<PAGE> 1
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT
----------------------
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
----------------------------
NATIONWIDE VLI SEPARATE ACCOUNT-4
(Exact Name of Trust)
----------------------------
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------------------
================================================================================
Approximate date of proposed public offering: (As soon as practicable
after the effective date of this Registration Statement).
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall 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 dates as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
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N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1................................................................................Nationwide Life Insurance Company
The Variable Account
2................................................................................Nationwide Life Insurance Company
3................................................................................Custodian of Assets
4................................................................................Distribution of The Policies
5................................................................................The Variable Account
6................................................................................Not Applicable
7................................................................................Not Applicable
8................................................................................Not Applicable
9................................................................................Legal Proceedings
10................................................................................Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11................................................................................Investments of The Variable
Account
12................................................................................The Variable Account
13................................................................................Policy Charges
Reinstatement
14................................................................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for
Issuance of a Policy
15................................................................................Investments of the Variable
Account; Premium Payments
16................................................................................Underwriting and Issuance -
Allocation of Cash Value
17................................................................................Surrendering The Policy for Cash
18................................................................................Reinvestment
19................................................................................Not Applicable
20................................................................................Not Applicable
21................................................................................Policy Loans
22................................................................................Not Applicable
23................................................................................Not Applicable
24................................................................................Not Applicable
25................................................................................Nationwide Life Insurance Company
26................................................................................Not Applicable
27................................................................................Nationwide Life Insurance Company
28................................................................................Company Management
29................................................................................Company Management
30................................................................................Not Applicable
31................................................................................Not Applicable
32................................................................................Not Applicable
33................................................................................Not Applicable
34................................................................................Not Applicable
35................................................................................Nationwide Life Insurance Company
36................................................................................Not Applicable
37................................................................................Not Applicable
38................................................................................Distribution of The Policies
39................................................................................Distribution of The Policies
40................................................................................Not Applicable
</TABLE>
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<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
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41(a).............................................................................Distribution of The Policies
42................................................................................Not Applicable
43................................................................................Not Applicable
44................................................................................How The Cash Value Varies
45................................................................................Not Applicable
46................................................................................How The Cash Value Varies
47................................................................................Not Applicable
48................................................................................Custodian of Assets
49................................................................................Not Applicable
50................................................................................Not Applicable
51................................................................................Summary of The Policies;
Information About The Policies
52................................................................................Substitution of Securities
53................................................................................Taxation of The Company
54................................................................................Not Applicable
55................................................................................Not Applicable
56................................................................................Not Applicable
57................................................................................Not Applicable
58................................................................................Not Applicable
59................................................................................Financial Statements
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
CORPORATE FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-4
The Life Insurance Policies offered by this prospectus are variable universal
life insurance policies (collectively referred to as the "Policies"). The
Policies are designed for use by corporations and employers, to provide life
insurance coverage and the flexibility to vary the amount and frequency of
premium payments. The Policies also may provide a Cash Surrender Value if the
Policy is terminated during the lifetime of the Insured. The death benefit and
Cash Value of the Policies may vary to reflect the experience of Nationwide VLI
Separate Account-4 (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code (the "Code").
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
Sub-Accounts of the Variable Account and the Fixed Account. The assets of each
Sub-Account will be used to purchase, at Net Asset Value, shares of a designated
Underlying Mutual Fund in the following series:
<TABLE>
<S> <C>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.,
A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS
American Century VP Income & Growth American Century VP International
American Century VP Value
DREYFUS
The Dreyfus Socially Responsible Growth Fund, Inc. Dreyfus Stock Index Fund, Inc.
Dreyfus Variable Investment Fund - Capital Appreciation
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio: Service Class Growth Portfolio: Service Class
High Income Portfolio: Service Class Overseas Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Growth Opportunities Portfolio: Service Class
MORGAN STANLEY
Morgan Stanley Universal Funds, Inc. - Emerging Markets Debt Portfolio
Van Kampen American Capital Life Investment Trust - Morgan Stanley Real Estate
Securities Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund Government Bond Fund
Money Market Fund Total Return Fund
Nationwide Balanced Fund
Nationwide Equity Income Fund
Nationwide Global Equity Fund
Nationwide High Income Bond Fund
Nationwide Multi Sector Bond Fund
Nationwide Select Advisers Mid Cap Fund
Nationwide Small Cap Value Fund
Nationwide Small Company Fund
Nationwide Strategic Growth Fund
Nationwide Strategic Value Fund
</TABLE>
1
<PAGE> 5
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Guardian Portfolio AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Capital Appreciation Fund Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund Worldwide Hard Assets Fund
WARBURG PINCUS TRUST
Growth & Income Portfolio International Equity Portfolio
Post-Venture Capital Portfolio
NATIONWIDE LIFE INSURANCE COMPANY (THE "COMPANY") GUARANTEES THAT THE DEATH
BENEFIT FOR A POLICY WILL NEVER BE LESS THAN THE SPECIFIED AMOUNT STATED ON THE
POLICY DATA PAGES AS LONG AS THE POLICY IS IN FORCE. THERE IS NO GUARANTEED CASH
SURRENDER VALUE. IF THE CASH SURRENDER VALUE IS INSUFFICIENT TO COVER THE
CHARGES UNDER THE POLICY, THE POLICY WILL LAPSE WITHOUT VALUE. THIS PROSPECTUS
GENERALLY DESCRIBES ONLY THAT PORTION OF THE CASH VALUE ALLOCATED TO THE
VARIABLE ACCOUNT. FOR A BRIEF SUMMARY OF THE FIXED ACCOUNT OPTION, SEE "THE
FIXED ACCOUNT OPTION."
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
THE DATE OF THIS PROSPECTUS IS ____________________.
2
<PAGE> 6
GLOSSARY OF TERMS
ATTAINED AGE-The Insured's age on the Policy Date, plus the number of full years
since the Policy Date.
ACCUMULATION UNIT-An accounting unit of measure used to calculate the Cash Value
of the Variable Account.
BENEFICIARY-The person to whom the Death Proceeds are paid.
CASH VALUE-The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE-The Policy's Cash Value, less any Indebtedness under the
Policy
CODE-The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
DEATH PROCEEDS-Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force prior to the Maturity Date.
FIXED ACCOUNT-An investment option which is funded by the General Account of the
Company.
GENERAL ACCOUNT-All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUIDELINE LEVEL PREMIUM-The amount of level annual premium calculated in
accordance with the provisions of the Code. It represents the level annual
premiums required to mature the Policy under guaranteed mortality and current
expense charges, and an interest rate of 4%.
HOME OFFICE-The main office of the Company located in Columbus, Ohio.
INDEBTEDNESS-Amounts owed the Company as a result of Policy loans including both
principal and accrued interest.
INITIAL PREMIUM-The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy data page.
INSURED-The person whose life is covered by the Policy, and who is named on the
Policy data page.
MATURITY DATE-The Policy Anniversary on or following the Insured's 100th
birthday.
MONTHLY ANNIVERSARY DAY-The same day as the Policy Date for each succeeding
month.
NET AMOUNT AT RISK-For any Policy month, the Net Amount at Risk is the death
benefit at the beginning of the Policy month minus the Cash Value calculated at
the beginning of the Policy month prior to deduction of the base Policy cost of
insurance charge.
NET ASSET VALUE-The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding the
value of all portfolio holdings plus other assets, deducting liabilities and
then dividing the result by the number of shares outstanding.
NET PREMIUMS-Net Premiums are equal to the actual premiums minus the percent of
premium charge. The percent of premium charges are shown on the Policy data
page.
POLICY ANNIVERSARY-The same day and month as the Policy Date for succeeding
years.
POLICY CHARGES-All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE-The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy data page.
POLICY LOAN ACCOUNT-The Portion of the Cash Value which results from Policy
Indebtedness.
POLICY OWNER-The person designated in the Policy application as the owner.
POLICY YEAR-Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
SCHEDULED PREMIUM-The Scheduled Premium is shown on the Policy data page.
SPECIFIED AMOUNT-A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy data page.
3
<PAGE> 7
SUB-ACCOUNT-A part of the Variable Account, the assets of which are invested
exclusively in a corresponding Underlying Mutual Fund.
SURRENDER CHARGE - An amount deducted from the Cash Value if the Policy is
surrendered. This amount is zero.
TARGET PREMIUM - The level annual premium at which the sales load is reduced on
a current basis.
UNDERLYING MUTUAL FUNDS-The underlying mutual funds which correspond to the
Sub-Accounts of the Variable Account.
VALUATION DATE-Each day the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is sufficient
degree of trading that the current Net Asset Value of the Accumulation Units
might be materially affected.
VALUATION PERIOD-A period commencing with the close of business on the New York
Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT-A separate investment account of the Company, Nationwide VLI
SEPARATE ACCOUNT-4.
4
<PAGE> 8
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
GLOSSARY OF TERMS............................................................................................3
SUMMARY OF THE POLICIES......................................................................................8
Variable Life Insurance.............................................................................8
The Variable Account and its Sub-Accounts...........................................................8
The Fixed Account...................................................................................8
Deductions and Charges..............................................................................8
Premiums............................................................................................9
NATIONWIDE LIFE INSURANCE COMPANY............................................................................9
THE VARIABLE ACCOUNT.........................................................................................9
Investments of the Variable Account................................................................10
American Century Variable Portfolios, Inc., a member of the American Century(sm)
Family of Investments..............................................................................11
Dreyfus Stock Index Fund, Inc......................................................................11
The Dreyfus Socially Responsible Growth Fund, Inc..................................................11
Dreyfus Variable Investment Fund...................................................................12
Fidelity Variable Insurance Products Fund: Service Class...........................................12
Fidelity Variable Insurance Products Fund II: Service Class........................................13
Fidelity Variable Insurance Products Fund III: Service Class.......................................13
Morgan Stanley Universal Funds, Inc................................................................13
Nationwide Separate Account Trust..................................................................13
Subadvised Nationwide Funds......................................................................14
Neuberger & Berman Advisers Management Trust.......................................................16
Oppenheimer Variable Account Funds.................................................................17
Van Eck Worldwide Insurance Trust..................................................................17
Van Kampen American Capital Life Investment Trust..................................................18
Warburg Pincus Trust...............................................................................18
Reinvestment.......................................................................................19
Transfers..........................................................................................19
Dollar Cost Averaging..............................................................................20
Substitution of Securities.........................................................................20
Voting Rights......................................................................................20
INFORMATION ABOUT THE POLICIES..............................................................................21
Underwriting and Issuance..........................................................................21
-Minimum Requirements for Issuance of a Policy.....................................................21
-Premium Payments..................................................................................21
Allocation of Net Premium and Cash Value...........................................................21
Short-Term Right to Cancel Policy..................................................................22
POLICY CHARGES..............................................................................................22
Deductions from Premiums...........................................................................22
Deductions from Cash Value.........................................................................22
-Monthly Cost of Insurance.........................................................................23
-Monthly Administrative Charge.....................................................................23
Deductions from the Sub-Accounts...................................................................23
Reduction of Charges (Policy and Sub-Accounts).....................................................23
Expenses of the Underlying Mutual Funds............................................................24
HOW THE CASH VALUE VARIES...................................................................................26
How the Investment Experience is Determined........................................................26
Net Investment Factor..............................................................................26
Valuation of Assets................................................................................26
Determining the Cash Value.........................................................................26
Valuation Periods and Valuation Dates..............................................................27
SURRENDERING THE POLICY FOR CASH............................................................................27
Right to Surrender.................................................................................27
Cash Surrender Value...............................................................................27
Partial Surrenders.................................................................................27
-Preferred Partial Surrenders......................................................................27
-Reduction of the Specified Amount.................................................................28
Maturity Proceeds..................................................................................28
Income Tax Withholding.............................................................................28
POLICY LOANS................................................................................................28
Taking a Policy Loan...............................................................................28
</TABLE>
5
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<TABLE>
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Effect on Investment Performance...................................................................28
Interest...........................................................................................29
Effect on Death Benefit and Cash Value.............................................................29
Repayment..........................................................................................29
HOW THE DEATH BENEFIT VARIES................................................................................29
Calculation of the Death Benefit...................................................................29
Proceeds Payable on Death..........................................................................31
RIGHT OF CONVERSION.........................................................................................31
CHANGES OF INVESTMENT POLICY................................................................................31
GRACE PERIOD................................................................................................31
REINSTATEMENT...............................................................................................32
THE FIXED ACCOUNT OPTION....................................................................................32
CHANGES IN EXISTING INSURANCE COVERAGE......................................................................32
Specified Amount Increases.........................................................................32
Specified Amount Decreases.........................................................................33
Changes in the Death Benefit Option................................................................33
OTHER POLICY PROVISIONS.....................................................................................33
Policy Owner.......................................................................................33
Beneficiary........................................................................................33
Assignment.........................................................................................34
Incontestability...................................................................................34
Error in Age ......................................................................................34
Suicide............................................................................................34
Nonparticipating Policies..........................................................................34
Riders.............................................................................................34
LEGAL CONSIDERATIONS........................................................................................34
DISTRIBUTION OF THE POLICIES................................................................................35
CUSTODIAN OF ASSETS.........................................................................................35
TAX MATTERS.................................................................................................35
Policy Proceeds....................................................................................35
-Non-Resident Aliens...............................................................................36
Taxation of the Company............................................................................36
Tax Changes........................................................................................37
THE COMPANY.................................................................................................37
COMPANY MANAGEMENT..........................................................................................38
Directors of the Company...........................................................................38
Executive Officers of the Company..................................................................39
OTHER CONTRACTS ISSUED BY THE COMPANY.......................................................................39
STATE REGULATION............................................................................................39
REPORTS TO POLICY OWNERS....................................................................................40
ADVERTISING.................................................................................................40
LEGAL PROCEEDINGS...........................................................................................40
EXPERTS.....................................................................................................40
REGISTRATION STATEMENT......................................................................................41
LEGAL OPINIONS..............................................................................................41
APPENDIX 1..................................................................................................42
PERFORMANCE TABLES.........................................................................................N/A
</TABLE>
6
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
7
<PAGE> 11
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") provide for life insurance coverage on the Insured. The
Policies may provide for a Cash Surrender Value which is payable if the Policy
is terminated during the Insured's lifetime.
The death benefit and Cash Value of the Policies may increase or decrease to
reflect the investment performance of the Variable Account Sub-Accounts or the
Fixed Account to which Cash Values are allocated (see "How the Death Benefit
Varies"). There is no guaranteed Cash Surrender Value (see "How the Cash Value
Varies"). If the Cash Surrender Value is insufficient to pay the Policy Charges,
the Policy will lapse without value.
Under certain conditions, a Policy may become a modified endowment contract as a
result of a material change or a reduction in benefits as defined by the
Internal Revenue Code ("Code"). Excess premiums paid may also cause the Policy
to become a modified endowment contract. The Company will monitor premiums paid
and other policy transactions and will notify the Policy Owner when the Policy's
non-modified endowment contract status is in jeopardy (see "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner selects the
Sub-Accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated. In such states which require a return of premiums to
those Policy Owners exercising their short term right to cancel (see "Short Term
Right to Cancel Policy"), Net Premiums will be allocated to the Nationwide
Separate Account Trust Money Market Fund Sub-Account (for any Net Premiums
allocated to a Sub-Account on the application) or the Fixed Account until the
expiration of the period in which the Policy Owner may exercise his or her
short-term right to cancel the Policy. Assets of each Sub-Account are invested
at Net Asset Value in shares of a corresponding Underlying Mutual Fund (see
"Allocation of Net Premium and Cash Value"). For a description of the Underlying
Mutual Fund options and their investment objectives, see "Investments of the
Variable Account."
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 3%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks. For a discussion of any charges
imposed by the Underlying Mutual Fund options, see the prospectuses of the
respective Underlying Mutual Funds.
The Company deducts a sales load from each premium payment received which is
guaranteed never to exceed 5.5% of such premium payment during the first seven
Policy Years and 2% thereafter. On a current basis, the sales load is 5.5% of
the Target Premium plus 3% of premiums in excess of the Target Premium during
the first seven Policy Years, and 0% on all premiums thereafter.
The Company also deducts from premium payments a tax expense charge of 3.5%, on
both a current and guaranteed basis, of all premium payments. This charge
reimburses the Company for premium taxes imposed by various state and local
jurisdictions and for federal taxes imposed under Section 848 of the Code. The
3.5 tax expense rate consists of the following components: (1) a state premium
tax rate of 2.25%; and (2) a federal tax rate of 1.25%.
8
<PAGE> 12
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
3. an administrative expense charge. This charge is currently $5.00
per month. The charge may be increased at the sole discretion of
the Company but is guaranteed not to exceed $10.00 per month.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
guaranteed not to exceed an annual effective rate of 0.75% of the daily net
assets of the Variable Account. On a current basis this annual effective rate
will be 0.40% in the first through fourth Policy Years, 0.25% in fifth through
twentieth Policy Years and 0.10% thereafter.
There are no Surrender Charges.
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. (See
"Expenses of the Underlying Mutual Funds").
PREMIUMS
The minimum Initial Premium for which a Policy may be issued is equal to three
monthly deductions. A Policy may be issued to an Insured up to age 80. For a
limited time, the Policy Owner has the right to cancel the Policy and receive a
full refund of premiums paid (see "Short-Term Right to Cancel Policy"). The
Initial Premium is due on the Policy Date. It will be credited on the Policy
Date. Any due and unpaid monthly deductions will be subtracted from the Cash
Value at this time. Insurance will not be effective until the Initial Premium is
paid. The Initial Premium is shown on the Policy data page. Premiums, other
than the Initial Premium, may be made at any time while the Policy is in force.
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide Financial Services, Inc.,
Nationwide Mutual Insurance Company, Nationwide Indemnity Company, Nationwide
Mutual Fire Insurance Company, Nationwide Life and Annuity Insurance Company,
Nationwide Property and Casualty Insurance Company, National Casualty Company,
Scottsdale Indemnity Company and Nationwide General Insurance Company. The
Company's Home Office is at One Nationwide Plaza, Columbus, Ohio 43215.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states, the
District of Columbia, and Puerto Rico (for additional information, see "The
Company").
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on December 3, 1987, pursuant to Ohio law. The Company has caused the
Variable Account to be registered with the Securities and Exchange Commission as
a unit investment trust pursuant to the provisions of the Investment Company Act
of 1940. Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio
43215 serves as Trustee for the Trust. Nationwide Advisory Services, Inc., One
Nationwide Plaza, Columbus, Ohio 43215 serves as principal underwriter for the
Trust. Such registration does not involve supervision of the management of the
Variable Account or the Company by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under the
Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
9
<PAGE> 13
Premium payments and Cash Value are allocated within the Variable Account among
one or more sub-accounts (see "Tax Matters"). The assets of each sub-account are
used to purchase shares of the Underlying Mutual Fund options designated by the
Policy Owner. Thus, the investment performance of a Policy depends upon the
investment performance of the Underlying Mutual Fund options designated by the
Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account Sub-Accounts and the Fixed
Account (see "Allocation of Net Premium and Cash Value"). In such states which
require a return of premiums to those Policy Owners exercising their short term
right to cancel (see "Short Term Right to Cancel Policy"), Net Premiums will be
allocated to the Nationwide Separate Account Trust Money Market Fund sub-account
(for any Net Premiums allocated to a sub-account on the application) or the
Fixed Account until the expiration of the period in which the Policy Owner may
exercise his or her short-term right to cancel the Policy. Any subsequent Net
Premiums received after this period will be allocated based on the Fund
allocation factors.
No less than 1% of Net Premiums may be allocated to any one Sub-Account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or may
transfer Cash Value from one Sub-Account to another, subject to such terms and
conditions as may be imposed by each Underlying Mutual Fund option and as set
forth in this prospectus (see "Transfers", "Allocation of Cash Value" and
"Short-Term Right to Cancel Policy").
These Underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of life insurance companies which may or may not be
affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which is disclosed in the Underlying
Mutual Funds' prospectuses. A full description of the Underlying Mutual Funds,
their investment policies and restrictions, risks and charges are contained in
the prospectuses of the respective Underlying Mutual Funds.
Additional Premium payments, upon acceptance, will be allocated to the
Nationwide Separate Account Money Market Fund unless the Policy Owner specifies
otherwise (see "Premium Payments").
Each of the Underlying Mutual Fund options is a registered investment company
which receives investment advice from a registered investment adviser:
1. American Century Variable Portfolios, Inc., a member of the American
Century(sm) Family of Investments, managed by American Century
Variable Portfolios, Inc.;
2. Dreyfus Stock Index Fund, managed by The Dreyfus Corporation/Mellon
Equity Associates;
3. The Dreyfus Socially Responsible Growth Fund, Inc., managed by The
Dreyfus Corporation/NCM Capital Management Group;
4. Dreyfus Variable Investment Fund: Service Class, managed by The
Dreyfus Corporation/Fayez Sarofim & Company;
5. Fidelity Variable Insurance Products Fund: Service Class, managed by
Fidelity Management & Research Company;
6. Fidelity Variable Insurance Products Fund II: Service Class, managed
by Fidelity Management & Research Company;
7. Fidelity Variable Insurance Products Fund III: Service Class, managed
by Fidelity Management & Research Company;
8. Morgan Stanley Universal Funds, Inc. managed by Morgan Stanley Asset
Management, Inc.
