12,907,859        1.56%        -14.96% to -16.12%       
2010
  1.25% to 2.60%     994,967        15.04 to 13.69        15,001,322        1.37%        12.67% to 11.13%       
2009
  1.25% to 2.60%     1,023,904        13.35 to 12.32        13,762,739        3.48%        35.25% to 33.41%       
2008
  1.25% to 2.60%     995,194        9.87 to 9.24        9,952,578        0.48%        -42.98% to -43.77%       
2007
  1.25% to 2.60%     1,026,584        17.31 to 16.42        18,058,252        1.87%        8.50% to 7.01%       
Ivy Funds Variable Insurance Portfolios, Inc. - Limited-Term Bond (WRLTBP)
2011
  1.25% to 2.00%     143,487        10.13 to 10.08        1,450,827        2.19%        1.30% to 0.78%      ****
Ivy Fund Variable Insurance Portfolios, Inc. - Micro Cap Growth (WRMIC)
2011
  1.25% to 2.50%     441,955        13.20 to 11.95        5,763,772        0.00%        -8.17% to -9.33%       
2010
  1.25% to 2.50%     441,697        14.38 to 13.18        6,283,254        0.00%        39.10% to 37.34%       
2009
  1.25% to 2.50%     386,952        10.34 to 9.60        3,969,646        0.00%        39.52% to 37.76%       
2008
  1.25% to 2.45%     373,619        7.41 to 6.98        2,754,852        0.00%        -48.69% to -49.31%       
2007
  1.25% to 2.45%     412,324        14.44 to 13.78        5,942,094        0.00%        5.15% to 3.86%       
Ivy Fund Variable Insurance Portfolios, Inc. - Mid Cap Growth (WRMCG)
2011
  1.25% to 2.60%     1,832,225        15.73 to 14.37        28,017,146        0.01%        -1.80% to -3.14%       
2010
  1.25% to 2.60%     1,899,916        16.02 to 14.83        29,661,717        0.04%        29.91% to 28.14%       
2009
  1.25% to 2.60%     1,904,908        12.33 to 11.58        22,970,683        0.00%        44.83% to 42.85%       
2008
  1.25% to 2.60%     1,856,562        8.51 to 8.10        15,531,201        0.03%        -37.03% to -37.89%       
2007
  1.25% to 2.60%     1,714,836        13.52 to 13.05        22,883,802        0.02%        11.20% to 9.67%       
Ivy Fund Variable Insurance Portfolios, Inc. - Money Market (WRMMP)
2011
  1.25% to 2.50%     2,545,888        10.52 to 9.50        26,365,826        0.02%        -1.23% to -2.47%       
2010
  1.25% to 2.50%     1,570,513        10.65 to 9.75        16,525,931        0.07%        -1.18% to -2.43%       
2009
  1.25% to 2.50%     1,269,004        10.78 to 9.99        13,495,153        1.03%        -0.24% to -1.51%       
2008
  1.25% to 2.60%     1,690,600        10.81 to 10.09        17,997,708        2.08%        0.91% to -0.47%       
2007
  1.25% to 2.60%     792,315        10.71 to 10.14        8,384,027        4.39%        3.30% to 1.88%       
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Aggressive (WRPAP)
2011
  1.25% to 2.35%     5,585,638        9.91 to 9.50        55,090,208        1.23%        -5.35% to -6.40%       
2010
  1.25% to 2.35%     5,863,977        10.47 to 10.15        61,202,987        1.12%        14.09% to 12.82%       
2009
  1.25% to 2.60%     5,999,331        9.18 to 8.95        54,954,615        0.43%        21.78% to 20.11%       
2008
  1.25% to 2.60%     5,558,764        7.54 to 7.45        41,870,260        0.00%        -24.61% to -25.48%      ****
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Conservative (WRPCP)
2011
  1.25% to 2.50%     5,382,968        10.56 to 10.06        56,530,011        1.17%        -0.51% to -1.76%       
2010
  1.25% to 2.35%     4,173,894        10.62 to 10.29        44,152,956        0.96%        8.01% to 6.81%       
2009
  1.25% to 2.25%     2,640,057        9.83 to 9.65        25,895,246        0.07%        11.54% to 10.41%       
2008
  1.25% to 2.15%     956,646        8.81 to 8.75        8,419,198        0.00%        -11.87% to -12.54%      ****
 
 
(Continued)
NATIONWIDE VARIABLE ACCOUNT -12
NOTES TO FINANCIAL STATEMENTS December 31, 2011
 
                                 
   
Contract
Expense
Rate*
 
Units
 
Unit
Fair
Value
  Contract
Owners’
Equity 		   
Investment
Income
Ratio**
 
Total
Return***
 
Inception
Date****
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderate (WRPMP)
2011
  1.25% to 2.75%   42,622,600   $ 10.14 to $ 9.56   $ 430,800,828      1.03%   -2.69% to -4.16%    
2010
  0.40% to 2.50%   31,449,317   10.42 to 10.05     326,887,970      0.61%   9.82%    
2009
  1.25% to 2.50%   19,221,244   9.37 to 9.15     179,712,793      0.18%   16.48% to 15.01%    
2008
  1.25% to 2.25%   6,805,816   8.04 to 7.97     54,652,358      0.00%   -19.59% to -20.27%   ****
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderately Aggressive  (WRPMAP)
2011
  1.25% to 2.50%   53,697,460   10.25 to 9.76     548,880,934      0.79%   -4.23% to -5.44%    
2010
  1.25% to 2.50%   33,709,714   10.70 to 10.32     359,864,259      0.74%   13.03% to 11.60%    
2009
  1.25% to 2.50%   21,078,676   9.47 to 9.25     199,157,729      0.25%   19.20% to 17.69%    
2008
  1.25% to 2.50%   9,034,723   7.94 to 7.86     71,666,425      0.00%   -20.56% to -21.40%   ****
Ivy Fund Variable Insurance Portfolios, Inc. - Pathfinder Moderately Conservative  (WRPMCP)
2011
  1.25% to 3.00%   13,577,068   10.49 to 9.80     141,712,975      1.08%   -1.25% to -2.99%    
2010
  1.25% to 2.50%   10,120,254   10.63 to 10.25     107,068,837      0.87%   9.58% to 8.20%    
2009
  1.25% to 2.50%   6,475,804   9.70 to 9.47     62,597,653      0.12%   13.68% to 12.25%    
2008
  1.25% to 2.15%   2,547,527   8.53 to 8.46     21,679,215      0.00%   -14.71% to -15.36%   ****
Ivy Fund Variable Insurance Portfolios, Inc. - Real Estate Securities (WRRESP)
2011
  1.25% to 2.60%   716,676   14.64 to 13.22     10,330,210      0.76%   3.70% to 2.28%    
2010
  1.25% to 2.60%   718,974   14.12 to 12.92     10,009,341      1.84%   26.90% to 25.17%    
2009
  1.25% to 2.60%   725,750   11.12 to 10.32     7,981,412      3.02%   22.08% to 20.40%    
2008
  1.25% to 2.60%   740,889   9.11 to 8.57     6,685,173      0.59%   -36.84% to -37.71%    
2007
  1.25% to 2.60%   725,842   14.43 to 13.77     10,392,221      0.61%   -17.12% to -18.26%    
Ivy Fund Variable Insurance Portfolios, Inc. - Science and Technology (WRSTP)
2011
  1.25% to 2.70%   1,852,622   15.64 to 13.93     29,614,848      0.00%   -6.94% to -8.31%    
2010
  1.25% to 2.70%   1,850,540   16.81 to 15.19     31,901,434      0.00%   11.35% to 9.71%    
2009
  1.25% to 2.70%   1,807,299   15.09 to 13.84     28,109,535      0.00%   42.04% to 39.96%    
2008
  1.25% to 2.70%   1,774,843   10.63 to 9.89     19,536,940      0.00%   -34.72% to -35.68%    
2007
  1.25% to 2.70%   1,673,037   16.28 to 15.38     28,396,895      0.00%   22.80% to 20.99%    
Ivy Fund Variable Insurance Portfolios, Inc. - Small Cap Growth (WRSCP)
2011
  1.25% to 2.60%   975,520   12.44 to 11.17     12,556,018      0.00%   -11.72% to -12.92%    
2010
  1.25% to 2.60%   1,005,451   14.09 to 12.82     14,710,996      0.00%   27.24% to 25.50%    
2009
  1.25% to 2.60%   981,102   11.07 to 10.22     11,278,439      0.41%   33.04% to 31.22%    
2008
  1.25% to 2.60%   978,833   8.32 to 7.79     8,542,399      0.00%   -39.94% to -40.76%    
2007
  1.25% to 2.60%   992,086   13.86 to 13.14     14,518,178      0.00%   12.09% to 10.55%    
Ivy Fund Variable Insurance Portfolios, Inc. - Small Cap Value (WRSCV)
2011
  1.25% to 2.60%   712,246   12.14 to 10.90     8,605,276      0.49%   -13.88% to -15.05%    
2010
  1.25% to 2.60%   767,001   14.10 to 12.83     10,793,359      0.07%   24.83% to 23.13%    
2009
  1.25% to 2.60%   753,278   11.29 to 10.42     8,525,935      0.00%   27.53% to 25.79%    
2008
  1.25% to 2.60%   777,159   8.85 to 8.28     6,938,507      0.20%   -27.06% to -28.06%    
2007
  1.25% to 2.60%   764,876   12.14 to 11.51     9,405,602      0.01%   -5.34% to -6.64%    
Ivy Fund Variable Insurance Portfolios, Inc. - Value (WRVP)
2011
  1.25% to 3.10%   2,193,567   11.33 to 9.77     24,640,900      0.75%   -8.47% to -10.19%    
2010
  1.25% to 3.10%   2,423,651   12.38 to 10.88     29,755,322      0.91%   17.22% to 15.03%    
2009
  1.25% to 3.10%   2,586,373   10.56 to 9.46     27,108,814      2.06%   11.22% to 9.82%    
2008
  1.25% to 3.10%   2,883,828   8.45 to 7.71     24,353,612      0.24%   -34.64% to -35.87%    
2007
  1.25% to 3.10%   2,921,920   12.92 to 12.02     38,028,729      1.04%   0.62% to -1.28%    
Ivy Fund Variable Insurance Portfolios, Inc. - Mortgage Securities(obsolete) (WRMSP)
2009
  1.25% to 2.50%   553,854   10.23 to 9.55     5,554,056      5.46%   7.02% to 5.66%    
2008
  1.25% to 2.50%   602,234   9.56 to 9.04     5,664,532      0.93%   -12.06% to -13.18%    
2007
  1.25% to 2.50%   684,413   10.87 to 10.41     7,351,321      3.65%   2.10% to 0.80%    
           
2011
  Reserves for annuity contracts in payout phase:     5,553,679               
2011
  Contract owners equity:   $ 1,960,829,998               
2010
  Reserves for annuity contracts in payout phase:     6,412,735               
2010
  Contract owners equity:   $ 1,659,213,789               
2009
  Reserves for annuity contracts in payout phase:     6,242,032               
2009
  Contract owners equity:   $ 1,199,462,127               
2008
  Reserves for annuity contracts in payout phase:     94,124               
2008
  Contract owners equity:   $ 748,850,483               
2007
  Reserves for annuity contracts in payout phase:     19,075               
2007
  Contract owners equity:   $ 721,521,134               
 
* This represents the range of annual contract expense rates of the variable account at the period end indicated and includes only those expenses that are charged through a reduction in the unit values. Excluded are expenses of the underlying mutual funds and charges made directly to contract owners’ accounts through the redemption of units.
** This represents the ratio of dividends for the period indicated, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by monthly average net assets (excluding months where net assets are zero). The investment income ratio for subaccounts initially funded during the period presented has not been annualized. The ratios exclude those expenses that result in direct reductions to the contractholder accounts through reductions in unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.
*** This represents the range of minimum and maximum total returns for the period indicated, including changes in the value of the underlying mutual fund, which reflects the reduction of unit values for expenses assessed. The total returns do not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Total return is not annualized if the underlying mutual fund option is initially offered, funded, or both, during the period presented. Minimum and maximum ranges are not shown for underlying mutual fund options for which a single contract expense rate (product option) exists. In such cases, the total return presented is representative of all units issued and outstanding at period end.
**** Subaccounts denoted indicate the underlying mutual fund option was initially added and funded during the period presented.
 
 
 
 
 

 
 
 
 
Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholder
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, 2010 and 2009, and the related consolidated statements of operations, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2010. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index.  These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.  Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of evaluating other-than-temporary impairments of debt securities due to the adoption of new accounting requirements issued by the FASB, as of January 1, 2009.


/s/ KPMG LLP
Columbus, Ohio
 
March 1, 2012
 

 

 
 
 

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
 
 Consolidated Statements of Operations
(in millions)
 
 
 
 Years ended December 31,
 
2011
2010
2009
       
Revenues
     
   Policy charges
 $        1,506
 $          1,399
 $          1,245
   Premiums
               531
                484
                470
   Net investment income
            1,844
             1,825
             1,879
   Net realized investment (losses) gains
          (1,609)
              (236)
                454
   Other-than-temporary impairment losses
     
         Total other-than-temporary impairment losses
(162)
(394)
(992)
         Non-credit portion of loss recognized in other comprehensive income
95
174
417
         Net other-than-temporary impairment losses recognized in earnings
                (67)
              (220)
              (575)
   Other revenues
                    3
                    2
                  (4)
         Total revenues
 $        2,208
             3,254
             3,469
       
Benefits and expenses
     
   Interest credited to policyholder account values
 $        1,033
 $          1,056
 $          1,100
   Benefits and claims
            1,062
                873
                812
   Policyholder dividends
                 67
                  78
                  87
   Amortization of deferred policy acquisition costs
                 76
                396
                466
   Amortization of value of business acquired and other intangible assets
                 11
                  18
                  63
   Interest expense
                 70
                  55
                  55
   Other expenses, net of deferrals
               609
                574
                579
         Total benefits and expenses
 $        2,928
             3,050
             3,162
       
         (Loss) income before federal income taxes and noncontrolling interests
 $          (720)
 $             204
 $             307
Federal income tax (benefit) expense
             (382)
                  24
                  48
         Net (loss) income
 $          (338)
 $             180
 $             259
Less:  Net loss attributable to noncontrolling interest
                (56)
                (60)
                (52)
         Net (loss) income attributable to Nationwide Life Insurane Company
 $          (282)
 $             240
 $             311
 

See accompanying notes to consolidated financial statements.

 
 
 

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
 
Consolidated Balance Sheets
(in millions, except for share and per share amounts)
 
 
 December 31,
   
 
2011
 
2010
       
Assets
     
Investments
     
   Fixed maturity securities, available-for-sale
 $         29,201
 
 $           26,434
   Equity securities, available-for-sale
                    20
 
                     42
   Mortgage loans, net of allowance
              5,748
 
                6,125
   Policy loans
              1,008
 
                1,088
   Short-term investments
              1,125
 
                1,062
   Other investments
                  566
 
                   558
         Total investments
 $         37,668
 
 $           35,309
       
Cash and cash equivalents
                    49
 
                   337
Accrued investment income
                  560
 
                   459
Deferred policy acquisition costs
              4,425
 
                3,973
Value of business acquired
                  238
 
                   259
Goodwill
                  200
 
                   200
Other assets
              4,348
 
                1,985
Separate account assets
            65,194
 
              64,875
         Total assets
 $      112,682
 
 $         107,397
       
Liabilities and Equity
     
Liabilities
     
   Future policy benefits and claims
 $         35,252
 
 $           32,676
   Short-term debt
                  777
 
                   300
   Long-term debt
                  991
 
                   978
   Other liabilities
              4,316
 
                2,429
   Separate account liabilities
            65,194
 
              64,875
         Total liabilities
 $      106,530
 
 $         101,258
       
Shareholder's equity:
     
   Common stock  ($1 par value; authorized - 5,000,000 shares, issued
     
    and outstanding - 3,814,779 shares)
 $                   4
 
 $                    4
   Additional paid-in capital
              1,718
 
                1,718
   Retained earnings
              3,459
 
                3,741
   Accumulated other comprehensive income
                  626
 
                   321
         Total shareholder's equity
 $           5,807
 
 $             5,784
   Noncontrolling interest
                  345
 
                   355
         Total equity
 $           6,152
 
 $             6,139
         Total liabilities and equity
 $      112,682
 
 $         107,397
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 


NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)
 
Consolidated Statements of Changes in Equity
(in millions)
 
 
 
 Common stock
 Additional paid-in
 capital
 Retained earnings
 Accumulated other comprehensive income (loss)
 Total shareholder's equity
 Non-controlling interest
Total
 equity
               
Balance as of December 31, 2008
 $           4
 $     1,698
 $    2,952
 $            (1,361)
 $           3,293
 $          416
 $    3,709
               
Cumulative effect of adoption of accounting principle, net of taxes
               -
                -
          250
                  (250)
                      -
                 -
               -
Capital contributed by NFS
               -
             20
              -
                        -
                   20
                 -
        20
Comprehensive income (loss):
             
   Net income (loss)
       -
       -
      311
       -
      311
(52)
    259
Other comprehensive income
        -
        -
        -
     1,345
     1,345
        -
  1,345
         Total comprehensive income (loss)
              -
              -
          311
                1,345
              1,656
         (52)
   1,604
Change in noncontrolling interest
               -
                -
              -
                        -
                      -
         (13)
      (13)
Other, net
               -
                -
            (3)
                        -
                   (3)
             -
        (3)
               
Balance as of December 31, 2009
 $           4
 $     1,718
 $    3,510
 $               (266)
 $           4,966
 $          351
 $    5,317
               
Cumulative effect of adoption of accounting principle, net of taxes
               -
                -
            (9)
                       9
                      -
               46
            46
Comprehensive income (loss):
             
   Net income (loss)
       -
       -
     240
       -
     240
(60)
   180
Other comprehensive income
       -
       -
       -
     578
     578
       -
   578
         Total comprehensive income (loss)
              -
              -
          240
                   578
                 818
         (60)
      758
Change in noncontrolling interest
               -
                -
              -
                        -
                      -
           18
        18
               
Balance as of December 31, 2010
 $           4
 $     1,718
 $    3,741
 $                321
 $           5,784
 $          355
 $    6,139
               
Comprehensive loss:
             
   Net loss
       -
       -
(282)
    -
(282)
(56)
(338)
Other comprehensive income
       -
       -
       -
305
305
      -
305
         Total comprehensive income (loss)
              -
              -
    (282)
                   305
                   23
         (56)
      (33)
Change in noncontrolling interest
               -
                -
              -
                        -
                      -
               46
        46
               
Balance as of December 31, 2011
 $           4
 $     1,718
 $    3,459
 $                626
 $           5,807
 $          345
 $    6,152
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 

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,
 
2011
2010
2009
       
Cash flows from operating activities:
     
   Net (loss) income
 $        (338)
 $           180
 $           259
   Adjustments to net (loss) income
     
      Net realized investment losses (gains)
          1,609
              236
            (454)
      Net other-than-temporary impairment losses recognized in earnings
               67
              220
              575
      Interest credited to policyholder accounts
          1,033
           1,056
           1,100
      Capitalization of deferred policy acquisition costs
           (741)
            (634)
            (513)
      Amortization of deferred policy acquisition costs
               76
              396
              466
      Amortization and depreciation
               48
                (2)
                51
      Deferred tax (benefit) expense
           (437)
              115
            (117)
      Changes in:
     
         Policy liabilities
           (608)
            (579)
            (725)
         Other, net
           (632)
            (302)
              (30)
         Net cash provided by operating activities
 $            77
 $           686
 $           612
       
Cash flows from investing activities:
     
   Proceeds from maturity of available-for-sale securities
 $      2,705
 $        3,251
 $        3,889
   Proceeds from sale of available-for-sale securities
          1,585
           2,168
           4,211
   Proceeds from sales/repayments of mortgage loans
          1,124
              996
              773
   Purchases of available-for-sale securities
        (6,176)
         (5,910)
         (9,206)
   Issuance and purchases of mortgage loans
           (751)
            (373)
              (36)
   Net (increase) decrease in short-term investments
              (61)
              (44)
           1,910
   Collateral received (paid), net
             359
              (23)
            (869)
   Other, net
             104
              (29)
              208
         Net cash (used in) provided by investing activities
 $     (1,111)
 $             36
 $           880
       
Cash flows from financing activities:
     
   Net change in short-term debt
 $          477
 $           150
 $         (100)
   Proceeds from issuance of long-term debt
               13
              272
                   -
   Investment and universal life insurance product deposits and other additions
          5,314
           4,540
           3,877
   Investment and universal life insurance product withdrawals and other deductions
        (5,024)
         (5,405)
         (5,301)
   Other, net
              (34)
                  9
                39
         Net cash provided by (used in) financing activities
 $          746
 $         (434)
 $      (1,485)
       
Net (decrease) increase in cash and cash equivalents
 $        (288)
 $           288
 $               7
Cash and cash equivalents, beginning of period
             337
                49
                42
            Cash and cash equivalents, end of period
 $            49
 $           337
 $             49
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements

December 31, 2011, 2010 and 2009


(1)
Nature of Operations

Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) was incorporated in 1929 and is an Ohio domiciled stock life insurance company.  The Company is a member of the Nationwide group of companies (Nationwide), which is comprised of Nationwide Mutual Insurance Company (NMIC) and all of its subsidiaries and affiliates.

All of the outstanding shares of NLIC’s common stock are owned by Nationwide Financial Services, Inc. (NFS), a holding company formed by Nationwide Corporation (Nationwide Corp.), a majority-owned subsidiary of NMIC.

Wholly-owned subsidiaries of NLIC as of December 31, 2011 include Nationwide Life and Annuity Insurance Company (NLAIC) and Nationwide Investment Services Corporation (NISC).  NLAIC offers universal life insurance, variable universal life insurance, corporate-owned life insurance (COLI) and individual annuity contracts on a non-participating basis.  NISC is a registered broker-dealer.

The Company is a leading provider of long-term savings and retirement products in the United States of America (U.S.).  The Company develops and sells a diverse range of products and services including individual annuities, private and public sector group retirement plans, investment products sold to institutions, life insurance and advisory services.

The Company sells its products through a diverse distribution network.  Unaffiliated entities that sell the Company’s products to their own customer bases include independent broker-dealers, financial institutions, wirehouse and regional firms, pension plan administrators, and life insurance specialists.  Representatives of affiliates who market products directly to a customer base include Nationwide Retirement Solutions, Inc. (NRS), and Nationwide Financial Network (NFN) producers, which includes the agency distribution force of the Company’s ultimate parent company, NMIC.

On December 31, 2009, NLIC merged with its affiliate, Nationwide Life Insurance Company of America and subsidiaries (NLICA), with NLIC as the surviving entity.  In addition, NLIC’s subsidiary, NLAIC, merged with a subsidiary of NLICA, Nationwide Life and Annuity Company of America (NLACA), effective as of December 31, 2009, with NLAIC as the surviving entity.  The mergers were completed to streamline the enterprise's capital structure and create operational efficiencies.  See Note 2 for further information.

As of December 31, 2011 and 2010, the Company did not have a significant concentration of financial instruments in a single investee, industry or geographic region of the U.S.  Also, the Company did not have a concentration of business transactions with a particular customer, lender, distribution source, market or geographic region of the U.S. 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.