9. Nationwide Separate Account Trust, managed by Nationwide Advisory
Services, Inc.;
10. Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
11. Oppenheimer Variable Accounts Funds, managed by OppenheimerFunds,
Inc.;
12. Van Eck Worldwide Insurance Trust, managed by Van Eck Associates
Corporation;
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13. Van Kampen American Capital Life Investment Trust, managed by Van
Kampen American Capital Management, Inc.; and
14. Warburg Pincus Trust, managed by Warburg Pincus Asset Management, Inc.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund below. More detailed information may be found in the
current prospectus for each Underlying Mutual Fund option. A prospectus for the
Underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end management investment
company, which offers its shares only as investment vehicles for variable
annuity and variable life insurance products of insurance companies. American
Century Variable Portfolios, Inc. is managed by American Century Investment
Management, Inc.
-AMERICAN CENTURY VP INTERNATIONAL
Investment Objective: Capital growth. The Fund will seek to achieve its
investment objective by investing primarily in securities of foreign
companies that meet certain fundamental and technical standards of
selection and, in the opinion of the investment manager, have potential
for appreciation. Under normal conditions, the Fund will invest at
least 65% of its assets in common stocks or other equity securities of
issuers from at least three countries outside the United States. While
securities of United States issuers may be included in the portfolio
from time to time, it is the primary intent of the manager to diversify
investments across a broad range of foreign issuers. Although the
primary investment of the Fund will be common stocks (defined to
include depository receipts for common stocks and other equity
equivalents), the Fund may also invest in other types of securities
consistent with the Fund's objective. When the Fund manager believes
that the total capital growth potential of other securities equals or
exceeds the potential return of common stocks, the Fund may invest up
to 35% of its assets in such other securities.
-AMERICAN CENTURY VP VALUE
Investment Objective: Long-term capital growth; income is a secondary
objective. Under normal market conditions, the Fund expects to invest
at least 80% of the value of its total assets in equity securities,
including common and preferred stock, convertible preferred stock and
convertible debt obligations. The equity securities in which the Fund
will invest will be primarily securities of well-established companies
with intermediate to large market capitalizations that are believed by
the Fund manager to be undervalued at the time of purchase.
-AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing primarily in common stocks. The investment manager constructs
the portfolio to match the risk characteristics of the S&P 500 Stock
Index and then optimizes each portfolio to achieve the desired balance
of risk and return potential. This includes targeting a dividend yield
that exceeds that of the S&P 500. Such a management technique, known as
portfolio optimization, may cause the Fund to be more heavily invested
in some industries than in others. However, the Fund may not invest
more than 25% of its total assets in companies whose principal business
activities are in the same industry.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc., is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January 24, 1989,
and commenced operations on September 29, 1989. The Dreyfus Corporation
("Dreyfus") serves as the Fund's manager, while Mellon Equity Associates, an
affiliate of Dreyfus, serves as the Fund's index manager. Dreyfus is a
wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary
of Mellon Bank Corporation.
Investment Objective: To provide investment results that correspond to
the price and yield performance of publicly traded common stocks, in
the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
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THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company. It was incorporated under Maryland law on July
20, 1992, and commenced operations on October 7, 1993. Dreyfus serves as the
Fund's investment advisor. NCM Capital Management Group, Inc. serves as the
Fund's sub-investment adviser and provides day-to-day management of the Fund's
portfolio.
Investment Objective: Capital growth through equity investment in
companies that, in the opinion of the Fund's management, not only meet
traditional investment standards but which also show evidence that they
conduct their business in a manner that contributes to the enhancement
of the quality of life in America. Current income is secondary to the
primary goal.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, management investment company.
It was organized as an unincorporated business trust under the laws of the
Commonwealth of Massachusetts on October 29, 1986 and commenced operations on
August 31, 1990. Dreyfus serves as the investment manager.
-CAPITAL APPRECIATION PORTFOLIO
Investment Objective: Long-term capital growth consistent with the
preservation of capital; current income is a secondary investment
objective. This Portfolio invests primarily in the common stocks of
domestic and foreign issuers.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund ("Fidelity VIP") is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on November 13, 1981. Shares of Fidelity VIP are purchased by insurance
companies to fund benefits under variable insurance and annuity policies.
Fidelity Management & Research Company ("FMR") is the manager for Fidelity VIP
and its portfolios.
-EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR
will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite
yield on the securities comprising the Standard & Poor's 500 Composite
Stock Price Index.
-GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation. This Portfolio will invest
in the securities of both well-known and established companies, and
smaller, less-known companies which may have a narrow product line or
whose securities are thinly traded. These latter securities will often
involve greater risk than may be found in the ordinary investment
security. FMR's analysis and expertise plays an integral role in the
selection of securities and, therefore, the performance of the
Portfolio. Many securities which FMR believes would have the greatest
potential may be regarded as speculative, and investment in the
Portfolio may involve greater risk than is inherent in other underlying
mutual funds. It is also important to point out that the Portfolio
makes sense for you if can afford to ride out changes in the stock
market because the Portfolio invests primarily in common stocks. FMR
can also make temporary investments in securities such as
investment-grade bonds, high-quality preferred stocks and short-term
notes, for defensive purposes when it believes market conditions
warrant.
-HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High level of current income by investing
primarily in high-risk, lower-rated, high-yielding, fixed-income
securities, while also considering growth of capital. FMR will seek
high current income normally by investing the Portfolio's assets as
follows:
- at least 65% in income-producing debt securities and preferred
stocks, including convertible securities
- up to 20% in common stocks and other equity securities when
consistent with the Portfolio's primary objective or acquired as
part of a unit combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated
or that are unrated. Lower-rated securities are usually defined as Ba
or lower by Moody's; BB or lower by Standard & Poor's and may be
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<PAGE> 16
deemed to be speculative in nature. The Portfolio may also purchase
lower-quality bonds such as those rated Ca3 by Moody's Investor
Services, Inc. ("Moody's") or C- by Standard & Poor's Corporation
("S&P") which provide poor protection for payment of principal and
interest (commonly referred to as "junk bonds"). For a further
discussion of lower-rated securities, please see the "Risks of
Lower-Rated Debt Securities" section of the Portfolio's prospectus.
-OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a means for
investors to diversify their own portfolios by participating in
companies and economies outside the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS II
The Fidelity Variable Insurance Products Fund II ("Fidelity VIP II") is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on March 21, 1988. Fidelity VIP II's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the manager of Fidelity VIP II and its portfolios.
-CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation by investing primarily in
companies that FMR believes to be undervalued due to an overly
pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be well known. The Portfolio primarily invests in common
stock and securities convertible into common stock, but it has the
flexibility to invest in any type of security that may produce capital
appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III ("Fidelity VIP III") is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on July 14, 1994. Fidelity VIP III's shares are
purchased by insurance companies to fund benefits under variable life insurance
and annuity contracts. FMR is the manager for Fidelity VIP III and its
portfolios.
-GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: Capital growth by investing primarily in common
stocks and securities convertible into common stocks. The Portfolio,
under normal conditions, will invest at least 65% of its total assets
in securities of companies that FMR believes have long-term growth
potential. Although the Portfolio invests primarily in common stock and
securities convertible into common stock, it has the ability to
purchase other securities, such as preferred stock and bonds, that may
produce capital growth. The Portfolio may invest in foreign securities
without limitation.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Universal Funds, Inc. is a mutual fund designed to provide
investment vehicles for variable annuity contracts and variable life insurance
policies and for certain tax-qualified investors. Its Emerging Markets Debt
Portfolio is managed by Morgan Stanley Asset Management, Inc.
-EMERGING MARKETS DEBT PORTFOLIO
Investment Objective: High total return by investing primarily in
dollar-and non-dollar denominated fixed income securities of government
and government-related issuers located in emerging market countries,
which securities provide a high level of current income, while at the
same time holding the potential for capital appreciation if the
perceived creditworthiness of the issuer improves due to improving
economic, financial, political, social or other conditions in the
country in which the issuer is located.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified, open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to life insurance company separate
accounts to fund the benefits under variable life insurance policies and
variable annuity contracts. The assets of the Trust are managed by Nationwide
Advisory Services, Inc., ("NAS") a wholly-owned subsidiary of Nationwide Life
Insurance Company.
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<PAGE> 17
-CAPITAL APPRECIATION FUND
Investment Objective: Long-term growth by primarily investing in a
diversified portfolio of the common stock of companies which NAS
determines have better-than-average potential for sustained capital
growth over the long term.
-GOVERNMENT BOND FUND
Investment Objective: As high level of income as is consistent with the
preservation of capital by investing in a diversified portfolio of
securities issued or backed by the United States government, its
agencies or instrumentalities.
-MONEY MARKET FUND
Investment Objective: As high a level of current income as is
considered consistent with the preservation of capital and liquidity by
investing primarily in money market instruments.
-TOTAL RETURN FUND
Investment Objective: Capital growth by investing in common stocks of
companies that NAS believes will have above-average earnings or
otherwise provide investors with above-average potential for capital
appreciation. To maximize this potential, NAS may also utilize, from
time to time, securities convertible into common stocks, warrants and
options to purchase such stocks.
SUBADVISED NATIONWIDE FUNDS
-NATIONWIDE BALANCED FUND
Subadviser: Salomon Brothers Asset Managment, Inc.
Investment Objective: Primarily seeks above average income compared to
a portfolio entirely invested in equity securities. The Fund's
secondary objective is to take advantage of opportunities for growth of
capital and income. The Fund seeks its objective primarily through
investments in a broad variety of securities, including equity
securities, fixed-income securites and short term obligations. Under
normal market conditions, it is anticipated that the Fund will invest
at least 40% of the Fund's total assets in equity securities and at
least 25% in fixed-income senior securities. The Fund's subadviser,
Salomon Brothers Asset Management, Inc., will have discretion to invest
in the full range of maturities of fixed-income securities. Generally,
most of the Fund's long-term debt investments will consist of
"investment grade" securities; but the Fund may invest up to 20% of its
net assets in non-convertible fixed-income securities rated below
investment grade or determined by the subadviser to be of comparable
quality. These securities are commonly known as junk bonds. In
addition, the Fund may invest an unlimited amount in convertible
securities rated below investment grade.
-NATIONWIDE EQUITY INCOME FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks above average income and capital
appreciation by investing at least 65% of its assets in
income-producing equity securities. Such equity securities include
common stocks, preferred stocks, and securities (including debt
securities) that are convertible into common stocks. The portion of the
Fund's total assets invested in each type of equity security will vary
according to the Fund's subadviser's assessment of market, economic
conditions and outlook.
-NATIONWIDE GLOBAL EQUITY FUND
Subadviser: J. P. Morgan Investment Management Inc.
Investment Objective: To provide high total return from a globally
diversified portfolio of equity securities. Total return will consist
of income plus realized and unrealized capital gains and losses. The
Fund seeks its investment objective through country allocation, stock
selection and management of currency exposure. Under normal market
conditions, J.P. Morgan Investment Management Inc., intends to keep the
Fund essentially fully invested with at least 65% of the value of its
total assets in equity securities consisting of common stocks and other
securities with equity characteristics such as preferred stocks,
warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Fund's primary
equity instruments are the common stock of companies based in
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<PAGE> 18
the developed countries around the world. The assets of the Fund will
ordinarily be invested in the securities of at least five different
countries.
-NATIONWIDE HIGH INCOME BOND FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks to provide high current income by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities. To meet its objective, the Fund intends to invest at
least 65% of its assets in lower-rated fixed income securities such as
preferred stocks, bonds, debentures, notes, equipment lease
certificates and equipment trust certificates which are rated BBB or
lower by S & P or Fitch Investors Service or Baa or lower by Moody's
(or if not rated, are determined by the Fund's subadviser to be of a
comparable quality). Such investments are commonly referred to as "junk
bonds." For a further discussion of lower-rated securities, please see
the "High Yield Securities" section of the Fund's prospectus.
-NATIONWIDE MULTI SECTOR BOND FUND
Subadviser: Salomon Brothers Asset Management, Inc. with Salomon
Brothers Asset Management Limited
Investment Objective: Primarily seeks a high level of current income.
Capital appreciation is a secondary objective. The Fund seeks to
achieve its objectives by investing in a globally diverse portfolio of
fixed-income investments and by giving the subadviser, Salomon Brothers
Asset Management, Inc., broad discretion to deploy the Fund's assets
among certain segments of the fixed-income market that the subadviser
believes will best contribute to achievement of the Fund's investment
objectives. The Fund reserves the right to invest predominantly in
securities rated in medium or lower categories, or as determined by the
subadviser to be of comparable quality, commonly referred to as "junk
bonds." Although the subadviser has the ability to invest up to 100% of
the Fund's assets in lower-rated securities, the subadviser does not
anticipate investing in excess of 75% of the Fund's assets in such
securities. The Subadviser has entered into a subadvisory agreement
with its London based affiliate, Salomon Brothers Asset management
Limited, pursuant to which the Subadviser has delegated to Salomon
Brothers Asset Management Limited responsibility for management of the
Fund's investments in non-dollar denominated debt securities and
currency transactions.
-NATIONWIDE SELECT ADVISERS MID CAP FUND
Subadvisers: First Pacific Advisors, Inc., Pilgrim Baxter &
Associates, Ltd., and Rice, Hall, James & Associates
Investment Objective: Capital appreciation by investing primarily in
equity securities of medium-sized companies (market capitalization
between $500 million and $7 billion); under normal market conditions,
the Fund will invest in equity securities consisting of common stock,
preferred stock and securities convertible into common stocks,
including convertible preferred stock and convertible bonds. NAS has
chosen the Fund's subadvisers because they utilize a number of
different investment styles. In utilizing these different styles, NAS
hopes to increase prospects for investment return and to reduce market
risk and volatility.
-NATIONWIDE SMALL CAP VALUE FUND
Subadviser: The Dreyfus Corporation
Investment Objective: Capital appreciation through investment in a
diversified portfolio of equity securities of companies with a median
market capitalization of approximately $1 billion. Under normal market
conditions, at least 75% of the Fund's total assets will be invested in
equity securities of companies with market capitalizations at the time
of purchase of between $200 million and $2.5 billion. The Fund will
invest in equity securities of domestic and foreign issuers
characterized as "value" companies according to criteria established by
Dreyfus, the Fund's subadviser.
-NATIONWIDE SMALL COMPANY FUND
Subadvisers: Dreyfus Corporation, Neuberger & Berman, L.P., Pictet
International Management Limited with Van Eck Associates Corporation,
Strong Capital Management, Inc. and Warburg Pincus Asset Management,
Inc.
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Investment Objective: Long-term growth of capital by investing
primarily in equity securities of domestic and foreign companies with
market capitalizations of less than $1 billion at the time of purchase.
The subadvisers were chosen because they utilize a number of different
investment styles when investing in small company stocks. By utilizing
different investment styles, NAS hopes to increase prospects for
investment return and to reduce market risk and volatility.
-NATIONWIDE STRATEGIC GROWTH FUND
Subadviser: Strong Capital Managment Inc.
Investment Objective: Capital growth by investing primarily in equity
securities that the Fund's subadviser believes have above-average
growth prospects. The Fund will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, and to
a lesser extent, in companies in which significant further growth is
not anticipated but whose market value is thought to be undervalued
Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities, including common stocks,
preferred stocks, and securities convertible into common or preferred
stocks, such as warrants and convertible bonds. The Fund may invest up
to 35% of its total assets in debt obligations, including intermediate-
to long-term corporate or U.S. Government debt securities.
-NATIONWIDE STRATEGIC VALUE FUND
Subadviser: Strong Capital Management Inc./Schafer Capital Management
Inc.
Investment Objective: Primarily long-term capital appreciation; current
income is a secondary objective. The Fund seeks to meet its objectives
by investing in securities which are believed to offer the possibility
of increase in value, primarily common stocks of established companies
having a strong financial position and a low stock market valuation at
the time of purchase in relation to investment value. Other than
considered appropriate for cash reserves, the Fund will generally
maintain a fully invested position in common stocks of publicly held
companies, primarily in stocks of companies listed on a national
securities exchange or other equity securities (common stock or
securities convertible into common stock). Investments may also be made
in debt securities which are convertible into common stocks and in
warrants or other rights to purchase common stock, which in such case
are considered equity securities by the Fund. Strong Capital
Management, Inc. has subcontracted with Schafer Capital Management,
Inc. to subadvise the Fund.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust ("N & B AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of N & B AMT are offered in connection with certain variable
annuity contracts and variable life insurance policies issued through life
insurance company separate accounts and are also offered directly to qualified
pension and retirement plans outside of the separate account context.
The Guardian, Partners and Mid-Cap Portfolios of N & B AMT invest all of their
investable assets in a corresponding series of Advisers Managers Trust managed
by Neuberger & Berman Management Incorporated ("N & B Management"). Each series
then invests in securities in accordance with an investment objective, policies
and limitations identical to those of the Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. (For more
information regarding "master/feeder fund" structure, see "Special Information
Regarding Organization, Capitalization, and Other Matters" in the underlying
mutual fund prospectus.)The investment advisor is N & B Management.
-AMT GUARDIAN PORTFOLIO
Investment Objective: Capital appreciation and secondarily, current
income. The Portfolio and its corresponding series seek to achieve
these objectives by investing in common stocks of long-established,
high-quality companies. N & B Management uses a value-oriented
investment approach in selecting securities, looking for low
price-to-earnings ratios, strong balance sheets, solid management, and
consistent earnings.
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-AMT MID-CAP GROWTH PORTFOLIO
Investment Objective: Capital appreciation by investing in equity
securities of medium-sized companies that N & B Management believes
have the potential for long-term, above-average capital appreciation.
Medium-sized companies have market capitalizations form $300 million to
$10 billion at the time of investment. The Portfolio and its
corresponding series may invest up to 10% of its net assets, measured
at the time of investment, in corporate debt securities that are below
investment grade or, if unrated, deemed by N & B Management to be of
comparable quality. Securities that are below investment grade, as well
as unrated securities, are often considered to be speculative and
usually entail greater risk. As part of the Portfolio's investment
strategy, the Portfolio may invest up to 20% of its net assets in
securities of issuers organized and doing business principally outside
the United States. This limitation does not apply with respect to
foreign securities that are denominated in U.S. dollars.
-AMT PARTNERS PORTFOLIO
Investment Objective: Capital growth by investing in the common stock
of established companies. Its investment program seeks securities
believed to be undervalued based on fundamentals such as low
price-to-earnings ratios, consistent cash flows, and the company's
track record through all parts of the market cycle.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. OppenheimerFunds, Inc. is the
investment adviser.
-OPPENHEIMER CAPITAL APPRECIATION FUND
Investment Objective: Capital appreciation by investing in
"growth-type" companies. Such companies are believed to have relatively
favorable long-term prospects for increasing demand for their goods or
services, or to be developing new products, services or markets, and
normally retain a relatively larger portion of their earnings for
research, development and investment in capital assets. The Fund may
also invest in cyclical industries in "special situations" that
OppenheimerFunds, Inc. believes present opportunities for capital
growth.
-OPPENHEIMER GROWTH & INCOME FUND
Investment Objective: High total return, which includes growth in the
value of its shares as well as current income from equity and debt
securities. In seeking its investment objectives, the Fund may invest
in equity and debt securities. Equity investments will include common
stocks, preferred stocks, convertible securities and warrants. Debt
investments will include bonds, participation interests, asset backed
securities, private-label mortgage-backed securities and CMOs, zero
coupon securities and U.S. debt obligations, and cash and cash
equivalents. From time to time, the Fund may focus on small to medium
capitalization issuers, the securities of which may be subject to
greater price volatility than those of larger capitalized issuers.
-OPPENHEIMER GROWTH FUND
Investment Objective: Capital appreciation by investing in securities
of well-known established companies. Such securities generally have a
history of earnings and dividends and are issued by seasoned companies
(companies which have an operating history of at least five years
including predecessors). Current income is a secondary consideration in
the selection of the Fund's portfolio securities.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management
investment company organized as a business trust under the laws of the
Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are
offered only to separate accounts of various insurance companies to fund the
benefits of variable insurance and annuity policies. The investment advisor and
manager is Van Eck Associates Corporation.
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-WORLDWIDE EMERGING MARKETS FUND
Investment Objective: Long-term capital appreciation by investing in
equity securities in emerging markets around the world. The Fund
emphasizes primarily investment in countries that, compared to the
world's major economies, exhibit relatively low gross national product
per capita, as well as the potential for rapid economic growth.
Peregrine Asset Management (Hong Kong) Limited serves as sub-investment
advisor to this Fund.
-WORLDWIDE HARD ASSETS FUND
Investment Objective: Long-term capital appreciation by investing
primarily in "Hard Asset Securities." For the Fund's purpose, "Hard
Assets" are real estate, energy, timber and industrial and precious
metals. Income is a secondary consideration.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end,
diversified management investment company organized as a Delaware business
trust. Shares are offered in separate portfolios which are sold only to
insurance companies to provide funding for variable life insurance policies and
variable annuity contracts. Van Kampen American Capital Asset Management, Inc.
serves as the investment adviser.
-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Investment Objective: Long-term capital growth by investing principally
in a diversified portfolio of securities of companies operating in the
real estate industry ("Real Estate Securities"). Current income is a
secondary consideration. Real Estate Securities include equity
securities, including common stocks and convertible securities, as well
as non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits, from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Portfolio's total assets will be
invested in Real Estate Securities, primarily equity securities of real
estate investment trusts. The Portfolio may invest up to 25% of its
total assets in securities issued by foreign issuers, some or all of
which may also be Real Estate Securities.
WARBURG PINCUS TRUST
The Warburg Pincus Trust is an open-end, management investment company organized
in March 1995 as a business trust under the laws of the Commonwealth of
Massachusetts. It offers shares to insurance companies for allocation to
separate accounts for the purpose of funding variable annuity and variable life
contracts. Portfolios are managed by Warburg, Pincus Asset Management, Inc.
("Warburg")
-GROWTH & INCOME PORTFOLIO
Investment Objective: Long-term growth of capital and income by
investing primarily in dividend-paying equity securities. Under normal
market conditions, the Portfolio will invest substantially all of its
assets in equity securities that Warburg considers to be relatively
undervalued based upon research and analysis, taking into account
factors such as price/earnings ratio, price/book ratio, price/cash flow
ratio, earnings growth, debt/capital ratio and multiples of earnings of
comparable securities. Although the Portfolio may hold securities of
any size, it currently expects to focus on companies with market
capitalizations of $1 billion or greater at the time of initial
purchase.
-INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: Long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of Counsellors have
their principal business activities and interest outside the United
States. The Portfolio will ordinarily invest substantially all of its
assets, but no less than 65% of its total assets, in common stocks,
warrants and securities convertible into or exchangeable for common
stocks. The Portfolio intends to invest principally in the securities
of financially strong companies with opportunities for growth within
growing international economies and markets through increased earning
power and improved utilization or recognition of assets.
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-POST-VENTURE CAPITAL PORTFOLIO
Investment Objective: Long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture capital
stage of development and pursues an aggressive investment strategy.
Under normal market conditions, the Portfolio will invest at least 65%
of its total assets in equity securities of "post-venture capital
companies." A post-venture capital company is one that has received
venture capital financing either: (a) during the early stages of the
company's existence or the early stages of the development of a new
product or service; or (b) as part of a restructuring or
recapitalization of the company. The Portfolio may invest up to 10% of
its assets in venture capital and other investment funds.
REINVESTMENT
The Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the Underlying Mutual Funds.
The distribution of additional shares will not affect the number of Accumulation
Units attributable to a particular Policy (see "Allocation of Net Premium and
Cash Value").
TRANSFERS
The Policy Owner may transfer amounts between the Fixed Account and the
Sub-Accounts, without penalty or adjustment, subject to the following
requirements. During any Policy Year, the Company reserves the right to restrict
such transfers between the Fixed Account and the Sub-Accounts to one transfer
per Policy Year.
Transfers made from the Fixed Account must be made within 45 days after the end
of an interest rate guarantee period (the period of time for which the current
interest crediting rate is guaranteed by the Company). The Company reserves the
right to restrict the amount transferred from the Fixed Account to 20% of that
portion of the Cash Value attributable to the Fixed Account as of the end of the
previous Policy Year.
Transfers made to the Fixed Account may not be made either: (a) prior to the
first Policy Anniversary; or (b) within 12 months subsequent to a prior
transfer. The Company reserves the right to restrict the amount transferred to
the Fixed Account to 20% of that portion of the Cash Value attributable to the
Sub-Accounts as of the close of business of the prior Valuation Period. The
Company further reserves the right to refuse a transfer to the Fixed Account, in
the event the Cash Value attributable to the Fixed Account should be greater
than or equal to 30% of the Cash Value.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. In states allowing telephone transfers, and if the Policy Owner so
elects, the Company will also permit the Policy Owner to utilize the Telephone
Exchange Privilege for exchanging amounts among Sub-Account options. The Company
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include any or all of the following,
or such other procedures as the Company may, from time to time, deem reasonable:
requesting identifying information, such as name, contract number, Social
Security number, and/or personal identification number; tape recording all
telephone transactions; and providing written confirmation thereof to both the
Policy Owner and any agent of record at the last address of record. Although
failure to follow reasonable procedures may result in the Company's liability
for any losses due to unauthorized or fraudulent telephone transfers, the
Company will not be liable for following instructions communicated by telephone
which it reasonably believes to be genuine. Any losses incurred pursuant to
actions taken by the Company in reliance on telephone instructions reasonably
believed to be genuine shall be borne by the Contract Owner.
Policy Owners who have entered into a dollar cost averaging agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
Policies described in this prospectus may in some cases be sold to individuals
who independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Policy Owners to make transfers and exchanges among the Sub-Accounts (the
Underlying Mutual Funds) on the basis of perceived market trends. Because of the
unusually large transfers of funds associated with some of these transactions,
the ability of the Company or Underlying Mutual Funds to process such
transactions may be compromised, and the execution of such transactions may
possibly disadvantage or work to the detriment of other Policy Owners not
utilizing market timing services.
Accordingly, the right to exchange Cash Surrender Values among the Sub-Accounts
may be subject to modification if such rights are exercised by a market timing
firm or any other third party authorized to initiate
19
<PAGE> 23
transfer or exchange transactions on behalf of multiple Policy Owners. THE
RIGHTS OF INDIVIDUAL POLICY OWNERS TO EXCHANGE CASH SURRENDER VALUES, WHEN
INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE POLICY OWNER, OR BY THE POLICY
OWNER'S REPRESENTATIVE OF RECORD AS AUTHORIZED BY THE EXECUTION OF A VALID
NATIONWIDE LIMITED POWER OF ATTORNEY FORM, WILL NOT BE MODIFIED IN ANY WAY. In
modifying such rights, the Company may, among other things, not accept (1) the
transfer or exchange instructions of any agent acting under a power of attorney
on behalf of more than one Policy Owner, or (2) the transfer or exchange
instructions of individual Policy Owners who have executed pre-authorized
transfer or exchange forms which are submitted by market timing firms or other
third parties on behalf of more than one Policy Owner at the same time. The
Company will not impose any such restrictions or otherwise modify exchange
rights unless such action is reasonably intended to prevent the use of such
rights in a manner that will disadvantage or potentially impair the contract
rights of other Policy Owners.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the
Nationwide Separate Account Trust ("NSAT") Money Market Sub-Account, Fixed
Account, or the NSAT Government Bond Fund Sub-Account to any other Sub-Account
within the Variable Account on a monthly basis or as frequently as otherwise
authorized by the Company. This service is intended to allow the Policy Owner to
utilize dollar cost averaging, a long-term investment program which provides for
regular, level investments over time. The Company makes no guarantees that
dollar cost averaging, will result in a profit or protect against loss in a
declining market. To qualify for dollar cost averaging, there must be a minimum
total Cash Value, less Policy Indebtedness, of $15,000. Transfers for purposes
of dollar cost averaging can only be made from the NSAT Money Market
Sub-Account, Fixed Account, or the NSAT Government Bond Fund Sub-Account. The
minimum monthly dollar cost averaging transfer is $100. In addition, dollar cost
averaging monthly transfers from the Fixed Account must be equal to or less than
1/30th of the Fixed Account value when the dollar cost averaging program is
requested. Transfers out of the Fixed Account, other than for dollar cost
averaging, may be subject to certain additional restrictions (see "Transfers"
above). A written election of this service, on a form provided by the Company,
must be completed by the Policy Owner in order to begin transfers. Once elected,
transfers from the NSAT Money Market Sub-Account, Fixed Account, or the NSAT
Government Bond Fund Sub-Account will be processed monthly until either the
value in the NSAT Money Market Sub-Account, Fixed Account, or the NSAT
Government Bond Fund Sub-Account is completely depleted or the Policy Owner
instructs the Company in writing to cancel the transfers.
The Company reserves the right to discontinue offering dollar cost averaging
upon 30 days written notice to Policy Owners. However, any such discontinuation
would not affect dollar cost averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
SUBSTITUTION OF SECURITIES
If shares of the Underlying Mutual Fund options should no longer be available
for investment by the Variable Account or, if in the judgment of the Company's
management further investment in such Underlying Mutual Funds should become
inappropriate in view of the purposes of the Policy, the Company may substitute
shares of another Underlying Mutual Fund for shares already purchased or to be
purchased in the future by Net Premium payments under the Policy. No
substitution of securities in the Variable Account may take place without prior
approval of the Securities and Exchange Commission, and under such requirements
as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value allocated
to the Sub-Accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote the
shares of the Underlying Mutual Funds held in the Variable Account at regular
and special meetings of the shareholders of the Underlying Mutual Funds in
accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the Company
determines that it is permitted to vote the shares of the Underlying Mutual
Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each Sub-Account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that Underlying Mutual Fund by the net asset value
of one share of that Underlying Mutual Fund.
20
<PAGE> 24
The number of shares which a person has a right to vote will be determined as of
a date chosen by the Company, but not more than 90 days prior to the meeting of
the Underlying Mutual Fund. Voting instructions will be solicited by written
communication prior to such meeting.
The Company will vote Underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares held
by the Company or by the Variable Account as to which no timely instructions are
received will be voted by the Company in the same proportion as the voting
instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the Underlying
Mutual Funds' proxy material and a form with which to give such voting
instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
Underlying Mutual Fund shares in any manner necessary to enable the Underlying
Mutual Fund to: (1) make or refrain from making any change in the investments or
investment policies for any of the Underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the Underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance regulatory
authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to provide life insurance coverage and the flexibility
to vary the amount and frequency of premium payments. At issue, the Policy Owner
selects the initial Specified Amount and premium. The minimum Specified Amount
is $50,000 ($100,000 in Pennsylvania and New Jersey). Policies may be issued to
Insured's who are 80 or younger at the time of issue. Before issuing any Policy,
the Company requires satisfactory evidence of insurability which may include a
medical examination.
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's Home Office
or to an authorized agent. Upon payment of an Initial Premium, temporary
insurance may be provided, subject to a maximum amount. The effective date of
permanent insurance coverage is dependent upon completion of all underwriting
requirements, payment of Initial Premium, and delivery of the Policy while the
Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force. Each premium payment must be at least $50. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any premium payment which results in an increase in the Net Amount at
Risk. The Company will refund any portion of any premium payment which is
determined to be in excess of the premium limit established by law to qualify
the Policy as a contract for life insurance. The Company may also require that
any existing Policy Indebtedness is repaid prior to accepting any additional
premium payments. Additional premium payments or other changes to the contract,
may jeopardize the Policy's non-modified endowment status. The Company will
monitor premiums paid and other policy transactions and will notify the Policy
Owner when non-modified endowment contract status is in jeopardy (see "Tax
Matters").
Allocation of Net Premium and Cash Value
The designation of investment allocations will be made by the prospective Policy
Owner at the time of application for a Policy. The Policy Owner may change the
way in which future Net Premiums are allocated by giving written notice to the
Company. All percentage allocations must be in whole numbers, and must be at
least 1%. The sum of allocations must equal 100%. At the time a Policy is
issued, its Cash Value will be determined as if the Policy had been issued and
the Initial Net Premium is invested on the date such premium was received in
good order by the Company.
21
<PAGE> 25
In such states which require a return of premiums to those Policy Owners
exercising their short term right to cancel (see "Short Term Right to Cancel
Policy"), Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund sub-account (for any Net Premiums allocated to a
sub-account on the application) or the Fixed Account until the expiration of the
period in which the Policy Owner may exercise his or her short-term right to
cancel the Policy. Net Premiums not designated for the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Sub-Account. At the
expiration of the period in which the Policy Owner may exercise his or her short
term right to cancel the Policy, shares of the Underlying Mutual Funds specified
by the Policy Owner are purchased at net asset value for the respective
sub-account(s). The Policy Owner may change the allocation of Net Premiums or
may transfer Cash Value from one sub-account to another, subject to such terms
and conditions as may be imposed by each Underlying Mutual Fund and as set forth
in this prospectus.
SHORT-TERM RIGHT TO CANCEL POLICY
A Policy may be returned for cancellation and a full refund of premium within 10
days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or
delivered to the registered representative who sold it, or to the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the amount prescribed by the state in
which the Policy was issued within seven days after it receives the Policy. The
amount of the refund will be either the Premiums paid or the Cash Surrender
Value. The scope of this right varies by state. The exact policy provision
approved or used in a particular state will be disclosed in any policy issued.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
The Company deducts a sales load from each premium payment received which is
guaranteed never to exceed 5.5% of such premium payment during the first seven
Policy Years and 2% thereafter. On a current basis, the sales load is 5.5% of
the Target Premium plus 3% of premiums in excess of the Target Premium during
the first seven Policy Years, and 0% on all premiums thereafter. The Target
Premium is a premium level based upon a percentage of the Guideline Level
Premium. The Target Premium is the level annual premium amount at which the
sales load is reduced on a current basis.
The Company also deducts from premium payments a tax expense charge of 3.5%, on
both a current and guaranteed basis, of all premium payments. This charge
reimburses the Company for premium taxes imposed by various state and local
jurisdictions and for federal taxes imposed under Section 848 of the Code. The
3.5% tax expense rate consists of the following components: (1) a state premium
tax rate of 2.25%; and (2) a federal tax rate of 1.25%.
The Company expects to pay an average state premium tax rate of approximately
2.25% of premiums for all states, although such tax rates range by state from 0%
to 4%. To reimburse the Company for the payment of state premium taxes
associated with the Policies, the Company deducts a charge for state premium
taxes equal to 2.25% of all premium payments received. This charge may be more
or less than the amount actually assessed by the state in which a particular
Policy Owner lives. The 1.25% federal tax component is designed to reimburse the
Company for expenses incurred from federal taxes imposed under Section 848 of
the Code (enacted by the Omnibus Budget Reconciliation Act of 1990). The Company
does not expect to make a profit from this charge.
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by riders; plus
3. monthly administrative expense charge.
These deductions will be charged proportionately to the Cash Value in each
Variable Account Sub-Account and the Fixed Account.
22
<PAGE> 26
- -Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the Net Amount at Risk. If
death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value shall first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will be unisex and will not exceed those
guaranteed in the Policy. Guaranteed cost of insurance rates are based on the
1980 Commissioners Standard Ordinary Male Mortality Table, Age Last Birthday,
aggregate as to tobacco status (1980 CSO). Guaranteed cost of insurance rates
for Policies issued on a substandard basis are based on appropriate percentage
multiples of the 1980 CSO.
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insured's into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. The Company may also
issue certain Policies on a "Non Medical", guaranteed issue or simplified issue
basis to certain categories of individuals. Due to the underwriting criteria
established for Policies issued on a Non Medical basis, actual rates will be
higher than the current cost of insurance rates being charged under Policies
that are medically underwritten.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only to
reimburse the Company for certain actual administrative expenses. The Company
does not expect to recover from this charge any amount in excess of aggregate
maintenance expenses. On a current basis this charge is $5.00 per month in all
Policy Years. On a guaranteed basis this charge is $10.00 per month in all
Policy Years.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risks assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts on a daily basis from the assets of the Variable Account a
charge to provide for mortality and expense risks. This charge is guaranteed not
to exceed an annual effective rate of 0.75% of the daily net assets of the
Variable Account. On a current basis this rate will be 0.40% during the first
through fourth Policy Years, 0.25% during the fifth through twentieth Policy
Years, and 0.10% thereafter. To the extent that future levels of mortality and
expenses are less than or equal to those expected, the Company may realize a
profit from this charge. Unrecovered expenses are born by the Company's general
assets which may include profits, if any, from mortality and expense risk
charges.
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the Sub-Accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
REDUCTION OF CHARGES (POLICY AND SUB-ACCOUNTS)
The Policy is available for purchase by individuals, corporations and other
groups. For group or sponsored arrangements (including employees of the Company
and their family members) and for special exchange programs which the Company
may make available from time to time, the Company reserves the right to reduce
or eliminate the sales load, mortality and expense risk charges, monthly
administrative charge, monthly cost of insurance charges or other charges
normally assessed on certain multiple life cases where it is expected that the
size or nature of such cases will result in savings of sales, underwriting,
administrative or other costs.
23
<PAGE> 27
Eligibility for and the amount of these reductions will be determined by a
number of factors, including the number of Insured's, the total premium expected
to be paid, total assets under management for the Policy Owner, the nature of
the relationship among individual Insured's, the purpose for which the Policies
are being purchased, the expected persistency of individual Policies, and any
other circumstances which, in the opinion of the Company is rationally related
to the expected reduction in expenses. The extent and nature of reductions may
change from time to time. Any variations in the charge structure will be
determined in a uniform manner reflecting differences in costs of services and
not unfairly discriminatory to Policy Owners.
EXPENSES OF THE UNDERLYING MUTUAL FUNDS
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. The
management fees and other expenses for each Underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the Underlying
Mutual Fund's average assets, are as follows:
UNDERLYING MUTUAL FUND ANNUAL EXPENSES1
(as a percentage of underlying Mutual Fund net assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Management Total Mutual
Fees Other Expenses Fund Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc. - 0.70% 0.00% 0.70%
American Century VP Income & Growth
- --------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 1.50% 0.00% 1.50%
American Century VP International
- --------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 1.00% 0.00% 1.00%
American Century VP Value
- --------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth 0.72% 0.24% 0.96%
Fund, Inc.*
- --------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.05% 0.30%
- --------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund - Capital 0.75% 0.09% 0.84%
Appreciation Portfolio
- --------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income 0.51% 0.17% 0.68%
Portfolio: Service Class***
- --------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio: 0.61% 0.18% 0.79%
Service Class***
- --------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High Income Portfolio: 0.59% 0.22% 0.81%
Service Class***
- --------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Overseas Portfolio: 0.76% 0.27% 1.03 %
Service Class***
- --------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund 0.61% 0.23% 0.84%
Portfolio: Service Class***
- --------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III - Growth Opportunities 0.61% 0.26% 0.87%
Portfolio: Service Class***
- --------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Inc. - 0.80% 0.50% 1.30%
Emerging Markets Debt Portfolio
- --------------------------------------------------------------------------------------------------------
NSAT Capital Appreciation Fund 0.65% 0.03% 0.68%
- --------------------------------------------------------------------------------------------------------
NSAT Government Bond Fund 0.55% 0.02% 0.57%
- --------------------------------------------------------------------------------------------------------
NSAT Money Market Fund 0.45% 0.02% 0.47%
- --------------------------------------------------------------------------------------------------------
NSAT Total Return Fund 0.65% 0.02% 0.67%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Balanced Fund** 0.75% 0.15% 0.90%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Equity Income Fund** 0.80% 0.15% 0.95%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Global Equity Fund** 1.00% 0.20% 1.20%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide High Income Bond Fund** 0.80% 0.15% 0.95%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Multi-Sector Bond Fund** 0.75% 0.15% 0.90%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Select Advisers Mid Cap 1.05% 0.15% 1.20%
Fund**
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value Fund** 0.97% 0.08% 1.05%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Company Fund 1.00% 0.10% 1.10%
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Growth Fund** 0.90% 0.10% 1.00%
- --------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
NSAT Nationwide Strategic Value Fund 0.90% 0.10% 1.00%
- --------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Guardian Portfolio 0.55% 0.45% 1.00%
- --------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Mid-Cap Growth 0.55% 0.45% 1.00%
Portfolio
- --------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Partners Portfolio 0.84% 0.11% 0.95%
- --------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.72% 0.03% 0.75%
Oppenheimer Capital Appreciation Fund
- --------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.75% 0.04% 0.79%
Oppenheimer Growth Fund*
- --------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - 0.75% 0.25% 1.00%
Oppenheimer Growth & Income Fund
- --------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 1.00% 0.27% 1.27%
Worldwide Emerging Markets Fund*
- --------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 1.00% 0.11% 1.11%
Worldwide Hard Assets Fund
- --------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment 0.80% 0.30% 1.10%
Trust - Morgan Stanley Real Estate
Securities Portfolio*
- --------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income 0.65% 0.35% 1.00%
Portfolio
- --------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity 0.96% 0.40% 1.36%
Portfolio*
- --------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post-Venture Capital 0.62% 0.78% 1.40%
Portfolio*
- --------------------------------------------------------------------------------------------------------
<FN>
- ---------------------------------------
1 The Mutual Fund expenses shown above are assessed at the Underlying Mutual
Fund level and are not direct charges against Variable Account assets or
reductions from Cash Values. These Underlying Mutual Fund expenses are
taken into consideration in computing each Underlying Mutual Fund's Net
Asset Value, which is the share price used to calculate the unit values of
the Variable Account. The management fees and other expenses are more fully
described in the prospectuses for each individual Underlying Mutual Fund.
The information relating to the Underlying Mutual Fund expenses was
provided by the Underlying Mutual Fund and was not independently verified
by the Company. The management fees and other expenses are not currently
subject to fee waivers or expense reimbursements.