(2)
Summary of Significant Accounting Policies

Use of Estimates

The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions affecting the amounts reported in the financial statements and accompanying notes.  Significant estimates include the balance and amortization of deferred policy acquisition costs (DAC), investment impairment losses, valuation allowances for mortgage loans, certain investment and derivative valuations, future policy benefits and claims liabilities including the valuation of embedded derivatives resulting from living benefit guarantees on variable annuity contracts,  goodwill, provision for income taxes and valuation of deferred tax assets.  Actual results may differ significantly from those estimates.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009

 
Basis of Presentation

The consolidated financial statements include the accounts of NLIC and companies in which NLIC directly or indirectly has a controlling financial interest. The consolidated financial statements include majority-owned subsidiaries and consolidated variable interest entities (VIEs). Entities in which NLIC does not have a controlling interest but in which the Company has significant influence over the operating and financing decisions and certain other investments are reported using the equity method. All significant intercompany accounts and transactions have been eliminated.

Certain items in the consolidated financial statements and related notes have been reclassified to conform to the current presentation.
 
Revenues and Benefits
Investment 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, COLI, bank-owned life insurance (BOLI) 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 charges, administrative fees 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 charges and administrative fees 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 policyholder accounts and benefits and claims incurred in the period in excess of related policyholder accounts.

Traditional Life Insurance Products.   Traditional life insurance products include those products with fixed and guaranteed premiums and benefits, and primarily consist of whole 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 that profits are recognized over the life of the contract.  This association is accomplished through the provision for future policy benefits and the deferral and amortization of policy acquisition costs.

Future Policy Benefits and Claims

The process of calculating reserve amounts for traditional life insurance products involves the use of a number of assumptions, including those related to persistency (how long a contract stays with a company), mortality (the relative incidence of death in a given time), morbidity (the relative incidence of disability resulting from disease or physical impairment) and interest rates (the rates expected to be paid or received on financial instruments, including insurance or investment contracts).

The Company calculates its liability for future policy benefits and claims for investment products in the accumulation phase and universal life insurance policies as 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 and claims for traditional life insurance policies was determined using the net level premium method using interest rates varying from 2.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals that were used or being experienced at the time the policies were issued.

The liability for future policy benefits for payout annuities was calculated using the present value of future benefits and   maintenance costs discounted using interest rates at issue varying generally from 3.0% to 13.0%.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The Company offers certain universal life insurance,  variable universal life insurance  and variable annuity products with secondary guarantees, guaranteed minimum death benefits (GMDB), and guaranteed minimum income benefits (GMIB).  Liabilities for these guarantees are calculated by multiplying the current benefit ratio by the cumulative assessments recorded from contract inception through the balance sheet date less the cumulative guarantee benefit payments plus interest.  The Company regularly evaluates its experience and assumptions and adjusts the benefit ratio as appropriate.  If experience or assumption changes result in a new benefit ratio, the reserves are adjusted to reflect the changes with a related charge or credit to other benefits and claims in the period of evaluation. Determination of the expected guarantee benefit payments and assessments are based on a range of scenarios and assumptions including those related to market rates of return and volatility, contract surrenders and mortality experience. The accounting for these guarantees impacts estimated gross profits used to calculate amortization of DAC, value of business acquired (VOBA) and unearned revenue reserves. Refer to Note 4 for discussion of these guarantees.

The Company offers various guarantees to variable annuity contractholders including a return of no less than total deposits made on the contract less any customer withdrawals, total deposits made on the contract less any customer withdrawals plus a minimum return, or the highest contract value on a specified anniversary date minus any customer withdrawals following the contract anniversary. These guarantees include benefits payable in the event of death, upon annuitization, upon periodic withdrawal or at specified dates during the accumulation period. Refer to Note 4 for discussion of these guarantees.

The Company’s guaranteed minimum accumulation benefit (GMAB) and guaranteed living withdrawal benefit (GLWB) living benefit riders represent an embedded derivative in a variable annuity contract that is required to be separated from, and valued apart from, the host variable annuity contract.  The embedded derivatives are carried at fair value.  Subsequent changes in the fair value of the embedded derivatives are recognized in earnings as a component of net realized investment gains and losses.  The fair value of the embedded derivatives is calculated based on a combination of capital market and actuarial assumptions. Projections of cash flows inherent in the valuation of the embedded derivative incorporate numerous assumptions including, but not limited to, expectations of contractholder persistency, contractholder withdrawal patterns, risk neutral market returns, correlations of market returns and market return volatility.

Reinsurance ceded

The Company cedes insurance to other companies in order to limit potential losses and to diversify its exposures. Such agreements do not discharge the original insurer from its primary obligation to the policyholder in the event the reinsurer is unable to meet the obligations it has assumed. 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 generally are reported in the consolidated balance sheets on a gross basis, separately from the related future policy benefits and claims of the Company.
 
Deferred Policy Acquisition Costs
 
Investment and universal life insurance products .  The Company has deferred certain costs that vary with and primarily relate to acquiring business, consisting principally of commissions, premium taxes, certain expenses of the policy issue and underwriting department, certain variable sales expenses that relate to and vary with the production of new and renewal business and other acquisition expenses net of those acquisition costs ceded to reinsurers. In addition, the Company defers sales inducements, such as interest credit bonuses and jumbo deposit bonuses.  The methods and assumptions used to amortize and assess recoverability of DAC depend on the type of insurance product.

Investment products primarily consist of individual and group variable and fixed deferred annuities in the Individual Investments and Retirement Plans segments. Universal life insurance products include universal life insurance, variable universal life insurance, COLI, BOLI and other interest-sensitive life insurance policies in the Individual Protection segment.  For these products, the Company amortizes DAC with interest over the lives of the policies in relation to the present value of estimated gross profits from projected interest margins, policy charges, and net realized investment gains and losses less policy benefits and policy maintenance expenses.  DAC for investments and universal life insurance products is subject to recoverability testing in the year of policy issuance, and DAC for universal life insurance products is also subject to loss recognition testing at the end of each reporting period.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The Company adjusts the DAC asset related to investment and universal life insurance products to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale with the corresponding adjustment recorded in accumulated other comprehensive income (AOCI). The adjustment to DAC represents the change 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 assumptions used in the estimation of future gross profits are based on the Company’s current best estimates of future events and are reviewed as part of an annual process during the second quarter.  During the annual process, the Company performs a comprehensive study of assumptions, including mortality and persistency studies, maintenance expense studies, and an evaluation of projected general and separate account investment returns.  The most significant assumptions that are involved in the estimation of future gross profits include future net separate account investment performance, surrender/lapse rates, interest margins and mortality.  Quarterly, consideration is given as to whether adjustments to the assumptions in the annual process for all other product lines are necessary. Currently, the Company’s long-term assumption for net separate account investment performance is approximately 7% growth per year.  The Company reviews this assumption, like others, as part of its annual process.  Variances from the long-term assumption are expected since the majority of the investments in the underlying separate accounts are in equity securities, which correlate in the aggregate with the Standard & Poor’s (S&P) 500 Index.  The Company bases its reversion to the mean process on actual net separate account investment performance from the anchor date to the valuation date.  The Company then assumes different performance levels over the next three years such that the separate account mean return measured from the anchor date to the end of the life of the product equals the long-term assumption.  The assumed net separate account investment performance used in the DAC models is intended to reflect what is anticipated.  However, based on historical returns of the S&P 500 Index, and as part of its pre-set parameters, the Company’s reversion to the mean process generally limits net separate account investment performance to 0-15% during the three-year reversion period.

In addition to the comprehensive annual study of assumptions, management evaluates the appropriateness of the individual variable annuity DAC balance quarterly within pre-set parameters.  These parameters are designed to appropriately reflect the Company’s long-term expectations with respect to individual variable annuity contracts while also evaluating the potential impact of short-term experience on the Company’s recorded individual variable annuity DAC balance.  If the recorded balance of individual variable annuity DAC falls outside of these parameters for a prescribed period, or if the recorded balance falls outside of these parameters and management determines it is highly improbable to get back within the parameters during this time period, assumptions are required to be unlocked, and DAC is recalculated using revised best estimate assumptions.  When DAC assumptions are unlocked and revised, the Company continues to use the reversion to the mean process.

Changes in assumptions can have a significant impact on the amount of DAC reported for investment and universal life insurance products and their related amortization patterns.  In the event actual experience differs from assumptions or future assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense, which could be significant.  In general, increases in the estimated long-term general and separate account returns result in increased expected future profitability and may lower the rate of DAC amortization, while increases in long-term lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization.

Traditional life insurance products. Generally, DAC is 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 required.

See Note 5 for a discussion of assumption changes that impacted DAC amortization and related balances.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009



Investments

Purchases and sales of securities are recorded on the trade date. Realized gains and losses on sales of fixed maturity and equity securities are recognized in income based on the specific identification method. Interest and dividend income are recognized when earned.
 
Available-for-sale securities. Available-for-sale securities are reported at fair value, with unrealized holding gains and losses reported as a separate component of other comprehensive income, net of adjustments for DAC and VOBA, future policy benefits and claims, policyholder dividend obligations, and deferred federal income taxes.
 
To determine the fair value of securities for which market quotations are available, independent pricing services are most often utilized. For these securities, the Company obtains the pricing services’ methodologies, inputs and assumptions and classifies the investments accordingly in the fair value hierarchy. As of December 31, 2011 and 2010, 82% and 81%, respectively, of fixed maturity securities were priced using independent pricing services.

Non-binding broker quotes are also utilized to determine the fair value of certain corporate debt, mortgage-backed and other asset-backed securities when quotes are not available from independent pricing services. Broker quotes are considered unobservable inputs, and these securities are classified accordingly in the fair value hierarchy as only one broker quote is ordinarily obtained, the investment is not traded on an exchange, the pricing is not available to other entities and/or the transaction volume in the same or similar investments has decreased such that generally only one quotation is available.   As the brokers often do not provide the necessary transparency into their quotes and methodologies, the Company periodically performs reviews and tests to ensure that quotes are a reasonable estimate of the investments’ fair value.

For certain fixed maturity securities not valued using independent pricing services or broker quotes, a corporate pricing matrix or internally developed pricing model is most often used. The corporate pricing matrix is developed using private spreads for corporate securities with varying weighted average lives and credit quality ratings. The weighted average life and credit quality rating of a particular fixed maturity security to be priced using the corporate pricing matrix are important inputs into the model and are used to determine a corresponding spread that is added to the appropriate U.S. Treasury yield to create an estimated market yield for that security. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular security.

 
When the collectability of contractual interest payments on fixed maturity securities is considered doubtful, such securities are placed in non-accrual status and any accrued interest is excluded from investment income. These securities are not restored to accrual status until the Company determines that payment of future principal and interest is probable.
 
For investments in certain residential and commercial mortgage-backed securities, the Company recognizes income and amortizes discounts and premiums using the effective-yield method based on prepayment assumptions and the estimated economic life of the securities. When actual prepayments differ significantly from estimated 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 effective-yield method without anticipating the impact of prepayments.
 
Mortgage loans, net of allowance .  The Company holds commercial mortgage loans that are collateralized by properties throughout the U.S. Mortgage loans held-for-investment are carried at amortized cost less a valuation allowance.

The Company maintains a valuation allowance comprised of specific reserves for impaired loans and non-specific reserves for losses inherent in the balance of the portfolio. Specific reserve changes are included in other-than-temporary impairment losses, while changes in non-specific reserves are recorded in net realized investment gains and losses.

Interest income on performing mortgage loans is recognized over the life of the loan using the effective-yield method. Loans in default or in the process of foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received. Loans are considered delinquent when contractual payments are 90 days past due.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Policy loans.   Policy loans, which are collateralized by the related insurance policy, are carried at the outstanding principal balance and do not exceed the net cash surrender value of the policy. As such, no valuation allowance for policy loans is required.

Short-term investments.   Short-term investments consist of highly liquid mutual funds and government agency discount notes with original maturities of less than twelve months. 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 are included in short-term investments on the consolidated balance sheets. The Company carries short-term investments at fair value.

Other investments. Other investments consist primarily of equity method investments in joint ventures and partnerships,  hedge funds and trading securities.

Securities lending.   The Company has entered into securities lending agreements with a custodial bank whereby eligible securities are loaned to third parties, primarily major brokerage firms. These transactions are used to generate additional income on the securities portfolio. The Company is entitled to receive from the borrower any payments of interest and dividends received on loaned securities during the loan term.   The agreements require a minimum of 102% of the fair value of loaned securities to be held as collateral. Cash collateral is invested by the custodial bank in investment-grade securities, which are included in the total investments of the Company. Periodically, the Company may receive non-cash collateral, which would be recorded off-balance sheet. The Company continues to recognize loaned securities in either available-for-sale or short-term investments, and a securities lending payable is recorded in other liabilities for the amount of cash collateral received. Net income received from securities lending activities is included in net investment income.

Variable interest entities. In the normal course of business, the Company has relationships with VIEs.  The Company considers many factors when determining whether it is  the primary beneficiary of a VIE.  The determination is based on a review of the entity’s contract and other deal related information, such as the entity's equity investment at risk, decision-making abilities, obligations to absorb economic risks and right to receive economic rewards of the entity. Also reviewed are whether the contractual or ownership interest in the entity changes with the change in fair value of the entity and the extent to which, through the variable interest, the Company has the power to direct the activities that most significantly impact the entity’s performance and the obligation to absorb significant losses of the entity, or the right to receive significant benefits from the entity.  The Company is not required, and does not intend, to provide financial or other support outside contractual requirements to any VIE.

The majority of the VIEs consolidated by the Company are due to providing guarantees to limited partners related to the after tax yields by the Low-Income-Housing Tax Credit Funds (LIHTC Funds).  The results of operations and  financial position of each VIE for which the Company is the primary beneficiary are included along with corresponding noncontrolling interests in the accompanying consolidated financial statements.  Ownership interests held by unrelated third parties in consolidated entities are presented as noncontrolling interests in equity.

The Company invests in fixed maturity securities that could qualify as VIEs, including corporate securities, mortgage-backed securities, and asset-backed securities.  The Company is not the primary beneficiary of these securities as the Company does not have the power to direct the activities that most significantly impacts the entities’ performance.  The Company’s maximum exposure to loss is limited to the carrying values of these securities.  There are no liquidity arrangements, guarantees or other commitments by third parties that affect the fair value of the Company’s interest in these assets.  Refer to Note 6 for additional disclosures related to these investments.

Other-than-temporary impairment evaluations.   The Company periodically reviews its available-for-sale securities to determine if any decline in fair value to below cost or amortized cost is other-than-temporary. Factors considered in determining whether a decline is other-than-temporary include the length of time a security has been in an unrealized loss position, the severity of the unrealized loss, reasons for the decline in value and expectations for the amount and timing of a recovery in fair value.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


In assessing corporate debt securities for other-than-temporary impairment, the Company evaluates the ability of the issuer to meet its debt obligations, the value of the company or specific collateral securing the debt, the Company’s intent to sell the security and whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost basis. The Company evaluates U.S. Treasury securities and obligations of U.S. Government corporations and agencies, obligations of states and political subdivisions, and debt securities issued by foreign governments for other-than-temporary impairment by examining similar characteristics referenced above for corporate debt securities.

When evaluating whether residential mortgage-backed securities, commercial mortgage-backed securities, collateralized debt obligations and other asset-backed securities are other-than-temporarily impaired, the Company examines characteristics of the underlying collateral, such as delinquency and default rates, the quality of the underlying borrower, the type of collateral in the pool, the vintage year of the collateral, subordination levels within the structure of the collateral pool, the quality of any credit guarantors, the Company’s intent to sell the security and whether it is more likely than not it will be required to sell the security before the recovery of its amortized cost basis.

For all debt securities evaluated for other-than-temporary impairment (for which the Company does not have the intent to sell and it is not more likely than not that it will be required to sell the security before the recovery of its amortized cost basis), the Company considers the timing and present value of the cash flows. The Company evaluates its intent to sell on an individual security basis. To the extent that the present value of cash flows generated by a debt security is less than the amortized cost, an other-than-temporary impairment is recognized through earnings.

Other-than-temporary impairment losses on securities (where the Company does not intend to sell the security and it is not more likely than not it will be required to sell the security prior to recovery of the security’s amortized cost basis) are bifurcated with the credit portion of the impairment loss being recognized in earnings and the non-credit loss portion of the impairment and any subsequent changes in the fair value of those debt securities being recognized in other comprehensive income, net of applicable taxes and other offsets.

Equity securities may experience other-than-temporary impairment in the future based on the prospects for full recovery in value in a reasonable period of time, and the Company’s ability and intent to hold the security to recovery.
 
It is reasonably possible that further declines in fair values of such investments, or changes in assumptions or estimates of anticipated recoveries and/or cash flows, may cause further other-than-temporary impairments in the near term, which could be significant.
 
Derivative Instruments
 
The Company uses derivative instruments to manage exposures and mitigate risks associated with interest rates, equity markets, foreign currency and credit.  These derivative instruments primarily include interest rate swaps, futures contracts and options.  Certain features embedded in the Company’s investments, market-indexed life and annuity contracts and certain variable life and annuity contracts require derivative accounting.  All derivative instruments are carried at fair value and are reflected as assets or liabilities in the consolidated balance sheets.

Fair value of derivative instruments is determined using various valuation techniques relying predominately on observable market inputs. These inputs include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels. In cases where observable inputs are not available, the Company will utilize non-binding broker quotes to determine fair value and these instruments are classified accordingly in the fair value hierarchy.

For derivatives that are not designated for hedge accounting, the gain or loss on the derivative is primarily recognized in net realized investment gains and losses.

For derivative instruments that are designated and qualify for fair value hedge accounting (e.g., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the hedged item, to the extent of the risk being hedged, are recognized in net realized investment gains and losses.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


For derivative instruments that are designated and qualify for cash flow hedge accounting (e.g., hedging the exposure to the variability in expected future cash flows that is attributable to interest rate risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction impacts earnings in the same line item associated with the forecasted transaction. The ineffective portion of the derivative’s change in value, if any, along with any of the derivative’s change in value that is excluded from the assessment of hedge effectiveness, are recorded in net realized investment gains and losses.
 
The Company’s derivative transaction counterparties are generally financial institutions. To reduce the credit risk associated with open contracts, the Company enters into master netting agreements which permit the closeout and netting of transactions with the same counterparty upon the occurrence of certain events. In addition, the Company attempts to reduce credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of collateral vary based on an assessment of the credit risk of the counterparty. The Company accepts collateral in the form of cash and marketable securities.

The Company invests in certain structured securities that contain embedded credit derivatives.  These securities are referred to as synthetic collateralized debt obligations and have maturity dates ranging from one to ten years.  The credit derivatives embedded in these securities have not been separated from their host contracts for separate fair value reporting; rather, the Company has elected to carry the entire security at fair value with any changes in fair value included in net realized investment gains and losses.  Effective July 1, 2010, these securities were transferred from available-for-sale securities to other investments.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In determining fair value, the Company uses various methods including market, income and cost approaches.

The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

The Company categorizes financial assets and liabilities carried at fair value in the consolidated balance sheets as follows:

 
·
Level 1 – Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date and mutual funds where the value per share (unit) is determined and published daily and is the basis for current transactions.

 
·
Level 2 – Unadjusted quoted prices for similar assets or liabilities in active markets or inputs (other than quoted prices) that are observable or that are derived principally from or corroborated by observable market data through correlation or other means.

 
·
Level 3 – Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  Inputs reflect management’s best estimate about the assumptions market participants would use at the measurement date in pricing the asset or liability.  Consideration is given to the risk inherent in both the method of valuation and the valuation inputs.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The Company reviews its fair value hierarchy classifications for financial assets and liabilities quarterly. Changes in observability of significant valuation inputs identified during these reviews may trigger reclassifications. Reclassifications are reported as transfers at the beginning of the period in which the change occurs.

Federal Income Taxes

The Company recognizes deferred tax assets and liabilities for 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 or loss 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 management determines it is more likely than not that all or some portion of the deferred tax assets will not be realized. Interest expense and any associated penalties are shown as income tax expense.

The Company provides for federal income taxes based on amounts the Company believes it ultimately will 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 items or the realization of certain tax credits differs from estimates, the Company may be required to change the provision for federal income taxes recorded in the consolidated financial statements, which could be significant.

Tax reserves are reviewed regularly and are adjusted as events occur that management believes impact its liability for additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits or substantial agreement with taxing authorities on the deductibility/nondeductibility of uncertain items, additional exposure based on current calculations, identification of new issues or release of administrative guidance or rendering of a court decision affecting a particular tax issue.

NLIC files a separate consolidated federal income tax return, with its subsidiaries, and is eligible to join the NMIC consolidated tax return group in 2014.

Cash and Cash Equivalents

Cash and cash equivalents, which include highly liquid investments with original maturities of less than three months, are carried at cost, which approximates fair value.
 
Value of Business Acquired

As a result of the acquisition of Provident Mutual Life Insurance Company (Provident) in 2002 and the application of purchase accounting, the Company reports an intangible asset representing the fair value of the business in force and the portion of the purchase price that was allocated to the value of the right to receive future cash flows from the life insurance and annuity contracts existing as of the closing date of the Provident acquisition.  The value assigned to VOBA was supported by an independent valuation study commissioned by the Company and executed by a team of qualified valuation experts, including actuarial consultants.

VOBA represents the actuarially-determined value of future cash flows for acquired insurance contracts. Expected future cash flows are determined based on projected future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, changes in reserves, operating expenses, investment income and other factors. Amortization of VOBA occurs with interest over the anticipated lives of the major lines of business to which it relates in relation to estimated gross profits, gross margins or premiums, as appropriate. VOBA is adjusted for unrealized gains and losses on available-for-sale securities for changes in amortization that would have been required had such unrealized amounts been realized. In the event actual experience differs or assumptions are revised, an increase or decrease in VOBA amortization expense is recorded, which could be significant.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009

 
Goodwill
 
In connection with acquisitions of operating entities, the Company recognizes the excess of the purchase price over the fair value of net assets acquired as goodwill.  Goodwill is not amortized, but is evaluated for impairment at the reporting unit level annually.  Goodwill of a reporting unit is tested for impairment on an interim basis, in addition to the annual evaluation if an event occurs or circumstances change which would more likely than not reduce the fair value of a reporting unit below its carrying amount. If a reporting unit’s carrying value is less than its fair value, the Company will perform an impairment evaluation. This evaluation utilizes an income approach to develop the implied fair value. An impairment is recognized on a reporting unit for the amount that the carrying value of its goodwill exceeds the implied fair value of its goodwill.

The process of evaluating goodwill for impairment requires several judgments and assumptions to be made to determine the fair value of the reporting units, including the method used to determine fair value, discount rates, expected levels of cash flows, revenues and earnings, and the selection of comparable companies used to develop market-based assumptions.  The Company performed its 2011 annual impairment test and determined that no impairment was required.

Closed Block

In connection with the sponsored demutualization of Provident prior to its acquisition by the Company, Provident established a closed block for the benefit of certain classes of individual participating policies that had a dividend scale payable in 2001.  Assets were allocated to the closed block in an amount that produces cash flows which, together with anticipated revenues from closed block business, is reasonably expected to be sufficient to provide for (1) payment of policy benefits, specified expenses and taxes, and (2) the continuation of dividends throughout the life of the Provident policies included in the closed block based upon the dividend scales payable for 2001, if the experience underlying such dividend scales continues.

Assets allocated to the closed block benefit only the holders of the policies included in the closed block and will not revert to the benefit of the Company.  No reallocation, transfer, borrowing or lending of assets can be made between the closed block and other portions of the Company’s general account, any of its separate accounts, or any affiliate of the Company without the approval of the Pennsylvania Insurance Department and Ohio Department of Insurance (ODI).  The closed block will remain in effect as long as any policy in the closed block is in force.

If, over time, the aggregate performance of the closed block assets and policies is better than was assumed in funding the closed block, dividends to policyholders will increase.  If, over time, the aggregate performance of the closed block assets and policies is less favorable than was assumed in the funding, dividends to policyholders could be reduced.  If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from the Company’s assets outside of the closed block, which are general account assets.