* The investment advisers for the indicated underlying Mutual Funds have
voluntarily agreed to reimburse a portion of the management fees and/or
other operating expenses resulting in a reduction of the total expenses.
Absent any such partial reimbursements, "Management Fees" and "Other
Expenses" would have been 0.75% and 0.24% for the Dreyfus Socially
Responsible Growth Fund, Inc.; 0.75% and 0.06% for the Oppenheimer Variable
Account Funds - Oppenheimer Growth Fund; 1.00% and 0.27% for the Van Kampen
American Capital Life Investment Trust-Morgan Stanley Real Estate
Securities Portfolio; 1.00% and 0.40% for the Warburg Pincus Trust -
International Equity Portfolio; and 1.25% and 0.82% for the Warburg Pincus
Trust - Post-Venture Capital Portfolio.
** The Advisers have agreed with the Trust to waive management fees or to
reimburse expenses incurred by each fund to the extent necessary to limit
the total expense ratio for each fund to the following maximum rate
calculated on the average net assets of each fund: NSAT Nationwide Balanced
Fund - 0.90%; NSAT Nationwide Equity Income Fund - 0.95%; NSAT Nationwide
High Income Bond Fund - 0.95%; NSAT Nationwide Multi-Sector Bond Fund -
1.20%; NSAT Nationwide Select Advisers Mid Cap Fund - 1.20%; NSAT
Nationwide Small Cap Value Fund - 1.20%; and NSAT Nationwide Strategic
Growth Fund - 1.00%. In addition, the Advisers of the following Underlying
Mutual Funds have agreed to waive management fees or to reimburse expenses
incurred by each Underlying Mutual Fund to the extent necessary to limit
the total expense ratio to the following maximum rate calculated on the
average net assets: Neuberger & Berman AMT-Guardian Portfolio - 1.00%;
Neuberger & Berman AMT - Mid-Cap Growth Portfolio - 1.00%; and Warburg
Pincus Trust - Growth & Income Portfolio - 1.00%.
*** The "Other Expenses" reflect the payment of 0.10% pursuant to a Rule 12b-1
Plan adopted by the underlying Mutual Funds.
</TABLE>
25
<PAGE> 29
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each Sub-Account is converted to Accumulation Units of that
Sub-Account. The conversion is accomplished by dividing the amount of Cash Value
allocated to a Sub-Account by the value of an Accumulation Unit for the
Sub-Account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each Sub-Account was arbitrarily set
initially at $10 when the Underlying Mutual Fund shares in that Sub-Account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each Sub-Account for
the immediately preceding Valuation Period by the Net Investment Factor for the
Sub-Account during the subsequent Valuation Period. The value of an Accumulation
Unit may increase or decrease from Valuation Period to Valuation Period. The
number of Accumulation Units will not change as a result of investment
experience.
NET INVESTMENT FACTOR
The net investment factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the Net Asset Value per share of the Underlying Mutual Fund held
in the Sub-Account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or income distributions made
by the Underlying Mutual Fund held in the Sub-Account if the
"ex-dividend" date occurs during the current Valuation Period.
(b) is the Net Asset Value per share of the Underlying Mutual Fund held in
the Sub-Account determined at the end of the immediately preceding
Valuation Period.
(c) is a factor representing the daily mortality and expense risk charge
deducted from the Variable Account. Such factor is guaranteed not to
exceed an annual effective rate of 0.75% of the daily net assets of the
Variable Account. On a current basis this annual effective rate will be
0.40% during the first through fourth Policy Years, 0.25% during the
fifth through twentieth Policy Years, and 0.10% thereafter.
For Underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the net investment factor allows for the
monthly reinvestment of these daily dividends.
The net investment factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. Currently, the Company does
not maintain a tax reserve with respect to the Policies since income with
respect to the Underlying Mutual Funds is not taxable to the Company or the
Variable Account. The Company reserves the right to adjust the calculation of
the net investment factor to reflect a tax reserve should such income or other
items become taxable to the Company in the future. It should be noted that
changes in the net investment factor may not be directly proportional to changes
in the Net Asset Value of Underlying Mutual Fund shares, because of the
deduction for mortality and expense risk charge, and any charge or credit for
tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account and the Policy Loan Account
is the Cash Value. The number of Accumulation Units credited per each
Sub-Account are determined by dividing the net amount allocated to the
Sub-Account by the Accumulation Unit Value for the Sub-Account for the Valuation
Period during which the premium is received by
26
<PAGE> 30
the Company. In the event part or all of the Cash Value is surrendered or
charges or deductions are made against the Cash Value, an appropriate number of
Accumulation Units from the Variable Account and an appropriate amount from the
Fixed Account will be deducted in the same proportion that the Policy Owner's
interest in the Variable Account and the Fixed Account bears to the total Cash
Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited with
interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 3%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office are open for business or any other day during
which there is sufficient degree of trading that the current net asset value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed. Where
permitted, the Company will require the signature to be guaranteed by a member
firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock
Exchange, or by a Commercial Bank or a Savings and Loan, which is a member of
the Federal Deposit Insurance Corporation. In some cases, the Company may
require additional documentation of a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, Indebtedness or
other deductions due on that date.
PARTIAL SURRENDERS
After the Policy has been in force for one year, the Policy Owner may request a
partial surrender. Partial surrenders will be permitted only if they satisfy the
following requirements:
1. The minimum partial surrender is $500;
2. The partial surrender may not reduce the Specified Amount to less than
$50,000;
3. After the partial surrender, the Cash Surrender Value is greater than
$500 or an amount equal to three times the current monthly deduction,
if higher; and
4. After the partial surrender, the Policy continues to qualify as life
insurance.
When a partial surrender is made, the Cash Value will be reduced by the amount
of the partial surrender. Further, the Specified Amount will be reduced by the
amount necessary to prevent any increase to the Net Amount at Risk, unless the
Policy Owner elects that the partial surrender be treated as a preferred partial
surrender. (Any such reduction to the Specified Amount will be done in the
manner as set forth below).
- -Preferred Partial Surrenders
A partial surrender may be considered a preferred partial surrender if the
following conditions are met: (1) such surrender occurs before the 15th Policy
Anniversary; and (2) the surrender amount plus the amount of any previous
preferred policy surrenders in that same Policy Year does not exceed 10% of the
Cash Surrender Value as of the beginning of the Policy Year.
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<PAGE> 31
- -Reduction of the Specified Amount
When a partial surrender is made, in addition to the Cash Value being reduced by
the amount of the partial surrender, the Specified Amount also is reduced,
except for a preferred partial surrender. The reduction to the Specified Amount
will be made in the following order: (1) against the most recent increase in the
Specified Amount; (2) against the next most recent increases in the Specified
Amount in succession; and (3) against the Specified Amount under the original
application.
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
100th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any Indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided, (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value exceeds
the employer's interest in the Policy. Participants should consult with the
sponsor or the administrator of the Plan, and/or with their personal tax or
legal advisor, to determine the tax consequences, if any, of their
employer-sponsored life insurance arrangements.
POLICY LOANS
TAKING A POLICY LOAN
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Value in the Sub-Accounts of the Variable Account plus 100% of the Cash Value in
the Fixed Account plus 100% of the Cash Value in the Policy Loan Account. The
Company will not grant a loan for an amount less than $500 (unless otherwise
required by state law). Should the Death Proceeds become payable, the Policy be
surrendered, or the Policy mature while a loan is outstanding, the amount of
Policy Indebtedness will be deducted from the death benefit, Cash Surrender
Value or the maturity value, respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed. Where permitted, the Company will require
the signature to be guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange; or by a Commercial Bank
or a Savings and Loan which is a member of the Federal Deposit Insurance
Corporation. Certain policy loans may result in currently taxable income and tax
penalties (see "Tax Matters").
A Policy Owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the Policy from lapsing. The amount of such payments necessary to prevent
the Policy from lapsing would increase with age (see "Tax Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one Sub-Account, withdrawals from Sub-Accounts
will be made in proportion to the assets in each Variable Sub-Account at the
time of the loan. Policy loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable Sub-Accounts. The amount
taken out of the Variable Account will not be affected by the Variable Account's
investment experience while the loan is outstanding.
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<PAGE> 32
INTEREST
On a current and guaranteed basis, any Cash Value allocated to the Policy Loan
Account will be credited with an annual effective rate of 3.0% in Policy Years 2
and thereafter. The loan interest rate is guaranteed to not exceed 3.75% per
year for all Policy loans. On a current basis, the loan interest rate is 3.4% in
Policy Years one through four, 3.25% in Policy Years five through twenty, and
3.10% thereafter. In the event that it is determined that such loans will be
treated, as a result of the differential between the interest crediting rate and
the loan interest rate, as taxable distributions under any applicable ruling,
regulation, or court decision, the Company retains the right to increase the net
cost (by decreasing the interest crediting rate) on all subsequent policy loans
to an amount that would result in the transaction being treated as a loan under
Federal tax law. If this amount is not prescribed by such ruling, regulation, or
court decision, the amount will be that which the Company considers to be more
likely to result in the transaction being treated as a loan under Federal tax
law.
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary,
at the time a new loan is requested, or at the time of loan repayment. It will
be allocated according to the Fund allocation factors in effect at the time of
the transfer.
Interest is charged daily and is payable at the end of each Policy Year or at
the time of loan repayment. Unpaid interest will be added to the existing Policy
Indebtedness as of the due date and will be charged interest at the same rate as
the rest of the Indebtedness.
Whenever the total Policy Indebtedness exceeds the Cash Value, the Company will
send a notice to the Policy Owner and the assignee, if any. The Policy will
terminate without value 61 days after the mailing of the notice unless a
sufficient repayment is made during that period. A repayment is sufficient if it
is large enough to reduce the total Policy Indebtedness to an amount equal to
the total Cash Value plus an amount sufficient to continue the Policy in force
for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the Indebtedness may be repaid at any time while the Policy is in
force during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the Variable Sub-Accounts and the Fixed Account in proportion to
the Policy Owner's Underlying Mutual Fund allocation factors in effect at the
time of the repayment. Each repayment may not be less than $50. The Company
reserves the right to require that any loan repayments resulting from Policy
loans transferred from the Fixed Account must be first allocated to the Fixed
Account.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects the Specified Amount, death benefit option,
and definition of life insurance (Guideline Premium/Cash Value Corridor Test or
the Cash Value Accumulation Test) pursuant to Section 7702 of the Code.
While the Policy is in force, the death benefit will never be less than the
Specified Amount. The death benefit may vary with the Cash Value of the Policy,
which depends on investment performance.
The Policy Owner may choose one of three death benefit options.
Under Option 1, the death benefit will be the greater of the Specified Amount or
the applicable percentage of cash value. Under Option 1, the amount of the death
benefit will ordinarily not change for several years to reflect the investment
performance and may not change at all. If investment performance is favorable
the amount of death benefit may increase. To see how and when investment
performance will begin to affect death benefits, please see the illustrations.
Under Option 2, the death benefit will be the greater of the Specified Amount
plus the Cash Value as of the date of death, or the applicable percentage of
cash value and will vary directly with the investment performance.
Under Option 3, the death benefit is the greater of: the applicable percentage
of the Cash Value (see Table below) as of the date of death; or the Specified
Amount plus the lesser of either: (i) the maximum increase amount shown on the
Policy, or (ii) the amount of all premium payments and interest accrued at the
Option 3 interest rate as shown in the Policy, accumulated up to the date of
death, less any partial surrenders and
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<PAGE> 33
applicable interest accrued at the Option 3 interest rate as shown in the
Policy. Once elected, Option 3 is irrevocable.
The "Applicable Percentage" for the Guideline Premium/Cash Value Corridor Test
is in the Tables below:
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 101%
56 146% 76 105% 96 101%
57 142% 77 105% 97 101%
58 138% 78 105% 98 101%
59 134% 79 105% 99 101%
</TABLE>
The "Applicable Percentage" for the Cash Value Accumulation Test is the Table
below:
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C> <C>
16 708.43% 44 292.29% 72 141.69%
17 687.69% 45 283.37% 73 139.10%
18 667.85% 46 274.79% 74 136.66%
19 648.73% 47 266.55% 75 134.38%
20 630.14% 48 258.61% 76 133.56%
21 611.94% 49 250.98% 77 132.83%
22 594.06% 50 243.65% 78 132.18%
23 576.45% 51 236.59% 79 131.58%
24 559.07% 52 229.82% 80 131.04%
25 541.95% 53 223.34% 81 130.55%
26 525.08% 54 217.13% 82 130.12%
27 508.52% 55 211.19% 83 127.37%
28 492.32% 56 205.51% 84 124.75%
29 476.49% 57 200.06% 85 122.26%
30 461.08% 58 194.84% 86 119.89%
31 446.10% 59 189.84% 87 117.63%
32 431.57% 60 185.03% 88 115.44%
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
<S> <C> <C> <C> <C> <C> <C>
33 417.50% 61 180.43% 89 113.31%
34 403.89% 62 176.02% 90 112.35%
35 390.73% 63 171.81% 91 111.38%
36 378.03% 64 167.80% 92 110.38%
37 365.79% 65 163.98% 93 109.32%
38 354.01% 66 160.34% 94 108.18%
39 342.67% 67 156.86% 95 106.94%
40 331.77% 68 153.54% 96 105.62%
41 321.30% 69 150.37% 97 104.27%
42 311.24% 70 147.33% 98 102.99%
43 301.57% 71 144.44% 99 101.98%
</TABLE>
In the event the Policy Owner has a substandard rating, the above percentages
will differ.
PROCEEDS PAYABLE ON DEATH
The actual Death Proceeds payable on the Insured's death will be the death
benefit as described above, less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted
(see "Incontestability", "Error in Age", and "Suicide").
RIGHT OF CONVERSION
The Policy Owner may at any time, upon written request to the Company within 24
months of the Policy Date, make an irrevocable, one-time election to transfer
all Sub-Account Cash Values to the Fixed Account. The Right of Conversion
provision is subject to state availability.
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of the Variable Account.
The Company must inform the Policy Owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the Policy Owners or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy Owner may elect to transfer all
Sub-Account Cash Value to the Fixed Account. No transfer charges will be
assessed. The Policy Owner has the later of 60 days (6 months in Pennsylvania)
from the date of the investment policy change or 60 days (6 months in
Pennsylvania) from being informed of such change to make this conversion. The
Company will not require evidence of insurability for this conversion.
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the Policy converted on the date of such conversion.
GRACE PERIOD
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current Policy Charges, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of a premium equal to three
times the current monthly deduction. The Company will send a notice at the start
of the Grace Period to the Policy Owner's address as indicated on the
application or the last address specified. If the required premium is not paid
by the end of the Grace Period, the Policy will terminate without value. If the
Insured dies during the Grace Period, the Company will pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end
of the Grace Period and prior to the Maturity Date;
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<PAGE> 35
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all Policy Charges that were due
and unpaid during the Grace Period;
4. paying sufficient premium to keep the Policy in force for 3 months
from the date of reinstatement; and
5. paying or reinstating any Indebtedness against the Policy which
existed at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day on
or next following the date the application for reinstatement is approved by the
Company. If the Policy is reinstated, the Cash Value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the Cash Value at the end of the Grace Period.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the Underlying Mutual Fund allocation factors in effect at the start of
the Grace Period.
THE FIXED ACCOUNT OPTION
Under exemptive and exclusionary provisions, interests in the Company's General
Account have not been registered under the Securities Act of 1933 and the
General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor any
interests therein is subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this prospectus relating to the Fixed Account
option. Disclosures regarding the General Account may, however, be subject to
certain generally applicable provisions of the federal securities laws
concerning the accuracy and completeness of statements made in prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of the Company's General Account. The Company's General
Account consists of all assets of the Company other than those in the Variable
Account and in other separate accounts that have been or may be established by
the Company. Subject to applicable law, the Company has sole discretion over the
investment of the assets of the General Account, and Policy Owners do not share
in the investment experience of those assets. The Company guarantees that the
part of the Cash Value invested under the Fixed Account option will accrue
interest daily at an effective annual rate that the Company declares
periodically. The Fixed Account crediting rate will not be less than an
effective annual rate of 3%. Upon request the Company will inform a Policy Owner
of the then applicable rate. The Company is not obligated to credit interest at
a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under the
Policy. Any request must be in writing and received at the Company's Home
Office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
SPECIFIED AMOUNT INCREASES
After the first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy in force
for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the Monthly Anniversary Day
on or next following the date the Company approves the supplemental application
unless a different date is requested by the Policy Owner. The Company reserves
the right to limit the number of Specified Amount increases to one each Policy
Year.
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<PAGE> 36
SPECIFIED AMOUNT DECREASES
After the first Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
1. reduce the Specified Amount to less than $50,000 ($100,000 in New
Jersey and Pennsylvania); or
2. disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the first Policy Year, the Policy Owner may elect to change the death
benefit option under the Policy from either Option 1 to Option 2, or from Option
2 to Option 1. Initial elections to Option 3 are irrevocable. Accordingly, such
changes to or from Option 3 are not permitted. Only one change of death benefit
option is permitted per Policy Year. The effective date of such change will be
the Monthly Anniversary Day following the date such change is approved by the
Company.
In order for any such change in the death benefit option to become effective,
the Cash Surrender Value, after such change, must be sufficient to keep the
Policy in force for at least three months subsequent to said change.
The Company will adjust the Specified Amount such that the Net Amount at Risk
remains constant. Any such change which would result in the Specified Amount
being reduced to an amount in which the total premiums paid exceed the premium
limit required by applicable state law to qualify the Policy as a contract for
life insurance will not be permitted.
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to the
Company and recorded at the Company's Home Office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by the Company before it was recorded. The Company may require that
the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Company's Home Office. Once recorded, the change will be effective when signed.
The change will not affect any payment made or action taken by the Company
before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insured's, the Death Proceeds shall be paid to
the Policy Owner or the Policy Owner's estate.
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<PAGE> 37
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its Home Office. Any assignment will not affect any
payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before it
was recorded.
INCONTESTABILITY
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not contest payment of the
Death Proceeds based on such an increase after it has been in force during the
Insured's lifetime for 2 years from its effective date.
ERROR IN AGE
If the age of the Insured has been misstated, the affected benefits will be
adjusted. The amount of the death benefit will be (1) multiplied by (2) and then
the result added to (3), where:
1. is the amount of the death benefit at the time of the Insured's death
reduced by the amount of the Cash Value at the time of the Insured's
death;
2. is the ratio of the monthly cost of insurance applied in the policy
month of death and the monthly cost of insurance that should have been
applied at the true age in the policy month of death; and
3. is the Cash Value at the time of the Insured's death.
SUICIDE
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in the
Specified Amount, the Company will pay no more than the amount paid for such
additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. The
Policies do not share in the profits or surplus earnings of the Company.
RIDERS
A rider may be added as an addition to the Policy. Riders currently include:
1. Base Insured Term Rider;
2. Change of Insured Rider; and
3. Additional Protection Rider.
Rider availability varies by state.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The Policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women and thus the Policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this Policy.
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<PAGE> 38
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives of
broker dealers registered under the Securities Exchange Act of 1934 who are
member firms of the National Association of Securities Dealers, Inc. ("NASD").
The Policies will be distributed by the General Distributor, Nationwide Advisory
Services, Inc. NAS acts as general distributor for the Nationwide Multi-Flex
Variable Account, Nationwide DC Variable Account, Nationwide Variable
Account-II, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Variable Account-8, Nationwide Variable Account-9, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C, Nationwide VL Separate Account-A, Nationwide VL Separate Account-B,
Nationwide VL Separate Account-C, Nationwide VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VLI Separate Account-4, NACo Variable Account
and the Nationwide Variable Account, all of which are separate investment
accounts of the Company or its affiliates. NAS is a wholly owned subsidiary of
the Company.
NAS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust,
Nationwide Investing Foundation II and Nationwide Asset Allocation Trust, which
are open-end management investment companies.
Gross first year commissions plus any expense allowance payments made by the
Company on the sale of these Policies distributed by the General Distributor
will not exceed 40% of the Target Premium plus 5% of any excess premium payments
in year one and 25% of the Target Premium plus 5% on the excess premium in years
two through four. Gross renewal commissions paid at the beginning of Policy Year
five and beyond by the Company will not exceed 2.5% of actual premium payments
plus an annual effective rate of 0.20%, paid quarterly, of the Cash Value as of
the end the prior quarter.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company will
monitor compliance with these tests. The Policy should thus receive the same
federal income tax treatment as fixed benefit life insurance. As a result, the
Death Proceeds payable under a Policy are excludable from gross income of the
beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those policies
issued or materially changed on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (see "Information about the Policies"). The Code states that taxation
of surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts (other than certain
distributions to terminally ill or chronically ill individuals) are subject to
federal income taxes a manner similar to the way annuities are taxed. Modified
endowment contract distributions are defined by the Code as amounts not received
as an annuity and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into the policy. A 10%
tax penalty generally applies to the taxable portion of such distributions
unless the Policy Owner is over age 59 1/2 or disabled or the distribution is
part of an annuity to the Policy Owner as defined in the Code. Under certain
circumstances, certain distributions made under a Policy on the life of a
"terminally ill individual" or a "chronically ill individual," as those terms
are defined in the Code, are excludable from gross income.
The Policies offered by this prospectus may or may not be issued as modified
endowment contracts. The Company will monitor premiums paid and will notify the
Policy Owner when the policy's non-modified endowment status is in jeopardy. If
a Policy is not a modified endowment contract, a cash distribution during the
first 15 years after a Policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Owner pursuant to
Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this
potential effect and seek further information before initiating any changes in
the terms of the policy. Under certain conditions, a Policy may become a
modified endowment as a result of a material change or a reduction in benefits
as defined by Section 7702A(c) of the Code.
35
<PAGE> 39
In addition to meeting the tests required under Sections 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations under 817(h) provide that a
variable life policy that fails to satisfy the diversification standards will
not be treated as life insurance unless such failure was inadvertent, is
corrected, and the Policy Owner or the Company pays an amount to the Internal
Revenue Service. The amount will be based on the tax that would have been paid
by the Policy Owner if the income, for the period the policy was not
diversified, had been received by the Policy Owner. If the failure to diversify
is not corrected in this manner, the Policy Owner will be deemed the owner of
the underlying securities and taxed on the earnings of his or her account.
Representatives of the Internal Revenue Service have suggested, from time to
time, that the number of Underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of Underlying
Mutual Funds, transfers between Underlying Mutual Funds, exchanges of Underlying
Mutual Funds or changes in investment objectives of Underlying Mutual Funds such
that the Policy would no longer qualify as life insurance under Section 7702 of
the Code, the Company will take whatever steps are available to remain in
compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Sub-Account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse or the maturity of the
Policy on its Maturity Date may have adverse tax consequences. If the amount
received by the Policy Owner plus total Policy Indebtedness exceeds the premiums
paid into the Policy, the excess generally will be treated as taxable income,
regardless of whether or not the Policy is a modified endowment contract.
- - Non-Resident Aliens
Distributions of income to nonresident aliens ("NRAs") are generally subject to
federal income tax and tax withholding, at a statutory rate of 30% of the amount
of income that is distributed. The Company is required to withhold such amount
from the Distribution and remit it to the Internal Revenue Service.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the Internal
Revenue Service. In addition, for any Distribution made after December 31, 1997,
the NRA must obtain an individual Taxpayer Identification Number from the
Internal Revenue Service, and furnish that number to the Company prior to the
Distribution. If the Company does not have the proper proof of citizenship or
residency and (for Distributions after December 31, 1997) a proper individual
Taxpayer Identification Number prior to any Distribution, the Company will be
required to withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that such
payment is includable in the recipient's gross income for United States federal
income tax purposes, Any such distributions may be subject to back-up
withholding at the statutory rate (currently 31%) if not taxpayer identification
number, or an incorrect taxpayer identification number, is provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of Policy proceeds depend on the circumstances of each
Policy Owner or Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. The Variable
Account will not be taxed separately from the Company as a "regulated investment
company" under Sub-chapter M of the Code. Investment income and realized capital
gains on the assets of the Variable Account are reinvested and taken into
account in determining the value of Accumulation Units. As a result, such
investment income and realized capital gains are automatically applied to
increase reserves under the Policies. Under Ohio law, in general, variable
account assets are immune from the claims of the general creditors of the
Company to the extent of the reserves and other policy liabilities.
The Company does not initially expect to incur any Federal income tax liability
that would be chargeable to the Variable
36
<PAGE> 40
Account. Based upon these expectations, no charge is currently being made
against the Variable Account for federal income taxes. If, however, the Company
determines that on a separate Company basis such taxes may be incurred, it
reserves the right to assess a charge for such taxes against the Variable
Account.
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on the Company's understanding of
federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice.
In the recent past, the Code has been subjected to numerous amendments and
changes, and it is reasonable to believe that it will continue to be revised.
The United States Congress has, in the past, considered numerous legislative
proposals that, if enacted, could change the tax treatment of the Policies. It
is reasonable to believe that such proposals, and other proposals will be
considered in the future, and some may be enacted into law. In addition, the
U.S. Treasury Department may amend existing regulations, issue new regulations,
or adopt new interpretations of existing law that may be at variance with its
current positions on these matters. In addition, current state law (which is not
discussed herein), and future amendments to state law, may affect the tax
consequences of the Policy.
If the Policy Owner, Insured, or Beneficiary or other person receiving any
benefit or interest in or from the Policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the Policy, the
Death Proceeds, or other Distributions and/or ownership of the Policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a Policy may be changed retroactively. There
is no way of predicting if when, and to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE POLICIES. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company serves as depositor for the Nationwide Variable Account, Nationwide
Variable Account-II, Nationwide Variable Account-3, Nationwide Variable
Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8,
Nationwide Variable Account-9, MFS Variable Account, Nationwide Multi-Flex
Variable Account, Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
NACo Variable Account, Nationwide DC Variable Account and the Nationwide
DCVA-II, each of which is a registered investment company, and each of which is
a separate investment account of the Company.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
37
<PAGE> 41
As is customary in insurance Company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
the Company shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Insurance Company, National Casualty Company, Scottsdale Indemnity Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide Insurance Enterprise. The companies comprising the Nationwide
Insurance Enterprise have substantially common boards of directors and officers.
Nationwide Financial Services, Inc. is the sole shareholder of Nationwide Life.
<TABLE>
<CAPTION>
DIRECTORS OF THE COMPANY
Director
Name Since Principal Occupation
<S> <C> <C>
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner, Fred W. Eckel Sons; President,
Eckel Farms, Inc. (1)
Willard J. Engel 1994 General Manager Lyon County Co-Operative
Oil Company (1)
Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm;
Operator, Melrose Orchard (1)
Charles L. Fuellgraf, Jr. * + 1969 Chief Executive Officer, Fuellgraf Electric
Company. (1)
Joseph J. Gasper*+ 1996 President and Chief Operating Officer,
Nationwide Life and Annuity Insurance
Company and Nationwide Life and Annuity
Insurance Company. (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
Dimon Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide
Insurance Enterprise (2)
David O. Miller *+ 1985 President, Owen Potato Farm, Inc.; Partner,
M&M Enterprises (1)
C. Ray Noecker 1994 Owner and Operator, Noecker Farms (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc.;
President, Patterson Farms, Inc. (1)
Arden L. Shisler *+ 1984 President and Chief Executive Officer, K&B
Transport, Inc. (1)
Robert L. Stewart 1989 Owner and Operator, Sunnydale Farms and Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator. (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farms (1)
*Member, Executive +Member, Investment Committee
Committee
</TABLE>
1) Principal occupation for last five years.
2) Prior to assuming this current position, Messrs. McFerson and Gasper held
other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson
and Gasper are directors of Nationwide Advisory Services, Inc., a registered
broker-dealer.
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<PAGE> 42
Messrs. Holloway, McFerson, Miller, Patterson, Shisler and Fuellgraf are
directors of Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson,
Ms. Thomas and Mr. Weihl are trustees of Nationwide Investing Foundation, a
registered investment Company. Mr. McFerson is trustee of Nationwide Separate
Account Trust, Financial Horizons Investment Trust, Nationwide Investing
Foundation II and Nationwide Asset Allocation Trust, registered investment
companies. Mr. Engel is a director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
NAME OFFICE HELD
Dimon Richard McFerson Chairman and Chief Executive
Officer-Nationwide Insurance
Enterprise
Joseph J. Gasper President and Chief Operating
Officer
Gordon E. McCutchan Executive Vice President, Law and
Corporate Services
Robert A. Oakley Executive Vice President-Chief
Financial Officer
Robert J. Woodward, Jr. Executive Vice President-Chief
Investment Officer
James E. Brock Senior Vice President - Corporate
Development
W. Sidney Druen Senior Vice President and General
Counsel and Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief
Actuary
Richard A. Karas Senior Vice President - Sales and
Financial Services
Susan A. Wolken Senior Vice President - Life
Company Operations
Mark R. Thresher Vice President - Controller
Duane M. Campbell Vice President - Treasurer
Dennis W. Click Vice President - Secretary
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life and
Annuity Insurance Company. Mr. Galloway is also an officer of Nationwide Mutual
Insurance Company and Nationwide Life and Annuity Insurance Company. Each of the
other officers listed above is also an officer of each of the companies
comprising the Nationwide Insurance Enterprise. Each of the executive officers
listed above has been associated with the registrant in an executive capacity
for more than the past five years, except Mr. Thresher, who joined the
Registrant in 1996. From 1988-1996, Mr. Thresher served as a partner in the
accounting firm KPMG Peat Marwick LLP and lead partner for Nationwide Insurance
Enterprise from 1993 to March, 1996.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of the Company.
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
the Company for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine the Company's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. The Company's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, the Company is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
39
<PAGE> 43
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the address specified on the
application or any address provided subsequent to the application, an annual
statement showing the amount of the current death benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each Sub-Account of the Variable Account, and any Policy
Indebtedness.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the Investment
Company Act of 1940.
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes in
future premium allocation, transfers among Sub-Accounts, premium payments,
loans, loan repayments, reinstatement and termination.
ADVERTISING
The Company is also ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of the
Company. The ratings are not intended to reflect the investment experience or
financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Policies. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In February 1997, Nationwide Life was named as a
defendant in a lawsuit filed in New York Supreme Court also related to the sale
of whole life policies on a "vanishing premium" basis (John H. Snyder v.
Nationwide Mutual Insurance Company, Nationwide Mutual Insurance Co. and
Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to represent
a national class of Nationwide Life policyholders and claims unspecified
compensatory and punitive damages. This lawsuit is in an early stage and has not
been certified as a class action. Nationwide Life intends to defend this case
vigorously. There can be no assurance that any future litigation relating to
pricing and sales practices will not have a material adverse effect on the
Company.
The General Distributor, Nationwide Advisory Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
The financial statements have been included herein in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
40
<PAGE> 44
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Account, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus,
Ohio 43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
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<PAGE> 45
APPENDIX 1
ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and death benefits under a
Policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is no Policy Indebtedness, no additional premium
payments are made, no Cash Values are allocated to the Fixed Account, and there
are no changes in the Specified Amount or death benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and death benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the Sub-Accounts is lower than the gross return. This is due
to the daily charges made against the assets of the Sub-Accounts for assuming
mortality and expense risks. The guaranteed mortality and expense risk charges
for Policy Years one through four are equivalent to an annual effective rate of
0.75% of the daily net asset value of the Variable Account. The current
mortality and expense risk charges for Policy Years one through four are
equivalent to an annual effective rate of 0.40% of the daily net asset value of
the Variable Account. The current mortality and expense risk charges for Policy
Years five through twenty are equivalent to an annual effective rate of 0.25% of
the daily net asset value of the Variable Account. The current mortality and
expense risk charges for Policy Years twenty-one and beyond are equivalent to an
annual effective rate of 0.10% of the daily net asset value of the Variable
Account. In addition, the net investment returns also reflect the deduction of
Underlying Mutual Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.90% of the daily net asset value of
the Variable Account. This effective rate is based on the average of the fund
expenses for all mutual fund options available under the policy as of October
22, 1997.
Considering current charges for mortality and expense risks and Underlying
Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.30, 4.70% and 10.70%
for Policy Years one through four, and rates of -1.15%, 4.85% and 10.85%, for
Policy Years five through twenty, and rates of -1.00%, 5.00% and 11.00%, for
Policy Years twenty-one and beyond. Considering guaranteed charges for mortality
and expense risks and Underlying Mutual Fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -1.65%, 4.35% and 10.35%, for all Policy Years.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as standard. Policies issued on a substandard basis would result in lower
Cash Values and Death benefits than those illustrated.
The illustrations also reflect the fact that the Company deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven Policy Years and 2% thereafter. On a current basis,
the sales load is 5.5% of the Target Premium plus 3% of premiums in excess of
the Target Premium in the first seven Policy Years, and 0% on all premiums
thereafter. The Company also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that the Company deducts a charge for state premium taxes at a rate of
2.25% and for federal tax at a rate of 1.25% (imposed under Section 848 of the
Code) of all premium payments.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy Month. This
monthly administrative expense charge is currently $5.00 per month and
guaranteed not to exceed $10.00. The illustrations also reflect the fact that no
charges for federal or state income taxes are currently made against the
Variable Account. If such a charge is made in the future, it will require a
higher gross investment return than illustrated in order to produce the net
after-tax returns shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, smoking classification, rating classification and
premium payment requested.
42
<PAGE> 46
$100,000 ANNUAL PREMIUM FOR 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 87,973 90,116 1,703,050 93,358 95,501 1,703,050 98,745 100,888 1,703,050
2 215,250 174,541 176,684 1,703,050 190,783 192,926 1,703,050 207,670 209,813 1,703,050
3 331,013 260,057 260,057 1,703,050 292,828 292,828 1,703,050 328,245 328,245 1,703,050
4 452,563 344,488 344,488 1,703,050 399,678 399,678 1,703,050 461,696 461,696 1,703,050
5 580,191 428,425 428,425 1,703,050 512,284 512,284 1,703,050 610,298 610,298 1,703,050
6 714,201 511,353 511,353 1,703,050 630,358 630,358 1,703,050 774,770 774,770 1,887,649
7 854,911 593,340 593,340 1,703,050 754,109 754,109 1,784,147 955,930 955,930 2,261,636
8 897,656 582,320 582,320 1,703,050 786,308 786,308 1,807,093 1,053,187 1,053,187 2,420,434
9 942,539 571,033 571,033 1,703,050 819,770 819,770 1,830,792 1,160,182 1,160,182 2,591,035
10 989,666 559,430 559,430 1,703,050 854,523 854,523 1,855,341 1,277,853 1,277,853 2,774,475
11 1,039,150 547,500 547,500 1,703,050 890,636 890,636 1,880,844 1,407,280 1,407,280 2,971,893
12 1,091,107 535,197 535,197 1,703,050 928,148 928,148 1,907,343 1,549,606 1,549,606 3,184,440
13 1,145,662 522,503 522,503 1,703,050 967,129 967,129 1,934,838 1,706,133 1,706,133 3,413,290
14 1,202,945 509,372 509,372 1,703,050 1,007,632 1,007,632 1,963,270 1,878,257 1,878,257 3,659,597
15 1,263,093 495,616 495,616 1,703,050 1,049,602 1,049,602 1,992,459 2,067,297 2,067,297 3,924,349
16 1,326,247 481,136 481,136 1,703,050 1,093,062 1,093,062 2,022,493 2,274,827 2,274,827 4,209,112
17 1,392,560 465,814 465,814 1,703,050 1,138,032 1,138,032 2,053,237 2,502,553 2,502,553 4,515,106
18 1,462,188 449,480 449,480 1,703,050 1,184,501 1,184,501 2,084,840 2,752,261 2,752,261 4,844,255
19 1,535,297 431,953 431,953 1,703,050 1,232,460 1,232,460 2,117,489 3,025,885 3,025,885 5,198,773
20 1,612,062 413,057 413,057 1,703,050 1,281,920 1,281,920 2,150,933 3,325,569 3,325,569 5,579,972
21 1,692,665 394,774 394,774 1,703,050 1,335,923 1,335,923 2,190,513 3,661,946 3,661,946 6,004,493
22 1,777,298 376,474 376,474 1,703,050 1,392,759 1,392,759 2,233,011 4,033,961 4,033,961 6,467,649
23 1,866,163 357,031 357,031 1,703,050 1,451,872 1,451,872 2,277,406 4,443,333 4,443,333 6,969,812
24 1,959,471 335,925 335,925 1,703,050 1,513,115 1,513,115 2,323,237 4,893,023 4,893,023 7,512,748
25 2,057,445 312,946 312,946 1,703,050 1,576,553 1,576,553 2,370,504 5,386,893 5,386,893 8,099,733
26 2,160,317 287,835 287,835 1,703,050 1,642,238 1,642,238 2,419,509 5,929,122 5,929,122 8,735,375
27 2,268,333 260,345 260,345 1,703,050 1,710,256 1,710,256 2,470,123 6,524,388 6,524,388 9,423,173
28 2,381,750 230,158 230,158 1,703,050 1,780,670 1,780,670 2,523,032 7,177,712 7,177,712 10,170,100
29 2,500,837 196,875 196,875 1,703,050 1,853,532 1,853,532 2,578,078 7,894,532 7,894,532 10,980,504
30 2,625,879 160,022 160,022 1,703,050 1,928,876 1,928,876 2,636,002 8,680,686 8,680,686 11,863,025
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
43
<PAGE> 47
$100,000 ANNUAL PREMIUM FOR 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 81,804 83,947 1,703,050 86,939 89,082 1,703,050 92,079 94,222 1,703,050
2 215,250 162,060 164,203 1,703,050 177,411 179,554 1,703,050 193,381 195,524 1,703,050
3 331,013 240,818 240,818 1,703,050 271,628 271,628 1,703,050 304,952 304,952 1,703,050
4 452,563 318,117 318,117 1,703,050 369,810 369,810 1,703,050 427,954 427,954 1,703,050
5 580,191 393,976 393,976 1,703,050 472,176 472,176 1,703,050 563,678 563,678 1,703,050
6 714,201 468,422 468,422 1,703,050 578,979 578,979 1,703,050 713,577 713,577 1,738,559
7 854,911 541,443 541,443 1,703,050 690,462 690,462 1,703,050 877,092 877,092 2,075,111
8 897,656 522,801 522,801 1,703,050 711,259 711,259 1,703,050 955,774 955,774 2,196,559
9 942,539 503,355 503,355 1,703,050 732,313 732,313 1,703,050 1,041,054 1,041,054 2,324,986
10 989,666 482,981 482,981 1,703,050 753,591 753,591 1,703,050 1,133,421 1,133,421 2,460,884
11 1,039,150 461,562 461,562 1,703,050 775,077 775,077 1,703,050 1,233,415 1,233,415 2,604,726
12 1,091,107 438,986 438,986 1,703,050 796,765 796,765 1,703,050 1,341,636 1,341,636 2,757,063
13 1,145,662 415,134 415,134 1,703,050 818,655 818,655 1,703,050 1,458,738 1,458,738 2,918,351
14 1,202,945 389,865 389,865 1,703,050 840,742 840,742 1,703,050 1,585,421 1,585,421 3,089,034
15 1,263,093 362,988 362,988 1,703,050 863,001 863,001 1,703,050 1,722,402 1,722,402 3,269,635
16 1,326,247 334,244 334,244 1,703,050 885,376 885,376 1,703,050 1,870,394 1,870,394 3,460,790
17 1,392,560 303,295 303,295 1,703,050 907,785 907,785 1,703,050 2,030,107 2,030,107 3,662,719
18 1,462,188 269,748 269,748 1,703,050 930,136 930,136 1,703,050 2,202,267 2,202,267 3,876,209