The assets and liabilities allocated to the closed block are recorded in the Company’s consolidated financial statements on the same basis as other similar assets and liabilities.  The carrying amount of closed block liabilities in excess of the carrying amount of closed block assets at the date Provident was acquired by the Company represents the maximum future earnings from the assets and liabilities designated to the closed block that can be recognized in income, for the benefit of stockholders, over the period the policies in the closed block remain in force.

If actual cumulative earnings exceed expected cumulative earnings, the expected earnings are recognized in income.  This is because the excess cumulative earnings over expected cumulative earnings, which represents undistributed accumulated earnings attributable to policyholders, is recorded as a policyholder dividend obligation.  Therefore, the excess will be paid to closed block policyholders as an additional policyholder dividend expense in the future unless it is otherwise offset by future performance of the closed block that is less favorable than originally expected.  If actual cumulative performance is less favorable than expected, actual earnings will be recognized in income.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The principal cash flow items that affect the amount of closed block assets and liabilities are premiums, net investment income, purchases and sales of investments, policyholder benefits, policyholder dividends, premium taxes and income taxes.  The principal income and expense items excluded from the closed block are management and maintenance expenses, commissions and net investment income and realized gains and losses on investments held outside of the closed block that support the closed block business, all of which enter into the determination of total gross margins of closed block policies for the purpose of the amortization of VOBA.  See Note 10 for further disclosure.

        Separate Accounts

Separate account assets and liabilities represent contractholders’ funds that have been legally segregated into accounts with specific investment objectives.  Separate account assets are comprised of public, privately registered and non-registered mutual funds and investments in securities.   Separate account assets are recorded at fair value and the Company primarily uses net asset value (NAV) to estimate the underlying fair value for certain mutual funds that do not have readily determinable fair values.  The Company also uses market quotations to determine the underlying fair value of mutual funds when available.  The value of separate account liabilities is set to equal the fair value for separate account assets.  Investment income and realized investment gains or losses of these accounts accrue directly to the contractholders.

Participating Business

Participating business, which refers to policies that participate in profits through policyholder dividends, represented approximately 5% of the Company’s life insurance in force in 2011 (5% in 2010 and 6% in 2009), 42% of the number of life insurance policies in force in 2011 (45% in 2010 and 48% in 2009).  The provision for policyholder dividends was based on then current dividend scales and has been included in future policy benefits and claims in the consolidated balance sheets.
 
NLICA and Subsidiaries Merger
 
On December 31, 2009, NLIC merged with its affiliate, NLICA, with NLIC as the surviving entity.  In addition, NLIC’s subsidiary, NLAIC, merged with a subsidiary of NLICA, NLACA, effective as of December 31, 2009, with NLAIC as the surviving entity.  The merger was accounted for at historical cost in a manner similar to a pooling of interests because the involved entities were under common control.  NLICA and subsidiaries are reflected in the Company’s prior year consolidated financial statements at the historical cost of the transferred net assets to provide comparative information as though the companies were combined for all periods presented.  This presentation is consistent for both GAAP and Statutory reporting.  Since NLICA and NLACA were wholly-owned subsidiaries, there was no noncontrolling interest impact.

The Company has presented its consolidated financial statements and accompanying notes as applicable for 2009 and prior to reflect the NLICA merger.

The following table summarizes the impact of the merger with NLICA on the consolidated statement of operations for the year ended December 31:

(in millions)
   
2009
       
Total revenues
   
 $                  375
Total benefits and expenses
   
 $                  357
Federal income tax benefit
   
 $                    (5)
   Net income
   
 $                    23
 
The impact of the merger on shareholder’s equity was $1.0 billion as of December 31, 2009 and 2008, respectively.

Subsequent events

The Company evaluated subsequent events through March 1, 2012, the date the consolidated financial statements were issued.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(3)      Recently Issued Accounting Standards
 
Adopted Accounting Standards
 
I n April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-02, which amends the factors a creditor should consider to determine whether a restructuring constitutes a troubled debt restructuring in Accounting Standards Codification (ASC) 310, Receivables .  The Company will adopt this guidance for interim and annual periods beginning June 15, 2011. The adoption of this guidance will have an immaterial impact on the Company’s consolidated statements of operations and consolidated balance sheets.

On December 31, 2010, the Company adopted new disclosure requirements regarding the credit quality of its financing receivables (e.g., commercial mortgage loans) and the related allowance for credit losses within ASU 2010-20, which amends FASB ASC 310, Receivables . The adoption of this guidance resulted in increased disclosures only and had no impact on the Company's consolidated statements of operations or consolidated balance sheets.

On January 1, 2010, the Company adopted ASU 2010-06, except for the new disclosure providing disaggregated information related to the activity in Level 3 fair value measurements, which the Company adopted effective January 1, 2011.

On July 1, 2010, the Company adopted ASU 2010-11, which clarifies the guidance and application of the scope exception for embedded credit derivatives contained within FASB ASC 815-15, Embedded Derivatives . This scope exception allows for embedded credit derivative features related only to the transfer of credit risk in the form of subordination of one financial instrument to another to not be subject to potential bifurcation and separate accounting.  The guidance also allowed companies to irrevocably elect to apply the fair value option to any investment in a beneficial interest in securitized financial assets.  The Company recorded an impact of adoption of $9 million, net of taxes, as a decrease to retained earnings with a corresponding increase to accumulated other comprehensive income on the consolidated statements of equity.
 
On January 1, 2010, the Company adopted guidance under FASB ASC 810, Consolidation , resulting in an increase to noncontrolling interest of $46 million on the consolidated statements of equity.  This guidance changes the consolidation guidance applicable to a VIE.  It also amends the guidance governing the determination of whether an entity is the VIE’s primary beneficiary (the reporting entity that must consolidate the VIE) by requiring a qualitative analysis rather than a quantitative analysis.

In April 2009, the FASB issued guidance under FASB ASC 320, Investments – Debt and Equity Securities .  This guidance is designed to create greater clarity and consistency in accounting for and presentation of impairment losses on debt securities.  This guidance is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted.  As of the beginning of the interim period of adoption, this guidance requires a cumulative-effect adjustment to reclassify the non-credit component of previously recognized other-than-temporary impairment losses on debt securities from retained earnings to the beginning balance of AOCI.  The Company adopted this guidance as of January 1, 2009.  The adoption of this guidance resulted in a cumulative-effect adjustment of $250 million, net of taxes, as an increase to the opening balance of retained earnings with a corresponding decrease to the opening balance of AOCI.
 
Pending Accounting Standard
 
In September 2011, the FASB issued ASU 2011-08, which amends existing guidance in ASC 350, Intangibles-Goodwill and Other .  The amended guidance allows an entity to conduct a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value before performing the two-step goodwill impairment test.  If the qualitative assessment indicates that it is not more likely than not that the fair value of a particular reporting unit is less than its carrying value, then the entity is not required to perform the two-step goodwill impairment test.  The Company will adopt this guidance prospectively for the annual period beginning January 1, 2012. The adoption of this guidance will have no impact on the Company's consolidated statements of operations or consolidated balance sheets.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


In May 2011, the FASB issued ASU 2011-04, which amends existing guidance in ASC 820, Fair Value Measurements and Disclosures .  The guidance in this ASU clarifies existing fair value measurement guidance and expands disclosures primarily related to Level 3 fair value measurements.  The Company will adopt this guidance prospectively for the annual period beginning January 1, 2012.  The adoption of this guidance will result in increased disclosures and will have an immaterial impact on the Company’s consolidated statements of operations or consolidated balance sheets.

In October 2010, the FASB issued ASU 2010-26, which amends FASB ASC 944, Financial Services - Insurance . This amends prior guidance by modifying the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. The amendments are required to be applied prospectively with retrospective application permitted. The Company will adopt this guidance retrospectively, effective January 1, 2012. The Company is currently in the process of determining the impact of adoption. The adoption of this guidance is expected to have a material impact to DAC and retained earnings.
 
 
In June 2011, the FASB issued ASU 2011-05, which amends existing guidance in ASC 220, Comprehensive Income . The amended guidance requires reporting entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income.  In December 2011, the FASB issued ASU 2011-12, which defers certain changes in ASU 2011-05 related to the presentation of reclassification adjustments out of accumulated other comprehensive income.  The Company will adopt both updates retrospectively, effective December 31, 2012.  The adoption of this guidance will impact the presentation of the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, which expands the disclosure requirements within ASC 210-10, Balance Sheet – Offsetting.   The new disclosures require improved information about certain financial instruments and derivatives that are either offset in accordance with GAAP or subject to enforceable master offsetting arrangements irrespective of GAAP. The Company will adopt this guidance retrospectively for interim and annual periods beginning January 1, 2013.  The adoption of this guidance will result in increased disclosures only and will have no impact on the Company's consolidated statements of operations or consolidated balance sheets.

(4)       Certain Long-Duration Contracts

Variable Annuity Contracts

The Company issues 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 contractholder.  The Company also provides various forms of guarantees to benefit the related contractholders.  The Company provides five primary guarantee types of variable annuity contracts:  (1) GMDB; (2) GMIB; (3) GMAB; (4) GLWB; and (5) a hybrid guarantee with GMAB and GLWB.

The GMDB, offered on every variable annuity contract, provides a specified minimum return upon death.  Many of these death benefits are spousal, whereby a death benefit will be paid upon death of the first spouse.  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.

The GMIB, which was offered as a rider to several variable annuity contracts, is a living benefit that provides the contractholder with a guaranteed annuitization value.

The GMAB, offered in the Company’s Capital Preservation Plus contract rider, is a living benefit that provides the contractholder with a guaranteed return of deposits, adjusted proportionately for withdrawals, after a specified time period (5, 7 or 10 years) selected by the contractholder at the issuance of the variable annuity contract.  In some cases, the contractholder also has the option, after a specified time period, 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 or adherence to limitations required by an approved asset allocation strategy.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The GLWB, offered in the Company’s Lifetime Income contract rider (L.inc), is a living benefit that provides for enhanced retirement income security without the liquidity loss associated with annuitization.  The withdrawal rates vary based on the age when withdrawals begin and are applied to a benefit base to determine the guaranteed lifetime income amount available to a contractholder.  The benefit base is equal to the variable annuity premium at contract issuance and may increase as a result of a feature driven by account performance and policy duration.  L.inc is the only living benefit guarantee offered on new variable annuity contract sales.

The following table summarizes information regarding variable annuity contracts with guarantees invested in general and separate accounts as of December 31 (a contract may contain multiple guarantees):

 
        2011         2010    
       
Wtd. avg.
       
Wtd. avg.
 
General
Separate
Net
attained
 
General
Separate
Net
attained
 
account
account
amount
age of
 
account
account
amount
age of
(in millions)
value
value
at risk 1
contractholders
 
value
value
at risk 1
contractholders
                   
Return of net deposits:
                 
   In the event of death
 $   1,562
 $11,749
 $    175
                      63
 
 $       832
 $    8,039
 $       39
                     62
   Accumulation at specified date
 $      342
 $   4,138
 $    149
                      65
 
 $       558
 $    5,394
 $     108
                     65
                   
Minimum return or anniversary contract value :
                 
   In the event of death
 $   3,600
 $28,754
 $ 1,882
                      67
 
 $    2,604
 $  30,970
 $  1,271
                     67
   At annuitization
 $      430
 $18,089
 $    574
                      65
 
 $       342
 $  12,806
 $     431
                     65
__________
 

 
 
1
Net amount at risk is calculated on a seriatim basis and equals the respective guaranteed benefit less the account value (or zero if the account value exceeds the guaranteed benefit).

Net amount at risk is highly sensitive to changes in financial market movements. See Note 7,   for a discussion of the Company’s risk management practices with respect to financial market exposure.

The following table summarizes the reserve balances, for variable annuity contracts with guarantees as of December 31:
 
(in millions)
2011
 
2010
       
Accumulation and withdrawal benefits
 $               1,842
 
 $                    168
GMDB
 $                     80
 
 $                      46
GMIB
 $                       3
 
 $                        2
 
 
The following table summarizes paid claims for variable annuity contracts with guarantees as of December 31:
 
(in millions)
2011
 
2010
       
Accumulation and withdrawal benefits
 $                     10
 
 $                         -
GMDB
 $                     40
 
 $                      62
GMIB
 $                        -
 
 $                        3
 
 
Universal and Variable Universal Life Insurance Contracts

The Company offers certain universal life and variable universal life insurance products with secondary guarantees.  This no lapse guarantee provides that a policy will not lapse so long as the policyholder makes minimum premium payments.   The reserve balances on these guarantees were $162 million and $87 million as of December 31, 2011 and 2010, respectively.  Paid claims on contracts maintained in force by these guarantees were immaterial for the years ended December 31, 2011 and 2010, respectively.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes information regarding universal and variable universal life insurance contracts with no lapse guarantees invested in general and separate accounts as of December 31:
 
 
2011
     
2010
   
     
Wtd. avg.
     
Wtd. avg.
   
Net
attained
   
Net
attained
 
Account
amount
age of
 
Account
amount
age of
(in millions)
value
at risk 1
contractholders
 
value
at risk 1
contractholders
               
No lapse guarantees
 $          1,154
 $          9,777
                     58
 
 $          1,065
 $          8,099
                      58
 
__________
 
1 Net amount at risk is calculated on a seriatim basis and equals the respective guaranteed death benefit less the account value (or zero if the account value exceeds the guaranteed benefit).
 
Related Separate Accounts

The following table summarizes account balances of deferred variable annuity, variable single premium immediate annuity and variable universal life insurance contracts that were invested in separate accounts as of December 31:
 
(in millions)
2011
 
2010
       
Mutual funds:
     
   Bond
 $               5,604
 
 $                 5,364
   Domestic equity
                34,612
 
                  33,254
   International equity
                   2,812
 
                    3,437
      Total mutual funds
 $             43,028
 
 $               42,055
Money market funds
                   1,530
 
                    1,457
          Total
 $             44,558
 
 $               43,512
 
The Company did not transfer any assets from the general account to the separate account to cover guarantees for any of its variable annuity contracts during the years ended December 31, 2011 and 2010.

(5)      Deferred Policy Acquisition Costs and Value of Business Acquired

Deferred Policy Acquisition Costs

The following table presents a reconciliation of DAC for the years ended December 31:

 
(in millions)
2011
2010
2009
       
Balance at beginning of year
 $                3,973
 $                3,983
 $                4,524
Capitalization of DAC
                      741
                      634
                      513
Amortization of DAC, excluding unlocks
                     (239)
                    (385)
                    (606)
Amortization of DAC related to unlocks
                      163
                      (11)
                      140
  Adjustments to DAC related to unrealized gains and losses on securities  available-for-sale
                     (213)
                    (248)
                    (588)
   Balance at end of year
 $                4,425
 $                3,973
 $                3,983
 
 

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The most significant contributor to the favorable unlock recorded during 2011 was the Company’s recorded balance of individual variable annuity DAC fell outside the Company’s preset parameters for the prescribed period, which primarily was driven by favorable equity market performance compared to assumed net separate account returns and resulted in a decrease in DAC amortization of $111 million.

During 2011, 2010 and 2009, the Company conducted its annual comprehensive review of model assumptions and unlocked assumptions related to interest spread, mortality, lapse and market performance assumptions.

During 2009, the Company’s recorded balance of individual variable annuity DAC fell outside the Company’s preset parameters for the prescribed period, which primarily was driven by favorable equity market performance compared to assumed net separate account returns and resulted in a decrease in DAC amortization of $219 million.

Based upon the market performance in the second half of 2011, the DAC balance for variable annuities is currently outside of the preset parameters.  Accordingly, future periods may incur additional amortization of DAC if the Company’s actual returns are less than the assumed net separate account performance.

Value of Business Acquired

The following table presents a reconciliation of VOBA for the years ended December 31:
 
(in millions)
2011
 
2010
 
2009
           
Balance at beginning of year
 $             259
 
 $             277
 
 $             334
Amortization of VOBA, excluding unlocks
                (29)
 
                (33)
 
                (36)
Amortization of VOBA related to unlocks
                  16
 
                  13
 
                (13)
Net realized gains on investments
                   2
 
                   1
 
                   1
Adjustments to VOBA related to unrealized gains and losses on securities
       
  available-for-sale
                (10)
 
                   1
 
                  (9)
   Balance at end of year
 $             238
 
 $             259
 
 $             277
 
Interest on the unamortized VOBA balance (at interest rates ranging from 4.50% to 7.56%) is included in amortization and was $17 million, $18 million, and $20 million during the years ended December 31, 2011, 2010 and 2009, respectively. Additionally, the VOBA gross carrying amount was $585 million and $595 million and accumulated amortization of $347 million and $336 million for the years ended December 31, 2011 and 2010, respectively. The initial useful life related to the VOBA balances is 28 years.

Based on current assumptions, which are subject to change, the following table summarizes estimated amortization of VOBA for the next five years ended December 31:
 
(in millions)
           
VOBA
               
2012
           
 $              21
2013
           
 $              19
2014
           
 $              16
2015
           
 $              14
2016
           
 $              13
               



 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(6)      Investments

Available-for-Sale Securities

The following table summarizes amortized cost, gross unrealized gains and losses and fair value of available-for-sale securities as of the dates indicated:
 
   
Gross
Gross
 
 
Amortized
unrealized
unrealized
Fair
(in millions)
cost
gains
losses
value
         
December 31, 2011
       
Fixed maturity securities:
       
   U.S. Treasury securities and obligations of U.S.
       
     Government corporations and agencies
 $          506
 $         124
 $               -
 $         630
   Obligations of states and political subdivisions
          1,501
             177
                  -
         1,678
   Debt securities issued by foreign governments
              102
               18
                  -
             120
   Corporate public securities
        14,132
         1,336
             111
       15,357
   Corporate private securities
          3,998
             327
               27
         4,298
   Residential mortgage-backed securities
          5,280
             255
             311
         5,224
   Commercial mortgage-backed securities
          1,347
               64
               32
         1,379
   Collateralized debt obligations
              410
               17
             125
             302
   Other asset-backed securities
              201
               16
                 4
             213
         Total fixed maturity securities
 $     27,477
 $      2,334
 $         610
 $    29,201
Equity securities
                19
                 2
                 1
               20
            Total available-for-sale securities
 $     27,496
 $      2,336
 $         611
 $    29,221
         
December 31, 2010
       
Fixed maturity securities:
       
   U.S. Treasury securities and obligations of U.S.
       
     Government corporations and agencies
 $            497
 $             87
 $               -
 $           584
   Obligations of states and political subdivisions
            1,410
                15
                48
           1,377
   Debt securities issued by foreign governments
               110
                13
                  -
              123
   Corporate public securities
          11,921
              879
                84
         12,716
   Corporate private securities
            4,038
              257
                47
           4,248
   Residential mortgage-backed securities
            5,811
              183
              355
           5,639
   Commercial mortgage-backed securities
            1,167
                51
                32
           1,186
   Collateralized debt obligations
               365
                13
              126
              252
   Other asset-backed securities
               294
                19
                  4
              309
         Total fixed maturity securities
 $       25,613
 $        1,517
 $           696
 $      26,434
Equity securities
                 39
                  3
                  -
                42
            Total available-for-sale securities
 $       25,652
 $        1,520
 $           696
 $      26,476
 
 
The fair value of the Company’s investments may fluctuate significantly in response to changes in interest rates, investment quality ratings and credit spreads.  While the Company has the ability and intent to hold equity securities until recovery, and the Company does not have the intent to sell, nor is it more likely than not it will be required to sell fixed maturity securities in unrealized loss positions, investment losses may be realized to the extent liquidity needs require the disposition of securities in unfavorable interest rate, liquidity or credit spread environments. 


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes the amortized cost and fair value of fixed maturity securities, by maturity, as of December 31, 2011.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without early redemption penalties.
 
 
Amortized
Fair
(in millions)
cost
value
Fixed maturity securities:
   
   Due in one year or less
 $                   963
 $                   982
   Due after one year through five years
                   6,817
                   7,215
   Due after five years through ten years
                   7,699
                   8,478
   Due after ten years
                   4,760
                   5,408
Subtotal
 $             20,239
 $             22,083
   Residential mortgage-backed securities
                   5,280
                   5,224
   Commercial mortgage-backed securities
                   1,347
                   1,379
   Collateralized debt obligations
                      410
                      302
   Other asset-backed securities
                      201
                      213
   Total fixed maturity securities
 $             27,477
 $             29,201
 
 
The following table summarizes components of net unrealized gains and losses on available-for-sale securities, as of December 31:
 
(in millions)
2011
 
2010 1
       
Net unrealized gains, before adjustments, taxes and fair value hedging
 $          1,725
 
 $             824
Change in fair value attributable to fixed maturities designated in fair value hedging
     
  relationships
                   (8)
 
                (20)
Net unrealized gains, before adjustments and taxes
             1,717
 
                804
Adjustment to DAC and VOBA
               (439)
 
              (216)
Adjustment to future policy benefits and claims
               (183)
 
                  27
Adjustment to policyholder dividend obligation
               (132)
 
                (90)
Deferred federal income tax expense
               (329)
 
              (184)
   Net unrealized gains on available-for-sale securities
 $             634
 
 $             341
__________
 
1
Includes the $9 million, net of taxes, cumulative effect of adoption of accounting principle as of July 1, 2010 for the adoption of ASU 2010-11.




 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes   the change in net unrealized gains and losses on available-for-sale securities reported in accumulated other comprehensive income, as of December 31:
 
(in millions)
2011
 
2010
Balance at beginning of year
 $             341
 
 $           (228)
   Cumulative effect of adoption of accounting principle
                      -
 
                    9
Adjusted balance, beginning of period
 $             341
 
 $           (219)
   Unrealized gains and losses arising during the period:
     
      Net unrealized gains before adjustments
                896
 
             1,039
      Non-credit impairments and subsequent changes in fair value of those debt securities
                 (11)
 
                131
      Net adjustments to DAC and VOBA
               (223)
 
              (247)
      Net adjustment to future policy benefits and claims
               (210)
 
                    7
      Net adjustment to policyholder dividend obligation
                 (42)
 
                (73)
      Related federal income tax expense
               (135)
 
              (300)
           Change in unrealized gains on available-for-sale securities
 $             275
 
 $             557
      Reclassification adjustments to net investment losses, net of taxes ($(10)
        and $(2) as of December 31, 2011 and 2010, respectively)
                 (18)
 
                  (3)
           Change in net unrealized gains on available-for-sale securities
 $             293
 
 $             560
Balance at end of year
 $             634
 
 $             341
 
The following table summarizes available-for-sale securities, by asset class, in a gross unrealized loss position based on the amount of time each type of security has been in an unrealized loss position, as well as the related fair value and number of securities, as of the dates indicated:
 
 
Less than or equal
 to one year
 
More
than one year
   
 
 
Total
 
   
Gross
Number
   
Gross
Number
   
Gross
Number
 
Fair
unrealized
of
 
Fair
unrealized
of
 
Fair
unrealized
of
(in millions, except number of securities)
value
losses
securities
 
value
losses
securities
 
value
losses
securities
                       
December 31, 2011
                     
Fixed maturity securities:
                     
   Obligations of states and
                     
     political subdivisions
 $        31
 $              -
               6
 
 $           5
 $             -
               1
 
 $          36
 $              -
              7
   Corporate public securities
      1,460
              62
          150
 
          309
             49
            54
 
        1,769
            111
         204
   Residential mortgage-backed securities
         278
                9
            52
 
       1,339
           302
          240
 
        1,617
            311
         292
   Collateralized debt obligations
           78
                2
            10
 
          137
           123
            39
 
           215
            125
           49
   Other asset-backed securities
         470
              15
            48
 
          352
             48
            52
 
           822
              63
         100
         Total fixed maturity securities
 $  2,317
 $          88
          266
 
 $   2,142
 $        522
          386
 
 $     4,459
 $        610
         652
Equity securities
              7
                1
            10
 
                -
                 -
            31
 
                7
                1
           41
            Total
 $  2,324
 $          89
          276
 
 $   2,142
 $        522
          417
 
 $     4,466
 $        611
         693
                       
December 31, 2010
                     
Fixed maturity securities:
                     
   Obligations of states and
                     
     political subdivisions
 $       814
 $           48
             77
 
 $             -
 $              -
                -
 
 $         814
 $            48
            77
   Corporate public securities
       1,009
              28
           109
 
           528
              56
           107
 
         1,537
               84
          216
   Residential mortgage-backed securities
          562
              13
             41
 
        1,765
            342
           281
 
         2,327
             355
          322
   Collateralized debt obligations
              1
                 -
               2
 
           180
            126
             46
 
            181
             126
            48
   Other asset-backed securities
          458
              28
             51
 
           465
              55
             74
 
            923
               83
          125
         Total fixed maturity securities
 $    2,844
 $         117
           280
 
 $     2,938
 $         579
           508
 
 $      5,782
 $          696
          788
Equity securities
              3
                 -
               3
 
               2
                 -
             40
 
                5
                 -
            43
            Total
 $    2,847
 $         117
           283
 
 $     2,940
 $         579
           548
 
 $      5,787
 $          696
          831


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes gross unrealized losses based on the ratio of estimated fair value to amortized cost, for all available-for-sale securities in an unrealized loss position, as of the dates indicated:
 
 
December 31, 2011
   
December 31, 2010
 
 
Less
More
   
Less
More
 
 
than or
than
   
than or
than
 
 
equal to
one
   
equal to
one
 
(in millions)
one year
year
Total
 
one year
year
Total
               
99.9% - 80.0%
 $         83
 $      158
 $  241
 
 $        100
 $      251
 $      351
Less than 80.0%
             
   Residential mortgage-backed securities
               -
          191
     191
 
               -
         173
         173
   Collateralized debt obligations
              1
          121
     122
 
               -
         113
         113
   Other
              5
            52
        57
 
             17
           42
           59
   Total
 $         89
 $      522
 $  611
 
 $        117
 $      579
 $      696
 
These unrealized losses represent temporary fluctuations in economic factors that are not indicative of other-than-temporary impairment.