19 1,535,297 233,157 233,157 1,703,050 952,337 952,337 1,703,050 2,387,626 2,387,626 4,102,180
20 1,612,062 193,032 193,032 1,703,050 974,303 974,303 1,703,050 2,587,009 2,587,009 4,340,743
21 1,692,665 148,890 148,890 1,703,050 995,985 995,985 1,703,050 2,801,365 2,801,365 4,593,398
22 1,777,298 100,208 100,208 1,703,050 1,017,350 1,017,350 1,703,050 3,031,751 3,031,751 4,860,806
23 1,866,163 46,413 46,413 1,703,050 1,038,375 1,038,375 1,703,050 3,279,349 3,279,349 5,143,987
24 1,959,471 0 0 0 1,059,009 1,059,009 1,703,050 3,545,373 3,545,373 5,443,566
25 2,057,445 0 0 0 1,079,135 1,079,135 1,703,050 3,830,967 3,830,967 5,760,242
26 2,160,317 0 0 0 1,098,577 1,098,577 1,703,050 4,137,162 4,137,162 6,095,281
27 2,268,333 0 0 0 1,117,090 1,117,090 1,703,050 4,464,907 4,464,907 6,448,664
28 2,381,750 0 0 0 1,134,370 1,134,370 1,703,050 4,814,977 4,814,977 6,822,341
29 2,500,837 0 0 0 1,150,082 1,150,082 1,703,050 5,188,199 5,188,199 7,216,267
30 2,625,879 0 0 0 1,163,924 1,163,924 1,703,050 5,585,598 5,585,598 7,633,278
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
44
<PAGE> 48
$100,000 ANNUAL PREMIUM FOR 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 2
CURRENT VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 87,773 89,916 1,790,823 93,146 95,289 1,796,196 98,521 100,664 1,801,571
2 215,250 173,897 176,039 1,876,947 190,074 192,216 1,893,124 206,892 209,035 1,909,942
3 331,013 258,730 258,730 1,961,780 291,307 291,307 1,994,357 326,512 326,512 2,029,562
4 452,563 342,210 342,210 2,045,260 396,965 396,965 2,100,015 458,486 458,486 2,161,536
5 580,191 424,873 424,873 2,127,923 507,889 507,889 2,210,939 604,896 604,896 2,307,946
6 714,201 506,162 506,162 2,209,212 623,682 623,682 2,326,732 766,547 766,547 2,469,597
7 854,911 586,114 586,114 2,289,164 744,602 744,602 2,447,652 945,099 945,099 2,648,149
8 897,656 572,959 572,959 2,276,009 773,602 773,602 2,476,652 1,039,565 1,039,565 2,742,615
9 942,539 559,424 559,424 2,262,474 803,445 803,445 2,506,495 1,143,598 1,143,598 2,846,648
10 989,666 545,447 545,447 2,248,497 834,103 834,103 2,537,153 1,258,155 1,258,155 2,961,205
11 1,039,150 531,026 531,026 2,234,076 865,608 865,608 2,568,658 1,384,356 1,384,356 3,087,406
12 1,091,107 516,108 516,108 2,219,158 897,940 897,940 2,600,990 1,523,387 1,523,387 3,226,437
13 1,145,662 500,683 500,683 2,203,733 931,123 931,123 2,634,173 1,676,609 1,676,609 3,379,659
14 1,202,945 484,702 484,702 2,187,752 965,141 965,141 2,668,191 1,845,456 1,845,456 3,595,686
15 1,263,093 467,918 467,918 2,170,968 999,772 999,772 2,702,822 2,031,131 2,031,131 3,855,697
16 1,326,247 450,219 450,219 2,153,269 1,034,922 1,034,922 2,737,972 2,235,030 2,235,030 4,135,476
17 1,392,560 431,476 431,476 2,134,526 1,070,470 1,070,470 2,773,520 2,458,771 2,458,771 4,436,115
18 1,462,188 411,495 411,495 2,114,545 1,106,224 1,106,224 2,809,274 2,704,110 2,704,110 4,759,504
19 1,535,297 390,081 390,081 2,093,131 1,141,977 1,141,977 2,845,027 2,972,945 2,972,945 5,107,817
20 1,612,062 367,059 367,059 2,070,109 1,177,534 1,177,534 2,880,584 3,267,384 3,267,384 5,482,344
21 1,692,665 344,829 344,829 2,047,879 1,216,627 1,216,627 2,919,677 3,597,875 3,597,875 5,899,436
22 1,777,298 322,819 322,819 2,025,869 1,257,656 1,257,656 2,960,706 3,963,380 3,963,380 6,354,487
23 1,866,163 299,600 299,600 2,002,650 1,299,242 1,299,242 3,002,292 4,365,588 4,365,588 6,847,862
24 1,959,471 274,578 274,578 1,977,628 1,340,789 1,340,789 3,043,839 4,807,410 4,807,410 7,381,297
25 2,057,445 247,580 247,580 1,950,630 1,382,096 1,382,096 3,085,146 5,292,637 5,292,637 7,958,010
26 2,160,317 218,396 218,396 1,921,446 1,422,916 1,422,916 3,125,966 5,825,377 5,825,377 8,582,528
27 2,268,333 186,857 186,857 1,889,907 1,463,027 1,463,027 3,166,077 6,410,226 6,410,226 9,258,290
28 2,381,750 152,736 152,736 1,855,786 1,502,135 1,502,135 3,205,185 7,052,117 7,052,117 9,992,145
29 2,500,837 115,752 115,752 1,818,802 1,539,875 1,539,875 3,242,925 7,756,394 7,756,394 10,788,368
30 2,625,879 75,586 75,586 1,778,636 1,575,820 1,575,820 3,278,870 8,528,790 8,528,790 11,655,445
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
45
<PAGE> 49
$100,000 ANNUAL PREMIUM FOR 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 2
GUARANTEED VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 81,397 83,539 1,784,447 86,507 88,650 1,789,557 91,622 93,765 1,794,672
2 215,250 160,805 162,948 1,863,855 176,027 178,170 1,879,077 191,863 194,005 1,894,913
3 331,013 238,224 238,224 1,941,274 268,655 268,655 1,971,705 301,563 301,563 2,004,613
4 452,563 313,634 313,634 2,016,684 364,469 364,469 2,067,519 421,632 421,632 2,124,682
5 580,191 386,984 386,984 2,090,034 463,519 463,519 2,166,569 553,033 553,033 2,256,083
6 714,201 458,221 458,221 2,161,271 565,854 565,854 2,268,904 696,829 696,829 2,399,879
7 854,911 527,226 527,226 2,230,276 671,457 671,457 2,374,507 854,117 854,117 2,557,167
8 897,656 504,400 504,400 2,207,450 685,455 685,455 2,388,505 925,885 925,885 2,628,935
9 942,539 480,584 480,584 2,183,634 698,646 698,646 2,401,696 1,003,506 1,003,506 2,706,556
10 989,666 455,657 455,657 2,158,707 710,854 710,854 2,413,904 1,087,432 1,087,432 2,790,482
11 1,039,150 429,519 429,519 2,132,569 721,913 721,913 2,424,963 1,178,176 1,178,176 2,881,226
12 1,091,107 402,083 402,083 2,105,133 731,666 731,666 2,434,716 1,276,319 1,276,319 2,979,369
13 1,145,662 373,266 373,266 2,076,316 739,949 739,949 2,442,999 1,382,506 1,382,506 3,085,556
14 1,202,945 342,971 342,971 2,046,021 746,576 746,576 2,449,626 1,497,424 1,497,424 3,200,474
15 1,263,093 311,048 311,048 2,014,098 751,295 751,295 2,454,345 1,621,779 1,621,779 3,324,829
16 1,326,247 277,281 277,281 1,980,331 753,776 753,776 2,456,826 1,756,271 1,756,271 3,459,321
17 1,392,560 241,388 241,388 1,944,438 753,600 753,600 2,456,650 1,901,602 1,901,602 3,604,652
18 1,462,188 203,055 203,055 1,906,105 750,295 750,295 2,453,345 2,058,504 2,058,504 3,761,554
19 1,535,297 161,957 161,957 1,865,007 743,349 743,349 2,446,399 2,227,763 2,227,763 3,930,813
20 1,612,062 117,768 117,768 1,820,818 732,226 732,226 2,435,276 2,410,246 2,410,246 4,113,296
21 1,692,665 70,238 70,238 1,773,288 716,436 716,436 2,419,486 2,606,976 2,606,976 4,310,026
22 1,777,298 19,135 19,135 1,722,185 695,483 695,483 2,398,533 2,819,099 2,819,099 4,522,149
23 1,866,163 0 0 0 668,867 668,867 2,371,917 3,047,821 3,047,821 4,780,812
24 1,959,471 0 0 0 635,975 635,975 2,339,025 3,294,192 3,294,192 5,057,903
25 2,057,445 0 0 0 595,982 595,982 2,299,032 3,559,154 3,559,154 5,351,545
26 2,160,317 0 0 0 547,845 547,845 2,250,895 3,843,516 3,843,516 5,662,652
27 2,268,333 0 0 0 490,283 490,283 2,193,333 4,147,989 4,147,989 5,990,941
28 2,381,750 0 0 0 421,790 421,790 2,124,840 4,473,203 4,473,203 6,338,081
29 2,500,837 0 0 0 340,739 340,739 2,043,789 4,819,925 4,819,925 6,704,034
30 2,625,879 0 0 0 245,623 245,623 1,948,673 5,189,106 5,189,106 7,091,432
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
46
<PAGE> 50
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 31,428 31,737 1,703,050 33,420 33,729 1,703,050 35,415 35,724 1,703,050
2 215,250 62,020 62,329 1,703,050 67,952 68,262 1,703,050 74,126 74,435 1,703,050
3 331,013 92,124 92,124 1,703,050 104,001 104,001 1,703,050 116,852 116,852 1,703,050
4 452,563 121,675 121,675 1,703,050 141,572 141,572 1,703,050 163,963 163,963 1,703,050
5 580,191 150,810 150,810 1,703,050 180,916 180,916 1,703,050 216,162 216,162 1,703,050
6 714,201 179,312 179,312 1,703,050 221,880 221,880 1,703,050 273,744 273,744 1,703,050
7 854,911 207,223 207,223 1,703,050 264,589 264,589 1,703,050 337,356 337,356 1,703,050
8 897,656 236,376 236,376 1,703,050 311,084 311,084 1,703,050 409,744 409,744 1,703,050
9 942,539 264,860 264,860 1,703,050 359,558 359,558 1,703,050 489,789 489,789 1,703,050
10 989,666 292,643 292,643 1,703,050 410,093 410,093 1,703,050 578,354 578,354 1,703,050
11 1,039,150 319,743 319,743 1,703,050 462,830 462,830 1,703,050 676,454 676,454 1,703,050
12 1,091,107 346,137 346,137 1,703,050 517,881 517,881 1,703,050 785,201 785,201 1,703,050
13 1,145,662 371,839 371,839 1,703,050 575,403 575,403 1,703,050 905,883 905,883 1,703,050
14 1,202,945 396,832 396,832 1,703,050 635,540 635,540 1,703,050 1,039,929 1,039,929 1,703,050
15 1,263,093 420,949 420,949 1,703,050 698,331 698,331 1,703,050 1,188,894 1,188,894 1,703,050
16 1,326,247 444,136 444,136 1,703,050 763,927 763,927 1,703,050 1,354,585 1,354,585 1,760,960
17 1,392,560 466,323 466,323 1,703,050 832,495 832,495 1,703,050 1,537,876 1,537,876 1,968,481
18 1,462,188 487,403 487,403 1,703,050 904,205 904,205 1,703,050 1,740,261 1,740,261 2,192,728
19 1,535,297 507,265 507,265 1,703,050 979,269 979,269 1,703,050 1,963,719 1,963,719 2,435,012
20 1,612,062 525,822 525,822 1,703,050 1,057,955 1,057,955 1,703,050 2,210,463 2,210,463 2,696,764
21 1,692,665 507,650 507,650 1,703,050 1,103,242 1,103,242 1,703,050 2,445,769 2,445,769 2,934,923
22 1,777,298 489,460 489,460 1,703,050 1,151,293 1,151,293 1,703,050 2,706,428 2,706,428 3,220,649
23 1,866,163 470,222 470,222 1,703,050 1,201,817 1,201,817 1,703,050 2,994,746 2,994,746 3,533,801
24 1,959,471 449,459 449,459 1,703,050 1,254,878 1,254,878 1,703,050 3,313,501 3,313,501 3,876,796
25 2,057,445 426,972 426,972 1,703,050 1,310,719 1,310,719 1,703,050 3,665,895 3,665,895 4,252,438
26 2,160,317 402,522 402,522 1,703,050 1,369,620 1,369,620 1,703,050 4,055,472 4,055,472 4,663,793
27 2,268,333 375,876 375,876 1,703,050 1,431,924 1,431,924 1,703,050 4,486,959 4,486,959 5,070,264
28 2,381,750 346,738 346,738 1,703,050 1,498,024 1,498,024 1,703,050 4,965,147 4,965,147 5,511,314
29 2,500,837 314,736 314,736 1,703,050 1,568,388 1,568,388 1,709,542 5,495,459 5,495,459 5,990,050
30 2,625,879 279,427 279,427 1,703,050 1,643,187 1,643,187 1,758,211 6,084,070 6,084,070 6,509,955
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
47
<PAGE> 51
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 26,824 27,133 1,703,050 28,661 28,970 1,703,050 30,501 30,810 1,703,050
2 215,250 52,697 53,006 1,703,050 58,028 58,337 1,703,050 63,587 63,896 1,703,050
3 331,013 77,615 77,615 1,703,050 88,127 88,127 1,703,050 99,529 99,529 1,703,050
4 452,563 101,562 101,562 1,703,050 118,968 118,968 1,703,050 138,616 138,616 1,703,050
5 580,191 124,491 124,491 1,703,050 150,537 150,537 1,703,050 181,143 181,143 1,703,050
6 714,201 146,355 146,355 1,703,050 182,822 182,822 1,703,050 227,450 227,450 1,703,050
7 854,911 167,051 167,051 1,703,050 215,756 215,756 1,703,050 277,868 277,868 1,703,050
8 897,656 187,859 187,859 1,703,050 250,741 250,741 1,703,050 334,322 334,322 1,703,050
9 942,539 207,306 207,306 1,703,050 286,353 286,353 1,703,050 395,916 395,916 1,703,050
10 989,666 225,315 225,315 1,703,050 322,570 322,570 1,703,050 463,221 463,221 1,703,050
11 1,039,150 241,825 241,825 1,703,050 359,391 359,391 1,703,050 536,917 536,917 1,703,050
12 1,091,107 256,787 256,787 1,703,050 396,839 396,839 1,703,050 617,810 617,810 1,703,050
13 1,145,662 270,151 270,151 1,703,050 434,947 434,947 1,703,050 706,835 706,835 1,703,050
14 1,202,945 281,850 281,850 1,703,050 473,746 473,746 1,703,050 805,072 805,072 1,703,050
15 1,263,093 291,773 291,773 1,703,050 513,242 513,242 1,703,050 913,753 913,753 1,703,050
16 1,326,247 299,746 299,746 1,703,050 553,407 553,407 1,703,050 1,034,301 1,034,301 1,703,050
17 1,392,560 305,536 305,536 1,703,050 594,186 594,186 1,703,050 1,168,388 1,168,388 1,703,050
18 1,462,188 308,874 308,874 1,703,050 635,524 635,524 1,703,050 1,318,023 1,318,023 1,703,050
19 1,535,297 309,463 309,463 1,703,050 677,378 677,378 1,703,050 1,484,436 1,484,436 1,840,701
20 1,612,062 306,989 306,989 1,703,050 719,734 719,734 1,703,050 1,666,799 1,666,799 2,033,495
21 1,692,665 264,049 264,049 1,703,050 723,297 723,297 1,703,050 1,826,399 1,826,399 2,191,678
22 1,777,298 216,881 216,881 1,703,050 724,500 724,500 1,703,050 2,000,852 2,000,852 2,381,014
23 1,866,163 164,942 164,942 1,703,050 723,014 723,014 1,703,050 2,191,549 2,191,549 2,586,027
24 1,959,471 107,535 107,535 1,703,050 718,405 718,405 1,703,050 2,400,002 2,400,002 2,808,003
25 2,057,445 43,694 43,694 1,703,050 710,068 710,068 1,703,050 2,627,846 2,627,846 3,048,302
26 2,160,317 0 0 0 697,192 697,192 1,703,050 2,876,845 2,876,845 3,308,372
27 2,268,333 0 0 0 678,715 678,715 1,703,050 3,150,375 3,150,375 3,559,924
28 2,381,750 0 0 0 653,272 653,272 1,703,050 3,451,282 3,451,282 3,830,923
29 2,500,837 0 0 0 619,182 619,182 1,703,050 3,782,939 3,782,939 4,123,403
30 2,625,879 0 0 0 574,510 574,510 1,703,050 4,149,425 4,149,425 4,439,884
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
48
<PAGE> 52
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 2
CURRENT VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 31,354 31,663 1,734,404 33,341 33,650 1,736,391 35,331 35,640 1,738,381
2 215,250 61,784 62,093 1,764,834 67,692 68,001 1,770,742 73,840 74,149 1,776,890
3 331,013 91,641 91,641 1,794,691 103,448 103,448 1,806,498 116,222 116,222 1,819,272
4 452,563 120,853 120,853 1,823,903 140,591 140,591 1,843,641 162,801 162,801 1,865,851
5 580,191 149,534 149,534 1,852,584 179,335 179,335 1,882,385 214,216 214,216 1,917,266
6 714,201 177,455 177,455 1,880,505 219,487 219,487 1,922,537 270,684 270,684 1,973,734
7 854,911 204,648 204,648 1,907,698 261,142 261,142 1,964,192 332,772 332,772 2,035,822
8 897,656 232,923 232,923 1,935,973 306,280 306,280 2,009,330 403,104 403,104 2,106,154
9 942,539 260,346 260,346 1,963,396 353,035 353,035 2,056,085 480,414 480,414 2,183,464
10 989,666 286,860 286,860 1,989,910 401,416 401,416 2,104,466 565,382 565,382 2,268,432
11 1,039,150 312,469 312,469 2,015,519 451,493 451,493 2,154,543 658,821 658,821 2,361,871
12 1,091,107 337,125 337,125 2,040,175 503,286 503,286 2,206,336 761,576 761,576 2,464,626
13 1,145,662 360,823 360,823 2,063,873 556,864 556,864 2,259,914 874,632 874,632 2,577,682
14 1,202,945 383,520 383,520 2,086,570 612,255 612,255 2,315,305 999,034 999,034 2,702,084
15 1,263,093 404,972 404,972 2,108,022 669,283 669,283 2,372,333 1,135,729 1,135,729 2,838,779
16 1,326,247 425,075 425,075 2,128,125 727,902 727,902 2,430,952 1,285,908 1,285,908 2,988,958
17 1,392,560 443,702 443,702 2,146,752 788,045 788,045 2,491,095 1,450,868 1,450,868 3,153,918
18 1,462,188 460,666 460,666 2,163,716 849,573 849,573 2,552,623 1,631,975 1,631,975 3,335,025
19 1,535,297 475,776 475,776 2,178,826 912,335 912,335 2,615,385 1,830,738 1,830,738 3,533,788
20 1,612,062 488,863 488,863 2,191,913 976,195 976,195 2,679,245 2,048,848 2,048,848 3,751,898
21 1,692,665 465,425 465,425 2,168,475 1,005,323 1,005,323 2,708,373 2,252,198 2,252,198 3,955,248
22 1,777,298 442,220 442,220 2,145,270 1,035,892 1,035,892 2,738,942 2,477,693 2,477,693 4,180,743
23 1,866,163 417,818 417,818 2,120,868 1,066,502 1,066,502 2,769,552 2,726,227 2,726,227 4,429,277
24 1,959,471 391,624 391,624 2,094,674 1,096,528 1,096,528 2,799,578 2,999,665 2,999,665 4,702,715
25 2,057,445 363,466 363,466 2,066,516 1,125,745 1,125,745 2,828,795 3,300,516 3,300,516 5,003,566
26 2,160,317 333,134 333,134 2,036,184 1,153,877 1,153,877 2,856,927 3,631,521 3,631,521 5,334,571
27 2,268,333 300,458 300,458 2,003,508 1,180,671 1,180,671 2,883,721 3,995,761 3,995,761 5,698,811
28 2,381,750 265,211 265,211 1,968,261 1,205,804 1,205,804 2,908,854 4,396,589 4,396,589 6,099,639
29 2,500,837 227,112 227,112 1,930,162 1,228,876 1,228,876 2,931,926 4,837,662 4,837,662 6,540,712
30 2,625,879 185,842 185,842 1,888,892 1,249,427 1,249,427 2,952,477 5,322,996 5,322,996 7,026,046
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
49
<PAGE> 53
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE / NON TOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 2
GUARANTEED VALUES
<TABLE>
<CAPTION>
PREMIUMS 0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
PLUS
POLICY INTEREST CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH CONTRACT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 26,677 26,986 1,729,727 28,504 28,813 1,731,554 30,335 30,644 1,733,385
2 215,250 52,257 52,566 1,755,307 57,543 57,852 1,760,593 63,054 63,363 1,766,104
3 331,013 76,725 76,725 1,779,775 87,104 87,104 1,790,154 98,361 98,361 1,801,411
4 452,563 100,048 100,048 1,803,098 117,159 117,159 1,820,209 136,467 136,467 1,839,517
5 580,191 122,159 122,159 1,825,209 147,639 147,639 1,850,689 177,566 177,566 1,880,616
6 714,201 142,992 142,992 1,846,042 178,474 178,474 1,881,524 221,871 221,871 1,924,921
7 854,911 162,415 162,415 1,865,465 209,522 209,522 1,912,572 269,545 269,545 1,972,595
8 897,656 181,670 181,670 1,884,720 242,087 242,087 1,945,137 322,302 322,302 2,025,352
9 942,539 199,249 199,249 1,902,299 274,638 274,638 1,977,688 378,980 378,980 2,082,030
10 989,666 215,043 215,043 1,918,093 307,033 307,033 2,010,083 439,831 439,831 2,142,881
11 1,039,150 228,961 228,961 1,932,011 339,141 339,141 2,042,191 505,152 505,152 2,208,202
12 1,091,107 240,929 240,929 1,943,979 370,843 370,843 2,073,893 575,286 575,286 2,278,336
13 1,145,662 250,875 250,875 1,953,925 402,013 402,013 2,105,063 650,613 650,613 2,353,663
14 1,202,945 258,710 258,710 1,961,760 432,504 432,504 2,135,554 731,532 731,532 2,434,582
15 1,263,093 264,296 264,296 1,967,346 462,108 462,108 2,165,158 818,427 818,427 2,521,477
16 1,326,247 267,426 267,426 1,970,476 490,536 490,536 2,193,586 911,649 911,649 2,614,699
17 1,392,560 267,829 267,829 1,970,879 517,417 517,417 2,220,467 1,011,510 1,011,510 2,714,560
18 1,462,188 265,201 265,201 1,968,251 542,324 542,324 2,245,374 1,118,315 1,118,315 2,821,365
19 1,535,297 259,225 259,225 1,962,275 564,796 564,796 2,267,846 1,232,380 1,232,380 2,935,430
20 1,612,062 249,586 249,586 1,952,636 584,348 584,348 2,287,398 1,354,053 1,354,053 3,057,103
21 1,692,665 199,908 199,908 1,902,958 562,239 562,239 2,265,289 1,443,314 1,443,314 3,146,364
22 1,777,298 146,691 146,691 1,849,741 534,698 534,698 2,237,748 1,537,032 1,537,032 3,240,082
23 1,866,163 89,722 89,722 1,792,772 501,212 501,212 2,204,262 1,635,372 1,635,372 3,338,422
24 1,959,471 28,703 28,703 1,731,753 461,156 461,156 2,164,206 1,738,422 1,738,422 3,441,472
25 2,057,445 0 0 0 413,695 413,695 2,116,745 1,846,089 1,846,089 3,549,139
26 2,160,317 0 0 0 357,768 357,768 2,060,818 1,958,078 1,958,078 3,661,128
27 2,268,333 0 0 0 292,086 292,086 1,995,136 2,073,869 2,073,869 3,776,919
28 2,381,750 0 0 0 215,123 215,123 1,918,173 2,192,710 2,192,710 3,895,760
29 2,500,837 0 0 0 125,243 125,243 1,828,293 2,313,718 2,313,718 4,016,768
30 2,625,879 0 0 0 20,919 20,919 1,723,969 2,436,112 2,436,112 4,139,162
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET PREMIUM
FOR THE FIRST SEVEN YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
50
<PAGE> 54
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company) as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
Assets 1996 1995
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------------- ----------------
18,306,921 17,778,860
----------------- ----------------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
$47,766,246 38,507,633
================= ================
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------------- ----------------
192,382 281,928
----------------- ----------------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
45,628,372 35,879,121
----------------- ----------------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------------- ----------------
2,137,874 2,628,512
----------------- ----------------
$47,766,246 38,507,633
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
--------------- -------------- -------------
1,992,838 1,798,651 1,599,499
--------------- -------------- -------------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
--------------- -------------- -------------
1,677,341 1,511,079 1,357,641
--------------- -------------- -------------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
--------------- -------------- -------------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
--------------- -------------- -------------
110,889 99,808 78,589
--------------- -------------- -------------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
--------------- -------------- -------------
Net income $ 215,932 212,478 183,728
=============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
=========== ============= =============== ================= ===============
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
=========== ============= =============== ================= ===============
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
=========== ============= =============== ================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
--------------- --------------- ---------------
Net cash provided by operating activities 346,159 187,633 39,880
---------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------------- --------------- ---------------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------------- --------------- --------------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------------- --------------- --------------
Net increase (decrease) in cash 34,329 5,832 (16,315)
---------------- --------------- ---------------
Cash, beginning of year 9,455 3,623 19,938
---------------- --------------- ---------------
Cash, end of year $ 43,784 9,455 3,623
================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary
of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries
of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC),
Employers Life Insurance Company of Wausau and subsidiaries (ELICW),
National Casualty Company (NCC), West Coast Life Insurance Company
(WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide
Financial Services, Inc.), Nationwide Investment Services Corporation
(formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and
its subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in
November 1996 as a holding company for NLIC and the other companies of
the Nationwide Insurance Enterprise that offer or distribute long-term
savings and retirement products. On January 27, 1997, Nationwide Corp.