Residential mortgage-backed securities are assessed for impairment using default estimates based on loan level data, where available. Where loan level data is not available, a proxy based on collateral characteristics is used. The impairment assessment considers loss severity as a function of multiple factors, including unpaid balance, interest rate, mortgage insurance ratios, assessed property value at origination, change in property value, loan-to-value ratio at origination and prepayment speeds. Cash flows generated by the collateral are then utilized, along with consideration for the issue’s position in the overall structure, to determine cash flows associated with the security.

Collateralized debt obligations are assessed for impairment using expected cash flows based on various inputs including default estimates based on the underlying corporate securities and historical and forecasted loss severities, or other market inputs when recovery estimates are not feasible. When the collateral is regional bank and insurance company trust preferred securities, default estimates used to estimate cash flows are based on U.S. Bank Rating service data and broker research.

Management believes unrealized losses on available-for-sale securities do not represent other-than-temporary impairments as the Company does not intend to sell the securities, it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis or the present value of estimated cash flows were equal to or greater than the amortized cost basis of the securities.

Mortgage Loans, Net of Allowance

The Company’s investments in mortgage loans consist primarily of first lien and collateral dependent commercial mortgage loans.  These mortgage loans are further segregated into the following classes based on the unique risk profiles of the underlying property types: office, warehouse, retail, apartment and other.

The collectability of a mortgage loan is based on the ability of the borrower to repay and/or the value of the underlying collateral.  The quality of a loan is generally defined by the specific financial position and condition of a borrower and the underlying collateral. Many of the Company’s mortgage loans are structured with balloon payment maturities, exposing the Company to risks associated with the borrowers’ ability to make the balloon payment or refinance the property.

As part of the underwriting process, specific guidelines are followed to ensure the initial quality of a new mortgage loan.  Third-party appraisals are generally obtained to support loaned amounts as the loans are usually collateral dependent.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The Company actively monitors the credit quality of its mortgage loans to support the development of the valuation allowance.  This monitoring process includes quantitative analyses which facilitate the identification of deteriorating loans, and qualitative analyses which consider other factors relevant to the borrowers’ ability to repay.  Loans with deteriorating credit fundamentals are identified for special surveillance procedures and are categorized based on the severity of their deterioration and management’s judgment as to the likelihood of loss.

Mortgage loans 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 management determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and either 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.

In addition to the loan-specific reserves, the Company maintains a non-specific reserve for losses developed based on loan surveillance categories and property type classes and reflects management’s best estimate of probable credit losses inherent in the portfolio as of the balance sheet date but not yet attributable to specific loans.  Management’s periodic evaluation of the adequacy of the non-specific reserve is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.

The following table summarizes the amortized cost of mortgage loans by method of evaluation for credit loss, and the related valuation allowances by type of credit loss, for the years ended December 31:
 
(in millions)
2011
2010
Amortized cost:
   
    Loans with non-specific reserves
 $             5,672
 $               5,952
    Loans with specific reserves
                    136
                     269
        Total amortized cost
 $             5,808
 $               6,221
Valuation allowance:
   
    Non-specific reserves
 $                   33
 $                    47
    Specific reserves
                      27
                       49
        Total valuation allowance
 $                   60
 $                    96
            Mortgage loans, net of allowance
 $             5,748
 $               6,125
 
The following table summarizes activity in the valuation allowance for mortgage loans for the years ended December 31:
 
(in millions)
2011
 
2010
Balance at beginning of year
 $                   96
 
 $                    77
     Additions
                      25
 
                       66
     Deductions
                     (61)
 
                      (47)
Balance at end of year
 $                   60
 
 $                    96
 

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes impaired mortgage loans by class for the years ended December 31:
 
(in millions)
Office
Warehouse
Retail
Apartment
Other
Total
2011
           
    Amortized cost
 $           8
 $              31
 $         20
 $                -
 $          77
 $          136
    Specific reserves
             (1)
                  (9)
             (8)
                   -
              (9)
 $           (27)
        Impaired mortgage loans, net of allowance
 $           7
 $              22
 $         12
 $                -
 $          68
 $          109
             
2010
           
    Amortized cost
 $            8
 $               52
 $          49
 $             23
 $         137
 $           269
    Specific reserves
             (1)
                  (8)
           (14)
                 (4)
            (22)
 $            (49)
        Impaired mortgage loans, net of allowance
 $            7
 $               44
 $          35
 $             19
 $         115
 $           220
 
 
As of December 31, 2011, the Company’s mortgage loans classified as delinquent and/or in non-accrual status were immaterial in relation to the total mortgage loan portfolio.  The Company had no mortgage loans 90 days or more past due and still accruing interest.

The following table summarizes average recorded investment and interest income recognized for impaired mortgage loans by class for the year ended December 31, 2011:

(in millions)
Office
Warehouse
Retail
Apartment
Other
Total
    Average recorded investment
 $           7
 $              39
 $         33
 $               4
 $          93
 $          176
    Interest income recognized
 $           1
 $                5
 $           3
 $                -
 $            8
 $            17

 
 

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Management uses an internal credit quality rating process to reflect an internal view of the credit risk associated with individual loans, as well as the portfolio as a whole.  This process considers a number of relevant loan quality measurements and factors, including loan-to-value ratio (LTV), debt service coverage ratio (DSC), current market rent expectations, economic vacancy, property characteristics, market area, and borrower strength.  LTV is calculated as a ratio of the amortized cost of a loan to the estimated value of the underlying collateral.  DSC is the amount of cash flow generated by the underlying collateral of the mortgage loan available to meet periodic interest and principal payments of the loan.  This process yields an individual internal credit quality rating score for substantially all of the Company’s mortgage loans which is then translated to a credit quality rating ranging from 1 to 5, with 1 representing the lowest risk profile and lowest potential for loss and 5 representing the highest risk profile and highest potential for loss.  These internal ratings by property are updated at least annually.

The following table summarizes the amortized cost of mortgage loans by internal credit quality rating and by class as of the dates indicated:
 
(in millions)
Office
Warehouse
Retail
Apartment
Other
Total
             
December 31, 2011
           
Rated 1
 $      112
 $              51
 $       120
 $            10
 $           14
 $         307
Rated 2
          242
               494
          933
             433
            153
         2,255
Rated 3
          372
               626
       1,108
             664
              87
         2,857
Rated 4
            35
                 86
            63
                25
              22
            231
Rated 5
            14
                 30
            21
                  7
              86
            158
   Total mortgage loans
 $      775
 $        1,287
 $   2,245
 $       1,139
 $         362
 $      5,808
             
             
December 31, 2010
           
Rated 1
 $            4
 $                  -
 $            1
 $                -
 $               -
 $              5
Rated 2
           173
                173
           571
              108
               24
          1,049
Rated 3
           523
             1,065
        1,643
              935
             144
          4,310
Rated 4
             66
                173
           105
              202
             281
             827
Rated 5
             16
                    6
               5
                   -
                 3
               30
   Total mortgage loans
 $        782
 $          1,417
 $     2,325
 $        1,245
 $          452
 $       6,221
 
Internal credit quality ratings are not used to establish the valuation allowance; however, there is a strong correlation between the two processes.  For example, mortgage loans in the category receiving the highest loss factors for determination of the valuation allowance are generally rated with an internal credit quality rating of 4 or 5, while mortgage loans in the category receiving the lowest loss factors for determination of the valuation allowance are generally rated 1, 2 or 3.

While the internal credit ratings reflect management’s assessment of relative credit risk in the mortgage loan portfolio for the date indicated based on underwriting criteria and ongoing assessment of the properties’ performance, management believes the amounts, net of valuation allowance, are collectible.

Securities Lending

The fair value of loaned securities was $103 million and $269 million as of December 31, 2011 and 2010, respectively.  The Company received $105 million and $276 million of cash collateral on securities lending as of December 31, 2011 and 2010, respectively. The Company did not receive any non-cash collateral on securities lending as of the balance sheet dates.

Assets on Deposit, Held in Trust and Pledged as Collateral

Fixed maturity securities with an amortized cost of $8 million were on deposit with various regulatory agencies as required by law as of December 31, 2011 and 2010.  These securities continue to be included in fixed maturity securities on the consolidated balance sheets.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Tax Credit Funds and Variable Interest Entities

The Company has sold $796 million and $747 million in LIHTC Funds to unrelated third parties as of December 31, 2011 and 2010.  The Company has guaranteed cumulative after-tax yields to the third party investors ranging from 1.00% to 7.75% through periods ending in 2027.  As of December 31, 2011 and 2010, the Company held guarantee reserves totaling $6 million on these transactions.  These guarantees are in effect for periods of approximately 15 years each.  The LIHTC Funds provide a stream of tax benefits to the investors that will generate a yield and return of capital.  If the tax benefits are not sufficient to provide these cumulative after-tax yields, the Company must fund any shortfall.  The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $770 million.  The Company’s risks are mitigated in the following ways: (1) the Company has the right to buyout the equity related to the guarantee under certain circumstances, (2) the Company may replace underperforming properties to mitigate exposure to guarantee payments and (3) the Company oversees the asset management of the deals. The Company does not anticipate making any material payments related to the guarantees.

The Company has relationships with VIEs where the Company is the primary beneficiary.  Net assets of all consolidated VIEs totaled $345 million and $355 million as of December 31, 2011 and 2010, respectively, which was composed primarily of other long-term investments of $310 million and $315 million at December 31, 2011 and 2010, respectively.  As of December 31, 2011 and 2010, the total exposure to loss on VIEs was immaterial (except for the impact of guarantees disclosed above). The Company’s general credit is not exposed to the creditors or beneficial interest holders of these consolidated VIEs.

During 2010, two LIHTC Funds were consolidated as a result of the adoption of guidance under FASB ASC 810, Consolidation .  Previously, the Company was not deemed the primary beneficiary.  As the managing member of the LIHTC funds, the Company has the power to direct the activities that most significantly impact the economic power of the entities and consolidated the funds.  The impact of consolidation was an increase to noncontrolling interest of $46 million.

In addition to the consolidated VIEs described above, the Company holds investments in variable interests in LIHTC Funds where the Company is not the primary beneficiary. The carrying value of these investments was $178 million and $157 million as of December 31, 2011 and 2010, respectively. The total exposure to loss on these investments was $309 million and $218 million as of December 31, 2011 and 2010, respectively. The total exposure to loss is determined by adding any unfunded commitments to the carrying value of the VIEs.













 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Net Investment Income

The following table summarizes net investment income by investment type for the years ended December 31:
 
(in millions)
2011
2010
2009
       
Fixed maturity securities, available-for-sale
 $               1,502
 $                 1,474
 $                 1,465
Equity securities, available-for-sale
                          1
                           2
                           2
Mortgage loans
                      370
                       396
                       445
Policy loans
                        56
                         55
                         61
Other
                      (35)
                       (43)
                       (38)
      Gross investment income
 $               1,894
 $                 1,884
 $                 1,935
Investment expenses
                        50
                         59
                         56
         Net investment income
 $               1,844
 $                 1,825
 $                 1,879

 
Net Realized Investment Gains and Losses

The following table summarizes net realized investment gains and losses, by source, for the years ended December 31:
 
(in millions)
2011
2010
2009
       
Net derivative gains (losses)
 $           (1,636)
 $                (385)
 $                  400
Realized gains on sales
                      64
                     176
                     192
Realized losses on sales
                    (45)
                     (43)
                   (113)
Other
                        8
                       16
                     (25)
Net realized investment (losses) gains
 $           (1,609)
 $                (236)
 $                  454
 
In 2011, interest rate declines and equity market volatility resulted in net realized derivative losses. Refer to Note 7 for further discussion on the Company’s derivative portfolio and related activity.

Proceeds from the sale of available-for-sale securities were $1.6 billion, $2.2 billion and $4.2 billion during the years ended December 31, 2011, 2010 and 2009, respectively.  Gross gains of $50 million, $172 million and $189 million and gross losses of $39 million, $17 million and $70 million were realized on those sales during the years ended December 31, 2011, 2010 and 2009, respectively.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Other-Than-Temporary Impairment Losses

The following table summarizes other-than-temporary impairments for the years ended December 31:
 
     
 
(in millions)
 
Total
  Included in other comprehensive income
Net
2011
       
Fixed maturity securities
 
 $            135
 $                (95)
 $               40
Mortgage loans
 
                  25
                         -
                  25
Other
 
                    2
                         -
                    2
            Other-than-temporary impairment losses
 
 $            162
 $                (95)
 $               67
         
2010
       
Fixed maturity securities
 
 $              330
 $               (174)
 $              156
Equity securities
 
                     5
                         -
                     5
Mortgage loans
 
                   59
                         -
                   59
            Other-than-temporary impairment losses
 
 $              394
 $               (174)
 $              220
         
2009
       
Fixed maturity securities
 
 $              907
 $               (417)
 $              490
Equity securities
 
                     7
                         -
                     7
Mortgage loans
 
                   72
                         -
                   72
Other
 
                     6
                         -
                     6
            Other-than-temporary impairment losses
 
 $              992
 $               (417)
 $              575

 
The following table summarizes the non-credit portion of other-than-temporary impairments, which have credit losses in earnings, and any subsequent changes in the fair value of those debt securities recognized in other comprehensive income, before federal income taxes, for the years ended December 31:

 
(in millions)
 
2011
2010
 
2009 1
   Balance at beginning of year
 
 $           (215)
 $              (346)
 
 $                 -
   Net activity in the period
 
                (11)
                  131
 
             (346)
      Balance at end of year
 
 $           (226)
 $              (215)
 
 $          (346)
 
__________

 
1
Includes the $384 million cumulative effect of adoption of accounting principle as of January 1, 2009 for the adoption of guidance impacting FASB ASC 320-10 , Investments – Debt and Equity Securities .





 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes the cumulative amounts related to the Company's credit portion of the other-than-temporary impairment losses on debt securities that the Company does not intend to sell and it is not more likely than not the Company will be required to sell the security prior to recovery of the amortized cost basis, for the years ended December 31:
 
(in millions)
2011
2010
2009
       
Cumulative credit loss at beginning of year
 $            340
 $             417
 $             507
   New credit losses
                    8
                  31
                168
   Incremental credit losses
                 29
                116
                  72
   Losses related to securities included in the beginning balance sold or paid
      down during the period
                (49)
              (202)
              (267)
   Losses related to securities included in the beginning balance for which there
      was a change in intent
                     -
                (22)
                (63)
Cumulative credit loss at end of year
 $            328
 $             340
 $             417
 
 
(7)
Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations which are managed by using derivative instruments.

Interest rate risk management:   The Company uses interest rate contracts, primarily interest rate swaps, to reduce or alter interest rate exposure arising from mismatches between assets and liabilities.  In the case of interest rate swaps, the Company enters into a contractual agreement with a counterparty to exchange, at specified intervals, the difference between fixed and variable rates of interest, calculated on a reference notional amount.

Interest rate swaps are used by the Company in association with fixed and variable rate investments to achieve cash flow streams that support certain financial obligations of the Company and to produce desired investment returns.  As such, interest rate swaps are generally used to convert fixed rate cash flow streams to variable rate cash flow streams or vice versa. The Company also enters into interest rate swap transactions which are structured to provide a hedge against the negative impact of higher interest rates on the Company’s statutory capital position.

Foreign currency risk management:   As part of its regular investing activities, the Company may purchase foreign currency denominated investments.  These investments and the associated income expose the Company to volatility associated with movements in foreign exchange rates.  In an effort to mitigate this risk, the Company uses cross-currency swaps.  As foreign exchange rates change, the increase or decrease in the cash flows of the derivative instrument generally offsets the changes in the functional-currency equivalent cash flows of the hedged item.

Credit risk management:   The Company enters into credit derivative contracts, primarily credit default swaps, under which the Company buys and sells credit default protection on standardized credit indices, which are established baskets of creditors, or on specific corporate creditors.  These derivatives allow the Company to manage or modify its credit risk profile in general or its credit exposure to specific creditors.
 
Equity market risk management:   The Company has a variety of variable annuity products with guaranteed benefit features. Refer to Note 4 for description of these guarantees.
 
 
These products and related obligations expose the Company to various market risks, predominately interest rate and equity risk. Adverse changes in the equity markets or interest rate movements expose the Company to significant volatility.  To mitigate these risks and hedge the guaranteed benefit obligations, the Company enters into a variety of derivatives including interest rate swaps, equity index futures, options and total return swaps.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Derivatives Qualifying for Hedge Accounting
 
The Company uses derivative instruments that are designated and qualify as fair value hedges in various financial transactions as follows:
 
 
·
interest rate swaps are used to hedge certain fixed rate investments such as mortgage loans and  certain fixed maturity securities, and
 
 
·
cross-currency swaps are used to hedge foreign currency-denominated fixed maturity securities.
 
The Company uses derivative instruments that are designated and qualify as cash flow hedges in various financial transactions as follows:
 
 
·
interest rate swaps are used to hedge cash flows from variable rate investments such as mortgage loans and certain fixed maturity securities and to hedge payments of certain funding agreement liabilities,
 
 
·
cross-currency swaps are used to hedge interest payments and principal payments on foreign currency-denominated financial instruments.

Derivatives Not Qualifying for Hedge Accounting

The Company uses derivatives not qualifying for hedge accounting in various financial transactions as follows:
 
 
·
futures, options, interest rate swaps and total return swaps are used to hedge certain guaranteed benefit rider obligations included in variable annuity products,
 
 
·
interest rate swaps, futures and options are used to hedge portfolio duration and other interest rate risks to which the Company is exposed,
 
 
·
cross-currency swaps are used to hedge foreign currency-denominated assets and liabilities, and
 
 
·
credit default swaps are used to either buy or sell credit protection on a credit index or specific creditor.

Credit Risk Associated with Derivatives Transactions

The Company periodically evaluates the risks within the derivative portfolios due to credit exposure.  When evaluating this risk, the Company considers several factors which include, but are not limited to, the counterparty credit risk associated with derivative receivables, the Company’s own credit as it relates to derivative payables, the collateral thresholds associated with each counterparty, and changes in relevant market data in order to gain insight into the probability of default by the counterparty. In addition, the effect the Company’s exposure to credit risk could have on the effectiveness of the Company’s hedging relationships is considered.  As of December 31, 2011 and 2010, the impact of the exposure to credit risk on the fair value measurement of derivatives and the effectiveness of the Company’s hedging relationships was immaterial.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes the fair value of derivative instruments, the related notional amounts of the derivative instruments and the related accrued interest, collateral and master netting agreement amounts as of the dates indicated:
 
 
   
Derivative assets
 
Derivative liabilities
(in millions)
 
 Fair value
Notional
 
 Fair value
Notional
             
December 31, 2011
           
Derivatives designated and qualifying as hedging instruments
 
 $            11
 $          145
 
 $            29
 $          310
Derivatives not designated and qualifying as hedging instruments:
           
   Interest rate contracts
 
 $      2,182
 $    21,732
 
 $      2,142
 $    20,957
   Equity contracts
 
          1,004
          7,265
 
               21
          1,661
   Credit default swaps
 
                  1
               13
 
                  1
               17
   Other derivative contracts
 
               10
             892
 
               43
          2,409
      Gross derivative positions 1
 
 $      3,208
 $    30,047
 
 $      2,236
 $    25,354
Accrued interest
 
 $          172
   
 $          179
 
   Less:
           
Cash collateral received/paid 2
 
 $      1,028
   
 $          223
 
Master netting agreements
 
 $      2,158
   
 $      2,158
 
         Net uncollateralized derivative positions
 
 $          194
   
 $            34
 
             
December 31, 2010
           
Derivatives designated and qualifying as hedging instruments
 
 $             27
 $           210
 
 $             55
 $           931
Derivatives not designated and qualifying as hedging instruments:
           
   Interest rate contracts
 
 $           556
 $      10,944
 
 $           418
 $      10,225
   Equity contracts
 
              212
           2,484
 
                20
           1,124
   Credit default swaps
 
                  1
                20
 
                   -
                17
   Other derivative contracts
 
                42
           1,329
 
                53
           1,263
      Gross derivative positions 1
 
 $           838
 $      14,987
 
 $           546
 $      13,560
Accrued interest
 
 $             99
   
 $           106
 
   Less:
           
Cash collateral received/paid 3
 
 $           351
   
 $             76
 
Master netting agreements
 
 $           551
   
 $           551
 
         Net uncollateralized derivative positions
 
 $             35
   
 $             25
 

 
 __ _______
1 Assets and liabilities included in other assets and other liabilities, respectively in the consolidated balance sheets.
2 Excludes $1 million and $152 million of securities received and posted, respectively, as collateral on derivative transactions.
3 Excludes $8 million and $28 million of securities received and posted, respectively, as collateral on derivative transactions.

The fair value of embedded derivatives on annuity programs were $1.9 billion and $226 million as of December 31, 2011 and 2010, respectively, which are included in future policy benefits and claims in the consolidated balance sheets.