contributed to NFS the common stock of NLIC and three marketing and
distribution companies. NFS is planning an initial public offering of
its Class A common stock during the first quarter of 1997.
In anticipation of the restructuring described above, on September 24,
1996, NLIC's Board of Directors declared a dividend payable January 1,
1997 to Nationwide Corp. consisting of the outstanding shares of common
stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer
or distribute long-term savings and retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and another affiliate effective January 1, 1996. These
subsidiaries and all accident and health and group life insurance
business have been accounted for as discontinued operations for all
periods presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC intends
to make an $850,000 distribution to NFS which will then make an
equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to
competition from other financial services providers throughout the
United States. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments
may create costs for the insurer beyond those currently recorded
in the consolidated financial statements. The Company mitigates
this risk by offering a wide range of products and by operating
throughout the United States, thus reducing its exposure to any
single product or jurisdiction, and also by employing underwriting
practices which identify and minimize the adverse impact of this
risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by
the Company will default or that other parties, including
reinsurers, which owe the Company money, will not pay. The Company
minimizes this risk by adhering to a conservative investment
strategy, by maintaining reinsurance and credit and collection
policies and by providing for any amounts deemed uncollectible.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(2) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies that offer or distribute long-term savings and
retirement products. Prior to the contribution by Nationwide Corp. to
NFS of the outstanding common stock of NLIC and other companies, NLIC
effected certain transactions with respect to certain subsidiaries and
lines of business that were unrelated to long-term savings and
retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the outstanding shares of common stock
of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group
accident and health and group life insurance business and maintains it
offices in Wausau, Wisconsin. NCC is a property and casualty company
that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate.
NCC maintains its offices in Scottsdale, Arizona. WCLIC writes high
dollar term life insurance policies and is located in San Francisco,
California. ELICW, NCC and WCLIC have been accounted for as
discontinued operations for all periods presented. NLIC did not
recognize any gain or loss on the disposal of these subsidiaries.
A summary of the combined results of operations, including the results
of the accident and health and group life insurance business ELICW
assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and
WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 13 for a
complete discussion of the reinsurance agreements. NLIC has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated companies
and will cease writing any new business prior to December 31, 1997.
NLIC's accident and health and group life insurance business is
accounted for as discontinued operations for all periods presented.
NLIC did not recognize any gain or loss on the disposal of the accident
and health and group life insurance business. The assets, liabilities,
results of operations and activities of discontinued operations are
distinguished physically, operationally and for financial reporting
purposes from the remaining assets, liabilities, results of operations
and activities of NLIC.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A summary of the results of operations, net of amounts ceded to ELICW
and NMIC in 1996, and assets and liabilities of NLIC's accident and
health and group life insurance business as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and its insurance
subsidiaries, filed with the department of insurance of each insurance
company's state of domicile, are prepared on the basis of accounting
practices prescribed or permitted by each department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as
state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not
so prescribed. The Company has no material permitted statutory
accounting practices.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
--------------------
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
Subsidiaries Classified as Discontinued Operations" in the
accompanying consolidated balance sheets and "Income for
Discontinued Operations" in the accompanying consolidated
statements of income. All significant intercompany balances and
transactions have been eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1996 or 1995.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate are included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
(c) Revenues and Benefits
---------------------
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of
insurance, policy administration and surrender charges that have
been earned and assessed against policy account balances during
the period. Policy benefits and claims that are charged to expense
include interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
insurance premiums are recognized as revenue over the terms of the
policies. Policy claims are charged to expense in the period that
the claims are incurred. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(d) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable agency expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life products,
these deferred policy acquisition costs are predominantly being
amortized with interest over the premium paying period of the
related policies in proportion to the ratio of actual annual
premium revenue to the anticipated total premium revenue. Such
anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities for future
policy benefits. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 3(b).
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) Separate Accounts
-----------------
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or losses
of these accounts accrue directly to the contractholders. The
activity of the Separate Accounts is not reflected in the
consolidated statements of income and cash flows except for the
fees the Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life insurance policies
have been calculated using a net level premium method based on
estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the
time the policies were issued, rather than the assumptions
prescribed by state regulatory authorities. See note 6.
Future policy benefits and claims for collectively renewable
long-term disability policies and group long-term disability
policies are the present value of amounts not yet due on reported
claims and an estimate of amounts to be paid on incurred but
unreported claims. The impact of reserve discounting is not
material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance
business is accounted for as discontinued operations. See note 2.
(g) Participating Business
----------------------
Participating business represents approximately 52% in 1996 (54%
in 1995 and 55% in 1994) of the Company's life insurance in force,
78% in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) of life insurance premiums. The provision for
policyholder dividends is based on current dividend scales. Future
dividends are provided for ratably in future policy benefits based
on dividend scales in effect at the time the policies were issued.
(h) Federal Income Tax
------------------
The Company, with the exception of ELICW, files a consolidated
federal income tax return with NMIC, the majority shareholder of
Nationwide Corp. The members of the consolidated tax return group
have a tax sharing arrangement which provides, in effect, for each
member to bear essentially the same federal income tax liability
as if separate tax returns were filed. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(i) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 2 and 13.
(j) Reclassification
----------------
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) Change in Accounting Principle
------------------------------
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection
with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,299,665
and $6,721,714, respectively, as available-for-sale and recorded the
securities at fair value. Previously, these securities were recorded at
amortized cost. The effect as of January 1, 1994 has been recorded as a
direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
--------------
$ 212,553
==============
</TABLE>
(5) Investments
-----------
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ------------ ------------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ------------ ------------
$12,014,768 400,341 (51,339) 12,363,770
============ ========== ============ ============
</TABLE>
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
------------ ---------- ----------- ---------------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
------------ ---------- ----------- ---------------
$11,886,173 663,588 (34,244) 12,515,517
============ ========== =========== ===============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1996, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
--------------- --------------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
--------------- --------------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
--------------- --------------
$11,970,878 12,304,639
=============== ==============
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
--------------- --------------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
--------------- --------------
$173,592 384,304
=============== ==============
</TABLE>
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------------- ------------- --------------
$(280,342) 951,932 (1,075,483)
=============== ============= ==============
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996,
1995 and 1994 were $299,558, $107,345 and $228,308, respectively.
During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994,
respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995
and 1994, respectively) were realized on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of
$3,535.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
1995 the Company transferred all of its fixed maturity securities
previously classified as held-to-maturity to available-for-sale. As of
December 14, 1995, the date of transfer, the fixed maturity securities
had amortized cost of $3,320,093, resulting in a gross unrealized gain
of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities,
$20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in
other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and
valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of
December 31, 1995).
The recorded investment of mortgage loans on real estate considered to
be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE)
as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995),
which includes $41,663 ($23,975 as of December 31, 1995) of impaired
mortgage loans on real estate for which the related valuation allowance
was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of
December 31, 1995) of impaired mortgage loans on real estate for which
there was no valuation allowance. During 1996, the average recorded
investment in impaired mortgage loans on real estate was approximately
$39,674 ($22,181 in 1995) and interest income recognized on those loans
was $2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------------- -------------
Allowance, end of year $51,038 49,128
============= ==============
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
--------------- ------------- --------------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
--------------- ------------- ---------------
Net investment income $1,357,759 1,294,033 1,210,811
=============== ============= ==============
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------------ ------------ ------------
$ (326) (1,724) (16,527)
============ ============ ============
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592
as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory agencies as required by law.
(6) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for investment contracts
represents approximately 87% and 87% of the total liability for future
policy benefits as of December 31, 1996 and 1995, respectively. The
average interest rate credited on investment product policies was
approximately 6.3%, 6.6% and 6.5% for the years ended December 31,
1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
Interest rates: Interest rates vary as follows:
--------------
<TABLE>
<CAPTION>
Year of issue Interest rates
----------------- ----------------------------------------
<S> <C>
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
WITHDRAWALS: Rates, which vary by issue age, type of coverage
and policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on
published tables, modified for the Company's actual
experience.
The Company has entered into a reinsurance contract to cede a portion
of its general account individual annuity business to The Franklin Life
Insurance Company (Franklin). Total recoveries due from Franklin were
$240,451 and $245,255 as of December 31, 1996 and 1995, respectively.
The contract is immaterial to the Company's results of operations. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. Under the terms of the contract,
Franklin has established a trust as collateral for the recoveries. The
trust assets are invested in investment grade securities, the market
value of which must at all times be greater than or equal to 102% of
the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 13. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(7) Federal Income Tax
-------------------
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
----------------- ---------------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
----------------- ---------------
Net deferred tax assets 441,527 345,748
================= ===============
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
----------------- ---------------
Total gross deferred tax liabilities 603,739 592,375
----------------- ---------------
$162,212 246,627
================= ===============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1996, 1995 and 1994.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
------------ -------- ------------- -------- ------------- --------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
============ ======== ============= ======== ============= ========
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239
during the years ended December 31, 1996, 1995 and 1994,
respectively.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(SFAS 107) requires disclosure of fair value information about existing
on and off-balance sheet financial instruments. SFAS 107 defines the
fair value of a financial instrument as the amount at which the
financial instrument could be exchanged in a current transaction
between willing parties. In cases where quoted market prices are not
available, fair value is based on estimates using present value or
other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in the immediate
settlement of the instruments. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts is provided to make the fair value disclosures
more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is the estimated fair value of
the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analyses. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
FUNDS: The carrying amount reported in the consolidated balance
sheets for these instruments approximates their fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
-----------
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(9) Additional Financial Instruments Disclosures
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $327,456 extending into
1997 were outstanding as of December 31, 1996.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 21% (20% in 1995) in any geographic area and no more than 2% (2%
in 1995) with any one borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
------------- ------------- ------------- -------------- ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
============ ============= ============= =============
Less valuation allowances and unamortized discount 58,369
--------------
Total mortgage loans on real estate, net $5,272,119
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
------------ ------------ ------------- ------------- --------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
============ ============= ============= =============
Less valuation allowances and unamortized discount 57,948
--------------
Total mortgage loans on real estate, net $4,602,764
==============
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plan
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one thousand hours of service within a twelve-month period and who have
met certain age requirements. Benefits are based upon the highest
average annual salary of a specified number of consecutive years of the
last ten years of service. The Company funds pension costs accrued for
direct employees plus an allocation of pension costs accrued for
employees of affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau Insurance
Companies Pension Plan to form the Nationwide Insurance Enterprise
Retirement Plan. Immediately prior to the merger, the plans were
amended to provide consistent benefits for service after January 1,
1996. These amendments had no significant impact on the accumulated
benefit obligation or projected benefit obligation as of December 31,
1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996 and
1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------------- --------------- ---------------
$ 72,189 53,866 55,046
=============== =============== ===============
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
--------------- ---------------
$1,349,703 1,263,233
=============== ===============
Net accrued pension expense:
Projected benefit obligation for services rendered to
date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
--------------- ---------------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
--------------- ---------------
$ (26,819) (21,592)
=============== ===============
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation; however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1996 and 1995 was $34,884 and $33,537, respectively, and the net
periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994
was $3,286, $3,132 and $4,284, respectively.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
----------- ----------- -----------
$17,875 19,076 23,165
=========== =========== ===========
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------------- ---------------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------------- ---------------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------------- ---------------
$(159,216) (152,734)
=============== ===============
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1996 by $701 and the NPPBC for the year ended December 31,
1996 by $83.
(12) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
---------------------------------------------------------------------
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and each of its
insurance company subsidiaries exceed the minimum risk-based capital
requirements.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State of
Ohio (the Department). NLIC's dividend of the outstanding shares of
common stock of certain companies which was declared on September 24,
1996 and the anticipated $850,000 dividend (as discussed in note 1) are
deemed extraordinary under Ohio insurance laws. As a result of such
dividends, any dividend paid by NLIC during the 12-month period
immediately following the $850,000 dividend would also be an
extraordinary dividend under Ohio insurance laws. Accordingly, no such
dividend could be paid without prior regulatory approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its stockholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
(13) Transactions With Affiliates
----------------------------
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the
Company made lease payments to NMIC and its subsidiaries of $9,065,
$8,986 and $8,133, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $101,584, $107,112, and $100,601 in 1996,
1995 and 1994, respectively. The allocations are based on techniques
and procedures in accordance with insurance regulatory guidelines.
Measures used to allocate expenses among companies include individual
employee estimates of time spent, special cost studies, salary expense,
commissions expense and other methods agreed to by the participating
companies that are within industry guidelines and practices. The
Company believes these allocation methods are reasonable. In addition,
the Company does not believe that expenses recognized under the
intercompany agreements are materially different than expenses that
would have been recognized had the Company operated on a stand alone
basis. Amounts payable to NMIC from the Company under the cost sharing
agreement were $15,111 and $1,186 as of December 31, 1996 and 1995,
respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1996 and
1995 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance contracts exist between NLIC and, respectively
NMIC and ELICW whereby all of NLIC's accident and health and group life
insurance business is ceded on a modified coinsurance basis. NLIC
entered into the reinsurance agreements during 1996 because the
accident and health and group life insurance business was unrelated to
NLIC's long-term savings and retirement products. Accordingly, the
accident and health and group life insurance business has been
accounted for as discontinued operations for all periods presented.
Under modified coinsurance agreements, invested assets are retained by
the ceding company and investment earnings are paid to the reinsurer.
Under the terms of NLIC's agreements, the investment risk associated
with changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee is
paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC's
retention of such risk. The agreements will remain in force until all
policy obligations are settled. However, with respect to the agreement
between NLIC and NMIC, either party may terminate the contract on
January 1 of any year with prior notice. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. NLIC believes that the terms of the modified coinsurance
agreements are consistent in all material respects with what NLIC could
have obtained with unaffiliated parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and NCC,
are summarized in note 2. Amounts ceded to ELICW in 1996 include
premiums of $224,224, net investment income and other revenue of
$14,833, and benefits, claims and other expenses of $246,641. Amounts
ceded to NMIC in 1996 include premiums of $97,331, net investment
income of $10,890, and benefits, claims and other expenses of $100,476.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31,
1996 and 1995, respectively, and are included in short-term investments
on the accompanying consolidated balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the outstanding
shares, with shareholder equity value of $30, of NISC to NLIC. NLIC
contributed an additional $500 to NISC on August 30, 1996.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46,918. As discussed in note 2, WCLIC is
accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock of ELICW from Wausau Service Corporation (WSC)
for $155,000. NLIC transferred fixed maturity securities and cash with
a fair value of $155,000 to WSC on December 28, 1994, which resulted in
a realized loss of $19,239 on the disposition of the securities. The
purchase price approximated both the historical cost basis and fair
value of net assets of ELICW. ELICW has and will continue to share home
office, other facilities, equipment and common management and
administrative services with WSC. As discussed in note 2, ELICW is
accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Nationwide Corp. Total commissions and
fees paid to these affiliates for the years ended December 31, 1996,
1995 and 1994 were $76,922, $57,280 and $50,168, respectively.
(14) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, established a $600,000 revolving
credit facility which provides for a $600,000 loan over a five year
term on a fully revolving basis with a group of national financial
institutions. The credit facility provides for several and not joint
liability with respect to any amount drawn by either NLIC or NMIC. NLIC
and NMIC pay facility and usage fees to the financial institutions to
maintain the revolving credit facility. All previously existing line of
credit agreements were canceled.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Contingencies
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to
be material to the Company's financial position or results of
operations.
(16) Segment Information
-------------------
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified
interest rate, fixed for a prescribed period, with returns accumulating
on a tax-deferred basis. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the
Company reports corporate expenses and investments, and the related
investment income supporting capital not specifically allocated to its
product segments in a Corporate and Other segment. In addition, all
realized gains and losses, investment management fees and other revenue
earned from mutual funds, other than the portion allocated to the
variable annuities and life insurance segments, are reported in the
Corporate and Other segment.
During 1996, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have been
restated to reflect these changes.