 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes realized gains and losses for derivative instruments recognized in net realized investment gains and losses in the consolidated statements of operations for the years ended December 31:
 
(in millions)
2011
 
2010
 
2009
Derivatives designated and qualifying as hedging instruments
 $              (4)
 
 $               (9)
 
 $             (25)
Derivatives not designated and qualifying as hedging instruments:
         
   Interest rate contracts
 $            (44)
 
 $             (39)
 
 $           (197)
   Equity contracts
               (45)
 
              (389)
 
              (739)
   Credit default swaps
                    -
 
                  (5)
 
                   8
   Other derivative contracts
               (23)
 
              (151)
 
                   9
Net interest settlements
                 34
 
                 16
 
              (151)
     Total derivative losses 1
 $            (82)
 
 $           (577)
 
 $        (1,095)
Embedded derivatives on guaranteed benefit annuity programs
         (1,674)
 
                 98
 
            1,432
Other revenue on guaranteed benefit annuities
              120
 
                 94
 
                 63
     Change in embedded derivative liabilities and related fees
 $      (1,554)
 
 $            192
 
 $         1,495
       Net realized derivative (losses) gains
 $      (1,636)
 
 $           (385)
 
 $            400
 
_________
 
1 Included in total derivative losses are economic hedging gains of $1.0 billion, losses of $347 million and $1.1 billion related to guaranteed benefit annuity program as of December 31, 2011, 2010 and 2009, respectively.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(8)      Fair Value of Financial Instruments

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2011:
 
(in millions)
Level 1
Level 2
Level 3
Total
         
Assets
       
Investments:
       
   Fixed maturity securities:
       
      U.S. Treasury securities and obligations of U.S.
       
        Government corporations and agencies
 $        620
 $             6
 $             4
 $        630
      Obligations of states and political subdivisions
                 -
        1,678
                 -
        1,678
      Debt securities issued by foreign governments
           120
                 -
                 -
           120
      Corporate public securities
                1
      15,239
           117
      15,357
      Corporate private securities
                 -
        3,089
        1,209
        4,298
      Residential mortgage-backed securities
           563
        4,653
                8
        5,224
      Commercial mortgage-backed securities
                 -
        1,377
                2
        1,379
      Collateralized debt obligations
                 -
              55
           247
           302
      Other asset-backed securities
                 -
           209
                4
           213
         Total fixed maturity securities at fair value
 $     1,304
 $  26,306
 $     1,591
 $  29,201
   Equity securities
                1
              14
                5
              20
   Short-term investments
              23
        1,102
                 -
        1,125
   Trading securities
                 -
                 -
              38
              38
         Total other investments at fair value
 $          24
 $     1,116
 $          43
 $     1,183
                Investments at fair value
 $     1,328
 $  27,422
 $     1,634
 $  30,384
Cash and cash equivalents
              49
                 -
                 -
              49
Derivative assets
                 -
        2,204
        1,004
        3,208
Separate account assets
      62,242
        1,000
        1,952
      65,194
                Assets at fair value
 $  63,619
 $  30,626
 $     4,590
 $  98,835
         
Liabilities
       
Future policy benefits and claims:
       
   Living benefits
 $              -
 $              -
 $   (1,842)
 $   (1,842)
   Equity indexed annuities
                 -
                 -
            (63)
            (63)
         Total future policy benefits and claims
 $              -
 $              -
 $   (1,905)
 $   (1,905)
Derivative liabilities
            (21)
      (2,209)
              (6)
      (2,236)
                Liabilities at fair value
 $         (21)
 $   (2,209)
 $   (1,911)
 $   (4,141)
 

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes changes in fair value measurements for which the Company used significant unobservable inputs (Level 3) to determine fair value for the year ended December 31, 2011:

 
 
Balance as of
       
Transfers
Transfers
Balance as of
 
December 31,
 Net gains (losses)
   
into
out of
December 31,
(in millions)
2010
In earnings 1
In OCI
Purchases
Sales
Level 3
Level 3
2011
                 
Assets
               
Investments:
               
   Fixed maturity securities:
               
      Corporate public securities
 $            114
 $                -
 $          4
 $         41
 $     (43)
 $          1
 $           -
 $             117
      Corporate private securities
            1,161
              (10)
           26
          161
      (242)
         163
          (50)
             1,209
      Residential mortgage-backed securities
                   9
                   -
              -
               -
            -
              -
            (1)
                    8
      Commercial mortgage-backed securities
                   2
                   -
              -
               -
            -
              -
              -
                    2
      Collateralized debt obligations
               191
                (2)
             5
            87
        (34)
              -
              -
                247
      Other fixed maturity securities
                 18
                  5
              -
            16
        (20)
             3
          (14)
                    8
Total fixed maturity securities at fair value
 $         1,495
 $             (7)
 $        35
 $       305
 $   (339)
 $      167
 $       (65)
 $          1,591
Other investments at fair value
                 45
                (4)
              -
              5
          (3)
              -
              -
                  43
Derivative assets
               211
              131
              -
          719
        (57)
              -
              -
             1,004
Separate account assets
            1,805
              147
              -
               -
            -
              -
              -
             1,952
Assets at fair value
 $         3,556
 $           267
 $        35
 $    1,029
 $   (399)
 $      167
 $       (65)
 $          4,590
                 
Liabilities
               
Future policy benefits and claims:
               
   Living benefits
 $          (168)
 $      (1,674)
 $           -
 $            -
 $         -
 $           -
 $           -
 $        (1,842)
   Equity indexed annuities
               (58)
                (5)
              -
               -
            -
              -
              -
                (63)
Total future policy benefits and claims
 $          (226)
 $      (1,679)
 $           -
 $            -
 $         -
 $           -
 $           -
 $        (1,905)
Derivative liabilities
                 (4)
                (2)
              -
               -
            -
              -
              -
                  (6)
Liabilities at fair value
 $          (230)
 $      (1,681)
 $           -
 $            -
 $         -
 $           -
 $           -
 $        (1,911)
 
__________
 
1
Net gains and losses included in earnings are reported in net realized investment gains and losses, other-than-temporary impairment losses and interest credited to policyholder accounts. The net unrealized gains on separate account assets is attributable to contractholders, and therefore, is not included in the Company’s earnings. The change in unrealized gains (losses) in earnings on assets and liabilities still held at the end of the year was $(6) million for other investments, $154 million for derivative assets and $(1.7) billion for future policy benefits and claims.

Transfers into and out of Level 3 during the year ended December 31, 2011 represent changes in the sources used to price certain securities.  There were no significant transfers between Levels 1 and 2 during the year ended December 31, 2011, except certain separate accounts previously included in Level 2.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2010:
 
(in millions)
Level 1
Level 2
Level 3
Total
         
Assets
       
Investments:
       
   Fixed maturity securities:
       
      U.S. Treasury securities and obligations of U.S.
       
        Government corporations and agencies
 $         572
 $           10
 $             2
 $         584
      Obligations of states and political subdivisions
                 -
         1,377
                 -
         1,377
      Debt securities issued by foreign governments
            123
                 -
                 -
            123
      Corporate public securities
                2
       12,600
            114
       12,716
      Corporate private securities
                 -
         3,087
         1,161
         4,248
      Residential mortgage-backed securities
            540
         5,090
                9
         5,639
      Commercial mortgage-backed securities
                 -
         1,184
                2
         1,186
      Collateralized debt obligations
                 -
              61
            191
            252
      Other asset-backed securities
                 -
            293
              16
            309
         Total fixed maturity securities at fair value
 $      1,237
 $    23,702
 $      1,495
 $    26,434
   Equity securities
              10
              32
                 -
              42
   Short-term investments
              25
         1,037
                 -
         1,062
   Trading securities
                 -
                 -
              45
              45
         Total other investments at fair value
 $           35
 $      1,069
 $           45
 $      1,149
                Investments at fair value
 $      1,272
 $    24,771
 $      1,540
 $    27,583
Cash and cash equivalents
            337
                 -
                 -
            337
Derivative assets
                 -
            627
            211
            838
Separate account assets
       12,325
       50,745
         1,805
       64,875
                Assets at fair value
 $    13,934
 $    76,143
 $      3,556
 $    93,633
         
Liabilities
       
Future policy benefits and claims:
       
   Living benefits
 $              -
 $              -
 $        (168)
 $        (168)
   Equity indexed annuities
                 -
                 -
             (58)
             (58)
         Total future policy benefits and claims
 $              -
 $              -
 $        (226)
 $        (226)
Derivative liabilities
             (18)
           (524)
               (4)
           (546)
                Liabilities at fair value
 $          (18)
 $        (524)
 $        (230)
 $        (772)
 


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes changes in fair value measurements for which the Company used significant unobservable inputs (Level 3) to determine fair value for the year ended December 31, 2010:
 
 
Balance as of
     
Transfers
Transfers
Balance as of
 
December 31,
 Net gains (losses)
Activity
into
out of
December 31,
(in millions)
2009
In earnings 1
In OCI
in period
Level 3
Level 3
2010
               
Assets
             
Investments:
             
   Fixed maturity securities:
             
      Corporate public securities
 $              215
 $                1
 $                  4
 $       (15)
 $          1
 $       (92)
 $             114
      Corporate private securities
              1,187
                   3
                   31
        (268)
         311
        (103)
             1,161
      Residential mortgage-backed securities
              2,034
                 (1)
                     4
          (12)
             2
     (2,018)
                    9
      Commercial mortgage-backed securities
                 405
                    -
                     1
              -
              -
        (404)
                    2
      Collateralized debt obligations
                 240
               (27)
                   29
          (67)
           16
              -
                191
      Other fixed maturity securities
                 169
                 (9)
                     8
          (11)
              -
        (139)
                  18
Total fixed maturity securities at fair value
 $           4,250
 $            (33)
 $                77
 $     (373)
 $      330
 $  (2,756)
 $          1,495
Other investments at fair value
                   56
                 10
                      -
          (20)
              -
            (1)
                  45
Derivative assets
                 331
               (91)
                      -
          (29)
              -
              -
                211
Separate account assets
              1,628
               177
                      -
              -
              -
              -
             1,805
Assets at fair value
 $           6,265
 $              63
 $                77
 $     (422)
 $      330
 $  (2,757)
 $          3,556
               
Liabilities
             
Future policy benefits and claims:
             
   Living benefits
 $            (266)
 $              98
 $                   -
 $           -
 $           -
 $           -
 $           (168)
   Equity indexed annuities
                 (45)
               (13)
                      -
              -
              -
              -
                (58)
Total future policy benefits and claims
 $            (311)
 $              85
 $                   -
 $           -
 $           -
 $           -
 $           (226)
Derivative liabilities
                   (2)
                 (2)
                      -
              -
              -
              -
                  (4)
Liabilities at fair value
 $            (313)
 $              83
 $                   -
 $           -
 $           -
 $           -
 $           (230)
__________

 
1
Net gains and losses included in earnings are reported in net realized investment gains and losses, other-than-temporary impairment losses and interest credited to policyholder accounts. The net unrealized gains on separate account assets is attributable to contractholders, and therefore, is not included in the Company’s earnings. The change in unrealized gains (losses) in earnings on assets and liabilities still held at the end of the year was $(2) million for other investments, $(69) million for derivative assets, $85 million for future policy benefits and claims and $(2) million for derivative liabilities.

At December 31, 2009, most of the Company’s investments in residential mortgage-backed securities backed by Alt-A and sub-prime collateral were categorized as Level 3 financial assets because there was little market activity in these securities.   During 2010, market activity increased in these securities such that they are no longer considered inactive.  As such, these securities were transferred out of Level 3 and into Level 2. Additionally, many of the Company’s investments in below investment-grade commercial mortgage-backed securities, which were categorized as Level 3 financial assets as of December 31, 2009 were transferred to Level 2 in 2010. This was primarily due to an increase in the observable valuation inputs of market activity and availability of higher quality independent pricing data.

There were no significant transfers between Levels 1 and 2 during the year ended December 31, 2010.

Fair Value Option

The Company assesses the fair value option election for newly acquired financial assets or liabilities on a prospective basis. Except for synthetic collateralized debt obligations, there are no material assets or liabilities for which the Company elected the fair value option.



 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Use of Net Asset Value for Estimating Fair Value

The Company uses net asset value to estimate the underlying fair value for certain mutual funds that do not have readily determinable fair values, which are included in separate accounts.

All but one of these mutual fund investments are included in Level 2 and had fair values totaling $50.0 billion as of December 31, 2010. These funds have no unfunded commitments or restrictions and the Company always has the ability to redeem the separate account investment in these funds with the investee at net asset value daily. These mutual funds are primarily invested in domestic and international equity funds.

The Company’s separate account assets include an investment in a mutual fund that may not be redeemed until a seven year guarantee period expires in 2016; however, net asset value has been used to estimate the fair value of this investment as a practical expedient. This fund has no unfunded commitments or other restrictions. The investment strategy of this fund is to build a portfolio where the assets shall be sufficient to achieve a target portfolio value by the end of the seven year guarantee period. The net asset value of this fund reported in separate account assets was $1.3 billion as of December 31, 2011 and 2010, respectively, and is included in Level 3.

Contractholders have the ability to select and change investment categories, which will result in the underlying mutual funds being purchased and sold in the future.

Fair Value on a Nonrecurring Basis

The Company measured certain mortgage loans at fair value, or fair value of the collateral for collateral dependent loans, on a non-recurring basis subsequent to their initial recognition, due to impairments or foreclosures recorded during the year. In determining the fair value for these mortgage loans, the Company primarily uses the direct capitalization method based on management’s view of current market capitalization rates.  Alternatively, the Company may use a discounted cash flow methodology or an independently provided appraisal of value.  Each of these methodologies is considered to represent a Level 3 fair value measurement.  Refer to Note 6 for further discussion of the carrying value of impaired mortgage loans.

Financial Instruments Not Carried at Fair Value

The following table summarizes the carrying value and fair value of the Company’s financial instruments not carried at fair value as of December 31.  The valuation techniques used to estimate these fair values are described below .
 

   
2011
     
2010
   
   
Carrying
 
Fair
 
Carrying
 
Fair
(in millions)
 
value
 
value
 
value
 
value
                 
Assets
               
Investments:
               
Mortgage loans held-for-investment
 
 $                5,748
 
 $            5,861
 
 $        6,125
 
 $         5,863
Policy loans
 
 $                1,008
 
 $            1,008
 
 $        1,088
 
 $         1,088
                 
Liabilities
               
Investment contracts
 
 $              18,318
 
 $         17,992
 
 $      17,962
 
 $       17,618
Short-term debt
 
 $                   777
 
 $               777
 
 $           300
 
 $            300
Long-term debt
 
 $                   991
 
 $            1,081
 
 $           978
 
 $         1,039

 
Mortgage loans held-for-investment :  The fair values of mortgage loans held-for-investment are estimated using discounted cash flow analyses based on interest rates currently being offered for similar loans to borrowers with similar credit ratings.

Policy loans :  The carrying amount reported in the consolidated balance sheets approximates fair value.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


Investment contracts :  For investment contracts without defined maturities, fair value is the amount payable on demand, net of surrender charges.  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.

Short-term debt :  The carrying amount reported in the consolidated balance sheets approximates fair value.

Long-term debt :  The fair values for long-term debt are based on estimated market prices using observable inputs from similar debt instruments.

(9)
Goodwill

The following table summarizes changes in the carrying value of goodwill by segment for the years indicated:
 
       
Retirement
 
Individual
   
(in millions)
     
Plans
 
Protection
 
Total
Balance as of December 31, 2009
     
 $               25
 
 $             175
 
 $             200
   Adjustments
     
                     -
 
                     -
 
                     -
Balance as of December 31, 2010
     
 $               25
 
 $             175
 
 $             200
   Adjustments
     
                     -
 
                     -
 
                     -
Balance as of December 31, 2011
     
 $              25
 
 $            175
 
 $            200
 
 
The Company’s annual impairment testing did not result in any impairment on existing goodwill during 2011, 2010 and 2009.  As of the 2011, 2010 and 2009 annual impairment testing, the fair value of the reporting units with goodwill was in excess of the carrying value.  The goodwill balances as of December 31, 2011 and 2010 have not been previously impaired.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(10)       Closed Block

The amounts shown in the following tables for assets, liabilities, revenues and expenses of the closed block are those that enter into the determination of amounts that are to be paid to policyholders.

The following table summarizes financial information for the closed block as of December 31:
 
(in millions)
 
2011
 
2010
         
Liabilities:
       
Future policyholder benefits
 
 $           1,761
 
 $            1,794
Policyholder funds and accumulated dividends
 
                 143
 
                  143
Policyholder dividends payable
 
                    27
 
                    28
Policyholder dividend obligation
 
                 156
 
                  121
Other policy obligations and liabilities
 
                    26
 
                    13
   Total liabilities
 
 $           2,113
 
 $            2,099
         
Assets:
       
Fixed maturity securities available-for-sale
 
 $           1,424
 
 $            1,312
Mortgage loans, net
 
                 210
 
                  224
Policy loans
 
                 170
 
                  186
Other assets
 
                 105
 
                  162
   Total assets
 
 $           1,909
 
 $            1,884
      Excess of reported liabilities over assets
 
                 204
 
                  215
         
Portion of above representing other comprehensive income:
       
Increase in unrealized gain on fixed maturity securities available-for-sale
 
 $                42
 
 $                 73
Adjustment to policyholder dividend obligation
 
                  (42)
 
                   (73)
      Total
 
 $                    -
 
 $                    -
         
         Maximum future earnings to be recognized from assets and liabilities
 
 $              204
 
 $               215
         
Other comprehensive income:
       
Fixed maturity securities available-for-sale:
       
   Fair value
 
 $           1,424
 
 $            1,312
   Amortized cost
 
              1,292
 
               1,222
   Shadow policyholder dividend obligation
 
                (132)
 
                   (90)
      Net unrealized appreciation
 
 $                   -
 
 $                    -

 


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes closed block operations for the years ended December 31:
 

(in millions)
2011
 
2010
 
2009
           
Revenues:
         
   Premiums
 $           77
 
 $            83
 
 $            90
   Net investment income
            102
 
             101
 
             106
   Realized investment (losses) gains
               (3)
 
                (3)
 
                 2
   Realized losses credited to policyholder benefit obligation
               (1)
 
                (1)
 
                (7)
      Total revenues
 $         175
 
 $          180
 
 $          191
           
Benefits and expenses:
         
   Policy and contract benefits
 $         145
 
 $          131
 
 $          133
   Change in future policyholder benefits and interest credited to
         
     policyholder accounts
             (35)
 
              (23)
 
              (24)
   Policyholder dividends
               55
 
               56
 
               59
   Change in policyholder dividend obligation
               (8)
 
                (3)
 
                 4
   Other expenses
                 1
 
                 1
 
                 1
      Total benefits and expenses
 $         158
 
 $          162
 
 $          173
           
      Total revenues, net of benefits and expenses, before federal income
         
        tax expense
 $           17
 
 $            18
 
 $            18
Federal income tax expense
                 6
 
                 6
 
                 6
         Revenues, net of benefits and expenses and federal income tax
         
           expense
 $           11
 
 $            12
 
 $            12
           
Maximum future earnings from assets and liabilities:
         
Beginning of period
 $         215
 
 $          227
 
 $          239
Change during period
             (11)
 
              (12)
 
              (12)
   End of period
 $         204
 
 $          215
 
 $          227
 
Cumulative closed block earnings from inception through December 31, 2011, 2010 and 2009 were higher than expected as determined in the actuarial calculation.  Therefore, policyholder dividend obligations (excluding the adjustment for unrealized gains on available-for-sale securities) were $23 million, $31 million and $32 million as of December 31, 2011, 2010 and 2009, respectively.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(11)
Short-Term Debt

The following table summarizes short-term debt and weighted average annual interest rates as of December 31:
 
(in millions)
 
2011
 
2010
         
$600 million commercial paper program (0.30% and 0.35%, respectively)
 
 $                   300
 
 $                    300
$600 million promissory note and line of credit (1.73% in 2011)
 
 $                   477
 
 $                         -
Total short-term debt
 
 $                   777
 
 $                    300
 
In May 2011, NMIC, NFS, and NLIC entered into a $600 million revolving credit facility upon expiration of its existing facility of the same amount. The new facility matures in May 2015 and is subject to various covenants, as defined in the agreement.  NLIC had no amounts outstanding under the new or existing facilities as of December 31, 2011 and December 31, 2010.

In April 2011, the Company entered into a $600 million unsecured revolving promissory note and line of credit agreement with its parent company, NFS. Outstanding principal balances of the line of credit bear interest at the rate of six-month U.S. London Interbank Offered Rate (LIBOR) plus 1.25%. Interest is due and payable as of the last day of each interest period, as defined in the agreement, while there are outstanding principal balances. Under the terms of the agreement, NLIC may borrow, repay and re-borrow advances under the line of credit at any time prior to the termination of the note, which, among other conditions, is April 2012, subject to automatic renewal for additional one year periods unless either party terminates the agreement.

In June 2010, NLIC entered into an agreement reducing the commercial paper program from $800 million to $600 million.  The rating agency guidelines recommend that NLIC maintain minimum liquidity backup, which includes cash and liquid assets as well as committed bank lines, equal to 50% of any amounts outstanding under the commercial paper program.  Therefore, availability under the aggregate $600 million credit facility is reduced by the amount outstanding in excess of available cash and liquid assets.

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.  The maximum amount available under the agreement is $350 million.  The borrowing rate on this program is equal to one-month U.S. LIBOR.  The Company had no amounts outstanding under this agreement as of December 31, 2011 and 2010.

The terms of each debt instrument contain various restrictive covenants, including, but not limited to, minimum statutory surplus and minimum net worth requirements, and maximum debt to tangible net worth requirements, as defined in the agreements.  The Company was in compliance with all covenants as of December 31, 2011 and 2010.

The amount of interest paid on short-term debt was $5 million in 2011 and immaterial in 2010 and 2009.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(12)       Long-Term Debt

The following table summarizes long-term debt as of December 31:
 
(in millions)
 
2011
 
2010
         
8.15% surplus note, due June 27, 2032, payable to NFS
 
 $                   300
 
 $                    300
7.50% surplus note, due December 17, 2031, payable to NFS
 
                      300
 
                       300
6.75% surplus note, due December 23, 2033, payable to NFS
 
                      100
 
                       100
Variable funding surplus note, due December 31, 2040
 
                      285
 
                       272
Other
 
                           6
 
                           6
   Total long-term debt
 
 $                   991
 
 $                    978

 
 
On December 31, 2010, Olentangy Reinsurance, LLC, a special purpose financial captive insurance subsidiary of NLAIC domiciled in the State of Vermont, issued a variable funding surplus note due on December 31, 2040 to Nationwide Corporation, a majority-owned subsidiary of NMIC.  The note is redeemable in full or partial amount at any time subject to proper notice and approval.  A redemption premium shall be payable if the note is redeemed on or prior to the third anniversary date of the note’s issuance. The note bears interest at the rate of three-month U.S. LIBOR plus 2.80% payable quarterly.  Olentangy Reinsurance, LLC agrees to draw down or reduce principal amounts in accordance with the terms outlined in the purchase agreement.  The maximum amount outstanding under the agreement is $313 million in 2016.  The Company made interest payments on this surplus note of $9 million during 2011. Any payment of interest or principal on the note requires the prior approval of the State of Vermont.

The Company made interest payments to NFS on surplus notes totaling $54 million in 2011, 2010 and 2009.  Payments of interest and principal under the notes require the prior approval of the ODI.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(13)
Federal Income Taxes

The following table summarizes the federal income tax (benefit) expense attributable to (loss) income before income attributable to noncontrolling interests, for the years ended December 31:
 
(in millions)
 
2011
 
2010
 
2009
             
Current tax expense (benefit)
 
 $                   55
 
 $                  (91)
 
 $                  165
Deferred tax (benefit) expense
 
                  (437)
 
                     115
 
                   (117)
Total tax (benefit) expense
 
 $               (382)
 
 $                    24
 
 $                    48
 
Total federal income tax (benefit) expense differs from the amount computed by applying the U.S. federal income tax rate to (loss) income before federal income taxes and noncontrolling interests, as follows for the years ended December 31:
 
   
2011
     
2010
     
2009
   
(in millions)
Amount
%
   
Amount
%
   
Amount
%
 
Rate reconciliation:
                     
 
Computed (expected tax (benefit) expense)
 $    (252)
           35
%
 
 $         71
            35
%
 
 $       107
            35
%
 
Dividend received deduction
          (99)
           14
%
 
           (50)
          (25)
%
 
           (56)
          (18)
%
 
Impact of noncontrolling interest
            20
            (3)
%
 
            21
            10
%
 
            18
              6
%
 
Tax credits
          (30)
             4
%
 
           (27)
          (13)
%
 
           (21)
            (7)
%
 
Change in tax contingency reserve
          (15)
             2
%
 
             (5)
            (2)
%
 
              5
              2
%
 
Other, net
            (6)
             1
%
 
            14
              7
%
 
             (5)
            (2)
%
 
   Total
 $    (382)
           53
%
 
 $         24
            12
%
 
 $         48
            16
%
 
The Company’s current federal income tax receivable (liability) was $16 million and $(50) million as of December 31, 2011 and 2010, respectively.

Total federal income taxes paid (refunded) were $121 million, $(35) million, and $(59) million during the years ended December 31, 2011, 2010, and 2009, respectively.

During 2011, the Company recorded a tax benefit of $10 million primarily related to differences between the 2010 estimated tax liability and the amounts reported on the Company’s 2010 tax return. These changes in estimates were primarily driven by the Company’s separate account dividends received deduction (DRD).  During 2010, there were no material federal income tax expense adjustments.

During 2009, the Company recorded $9 million of net federal income tax expense adjustments primarily related to differences between the 2008 estimated tax liability and the amounts reported on the Company’s 2008 tax returns.  These changes in estimates were primarily driven by the Company’s separate account dividends received deduction (DRD) and foreign tax credit.

As of December 31, 2011, the Company no longer has a capital loss carryforward.  The Company has $59 million in low-income-housing credit carryforwards, which expire between 2026 and 2031 and $126 million in alternative minimum tax credit carryforwards, which have an unlimited carryforward. The Company expects to fully utilize all carryforwards.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following table summarizes the tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31:
 

(in millions)
 
2011
 
2010
         
Deferred tax assets:
       
   Future policy benefits and claims
 
 $               1,193
 
 $                 1,030
   Derivatives
 
                      574
 
                         27
   Capital loss carryforwards
 
                            -
 
                       178
   Tax credit carryforwards
 
                      185
 
                       145
   Other
 
                      323
 
                       236
      Gross deferred tax assets
 
 $               2,275
 
 $                 1,616
   Valuation allowance
 
                       (18)
 
                       (24)
      Net deferred tax assets
 
 $               2,257
 
 $                 1,592
         
Deferred tax liabilities:
       
   Deferred policy acquisition costs
 
                 (1,291)
 
 $               (1,071)
   Available-for-sale securities
 
                    (764)
 
                     (670)
   Value of business acquired
 
                       (86)
 
                       (89)
   Other
 
                    (217)
 
                     (150)
      Gross deferred tax liabilities
 
 $              (2,358)
 
 $               (1,980)
         Net deferred tax liability
 
 $                 (101)
 
 $                  (388)
 
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.  Valuation allowances are established when necessary to reduce the deferred tax assets to amounts expected to be realized.  The valuation allowance was $18 million and $24 million as of December 31, 2011 and 2010, respectively.  The change in valuation allowance for the year ended December 31, 2011 was $6 million, while there was no change in the valuation allowance for the year ended December 31, 2010 or 2009.  Based on management’s analysis, it is more likely than not that the results of future operations and the implementation of tax planning strategies will generate sufficient taxable income to enable the Company to realize the deferred tax assets for which the Company has not established valuation allowances.

A rollforward of the beginning and ending uncertain tax positions, including permanent and temporary differences, but excluding interest and penalties, is as follows:
 

(in millions)
     
2011
 
2010
 
2009
                 
Balance at beginning of period
     
 $              119
 
 $                 95
 
 $                 44
   Additions for current year tax positions
     
                      9
 
                    18
 
                    37
   Additions for prior years tax positions
     
                       -
 
                    19
 
                    15
   Reductions for prior years tax positions
     
                  (52)
 
                   (13)
 
                     (1)
Balance at end of period
     
 $                76
 
 $               119
 
 $                 95

 
The Company believes it is reasonably possible that approximately $48 million of unrecognized tax benefits will be recognized during 2012, mostly as a result of an industry issue resolution program with the Internal Revenue Service (IRS).  These tax benefits are primarily bad debt deductions related to certain investment impairments.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities through the 2005 tax year. The IRS is conducting an examination of the Company’s U.S. income tax returns for the years 2006 through 2008.  Any adjustments that may result from IRS examination of tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.
 
 
(14)
Statutory Financial Information

Statutory Results

The Company and its life subsidiary are required to prepare statutory financial statements in conformity with the statutory accounting practices prescribed and permitted by insurance regulatory authorities, subject to any deviations prescribed or permitted by the applicable state department of insurance.  Statutory accounting practices focus on insurer solvency and materially differ from GAAP.  The principal differences include charging policy acquisition and certain sales inducement costs to expense as incurred, establishing future policy benefits and claims reserves using different actuarial assumptions, excluding certain assets from statutory admitted assets; and valuing investments and establishing deferred taxes on a different basis.  The following tables summarize the statutory net income (loss) and statutory capital and surplus for the Company and its primary insurance subsidiary for the years ended December 31:

 
(in millions)
     
2011
 
2010
 
2009
                 
Statutory net income (loss)
               
NLIC
     
 $            18
 
 $               560
 
 $               397
NLAIC
     
 $          (61)
 
 $                (50)
 
 $                (61)
                 
Statutory capital and surplus
               
NLIC
     
 $      3,591
 
 $            3,686
 
 $            3,130
NLAIC
     
 $          302
 
 $               287
 
 $               214
 
 
On December 31, 2009, NLIC merged with its affiliate, NLICA, with NLIC as the surviving entity.  In addition, NLIC’s subsidiary, NLAIC, merged with a subsidiary of NLICA, NLACA, effective as of December 31, 2009, with NLAIC as the surviving entity.  See Note 2 for details on the accounting treatment of this transaction.

Dividend Restrictions

The payment of dividends by NLIC is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio, its domiciliary state.  The State of Ohio insurance laws require Ohio-domiciled life insurance companies to seek prior regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding 12 months, exceeds the greater of (1) 10% of statutory-basis policyholders’ surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer for the prior year.   During the year ended December 31, 2011, 2010 and 2009, NLIC did not pay any dividends to NFS.  As of January 1, 2012, NLIC has the ability to pay dividends to NFS totaling $359 million without obtaining prior approval.

The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned surplus.  Earned capital and surplus is defined under the State of Ohio insurance laws as the amount equal to the Company’s unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses or revaluation of assets.  Additionally, following any dividend, an insurer’s policyholder capital and surplus must be reasonable in relation to the insurer’s outstanding liabilities and adequate for its financial needs.  The payment of dividends by the Company 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 the Company’s participating policies (measured before dividends to policyholders) available for the benefit of the Company and its stockholders.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and dividends in the future.

Regulatory Risk-Based Capital

The National Association of Insurance Commissioners’ (NAIC) Risk Based Capital (RBC) model law requires every insurer to calculate its total adjusted capital and RBC requirement to ensure insurer solvency. Regulatory guidelines provide for an insurance commissioner to intervene if the insurer experiences financial difficulty, as evidenced by a company’s total adjusted capital falling below established relationships to required RBC. The model includes components for asset risk, liability risk, interest rate exposure and other factors. The State of Ohio, where NLIC and NLAIC are domiciled, imposes minimum RBC requirements that were developed by the NAIC.  The formulas for determining the amount of RBC 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 RBC, 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 exceeded the minimum RBC requirements for all periods presented herein.

(15)       Other Comprehensive Income

The Company’s other comprehensive income and loss includes net income (loss) and certain items that are reported directly within separate components of shareholder’s equity that are not recorded in net income.

The following table summarizes the Company’s other comprehensive income for the years ended December 31:
 
 
(in millions)
Unrealized gains on available-for-sale securities
Unrealized gains (losses) on derivatives used in cash flow hedging relationships
Other unrealized losses
Total other comprehensive income
Year ended December 31, 2011
       
     Other comprehensive income before federal income taxes
                 438
                             18
                -
                    456
     Federal income tax expense
               (145)
                              (6)
                -
                   (151)
          Total other comprehensive income
                 293
                             12
                -
                    305
         
Year ended December 31, 2010 1
       
     Other comprehensive income before federal income taxes
                  862
                              27
                -
                     889
     Federal income tax expense
                (302)
                              (9)
                -
                    (311)
          Total other comprehensive income
                  560
                              18
                -
                     578
         
Year ended December 31, 2009 2
       
     Other comprehensive income (loss) before federal income taxes
               2,088
                              (4)
             (14)
                  2,070
     Federal income tax (expense) benefit
                (731)
                                1
                 5
                    (725)
          Total other comprehensive income (loss)
               1,357
                              (3)
               (9)
                  1,345
 
_______

 
1
During 2010, the adoption of ASU 2010-11 resulted in a cumulative effect adjustment of $9 million, net of taxes, to retained earnings with a corresponding adjustment to AOCI, which is excluded from the table above.
 
2
The adoption of guidance impacting FASB ASC 320-10 , Investments – Debt and Equity Securities during 2009 resulted in a cumulative-effect adjustment of $250 million, net of taxes, to reclassify the non-credit component of previously recognized other-than-temporary impairment losses from the beginning balance of retained earnings to AOCI, which is excluded from the table above.



 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(16)
Related Party Transactions

The Company has entered into significant, recurring transactions and agreements with NMIC, other affiliates and subsidiaries as a part of its ongoing operations.  These include annuity and life insurance contracts, employee benefit plans, office space leases, and agreements related to reinsurance, cost sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing.  Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, the number of full-time employees, commission expense and other methods agreed to by the participating companies.

In addition, Nationwide Services Company, LLC (NSC), a subsidiary of NMIC, provides data processing, systems development, hardware and software support, telephone, mail and other services to the Company, based on specified rates for units of service consumed.  For the years ended December 31, 2011, 2010, and 2009, the Company made payments to NMIC and NSC totaling $241 million, $250 million, and $241 million, respectively.

The Company 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 $3.0 billion as of December 31, 2011 and 2010.  Total revenues from these contracts were $148 million, $139 million, and $143 million for the years ended December 31, 2011, 2010, and 2009, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees.  Total interest credited to the account balances was $122 million, $115 million, and $116 million for the years ended December 31, 2011, 2010, and 2009, respectively.  The terms of these contracts are materially consistent with what the Company offers to unaffiliated parties.

The Company leases office space from NMIC.  For the years ended December 31, 2011, 2010 and 2009, the Company made lease payments to NMIC of $14 million, $20 million, and $21 million, respectively.  In addition, the Company leases office space to an affiliate of NMIC.

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.  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, 2011, 2010, and 2009 were $203 million, $209 million, and $177 million, respectively, while benefits, claims and expenses ceded during these years were $212 million, $241 million, and $196 million, respectively.

Funds of Nationwide Funds Group (NFG), an affiliate, are offered to the Company’s customers as investment options in certain of the Company’s products.  As of December 31, 2011, 2010, and 2009, customer allocations to NFG funds totaled $21.9 billion, $30.5 billion, and $23.7 billion, respectively.  For the years ended December 31, 2011, 2010, and 2009, NFG paid the Company $129 million, $103 million, and $79 million, respectively, for the distribution and servicing of these funds.

Amounts on deposit with NCMC for the benefit of the Company were $994 million and $762 million as of December 31, 2011 and 2010, respectively.

Refer to Note 12 for discussion of variable funding surplus note between Olentangy Reinsurance, LLC and Nationwide Corporation.

Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS.  Total commissions and fees paid to these affiliates for the years ended December 31, 2011, 2010, and 2009 were $64 million, $61 million, and $48 million, respectively.

During 2009, NLIC received a $20 million capital contribution from NFS.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


During 2011 and 2010, the Company sold, at fair value, commercial mortgage loans with a carrying value of $41 million and $117 million, respectively, to NMIC.  The sales resulted in a net realized loss of $5 million and $21 million in 2011 and 2010, respectively.

(17)
Contingencies

Legal and Regulatory Matters

The Company is a subject to legal and regulatory proceedings in the ordinary course of its business. The Company’s legal and regulatory matters include proceedings specific to the Company and other proceedings generally applicable to business practices in the industries in which the Company operates.  The Company’s litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcomes cannot be predicted.  Regulatory proceedings also could affect the outcome of one or more of the Company’s litigations matters.  Furthermore, it is often not possible to determine the ultimate outcomes of the pending regulatory investigations and legal proceedings or to provide reasonable ranges of potential losses with any degree of certainty.  Some matters, including certain of those referred to below, are in very preliminary stages, and the Company does not have sufficient information to make an assessment of the plaintiffs’ claims for liability or damages.  In some of the cases seeking to be certified as class actions, the court has not yet decided whether a class will be certified or (in the event of certification) the size of the class and class period.  In many of the cases, the plaintiffs are seeking undefined amounts of damages or other relief, including punitive damages and equitable remedies, which are difficult to quantify and cannot be defined based on the information currently available.  The Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory matters is not likely to have a material adverse effect on the Company’s consolidated financial position.  Nonetheless, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that such outcomes could materially affect the Company’s consolidated financial position or results of operations in a particular quarter or annual period.

The financial services industry has been the subject of increasing scrutiny on a broad range of issues by regulators and legislators. The Company and/or its affiliates have been contacted by, self reported or received subpoenas from state and federal regulatory agencies, including the Securities and Exchange Commission, and other governmental bodies, state securities law regulators and state attorneys general for information relating to, among other things, sales compensation, the allocation of compensation, unsuitable sales or replacement practices, and claims handling and escheatment practices.  The Company is cooperating with and responding to regulators in connection with these inquiries and will cooperate with NMIC in responding to these inquiries to the extent that any inquiries encompass NMIC’s operations.




 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


On November 20, 2007, Nationwide Retirement Solutions, Inc. (NRS) and NLIC were named in a lawsuit filed in the Circuit Court of Jefferson County, Alabama entitled Ruth A. Gwin and Sandra H. Turner, and a class of similarly situated individuals v Nationwide Life Insurance Company, Nationwide Retirement Solutions, Inc., Alabama State Employees Association, PEBCO, Inc. and Fictitious Defendants A to Z . On March 12, 2010, NRS and NLIC were named in a Second Amended Class Action Complaint filed in the Circuit Court of Jefferson County, Alabama entitled Steven E. Coker, Sandra H. Turner, David N. Lichtenstein and a class of similarly situated individuals v. Nationwide Life Insurance Company, Nationwide Retirement Solutions, Inc, Alabama State Employees Association, Inc., PEBCO, Inc. and Fictitious Defendants A to Z claiming to represent a class of all participants in the Alabama State Employees Association, Inc. (ASEA) Plan, excluding members of the Deferred Compensation Committee, ASEA's directors, officers and board members, and PEBCO's directors, officers and board members. On October 22, 2010, the parties to this action executed a stipulation of settlement that agrees to certify a class for settlement purposes only, that provides for payments to the settlement class, and that provides for releases, certain bar orders, and dismissal of the case, subject to the Circuit Courts' approval. The Courts have approved the settlement and the settlement amounts have been paid, but have not yet been distributed to class members. On February 28, 2011, the Court in the Gwin case entered its Order permitting ASEA/PEBCO to assert indemnification claims for attorneys’ fees and costs, but barring them from asserting any other claims for indemnification. On April 22, 2011, ASEA and PEBCO filed a second amended cross claim complaint in the Gwin case against NLIC and NRS seeking indemnification. These claims seeking indemnification remain severed. On April 29, 2011, the Companies filed a motion to dismiss ASEA’s and PEBCO’s amended cross complaint or alternatively for summary judgment. On December 6, 2011 the Court entered an Order that NRS owes indemnification to ASEA and PEBCO for the Coker (Gwin) class action, that NRS does not have a duty to indemnify ASEA and PEBCO for fees associated with the Interpleader action that NRS filed in Montgomery County and dismissing NLIC. On December 31, 2011, the Court denied NRS’s motion to certify this order for an interlocutory appeal. NRS continues to defend this case vigorously.
 
On August 15, 2001, NFS and NLIC were named in a lawsuit filed in the United States District Court for the District of Connecticut entitled 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 . In the plaintiffs' sixth amended complaint, filed November 18, 2009, they amended the list of named plaintiffs and claim to represent a class of qualified retirement plan trustees under Employee Retirement Income Security Act of 1974 (ERISA) that purchased variable annuities from NLIC. The plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts and that NLIC and NFS breached ERISA fiduciary duties by allegedly accepting service payments from certain mutual funds. The complaint seeks disgorgement of some or all of the payments allegedly received by NFS and NLIC, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys' fees. On November 6, 2009, the Court granted the plaintiff's motion for class certification and certified a class of “All trustees of all employee pension benefit plans covered by ERISA which had variable annuity contracts with NFS and NLIC or whose participants had individual variable annuity contracts with NFS and NLIC at any time from January 1, 1996, or the first date NFS and NLIC began receiving payments from mutual funds based on a percentage of assets invested in the funds by NFS and NLIC, whichever came first, to the date of November 6, 2009". On October 20, 2010, the Second Circuit Court of Appeals granted NLIC's 23(f) petition agreeing to hear an appeal of the District Court's order granting class certification. On October 21, 2010, the District Court dismissed NFS from the lawsuit. On October 27, 2010, the District Court stayed the underlying action pending a decision from the Second Circuit Court of Appeals. On February 6, 2012, the Second Circuit Court of Appeals vacated the class certification order that was issued on November 6, 2009.  NLIC continues to defend this lawsuit vigorously.

On May 14, 2010, NLIC was named in a lawsuit filed in the Western District of New York entitled Sandra L. Meidenbauer, on behalf of herself and all others similarly situated v. Nationwide Life Insurance Company . The plaintiff claims to represent a class of all individuals who purchased a variable life insurance policy from NLIC during an unspecified period. The complaint claims breach of contract, alleging that NLIC charged excessive monthly deductions and costs of insurance resulting in reduced policy values and, in some cases, premature lapsing of policies. The complaint seeks reimbursement of excessive charges, costs, interest, attorney's fees, and other relief. NLIC filed a motion to dismiss the complaint on July 23, 2010. NLIC filed a motion to disqualify the proposed class representative on August 27, 2010. Plaintiff filed a motion to amend the complaint on September 17, 2010, and NLIC filed an opposition to the motion to amend on November 2, 2010. On October 13, 2011, plaintiff voluntarily dismissed the lawsuit without prejudice.
 

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


On October 22, 2010, NRS was named in a lawsuit filed in the U.S. District Court, Middle District of Florida, Orlando Division entitled Camille McCullough, and Melanie Monroe, Individually and on behalf of all others similarly situated v. National Association of Counties, NACo Research Foundation, NACo Financial Services Corp., NACo Financial Center, and Nationwide Retirement Solutions, Inc .  The Plaintiffs’ First Amended Class Action Complaint and Demand for Jury Trial was filed on February 18, 2011. If the Court determines that the Plans at issue in this case are governed by ERISA, then pursuant to FED. R. CIV. P. 23, Plaintiffs seek certification of a class defined as: All natural persons in the United States who were employed at any point after October 29, 2004 by a government entity that is or was a member of the National Association of Counties, and who participate or participated in a Section 457 Deferred Compensation Plan administered by NRS under the National Association of Counties Deferred Compensation Program.  Alternatively, if the Court determines that the Plans are not governed by ERISA, then pursuant to FED. R. CIV. P. 23, Plaintiffs seek certification of a class defined as: All natural persons in the United States who are currently employed or previously were employed at any point after October 29, 2006, by a government entity that is or was a member of the National Association of Counties (NACo), and who participate or participated in a Section 457 Deferred Compensation Plan administered by NRS under the National Association of Counties Deferred Compensation Program. The First Amended Complaint alleges ERISA Violation, Breach of Fiduciary Duty - NACo, Aiding and Abetting Breach of Fiduciary Duty - NRS, Breach of Fiduciary Duty - NRS, and Aiding and Abetting Breach of Fiduciary Duty - NACo. The First Amended Complaint asks for actual damages, lost profits, lost opportunity costs, restitution, and/or other injunctive or other relief, including without limitation (a) ordering NRS and NACo to restore all plan losses, (b) ordering NRS to refund all fees associated with NRS’s Plan to Plaintiffs and Class members, (c) ordering NACo and NRS to pay the expenses and losses incurred by Plaintiffs and/or any Class member as a proximate result of Defendants’ breaches of fiduciary duty, (d) forcing NACo to forfeit the fees that NACo received from NRS for promoting and endorsing its Plan and disgorging all profits, benefits, and other compensation obtained by NACo from its wrongful conduct, and (e) awarding Plaintiff and Class members their reasonable and necessary attorney’s fees and cost incurred in connection with this suit, punitive damages, and pre-judgment and post judgment interest, at the highest rates allowed by law, on the damages awarded.  On March 21, 2011, NRS filed a motion to dismiss the plaintiffs' first amended complaint.  On July 1, 2011, the plaintiffs filed their motion for class certification and later sought to amend their complaint. On November 25, 2011 the District Court entered an Order granting NACO's motion to dismiss, NRS's motion to dismiss, denying plaintiffs' motion to file an amended complaint, that all other remaining pending motions are moot, dismissing the class-wide claims with prejudice, dismissing individual claims without prejudice, and ordering the Clerk to close this case. On December 27, 2011, the plaintiffs filed a notice of appeal. NRS intends to defend this case vigorously.
 
On December 27, 2006, NLIC and NRS were named as defendants in a lawsuit filed in Circuit Court, Cole County Missouri entitled State of Missouri, Office of Administration, and Missouri State Employees Deferred Comp Plan v NLIC and NRS .  The complaint seeks recovery for breach of contract and breach of the implied covenant of good faith and fair dealing against NLIC and NRS as well as a breach of fiduciary duty against NRS.  The complaint seeks to recover the amount of the market value adjustment withheld by NLIC ($19 million), prejudgment interest, loss of investment income from ING due to the Companies’ assessment of the market value adjustment.  On March 8, 2007 the Companies filed a motion to remove this case from state court to federal court in Missouri.  On March 20, 2007 the State filed a motion to remand to state court and to stay court order.  On April 3, 2007 the case was remanded to state court.  On June 25, 2007 the Companies filed an Answer.  On October 16, 2009, the plaintiff filed a partial motion for summary judgment.  On November 20, 2009, the Companies filed a response to the plaintiff's motion for summary judgment and also filed a motion for summary judgment on behalf of the Companies.  On February 26, 2010, the court denied Missouri's partial motion for summary judgment and granted the Companies’ motion for summary judgment and dismissed the case.  On March 8, 2011, the Missouri Court of Appeals reversed the granting of the Companies’ motion for summary judgment and directed the trial court to enter judgment in favor of the State and against the Companies’ in the amount of $19 million, plus statutory interest at the rate of 9% per annum from June 2, 2006. On March 22, 2011, the Companies filed with the Missouri Court of Appeals, a motion for rehearing and an application for transfer to the Supreme Court of Missouri. On May 3, 2011, the Missouri Court of Appeals for the Western District overruled the Companies motion for rehearing and denied the motion to transfer the case to the Missouri Supreme Court. On June 28, 2011, the Companies application to the Missouri Supreme Court to hear a further appeal was denied. On July 1, 2011, the Companies paid the amount of the judgment plus simple interest at 9%. On August 9, 2011, the plaintiffs filed a Satisfaction of Judgment.



 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


On June 8, 2011, NMIC and NLIC were named in a lawsuit filed in Court of Common Pleas, Cuyahoga County, Ohio entitled Stanley Andrews and Donald Clark, on their behalf and on behalf of the class defined herein v. Nationwide Mutual Insurance Company and Nationwide Life Insurance Company .  The complaint alleges that NMIC and NLIC have an obligation to review the Social Security Administration Death Master File database for all life insurance policyholders who have at least a 70% probability of being deceased according to actuarial tables.  The complaint further alleges that NMIC and NLIC are not conducting such a review.  The complaint seeks injunctive relief and declaratory judgment requiring NMIC and NLIC to conduct such a review, and alleges NMIC and NLIC have violated the covenant of good faith and fair dealing and have been unjustly enriched by not having conducted such reviews.  The complaint seeks certification as a class action.    On July 13, 2011, NMIC and NLIC filed a motion to dismiss the case.    Plaintiffs filed their opposition to NMIC and NLIC’s motion to dismiss on December 19, 2011.  By order dated January 18, 2012, the State Court issued an order dismissing the lawsuit.  The State Court issued its opinion on January 23, 2012.  Plaintiffs filed a Notice of Appeal to the Eighth District Court of Appeals on January 30, 2012.

Tax Matters

The Company’s federal income tax returns are routinely audited by the IRS. Management has established tax reserves as described in Note 2. Management believes its tax reserves reasonably provide for potential assessments that may result from IRS examinations and other tax-related matters for all open tax years.

In July 2009, the IRS completed an audit of the Company’s tax years 2003 to 2005 and issued a Revenue Agent’s Report (RAR) and 30-Day Letter.  The RAR challenged the Company’s dividends received deduction which the Company appealed based on the technical merits.  In 2011, the Company favorably settled this position through IRS Appeals and as a result recorded previously unrecognized tax benefits.

Indemnifications

In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions, divestitures and leases. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.



 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(18)       Reinsurance

The following table summarizes the effects of reinsurance on life, accident and health insurance in force and premiums for the years ended December 31:
 
(in millions)
2011
2010
2009
       
Premiums
     
Direct
 $                   832
 $                    808
 $                    761
Assumed
                            -
                           5
                         12
Ceded
                    (301)
                     (329)
                     (303)
Net
 $                   531
 $                    484
 $                    470
       
Life, accident and health insurance in force
     
Direct
 $           209,732
 $             208,920
 $             208,485
Assumed
                           5
                         10
                           8
Ceded
               (60,499)
                (64,755)
                (76,136)
Net
 $           149,238
 $             144,175
 $             132,357
 
Total amounts recoverable under reinsurance contracts totaled $704 million, $739 million and $755 million as of December 31, 2011, 2010 and 2009, respectively.

 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


(19)       Segment Information

Management views the Company’s business primarily based on its underlying products and uses this basis to define its four reportable segments:  Individual Investments, Retirement Plans, Individual Protection, and Corporate and Other.

The primary segment profitability measure that management uses is a non-GAAP financial measure called pre-tax operating earnings (loss), which is calculated by adjusting income before federal income taxes to exclude: (1) net realized investment gains and losses, except for operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, net realized gains and losses related to hedges on GMDB contracts and securitizations); (2) other-than-temporary impairment losses; (3) the adjustment to amortization of DAC and VOBA related to net realized investment gains and losses; and (4) net loss attributable to noncontrolling interest.

Individual Investments

The Individual Investments segment consists of individual annuity products marketed under the Nationwide Destination SM and other Nationwide-specific or private label brands.  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, deferred variable annuity contracts provide the customer with access to a wide range of investment options and asset protection features, while deferred fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods. Immediate annuities differ from deferred annuities in that the initial premium is exchanged for a stream of income for a certain period or for the owner’s lifetime without future access to the original investment.    The majority of assets and recent sales for the Individual Investments segment consist of deferred variable annuities.

Retirement Plans

The Retirement Plans segment is comprised of the Company’s private and public sector retirement plans business.  The private sector primarily includes Internal Revenue Code (IRC) Section 401 fixed and variable group annuity business, and the public sector primarily includes IRC Section 457 and Section 401(a) business in the form of full-service arrangements that provide plan administration and fixed and variable group annuities as well as administration-only business.

Individual Protection

The Individual Protection segment consists of life insurance products, including individual variable, COLI and BOLI products; traditional life insurance products; and universal life insurance products.  Life insurance products provide a death benefit and generally allow the customer to build cash value on a tax-advantaged basis.

Corporate and Other

The Corporate and Other segment includes non-operating realized gains and losses and related amortization, including mark-to-market adjustments on embedded derivatives, net of economic hedges, related to products with certain living benefits; other-than-temporary impairment losses, and other revenues and expenses not allocated to other segments.


 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


The following tables summarize the Company’s business segment operating results for the years ended December 31:
 
 
Individual
Retirement
Individual
Corporate
 
(in millions)
Investments
Plans
Protection
and Other
Total
2011
         
Revenues:
         
   Policy charges
 $           781
 $             96
 $           629
 $                -
 $         1,506
   Premiums
              234
                    -
              297
                    -
                531
   Net investment income
              527
              715
              533
                69
            1,844
   Non-operating net realized investment losses 1
                    -
                    -
                    -
         (1,546)
           (1,546)
   Other-than-temporary impairment losses
                    -
                    -
                    -
               (67)
                (67)
   Other revenues 2
               (59)
                    -
                    -
                 (1)
                (60)
      Total revenues
 $       1,483
 $           811
 $       1,459
 $      (1,545)
 $         2,208
           
Benefits and expenses:
         
   Interest credited to policyholder accounts
 $           374
 $           441
 $           198
 $             20
 $         1,033
   Benefits and claims
              476
                    -
              598
               (12)
            1,062
   Policyholder dividends
                    -
                    -
                67
                    -
                  67
   Amortization of DAC
                96
                19
              103
            (142)
                  76
   Amortization of VOBA and other intangible assets
                   1
                    -
                12
                 (2)
                  11
   Interest expense
                    -
                    -
                    -
                70
                  70
   Other operating expenses
              182
              158
              181
                88
                609
      Total benefits and expenses
 $       1,129
 $           618
 $       1,159
 $             22
 $         2,928
 
 
Income (loss) before federal income taxes
         
  and noncontrolling interests
 $           354
 $           193
 $           300
 $      (1,567)
 $           (720)
Less:  non-operating net realized investment losses 1
                    -
                    -
                    -
           1,546
 
Less:  non-operating net other-than-temporary
           impairment losses
                    -
                    -
                    -
                67
 
Less:  adjustment to amortization of DAC and other
           related to net realized investment gains and losses
 
                    -
                    -
                    -
            (156)
 
Less:  net loss attributable to noncontrolling interest
                    -
                    -
                    -
                56
 
Pre-tax operating earnings (loss)
 $           354
 $           193
 $           300
 $           (54)
 
           
Assets as of year end
 $     58,218
 $     25,211
 $     22,959
 $       6,294
 $    112,682
_________
 
1
Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment and net realized gains and losses related to hedges on GMDB contracts and securitizations).
 
2
Includes operating items discussed above.



 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


 
 
Individual
Retirement
Individual
Corporate
 
(in millions)
Investments
Plans
Protection
and Other
Total
2010
         
Revenues:
         
   Policy charges
 $            646
 $              98
 $            652
 $                3
 $         1,399
   Premiums
               209
                    -
               275
                    -
               484
   Net investment income
               569
               691
               510
                 55
            1,825
   Non-operating net realized investment losses 1
                    -
                    -
                    -
             (177)
             (177)
   Other-than-temporary impairment losses
                    -
                    -
                    -
             (220)
             (220)
   Other revenues 2
               (82)
                    -
                    -
                 25
               (57)
      Total revenues
 $         1,342
 $            789
 $         1,437
 $          (314)
 $         3,254
           
Benefits and expenses:
         
   Interest credited to policyholder accounts
 $            391
 $            424
 $            199
 $              42
 $         1,056
   Benefits and claims
               354
                    -
               524
                 (5)
               873
   Policyholder dividends
                    -
                    -
                 78
                    -
                 78
   Amortization of DAC
               231
                 30
               184
               (49)
               396
   Amortization of VOBA and other intangible assets
                   1
                    -
                 19
                 (2)
                 18
   Interest expense
                    -
                    -
                    -
                 55
                 55
   Other operating expenses
               180
               143
               172
                 79
               574
      Total benefits and expenses
 $         1,157
 $            597
 $         1,176
 $            120
 $         3,050
           
           
Income (loss) before federal income taxes
         
  and noncontrolling interests
 $            185
 $            192
 $            261
 $          (434)
 $            204
Less:  non-operating net realized investment losses 1
                    -
                    -
                    -
               177
 
Less:  non-operating net other-than-temporary
           impairment losses
                    -
                    -
                    -
               220
 
Less:  adjustment to amortization of DAC and other
           related to net realized investment gains and losses
 
 
                    -
                    -
                    -
               (59)
 
Less:  net loss attributable to noncontrolling interest
                    -
                    -
                    -
                 60
 
Pre-tax operating earnings (loss)
 $            185
 $            192
 $            261
 $            (36)
 
           
Assets as of year end
 $       53,113
 $       25,599
 $       22,874
 $         5,811
 $     107,397
 
 
1
Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment and net realized gains and losses related to hedges on GMDB contracts and securitizations).
 
2
Includes operating items discussed above.




 
 
 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Consolidated Financial Statements, Continued

December 31, 2011, 2010 and 2009


 
Individual
Retirement
Individual
Corporate
 
(in millions)
Investments
Plans
Protection
and Other
Total
2009
         
Revenues:
         
   Policy charges
 $            522
 $              93
 $            634
 $              (4)
 $         1,245
   Premiums
               191
                    -
               279
                    -
               470
   Net investment income
               562
               679
               492
               146
            1,879
   Non-operating net realized investment gains 1
                    -
                    -
                    -
               619
               619
   Other-than-temporary impairment losses
                    -
                    -
                    -
             (575)
             (575)
   Other revenues 2
             (168)
                    -
                    -
                 (1)
             (169)
      Total revenues
 $         1,107
 $            772
 $         1,405
 $            185
 $         3,469
           
Benefits and expenses:
         
   Interest credited to policyholder accounts
 $            394
 $            433
 $            201
 $              72
 $         1,100
   Benefits and claims
               247
                    -
               538
                 27
               812
   Policyholder dividends
                    -
                    -
                 87
                    -
                 87
   Amortization of DAC
                 (1)
                 45
               158
               264
               466
   Amortization of VOBA and other intangible assets
                   1
                   9
                 45
                   8
                 63
   Interest expense
                    -
                    -
                    -
                 55
                 55
   Other operating expenses
               178
               149
               184
                 68
               579
      Total benefits and expenses
 $            819
 $            636
 $         1,213
 $            494
 $         3,162
           
           
Income (loss) before federal income taxes
         
  and noncontrolling interests
 $            288
 $            136
 $            192
 $          (309)
 $            307
Less:  non-operating net realized investment gains 1
                    -
                    -
                    -
             (619)
 
Less:  non-operating net other-than-temporary
           impairment losses
                    -
                    -
                    -
               575
 
Less:  adjustment to amortization of DAC and other
           related to net realized investment gains and losses
 
                    -
                    -
                    -
               297
 
Less:  net loss attributable to noncontrolling interest
                    -
                    -
                    -
                 52
 
Pre-tax operating earnings (loss)
 $            288
 $            136
 $            192
 $              (4)
 
           
Assets as of year end
 $       48,891
 $       25,035
 $       22,115
 $         2,948
 $       98,989
 
 
1
Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment and net realized gains and losses related to hedges on GMDB contracts and securitizations).
 
2
Includes operating items discussed above.




 
 
 
 
 

 
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule I                      Consolidated Summary of Investments – Other Than Investments in Related Parties

As of December 31, 2011 (in millions)
 
Column A
 
 Column B
 
 Column C
 
 Column D
           
 Amount at
           
 which shown
           
 in the
       
 Fair
 
 consolidated
Type of investment
 
 Cost
 
 value
 
 balance sheet
             
Fixed maturity securities, available-for-sale:
           
   Bonds:
           
      U.S. Treasury securities and obligations of U.S. Government
           
        corporations and agencies
 
 $             506
 
 $             630
 
 $                 630
      Obligations of states and political subdivisions
 
             1,501
 
             1,678
 
                 1,678
      Debt securities issued by foreign governments
 
                 102
 
                120
 
                    120
      Public utilities
 
             2,429
 
             2,687
 
                 2,687
      All other corporate
 
           22,939
 
           24,086
 
               24,086
         Total fixed maturity securities, available-for-sale
 
 $        27,477
 
 $       29,201
 
 $           29,201
Equity securities, available-for-sale:
           
   Common stocks:
           
      Industrial, miscellaneous and all other
 
 $                  6
 
 $                  6
 
 $                      6
   Nonredeemable preferred stocks
 
                   13
 
                   14
 
                       14
         Total equity securities, available-for-sale
 
 $                19
 
 $               20
 
 $                   20
Trading assets
 
                   49
 
                   38
 
                       38
Mortgage loans, net of allowance
 
             5,801
     
                 5,748
Policy loans
 
             1,008
     
                 1,008
Other investments
 
                 528
     
                    528
Short-term investments
 
             1,125
     
                 1,125
            Total investments
 
 $        36,007
     
 $           37,668
 
__________

 
1    Difference from Column B primarily is attributable to valuation allowances due to impairments on mortgage loans (see Note 6 to the audited consolidated financial statements), hedges and commitment hedges on mortgage loans.
 
 
 
 
 
See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.

 
 
 
 

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule III                      Supplementary Insurance Information

As of December 31, 2011, 2010 and 2009 and for each of the years then ended (in millions)
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
   
Deferred
 
Future policy
           
   
policy
 
benefits, losses,
     
Other  policy
   
   
acquisition
 
claims and
 
Unearned
 
claims and
 
Premium
Year:  Segment
 
costs
 
loss expenses
 
premiums 1
 
benefits payable 1
 
revenue
2011
                   
Individual Investments
 
 $          2,709
 
 $                    12,550
         
 $            234
Retirement Plans
 
                269
 
                       12,638
         
                     -
Individual Protection
 
             1,877
 
                         9,338
         
                297
Corporate and Other
 
               (430)
 
                             726
         
                     -
   Total
 
 $          4,425
 
 $                    35,252
         
 $            531
2010
                   
Individual Investments
 
 $           2,126
 
 $                      10,541
         
 $              209
Retirement Plans
 
                 269
 
                         11,874
         
                     -
Individual Protection
 
              1,795
 
                           9,163
         
                 275
Corporate and Other
 
                (217)
 
                           1,098
         
                     -
   Total
 
 $           3,973
 
 $                      32,676
         
 $              484
2009
                   
Individual Investments
 
 $           1,911
 
 $                      10,871
         
 $              191
Retirement Plans
 
                 271
 
                         11,703
         
                     -
Individual Protection
 
              1,770
 
                           8,745
         
                 279
Corporate and Other
 
                   31
 
                           1,831
           
   Total
 
 $           3,983
 
 $                      33,150
         
 $              470
                     
Column A
 
 Column G
 
 Column H
 
 Column I
 
 Column J
 
 Column K
   
 Net
 
 Benefits, claims,
 
 Amortization
 
 Other
   
   
 investment
 
 losses and
 
 of deferred policy
 
 operating
 
 Premiums
Year:  Segment
 
income 2
 
 settlement expenses
 
 acquisition costs
 
expenses 2
 
 written
2011
                   
Individual Investments
 
 $             527
 
 $                         850
 
 $                      96
 
 $                    183
   
Retirement Plans
 
                715
 
                             441
 
                          19
 
                       158
   
Individual Protection
 
                533
 
                             863
 
                       103
 
                       193
   
Corporate and Other
 
                   69
 
                                 8
 
                      (142)
 
                       156
   
   Total
 
 $          1,844
 
 $                      2,162
 
 $                      76
 
 $                    690
   
2010
                   
Individual Investments
 
 $              569
 
 $                           745
 
 $                     231
 
 $                     181
   
Retirement Plans
 
                 691
 
                              424
 
                          30
 
                        143
   
Individual Protection
 
                 510
 
                              801
 
                        184
 
                        191
   
Corporate and Other
 
                   55
 
                                37
 
                         (49)
 
                        132
   
   Total
 
 $           1,825
 
 $                        2,007
 
 $                     396
 
 $                     647
   
2009
                   
Individual Investments
 
 $              562
 
 $                           641
 
 $                        (1)
 
 $                     179
   
Retirement Plans
 
                 679
 
                              433
 
                          45
 
                        158
   
Individual Protection
 
                 492
 
                              826
 
                        158
 
                        229
   
Corporate and Other
 
                 146
 
                                99
 
                        264
 
                        131
   
   Total
 
 $           1,879
 
 $                        1,999
 
 $                     466
 
 $                     697
   

 
 
________

1   Unearned premiums and other policy claims and benefits payable are included in Column C amounts.
2    Allocations of net investment income and certain operating expenses are based on numerous assumptions and estimates, and reported segment operating results would change if different methods were applied.
 
 
 
See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.
 
 
 

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule IV                      Reinsurance

As of December 31, 2011, 2010 and 2009 and for each of the years then ended (in millions)
 
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
                   
Percentage
       
Ceded to
 
Assumed
     
of amount
   
Gross
 
other
 
from other
 
Net
 
assumed
   
amount
 
companies
 
companies
 
amount
 
to net
                     
2011
                   
                     
Life, accident and health
               
   insurance in force
 
 $     209,732
 
 $      (60,499)
 
 $                  5
 
 $     149,238
 
-
                     
Premiums:
                   
   Life insurance 1
 
 $             596
 
 $              (65)
 
 $                   -
 
 $             531
 
-
   Accident and health insurance
 
                 236
 
               (236)
 
                      -
 
                      -
 
-
      Total
 
 $             832
 
 $            (301)
 
 $                   -
 
 $             531
 
-
                     
2010
                   
                     
Life, accident and health
               
   insurance in force
 
 $        208,920
 
 $        (64,755)
 
 $                 10
 
 $        144,175
 
-
                     
Premiums:
                   
   Life insurance 1
 
 $               570
 
 $               (88)
 
 $                   1
 
 $               483
 
0.2%
   Accident and health insurance
 
                  238
 
                (241)
 
                      4
 
                      1
 
NM
      Total
 
 $               808
 
 $             (329)
 
 $                   5
 
 $               484
 
1.0%
                     
2009
                   
                     
Life, accident and health
               
   insurance in force
 
 $        208,485
 
 $        (76,136)
 
 $                   8
 
 $        132,357
 
-
                     
Premiums:
                   
      Life insurance 1
 
 $               549
 
 $               (80)
 
 $                   -
 
 $               469
 
-
   Accident and health insurance
 
                  212
 
                (223)
 
                    12
 
                      1
 
NM
      Total
 
 $               761
 
 $             (303)
 
 $                 12
 
 $               470
 
2.6%
 
__________

 
1
Primarily represents premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on investment and universal life insurance products.

 
 
 

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Schedule V                      Valuation and Qualifying Accounts

Years ended December 31, 2011, 2010, and 2009 (in millions)
 
Column A
 
Column B
 
Column C
     
Column D
 
Column E
                     
   
Balance at
 
 Charged to
 
Charged to
     
Balance at
   
beginning
 
costs and
 
other
     
end of
Description
 
of period
 
expenses
 
accounts
 
Deductions 1
 
period
                     
2011
                   
Valuation allowances - mortgage loans
 
 $                96
 
 $                25
 
 $                   -
 
 $                61
 
 $                60
                     
2010
                   
Valuation allowances - mortgage loans
 
 $                 77
 
 $                 66
 
 $                    -
 
 $                 47
 
 $                 96
                     
2009
                   
Valuation allowances - mortgage loans
 
 $                 42
 
 $                 85
 
 $                    -
 
 $                 50
 
 $                 77
 
__________
 
1
Amounts generally represent payoffs, sales and recoveries.
 
 
 
 
 
 
PART C. OTHER INFORMATION
 
Item 24.                  Financial Statements and Exhibits
 
 
(a)
Financial Statements
 
Nationwide Variable Account-12:
 
Report of Independent Registered Public Accounting Firm.
 
Statement of Assets, Liabilities and Contract
 
Owners' Equity as of December 31, 2011 .
 
Statement of Operations for the year ended
 
December 31, 2011 .
 
Statements of Changes in Contract Owners'
 
Equity for the years ended December 31, 2011 and 2010 .
 
Notes to Financial Statements.
 
Nationwide Life Insurance Company and subsidiaries:
 
Report of Independent Registered Public Accounting Firm.
 
Consolidated Statements of Operations for the
years ended December 31, 2011 , 2010 and 2009 .
 
Consolidated Balance Sheets as of
December 31, 2011 and 2010 .
 
Consolidated Statements of Changes in
Equity as of December 31, 2011 , 2010 and 2009 .
 
Consolidated Statements of Cash Flows for
the years ended December 31, 2011 , 2010 and 2009 .
 
Notes to Consolidated Financial Statements.
 
Financial Statement Schedules.

 
 
 


 
Item 24.                 (b) Exhibits
 
 
(1)
Resolution of the Depositor's Board of Directors authorizing the establishment of the Registrant – Filed previously with initial Registration Statement on May 17, 2002 (File No. 333-88612) and hereby incorporated by reference.
 
 
(2)
Not Applicable
 
 
(3)
Underwriting or Distribution of Contracts between the Depositor and Waddell & Reed, Inc. Principal Underwriter – Filed previously with Pre-Effective Amendment No. 1 on September 13, 2002 (File No. 333-88612) and hereby incorporated by reference.
 
 
(4)
The form of the variable annuity contract – Attached hereto .
 
 
(5)
Variable Annuity Application – Attached hereto .
 
 
(6)
Depositor’s Certificate of Incorporation and By-Laws.
 
 
(a)
Amended Articles of Incorporation for Nationwide Life Insurance Company.  Filed previously with initial registration statement (333-164125) on January 4, 2010 as document "exhibit6a.htm" and hereby incorporated by reference.
 
 
(b)
Amended and Restated Code of Regulations of Nationwide Life Insurance Company.  Filed previously with initial registration statement (333-164125) on January 4, 2010 as document "exhibit6b.htm" and hereby incorporated by reference.
 
 
(c)
Articles of Merger of Nationwide Life Insurance Company of America with and into Nationwide Life Insurance Company, effective December 31, 2009. Filed previously with initial registration statement (333-164125) on January 4, 2010 as document "exhibit6c.htm" and hereby incorporated by reference.
 
 
(7)
Not Applicable
 
 
(8)
Form of Participation Agreements –
 
The following Fund Participation Agreement was previously filed on July 17, 2007 with Pre-Effective Amendment No. 1 (333-140608) under Exhibit 26(h), and is hereby incorporated by reference.
 
 
(1)
Fund Participation Agreement with Nationwide Variable Insurance Trust (formerly, Gartmore Variable Insurance Trust) dated May 2, 2005, as amended, under document "nwfpa99h12a.htm"
 
The following Fund Participation Agreement was previously filed on September 27, 2007 with Pre-Effective Amendment No. 3 (333-137202) under Exhibit (h), and is hereby incorporated by reference.
 
 
(2)
Fund Participation Agreement with Waddell & Reed Services Company, Waddell & Reed, Inc., and W&R Target Funds, Inc. dated December 1, 2000, as amended, as document "waddellreedfpa.htm".
 
For information regarding payments Nationwide receives from underlying mutual funds, please see the "Information on Underlying Mutual Fund Payments" section of the prospectus and/or the underlying mutual fund prospectuses.
 
 
(9)
Opinion of Counsel – Filed previously with initial registration statement (File No. 333-178059) and hereby incorporated by reference .
 
 
(10)
Consent of Independent Registered Public Accounting Firm – Attached hereto .
 
 
(11)
Not Applicable
 
 
(12)
Not Applicable
 
 
(99)
Power of Attorney – Attached hereto.

 
 
 

Item 25.
Directors and Officers of the Depositor
 
President and Chief Operating Officer and Director
Kirt A. Walker
Executive Vice President and Chief Legal and Governance Officer
Patricia R. Hatler
Executive Vice President-Administration
Terri L. Hill
Executive Vice President-Chief Human Resources Officer
Gale V. King
Executive Vice President-Chief Information Officer
Michael C. Keller
Executive Vice President-Chief Marketing and Strategy Officer
Matthew Jauchius
Executive Vice President-Finance
Lawrence A. Hilsheimer
Executive Vice President
Mark A. Pizzi
Executive Vice President and Director
Mark R. Thresher
Senior Vice President
Harry H. Hallowell
Senior Vice President
Steven M. English
Senior Vice President-Associate Services
Robert J. Puccio
Senior Vice President-Business Transformation Office
Gregory S. Moran
Senior Vice President-Chief Financial Officer and Director
Timothy G. Frommeyer
Senior Vice President-Chief Risk Officer
Michael W. Mahaffey
Senior Vice President-CIO IT Infrastructure
Robert J. Dickson
Senior Vice President-Corporate Strategy
Katherine M. Liebel
Senior Vice President-Customer Insight/Analytic
Paul D. Ballew
Senior Vice President-Division General Counsel
Roger A. Craig
Senior Vice President-Deputy General Counsel
Thomas W. Dietrich
Senior Vice President-Deputy General Counsel
Sandra L. Neely
Senior Vice President-Head of Taxation
Pamela A. Biesecker
Senior Vice President-Individual Investments Business Head
Eric S. Henderson
Senior Vice President-Individual Protection Business Head and Director
Peter A. Golato
Senior Vice President-Corporate Marketing
Gordon E. Hecker
Senior Vice President-CIO ACS
Daniel G. Greteman
Senior Vice President-CIO NF Systems
Susan Gueli
Senior Vice President, Chief Financial Officer – Property and Casualty
Michael P. Leach
Senior Vice President-Distribution and Sales
John L. Carter
Senior Vice President- NW Retirement Plans
Anne L. Arvia
Senior Vice President-Investment Management Group
Michael S. Spangler
Senior Vice President-Property and Casualty Commercial/Farm Product Pricing
W. Kim Austen
Senior Vice President-NI Brand Marketing
Jennifer M. Hanley
Senior Vice President-President-Nationwide Bank
J. Lynn Greenstein
Senior Vice President-Internal Audit
Kai V. Monahan
Senior Vice President-CIO Enterprise Applications
Mark A. Gaetano
Senior Vice President-Enterprise Chief Technology Officer
Guruprasad C. Vasudeva
Senior Vice President-Nationwide Financial
Steven C. Power
Senior Vice President and Treasurer
David LaPaul
Senior Vice President-Controller
James D. Benson
Senior Vice President-Field Operations IC
Jeff M. Rommel
Senior Vice President-Field Operations EC
Amy T. Shore
Senior Vice President-NF Brand Marketing
William J. Burke
Senior Vice President-PCIO Sales Support
Melissa D. Gutierrez
Senior Vice President-Chief Compliance Officer
Sandra L. Rich
Vice President – Corporate Governance and Secretary
Robert W. Horner, III
Director
Stephen S. Rasmussen
 
 
The business address of the Directors and Officers of the Depositor is:
 
One Nationwide Plaza, Columbus, Ohio 43215

 
 
 

Item 26.
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

COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
1492 Capital, LLC
Ohio
 
The company acts as an investment holding company.
AGMC Reinsurance, Ltd.
Turks & Caicos Islands
 
The company is in the business of reinsurance of mortgage guaranty risks.
ALLIED General Agency Company
Iowa
 
The company acts as a managing general agent and surplus lines broker for property and casualty insurance products.
ALLIED Group, Inc.
Iowa
 
The company is a property and casualty insurance holding company.
ALLIED Property and Casualty Insurance Company
Iowa
 
The company underwrites general property and 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.
AMCO Insurance Company
Iowa
 
The company underwrites general property and casualty insurance.
American Marine Underwriters, Inc.
Florida
 
The company is an underwriting manager for ocean cargo and hull insurance.
Atlantic Floridian Insurance Company
Ohio
 
The company writes personal lines residential property insurance in the State of Florida.
Freedom Specialty Insurance Company
Ohio
 
The company operates as a multi-line insurance company.
Audenstar Limited
England
 
The company is an investment holding company.
 
Champions of the Community, Inc.
Ohio
 
The company raises money to enable it to make gifts and grants to charitable organizations.
 
Colonial County Mutual Insurance Company*
Texas
 
The company underwrites non-standard automobile and motorcycle insurance and various other commercial liability coverages in Texas.
 
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.
 
Depositors Insurance Company
Iowa
 
The company underwrites general property and casualty insurance.
 

 
 
 


COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
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.
Farmland Mutual Insurance Company
Iowa
 
The company provides property and casualty insurance primarily to agricultural businesses.
 
Freedom Specialty Insurance Company
Ohio
 
This company operates as a multi-line insurance company.
Gates, McDonald of Ohio, LLC*
Ohio
 
The company provides services to employers for managing workers' and unemployment compensation matters and employee leave administration.
Gates, McDonald & Company of New York, Inc.
New York
 
The company provides workers' compensation and self-insured claims administration services to employers with exposure in New York.
GatesMcDonald Health Plus LLC
Ohio
 
The company provides medical management and cost containment services to employers.
Insurance Intermediaries, Inc.
Ohio
 
The company is an insurance agency and provides commercial property and casualty brokerage services.
Life REO Holdings, LLC
Ohio
 
The company is an investment company.
Lone Star General Agency, Inc.
Texas
 
The company acts as general agent to market nonstandard automobile and motorcycle insurance for Colonial County Mutual Insurance Company.
National Casualty Company
Wisconsin
 
The company underwrites various property and casualty coverage, as well as some individual and group accident and health insurance.
National Casualty Company of America, Ltd.
England
 
This is a limited liability company organized for the purpose of carrying on the business of insurance, reinsurance, indemnity, and guarantee of various kinds.  The company is currently inactive.
Nationwide Advantage Mortgage Company*
Iowa
 
The company makes residential mortgage loans.
Nationwide Affinity Insurance Company of America*
Ohio
 
The company is a property and casualty insurer that writes personal lines business.
Nationwide Agribusiness Insurance Company
Iowa
 
The company provides property and casualty insurance primarily to agricultural businesses.
Nationwide Arena, LLC*
Ohio
 
The purpose of the company is to develop Nationwide Arena and to engage in related development activity.
Nationwide Asset Management Holdings
England and Wales
 
The company operates as an investment holding company.
Nationwide Asset Management, LLC
Ohio
 
The company provides investment advisory services as a registered investment advisor to affiliated and non-affiliated clients.

 
 
 


COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
Nationwide Assurance Company
Wisconsin
 
The company underwrites non-standard automobile and motorcycle insurance.
Nationwide Bank*
 United States
 
This is a federal savings bank chartered by the Office of Thrift Supervision in the United States Department of Treasury to exercise deposit, lending, agency, custody and fiduciary powers and to engage in activities permissible for federal savings banks under the Home Owners' Loan Act of 1933.
Nationwide Better Health Holding Company, LLC (fka Nationwide Better Health Holding Company, Inc.)
Ohio
 
The company provides health management services.
Nationwide Better Health (Ohio), LLC (fka Nationwide Better Health, Inc.)
Ohio
 
The company provides population health management.
Nationwide Cash Management Company
Ohio
 
The company buys and sells investment securities of a short-term nature as the agent for other corporations, foundations and insurance company separate accounts.
Nationwide Community Development Corporation, LLC
Ohio
 
The company holds investments in low-income housing funds.
Nationwide Corporation
Ohio
 
The company acts primarily as a holding company for entities affiliated with Nationwide Mutual Insurance.
Nationwide Emerging Managers, LLC
Delaware
 
The company acquires and holds interests in registered investment advisors and provides investment management services.
Nationwide Exclusive Agent Risk Purchasing Group, LLC
Ohio
 
The company's purpose is to provide a mechanism for the purchase of group liability insurance for insurance agents operating nationwide.
Nationwide Financial Assignment Company
Ohio
 
The company is an administrator of structured settlements.
Nationwide Financial General Agency, Inc. (fka 1717 Brokerage Services, inc.)
Pennsylvania
 
This company is a multi-state licensed insurance agency.
Nationwide Financial Institution Distributors Agency, Inc.
Delaware
 
The company is an insurance agency.
Nationwide Financial Services Capital Trust
Delaware
 
The trust's sole purpose is to issue and sell 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 Structured Products, LLC
Ohio
 
The company captures and reports the results of the structured products business unit.


 
 
 



COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
Nationwide Fund Advisors (fka Gartmore Mutual Fund Capital Trust)
Delaware
 
The trust acts as a registered investment advisor.
Nationwide Fund Distributors LLC (successor to Gartmore Distribution Services, Inc.)
Delaware
 
The company is a limited purpose broker-dealer.
Nationwide Fund Management LLC (successor to Gartmore Investors Services, Inc.)
Delaware
 
The company provides administration, transfer and dividend disbursing agent services to various mutual fund entities.
Nationwide General Insurance Company
Ohio
 
The company transacts a general insurance business, except life insurance, and primarily provides automobile and fire insurance to select customers.
Nationwide Global Holdings, Inc.
Ohio
 
The company is a holding company for the international operations of Nationwide.
Nationwide Global Ventures, Inc.
Delaware
 
The company acts as a holding 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 America
Wisconsin
 
The company is an independent agency personal lines underwriter of property and casualty insurance.
Nationwide Insurance Company of Florida*
Ohio
 
The company transacts general insurance business, except life insurance.
Nationwide Insurance Foundation*
Ohio
 
The company contributes to non-profit activities and projects.
Nationwide Investment Advisors, LLC
Ohio
 
The company provides investment advisory services.
Nationwide Investment Services Corporation**
Oklahoma
 
This is a limited purpose broker-dealer and distributor of variable annuities and variable life products for Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. The company also provides educational services to retirement plan sponsors and its participants.
Nationwide Life and Annuity Insurance Company**
Ohio
 
The company engages in underwriting life insurance and granting, purchasing and disposing of annuities.


 
 
 


COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
Nationwide Life Insurance Company*
Ohio
 
The company pro­vides individual life insurance, group life and health insurance, fixed and variable annuity products and other life insurance products.
Nationwide Lloyds
Texas
 
The company markets commercial and property insurance in Texas.
Nationwide Mutual Capital, LLC
Ohio
 
The company acts as a private equity fund investing in companies for investment purposes and to create strategic opportunities for Nationwide.
Nationwide Mutual Capital I, LLC*
Delaware
 
The business of the company is to achieve long term capital appreciation through a portfolio of primarily domestic equity investments in financial service and related companies.
Nationwide Mutual Fire Insurance Company
Ohio
 
The company engages in a general insurance and reinsurance business, except life insurance.
Nationwide Mutual Insurance Company*
Ohio
 
The company engages in a general insurance and reinsurance business, except life insurance.
Nationwide Private Equity Fund, LLC
Ohio
 
The company invests in private equity funds.
Nationwide Property and Casualty Insurance Company
Ohio
 
The company engages in a general insurance business, except life insurance.
Nationwide Property Protection Services, LLC
Ohio
 
The company provides alarm systems and security guard services.
Nationwide Realty Services, Ltd.
Ohio
 
The company provides relocation services for associates.
Nationwide Realty Investors, Ltd.*
Ohio
 
The company is engaged in the business of developing, owning and operating real estate and real estate investment.
Nationwide Retirement Solutions, Inc.*
Delaware
 
The company markets and administers deferred compensation plans for public employees.
Nationwide Retirement Solutions, Inc. of Arizona
Arizona
 
The company markets and administers deferred compensation plans for public employees.
Nationwide Retirement Solutions, Inc. of Ohio
Ohio
 
The company provides retirement products, marketing, education and administration to public employees.
Nationwide Retirement Solutions, Inc. of Texas
Texas
 
The company markets and administers deferred compensation plans for public employees.
Nationwide Retirement Solutions, Insurance Agency, Inc.
Massachusetts
 
The company markets and administers deferred compensation plans for public employees.
Nationwide SA Capital Trust
Delaware
 
The trust acts as a holding company.
Nationwide Sales Solutions, Inc.
Iowa
 
The company engages in the direct marketing of property and casualty insurance products.
Nationwide Securities, LLC
Delaware
 
The company is a registered broker-dealer and provides investment management and administrative services.

 
 
 


COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
Nationwide Services Company, LLC
Ohio
 
The company performs shared services functions for the Nationwide organization.
Newhouse Capital Partners, LLC
Delaware
 
The company is an investment holding company.
Newhouse Capital Partners II, LLC
Delaware
 
The company is an investment holding company.
NF Reinsurance Ltd.*
Bermuda
 
The company serves as a captive reinsurer for Nationwide Life Insurance Company's universal life, term life and annuity business.
NFS Distributors, Inc.
Delaware
 
The company acts primarily as a holding company for Nationwide Financial Services, Inc.'s distribution companies.
NMC CPC WT Investment, LLC
 
Delaware
 
The business of the company is to hold and exercise rights in a specific private equity investment.
NWD Asset Management Holdings, Inc.
Delaware
 
The company is an investment holding company.
NWD Investment Management, Inc.
Delaware
 
The company acts as a holding company and provides other business services for the NWD Investments group of companies.
NWD Management & Research Trust
Delaware
 
The company acts as a holding company for the NWD Investments group of companies and as a registered investment advisor.
Pension Associates, Inc.
Wisconsin
 
The company provides pension plan administration and record keeping services, and pension plan and compensation consulting.
Premier Agency, Inc.
Iowa
 
The company is an insurance agency.
Privilege Underwriters, Inc.
Florida
 
The company acts as a holding company for the PURE Group of insurance companies.
Privilege Underwriters, Reciprocal Exchange
Florida
 
The company acts as a reciprocal insurance company.

 
 
 


COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
Pure Insurance Company
Florida
 
The company acts as a captive reinsurance company.
Pure Risk Management, LLC
Florida
 
The company acts as an attorney-in-fact for Privilege Underwriters Reciprocal Exchange.
Registered Investment Advisors Services, Inc.
Texas
 
The company is a technology company that facilitates third-party money management services for registered investment advisors.
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.
Riverview International Group, Inc.
Delaware
 
The company is an insurance company.
RP&C International, Inc.
Ohio
 
The company is an investment-banking firm that provides specialist advisory services and innovative financial solutions to public and private companies internationally.
Scottsdale Indemnity Company
Ohio
 
The company is engaged 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 Company
Arizona
 
The company provides excess and surplus lines coverage on a non-admitted basis.
THI Holdings (Delaware), Inc.*
Delaware
 
The company acts as a holding company for subsidiaries of the Nationwide group of companies.
Titan Auto Insurance of New Mexico, Inc.
New Mexico
 
The company is an insurance agency that operates employee agent storefronts.
Titan Indemnity Company
Texas
 
The company is a multi-line insurance company and is operating primarily as a property and casualty insurance company.
Titan Insurance Company
Michigan
 
The company is a property and casualty insurance company.
Titan Insurance Services, Inc.
Texas
 
The company is a Texas grandfathered managing general agency.
Veterinary Pet Insurance Company*
California
 
The company provides pet insurance.
Victoria Automobile Insurance Company
Indiana
 
The company is a property and casualty insurance company.
Victoria Fire & Casualty Company
Ohio
 
The company is a property and casualty insurance company.
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.

 
 
 


COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES (see attached chart unless otherwise indicated)
PRINCIPAL BUSINESS
VPI Services, Inc.
California
 
The company operates as a nationwide pet registry service for holders of Veterinary Pet Insurance Company policies, including pet indemnification and a lost pet recovery program.
Western Heritage Insurance Company
Arizona
 
The company underwrites excess and surplus lines of property and casualty insurance.
Whitehall Holdings, Inc.
Texas
 
The company acts as a holding company for the Titan group of agencies.
W.I. of Florida (d.b.a. Titan Auto Insurance)
Florida
 
The company is an insurance agency and operates as an employee agent storefront for Titan Indemnity Company in Florida.


 
 
 


 
COMPANY
STATE/COUNTRY OF ORGANIZATION
NO. VOTING SECURITIES
(see attached chart
 unless otherwise indicated)
PRINCIPAL BUSINESS
*
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 Account 1
Pennsylvania
 
Issuer of Annuity Contracts
*
Nationwide Provident VA Separate Account A
Delaware
 
Issuer of Annuity Contracts
 
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 VL Separate Account-G
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 VLI Separate Account-7
Ohio
 
Issuer of Life Insurance Policies
*
Nationwide Provident VLI Separate Account 1
Pennsylvania
 
Issuer of Life Insurance Policies
*
Nationwide Provident VLI Separate Account A
Delaware
 
Issuer of Life Insurance Policies


 
 
 

 

 
 
 
 
 
 
 
 
 
 
 

Item 27.
Number of Contract Owners
 
N/A
 
Item 28.
Indemnification
 
Provision is made in Nationwide's Amended and Restated Code of Regulations and expressly authorized by the General Corporation Law of the State of Ohio, for indemnification by Nationwide of any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director, officer or employee of Nationwide, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, to the extent and under the circumstances permitted by the General Corporation Law of the State of Ohio.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers or persons controlling Nationwide pursuant to the foregoing provisions, Nationwide has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than 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 asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 
Item 29.
Principal Underwriter
 
 
(a) Waddell & Reed, Inc. serves as principal underwriter and general distributor for contracts issued through the following separate investment accounts of Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company:
 
Nationwide Variable Account-9
Nationwide Variable Account-12
Nationwide VA Separate Account-D
Nationwide VL Separate Account-G
Nationwide VLI Separate Account-5
Nationwide VLI Separate Account-7
 
Also, Waddell & Reed, Inc. serves as principal underwriter and general distributor for the following management investment companies:
 
Waddell & Reed Advisors Funds
Waddell & Reed Advisors Accumulative Fund
Waddell & Reed Advisors Asset Strategy Fund
Waddell & Reed Advisors Bond Fund
Waddell & Reed Advisors Continental Income Fund
Waddell & Reed Advisors Core Investment Fund
Waddell & Reed Advisors Cash Management
Waddell & Reed Advisors Dividend Opportunities Fund
Waddell & Reed Advisors Energy Fund
Waddell & Reed Advisors Global Bond Fund
Waddell & Reed Government Securities Fund
Waddell & Reed Advisors High Income Fund
Waddell & Reed Advisors International Growth Fund
Waddell & Reed Advisors Municipal Bond Fund
Waddell & Reed Advisors Municipal High Income Fund
Waddell & Reed Advisors New Concepts Fund
Waddell & Reed Advisors Science and Technology Fund
Waddell & Reed Advisors Small Cap Fund
Waddell & Reed Advisors Tax-Managed Equity Fund
Waddell & Reed Advisors Value Fund
Waddell & Reed Advisors Vanguard Fund
Waddell & Reed InvestEd Portfolios
Waddell & Reed InvestEd Conservative Portfolio
Waddell & Reed InvestEd Balanced Portfolio
Waddell & Reed InvestEd Growth Portfolio
Ivy Funds Variable Insurance Portfolios, Inc.
Ivy Funds VIP Asset Strategy Portfolio

 
 
 


Ivy Funds VIP Balanced Portfolio
Ivy Funds VIP Bond Portfolio
Ivy Funds VIP Core Equity Portfolio
Ivy Funds VIP Dividend Opportunities Portfolio
Ivy Funds VIP Energy Portfolio
Ivy Funds VIP Global Bond Portfolio
Ivy Funds VIP Global Natural Resources Portfolio
Ivy Funds VIP Growth Portfolio
Ivy Funds VIP High Income Portfolio
Ivy Funds VIP International Core Equity Portfolio
Ivy Funds VIP International Growth Portfolio
Ivy Funds VIP Limited-Term Bond Portfolio
Ivy Funds VIP Micro Cap Growth Portfolio
Ivy Funds VIP Mid Cap Growth Portfolio
Ivy Funds VIP Money Market Portfolio
Ivy Funds VIP Pathfinder Aggressive Portfolio
Ivy Funds VIP Pathfinder Conservative Portfolio
Ivy Funds VIP Pathfinder Moderately Aggressive Portfolio
Ivy Funds VIP Pathfinder Moderately Conservative Portfolio
Ivy Funds VIP Pathfinder Moderate Portfolio
Ivy Funds VIP Real Estate Securities Portfolio
Ivy Funds VIP Science and Technology Portfolio
Ivy Funds VIP Small Cap Growth Portfolio
Ivy Funds VIP Small Cap Value Portfolio
Ivy Funds VIP Value Portfolio
 
 
(b) Directors and officers of Waddell & Reed, Inc.:
 
Thomas W. Butch
Chairman of the Board, Director and President
Henry J. Hermann
Director
Steven E. Anderson
Senior Executive Vice President and National Sales Manager
Bradley D. Hofmeister
Executive Vice President
Daniel C. Schulte
Senior Vice President and General Counsel
Michael D. Strohm
Director, Chief Operating Officer and Chief Executive Officer
Terry L. Lister
Senior Vice President, Chief Regulatory Officer and Chief Compliance Officer
Mark A. Schieber
Senior Vice President and Controller
Wendy J. Hills
Senior Vice President and Secretary
Brent K. Bloss
Senior Vice President, Treasurer, Principal Accounting Officer, and Principal Financial Officer
 
The principal business address of Waddell & Reed, Inc. is 6300 Lamar Avenue, Overland Park, Kansas 66202.  Waddell & Reed, Inc. was organized as a Delaware corporation in 1981 and has, through predecessor companies, offered financial products and services since 1937.
 
 
(c)
 
Name of Principal Underwriter
Net Underwriting Discounts and Commissions
Compensation on Redemption or Annuitization
Brokerage Commissions
Compensation
Waddell & Reed, Inc.
N/A
N/A
N/A
N/A

 
Item 30.
Location of Accounts and Records
 
Timothy G. Frommeyer
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH  43215

 
 
 

 
Item 31.
Management Services
 
Not Applicable
 
Item 32.
Undertakings
 
The Registrant hereby undertakes to:
 
 
(a)
file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted;
 
 
(b)
include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; and
 
 
(c)
deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request.
 
The Registrant represents that any of the contracts which are issued pursuant to Section 403(b) of the Internal Revenue Code, are issued by Nationwide through the Registrant in reliance upon, and in compliance with, a no-action letter issued by the Staff of the Securities and Exchange Commission to the American Council of Life Insurance (publicly available November 28, 1988) permitting withdrawal restrictions to the extent necessary to comply with Section 403(b)(11) of the Internal Revenue Code.
 
Nationwide Life Insurance Company 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 Life Insurance Company.

 
 
 

SIGNATURES
 
As required by the Securities Act of 1933, and the Investment Company Act of 1940, the Registrant, NATIONWIDE VARIABLE ACCOUNT-12 certifies that it has caused this Registration Statement to be signed on its behalf in the City of Columbus, and State of Ohio, on this 15 th   day of March , 201 2 .


NATIONWIDE VARIABLE ACCOUNT-12
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Depositor)

By: /s/                       TIMOTHY D. CRAWFORD
Timothy D. Crawford

As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the 15 th   day of March , 201 2 .
   
KIRT A. WALKER
 
Kirt A. Walker, President and Chief Operating Officer, and Director
 
MARK R. THRESHER
 
Mark R. Thresher, Executive Vice President and Director
 
TIMOTHY G. FROMMEYER
 
Timothy G. Frommeyer, Senior Vice President-Chief Financial Officer and Director
 
PETER A. GOLATO
 
Peter A. Golato, Senior Vice President- Nationwide Financial Network and Director
 
STEPHEN S. RASMUSSEN
 
Stephen S. Rasmussen, Director
 
 
By: /s/                       TIMOTHY D. CRAWFORD
 
Timothy D. Crawford
 
Attorney-in-Fact