The following table summarizes the revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1996, 1995 and 1994 and assets as of December 31, 1996,
1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
----------------- --------------- ---------------
$ 1,992,838 1,798,651 1,599,499
================= =============== ===============
Income from continuing operations before federal income tax
expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
----------------- --------------- ---------------
$ 315,497 287,572 241,858
================= =============== ===============
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
----------------- --------------- ---------------
$47,766,246 38,507,633 29,246,024
================= =============== ===============
</TABLE>
<PAGE> 55
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $12,049,864 in 1997; $11,970,878 in 1996) $ 12,319,848 12,304,639
Equity securities (cost $55,813 in 1997; $43,890 in 1996) 66,497 59,131
Mortgage loans on real estate, net 5,141,839 5,272,119
Real estate, net 292,935 265,759
Policy loans 391,432 371,816
Other long-term investments 23,336 28,668
Short-term investments 286,354 4,789
------------ ------------
18,522,241 18,306,921
------------ ------------
Cash 86,387 43,784
Accrued investment income 209,037 210,182
Deferred policy acquisition costs 1,537,814 1,366,509
Investment in subsidiaries classified as discontinued operations - 485,707
Other assets 404,319 426,441
Assets held in Separate Accounts 32,866,145 26,926,702
------------ ------------
$ 53,625,943 47,766,246
============ ============
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $ 17,536,264 17,179,060
Policyholders' dividend accumulations 366,681 361,401
Other policyholder funds 59,153 60,073
Accrued federal income tax:
Current 44,323 30,170
Deferred 158,769 162,212
------------ ------------
203,092 192,382
------------ ------------
Dividend payable - 485,707
Other liabilities 375,206 423,047
Liabilities related to Separate Accounts 32,866,145 26,926,702
------------ ------------
51,406,541 45,628,372
------------ ------------
Shareholder's equity:
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 914,654 527,874
Retained earnings 1,159,696 1,432,593
Unrealized gains on securities available-for-sale, net 141,237 173,592
------------ ------------
2,219,402 2,137,874
------------ ------------
$ 53,625,943 47,766,246
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 56
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Investment product and universal life insurance product
policy charges $ 129,658 97,955 250,107 186,558
Traditional life insurance premiums 50,295 49,224 105,741 103,012
Net investment income 351,346 340,266 692,296 669,797
Realized gains (losses) on investments (11,929) 5,806 9,113 9,374
Other income 15,908 6,010 25,742 12,219
---------- ---------- ---------- ----------
535,278 499,261 1,082,999 980,960
---------- ---------- ---------- ----------
Benefits and expenses:
Benefits and claims 297,049 285,276 593,419 575,272
Provision for policyholders' dividends on participating policies 11,542 11,907 22,188 22,687
Amortization of deferred policy acquisition costs 39,594 34,865 82,988 70,994
Other operating expenses 94,231 76,108 188,092 141,788
---------- ---------- ---------- ----------
442,416 408,156 886,687 810,741
---------- ---------- ---------- ----------
Income from continuing operations before federal income
tax expense 92,862 91,105 196,312 170,219
---------- ---------- ---------- ----------
Federal income tax expense:
Current 32,477 32,592 55,231 58,617
Deferred 10 15 13,978 640
---------- ---------- ---------- ----------
32,487 32,746 69,209 59,257
---------- ---------- ---------- ----------
Income from continuing operations 60,375 58,359 127,103 110,962
Income from discontinued operations (less federal income tax
expense of $1,470 and $3,986 in 1996) - 3,100 - 7,295
---------- ---------- ---------- ----------
Net income $ 60,375 61,459 127,103 118,257
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 57
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(Unaudited)
Six Months Ended June 30, 1997 and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
1996:
Balance, January 1, 1996 $ 3,815 657,118 1,583,275 384,304 2,628,512
Capital of contributed subsidiary - 30 - - 30
Net income - - 118,257 - 118,257
Unrealized losses on securities
available-for-sale, net - - - (275,185) (275,185)
---------------- ---------------- ---------------- ---------------- ----------------
Balance, June 30, 1996 $ 3,815 657,148 1,701,532 109,119 2,471,614
================ ================ ================ ================ ================
1997:
Balance, January 1, 1997 3,815 527,874 1,432,593 173,592 2,137,874
Capital contributions - 836,780 - - 836,780
Dividends to shareholder - (450,000) (400,000) - (850,000)
Net income - - 127,103 - 127,103
Unrealized losses on securities
available-for-sale, net - - - (32,355) (32,355)
---------------- ---------------- ---------------- ---------------- ----------------
Balance, June 30, 1997 $ 3,815 914,654 1,159,696 141,237 2,219,402
================ ================ ================ ================ ================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 58
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, 1997 and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 127,103 118,257
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Capitalization of deferred policy acquisition costs (235,735) (214,486)
Amortization of deferred policy acquisition costs 82,988 70,994
Amortization and depreciation 1,964 8,613
Realized gains on investments, net (9,113) (9,374)
Deferred federal income tax 13,978 23,864
Decrease (increase) in accrued investment income 1,145 (814)
Decrease (increase) in other assets 21,708 (81,888)
Increase (decrease) in policyholder account balances 55,237 (63,997)
Increase in policyholders' dividend accumulations 5,280 7,113
Increase in accrued federal income tax payable 14,153 8,579
(Decrease) increase in other liabilities (47,841) 63,206
Other, net (2,317) (2,344)
------------ ------------
Net cash provided by (used in) operating activities 28,550 (72,277)
------------ ------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 437,694 685,247
Proceeds from sale of securities available-for-sale 225,855 194,207
Proceeds from repayments of mortgage loans on real estate 164,699 123,064
Proceeds from sale of real estate 23,214 8,163
Proceeds from repayments of policy loans and sale of other invested assets 21,908 27,108
Cost of securities available-for-sale acquired (1,236,560) (769,786)
Cost of mortgage loans on real estate acquired (418,593) (486,706)
Cost of real estate acquired (21,506) (2,893)
Policy loans issued and other invested assets acquired (37,785) (42,936)
Short-term investments, net (282,700) 26,109
------------ ------------
Net cash used in investing activities (1,123,774) (238,423)
------------ ------------
Cash flows from financing activities:
Proceeds from capital contributions 836,780 -
Increase in investment product and universal life insurance product
account balances 1,511,167 1,284,221
Decrease in investment product and universal life insurance product
account balances (1,210,120) (918,291)
------------ ------------
Net cash provided by financing activities 1,137,827 365,930
------------ ------------
Net increase in cash 42,603 55,230
Cash, beginning of period 43,784 9,455
------------ ------------
Cash, end of period $ 86,387 64,685
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 59
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was a
wholly owned subsidiary of Nationwide Corporation (Nationwide Corp.). On
January 27, 1997, Nationwide Corp. contributed the common stock of NLIC to
Nationwide Financial Services, Inc. (NFS). NFS was formed by Nationwide
Corp. in November 1996 as a holding company for members of the Nationwide
Insurance Enterprise that offer or distribute long-term savings and
retirement products. NLIC and its subsidiaries are collectively referred
to as "the Company."
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting
principles, which differ from statutory accounting practices prescribed or
permitted by regulatory authorities, for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
The financial information included herein reflects all adjustments (all of
which are normal and recurring in nature) which are, in the opinion of
management, necessary for a fair presentation of financial position and
results of operations. Operating results for all periods presented are not
necessarily indicative of the results that may be expected for the full
year. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and related notes for the year ended December 31, 1996 included
in the Company's annual report on Form 10-K.
(2) DIVIDENDS AND CAPITAL CONTRIBUTIONS
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the common stock of certain subsidiaries
classified as discontinued operations. As of and during the year ended
December 31, 1996, these previously wholly owned subsidiaries of NLIC were
classified as discontinued operations since they do not offer or distribute
long-term savings and retirement products. The dividend was paid by NLIC
on January 1, 1997.
On February 24, 1997, NLIC paid a dividend to NFS, which made an equivalent
dividend to Nationwide Corp., consisting of securities having an aggregate
market value of $850.0 million. NLIC recognized a gain of $14.4 million on
the transfer of securities.
On March 10, 1997 and March 11, 1997, NFS made cash capital contributions
to NLIC totaling $836.8 million.
<PAGE> 60
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Form S-6 Registration Statement comprises the following papers and
documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 79 pages.
Representations and Undertakings.
The Signatures.
Accountants' Consent
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C> <C>
1. Power of Attorney dated July 22, 1997. Attached hereto.
2. Resolution of the Depositor's Board Included with the Registration
of Directors authorizing the Statement on Form N-8B-2 for the
establishment of the Registrant, Nationwide VLI Separate Account-2
(File No. 811-5311), adopted and is
hereby incorporated by reference.
3. Distribution Contracts Underwriting or Distribution of
contracts between the Registrant and
Principal Underwriter - Filed
previously in connection with
Registration Statement (SEC File No.
33-86408) on November 14, 1994 and
hereby incorporated by reference.
4. Form of Security To be filed by pre-effective amendment
to the registration statement.
5. Articles of Incorporation of Depositor Included with the Registration
Statement on Form N-8B-2 for the
Nationwide VLI Separate Account-2
(File No. 811-5311), adopted and is
hereby incorporated by reference.
6. Application form of Security Attached Attached hereto
hereto.
7. Opinion of Counsel Attached hereto.
</TABLE>
<PAGE> 61
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "Act"). The Registrant and the
Company elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act
with respect to the Policies described in the prospectus. The Policies
have been designed in such a way as to qualify for the exemptive relief
from various provisions of the Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges")
assumed by the Company under the Policies. The Company represents that
the risk charges are within the range of industry practice for comparable
policies and reasonable in relation to all of the risks assumed by the
issuer under the Policies. Actuarial memoranda demonstrating the
reasonableness of these charges are maintained by the Company, and will
be made available to the Securities and Exchange Commission (the
"Commission") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit
the separate account and the Contract Holders and will keep and make
available to the Commission on request a memorandum setting forth the
basis for this representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in
that section.
(f) The fees and charges deducted under the Policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by the Company.
<PAGE> 62
ACCOUNTANTS' CONSENT
The Board of Directors of Nationwide Life Insurance Company:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
December 31, 1997
<PAGE> 63
SIGNATURES
As required by the Securities Act of 1933, the Registrant, Nationwide VLI
Separate Account-4, has caused this Registration Statement to be signed on its
behalf in the City of Columbus, and State of Ohio, on this 2nd day of January,
1998.
<TABLE>
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NATIONWIDE VLI SEPARATE ACCOUNT-4
--------------------------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE
Attest: INSURANCE COMPANY
--------------------------------------------------
(Depositor)
JOHN F. DELALOYE By: JOSEPH P. RATH
- ---------------------------------------- ----------------------------------------------
John F. Delaloye Joseph P. Rath
Assistant Secretary Vice President - Product and Market Compliance
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 2nd of January, 1998.
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- ------------------------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- ------------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- ------------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- ------------------------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- ------------------------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief Operating Officer and Director
- ------------------------------------------
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board and Director
-----------------------------------------
Henry S. Holloway
Chairman and Chief Executive Officer - Nationwide Insurance
DIMON RICHARD MCFERSON Enterprise and Director
- ------------------------------------------
Dimon Richard McFerson
DAVID O. MILLER Director
- ------------------------------------------
David O. Miller
C. RAY NOECKER Director
- ------------------------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-Chief Financial Officer
- ------------------------------------------
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ------------------------------------------ ------------------------------------------
James F. Patterson Joseph P. Rath
ARDEN L. SHISLER Director Attorney-in-Fact
- ------------------------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ------------------------------------------
Robert L. Stewart
NANCY C. THOMAS
- ------------------------------------------ Director
Nancy C. Thomas
HAROLD W. WEIHL Director
- ------------------------------------------
Harold W. Weihl
</TABLE>
<PAGE> 1
Exhibit 6
================================================================================
WELCOME TO
NATIONWIDE LIFE
INSURANCE COMPANY
SPECIMEN COPY
================================================================================
<PAGE> 2
[NATIONWIDE INSURANCE LOGO]
PART I
NATIONWIDE LIFE INSURANCE COMPANY
EMPLOYER-SPONSORED P.O. BOX 182150
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE COLUMBUS, OHIO 43218-2150
<TABLE>
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1. EMPLOYER INFORMATION
- ------------------------------------------------------------------------------------------------- ----------------------------------
Employer Name Taxpayer ID Number
- ------------------------------------------------------------------------------------------------- ----------------------------------
Address (City, State, Zip Code)
- ------------------------------------------------------------------------------------------------------------------------------------
2. INSURED
- ------------------------------------------------------------------------------- -------------------------- -------------------------
Name of Insured (First, Middle, Last) Home Telephone Business Telephone
( ) ( )
- ------------------------------------------------------------------------------- -------------------------- -------------------------
Social Security
Sex [ ] M [ ] F Age Date of Birth / / Birth Place Number - -
- ------------------- ------------- -------------------------- ------------------------- ---------------------------------------------
Street Address City State Zip Code County
- -------------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
3. OWNER (If other than Employer)
- ------------------------------------------------------------------------------------------------------------------------------------
Full Name Date of Birth Relationship to Insured
- ------------------------------------------------------------------------------------------------- ----------------------------------
Address Social Sec or Tax ID Number
- -
- ------------------------------------------------------------------------------------------------- ----------------------------------
4. BENEFICIARY (If other than Employer)
- ------------------------------------------------------------------------------------------------------------------------------------
FULL NAME OF DATE OF RELATIONSHIP SOCIAL
BENEFICIARY ADDRESS BIRTH TO INSURED SECURITY #
- ------------------------ ------------------------------ --------------------- --------------------- ----------------------
- ------------------------ ------------------------------ --------------------- --------------------- ----------------------
- ------------------------ ------------------------------ --------------------- --------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------------------
5. SPECIFIED AMOUNT AND PREMIUM PLAN
- ----------------------------------- ------------------------------------------------------------------------------------------------
SPECIFIED AMOUNT PLANNED PREMIUM
$ [ ] Employer List Bill $ [ ]Annual $
--------------------------- ------------------ -----------------------
[ ] Monthly $ [ ]Semi-Annual $
TARGET SPECIFIED AMOUNT ------------------ -----------------------
(INCLUSIVE OF APR) (Electronic Funds Transfer) [ ]Quarterly $
(Attach completed authorization -----------------------
$ and void check) [ ]Other $
-------------------------- -----------------------
- ------------------------------------------------------------------------------------------------------------------------------------
6. OPTIONAL BENEFIT RIDERS
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] Additional Protection Rider (Attach Schedule of Target Specified Amounts, if applicable)
[ ] Other
---------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
7. DEATH BENEFIT OPTION
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] OPTION 1 (The Specified Amount, or a multiple of the Contract Value, whichever is greater.)
[ ] OPTION 2 (The Specified Amount, plus premium Contract Value, or a multiple of the Contract
Value, whichever is greater.)
[ ] OPTION 3 (The Specified Amount, plus the premium accumulation at _________% interest or a multiple of the
Contract Value, whichever is greater.)
(IF NO OPTION IS SELECTED, OPTION 1 IS ELECTED.)
- ------------------------------------------------------------------------------------------------------------------------------------
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<PAGE> 3
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- ------------------------------------------------------------------------------------------------------------------------------------
8. SUPPLEMENTAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
a. Have you been actively at work daily on a full-time basis (minimum 30 hours per week) for the past 3 months? (Disregard
vacation days and absences that total less than 5 days.)
[ ]Yes [ ]No If No, explain and complete PART II
---------------------------------------------------------------------
b. Have you used any tobacco products in the past 12 months?
[ ]Yes [ ]No If Yes, specify Type: Frequency:
--------------------------------- ----------------------------------
c. Will the insurance applied for replace existing Life Insurance or Annuities
on any person here proposed for insurance? [ ]Yes [ ]No If Yes, explain
----------------------------------------------------
----------------------------------------------------
(Complete and send replacement forms where applicable.)
- ------------------------------------------------------------------------------------------------------------------------------------
9. SUITABILITY
- ------------------------------------------------------------------------------------------------------------------------------------
YES NO
a. Do you understand that the Death Benefit and Surrender Value may increase or decrease depending
on the investment experience of the Variable Account?............................................................. [ ] [ ]
b. Do you believe that this policy will meet your insurance needs and financial objectives?.......................... [ ] [ ]
c. Have you received a current copy of the prospectus?............................................................... [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
10. ALLOCATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
FOR CONTRACTS ISSUED IN STATES WHICH REQUIRE A RETURN OF PREMIUM TO A POLICY
OWNER EXERCISING THE SHORT TERM RIGHT TO CANCEL; NET PREMIUMS WILL BE ALLOCATED
TO THE NATIONWIDE SEPARATE ACCOUNT TRUST MONEY MARKET FUND OR TO THE FIXED
ACCOUNT IF SELECTED UNTIL THE END OF THE RIGHT TO CANCEL PERIOD. AT THE END OF
THIS PERIOD, YOUR CONTRACT VALUE WILL BE ALLOCATED TO THE SUBACCOUNTS INDICATED
BELOW. FOR STATES REQUIRING A RETURN OF CASH VALUE YOUR NET PREMIUM WILL BE
ALLOCATED TO THE SUBACCOUNTS AT THE BEGINNING OF THE SHORT TERM RIGHT TO CANCEL
PERIOD. YOUR SELECTIONS MUST TOTAL 100%. MINIMUM INITIAL ALLOCATION TO ANY
SINGLE SUBACCOUNT IS 1%. NO FRACTIONAL PERCENTAGES. THESE PERCENTAGES WILL
APPLY IN FUTURE YEARS BUT MAY BE CHANGED AT ANY TIME BY THE POLICY OWNER. (IF
NO ALLOCATION INDICATED, MONEY MARKET WILL BE AUTOMATICALLY SELECTED.)
- ------------------------------------------------------------------------------------------------------------------------------------
NEUBERGER & BERMAN OPPENHEIMER VARIABLE ACCOUNTS FUND DREYFUS, INC.
ADVISERS MANAGEMENT TRUST _____ % Bond Fund _____ % Stock Index Fund
_____ % Limited Maturity Bond Port. _____ % Multiple Strategies Fund _____ % Socially Responsible
_____ % Growth Port. _____ % Global Securities Fund Growth Fund
_____ % Partners Port. _____ % Growth Fund _____ % VIF Capital Appreciation
Port.
MORGAN STANLEY UNIVERSAL FIDELITY VIP FUNDS _____ % VIF Growth & Income Port.
FUNDS, INC. _____ % High Income Port.
_____ % Emerging Markets Debt _____ % Equity-Income Port. NATIONWIDE SEPARATE ACCOUNT TRUST
Port. _____ % Growth Port. _____ % Money Market Fund
_____ % Overseas Port. _____ % Government Bond Fund
WARBURG PINCUS TRUST _____ % Asset Manager Port. _____ % Total Return Fund
_____ % International Equity Port. _____ % Contrafund Port. _____ % Capital Appreciation Fund
_____ % Small Company Growth Port. _____ % Growth Opportunities Port. _____ % Small Company Fund
_____ % Post-Venture Capital Port.
AMERICAN CENTURY VARIABLE PORTFOLIOS, VAN ECK WORLDWIDE INSURANCE TRUST
VAN KAMPEN AMERICAN CAPITAL INC. _____ % Worldwide Hard Assets Fund
LIFE INVESTMENT TRUST _____ % VP Capital Appreciation _____ % Worldwide Bond Fund
_____ % Morgan Stanley Real Estate _____ % VP Balanced _____ % Worldwide Emerging Markets
Securities Port. _____ % VP International Fund
_____ % VP Value
STRONG VARIABLE INSURANCE OTHER AVAILABLE FUNDS
FUNDS, INC. NATIONWIDE LIFE _____ % __________________________
_____ % Discovery Fund II INSURANCE CO. _____ % __________________________
_____ % Opportunity Fund II _____ % Fixed Account
_____ % International Stock Fund II
- ----------------------------------------------- ---------------------------------------- -------------------------------------------
</TABLE>
<PAGE> 4
- --------------------------------------------------------------------------------
11. TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
Under the Interest and Dividend Compliance Act of 1983, persons owning
insurance policies are required to provide the Company with certification that
their taxpayer identification number is correct. (For most individuals, this
is their Social Security Number.) If you do not provide us with certification
of this number, you may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, we will be forced to withhold 31% from interest
and other payments we make to you (known as backup withholding). It is not an
additional tax, since the amount withheld will be applied against the tax you
owe. If withholding results in an overpayment of taxes, a refund may be
obtained.
[ ] Check this box if the Internal Revenue Service has notified you that you
are NOT subject to the provisions of this law. Otherwise, your signature
on this application is certification that the taxpayer identification
number on this application is true, correct, and complete.
- --------------------------------------------------------------------------------
12. IMPORTANT NOTICE
- --------------------------------------------------------------------------------
I UNDERSTAND THAT THE DEATH BENEFIT UNDER A VARIABLE LIFE INSURANCE POLICY MAY
INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT RETURN OF THE SUBACCOUNT(S)
I SELECT. REGARDLESS OF INVESTMENT RETURN, THE DEATH BENEFIT CAN NEVER BE LESS
THAN THE SPECIFIED AMOUNT, AS LONG AS THE POLICY IS IN FORCE. THE CONTRACT
VALUE MAY INCREASE OR DECREASE ON ANY DAY, DEPENDING ON THE INVESTMENT RETURN
FOR THE POLICY. NO MINIMUM CONTRACT VALUE IS GUARANTEED. ON REQUEST, WE WILL
FURNISH ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH BENEFITS AND CONTRACT
VALUES FOR A VARIABLE LIFE INSURANCE POLICY AND A FIXED LIFE INSURANCE POLICY
FOR THE SAME PREMIUM.
- --------------------------------------------------------------------------------
AGREEMENT, AUTHORIZATION AND SIGNATURES
- --------------------------------------------------------------------------------
I have read this application. I understand each of the questions. All of the
answers and statements on this form are complete and true to the best of my
knowledge and belief. I understand and agree that:
1. This application and any amendments to it, will become a part of the
Policy. They are the basis of any insurance issued upon this application.
2. Any person who submits an application or a claim containing a false or
deceptive statement, and does so with intent to defraud or knowing that
he/she is facilitating a fraud against an insurer, is guilty of insurance
fraud.
3. No agent or other representative of Nationwide may accept risks or make or
change any contract, or waive or change any of the Company's rights or
requirements.
4. No information will be considered as having been given to Nationwide unless
it is written in this application.
5. Insurance will only take effect when all of the following conditions are
met:
a. If a Policy is issued by Nationwide and is accepted by me; and
b. If the full first premium is paid; and
c. If all the answers and statements made on the application and
amendments continue to be true to the best of my knowledge and belief.
Signed at , on , .
---------------------- ------------------------------ -----------
----------------------------------- -----------------------------------
Signature of Proposed Insured Signature of Owner
- --------------------------------------------------------------------------------
I have truly and accurately recorded all Proposed Insured's answers on this
application and have witnessed his/her/their signature(s) hereon.
To the best of my knowledge, the insurance applied for [ ] will [ ] will not
(CHECK ONE) replace any life insurance or annuity.
- --------------------------------------- --------------------------------------
Licensed Resident Agent Signature Firm Agent's Name (Print) License ID Number
- --------------------------------------------------------------------------------
<PAGE> 5
PART II
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- ------------------------------------------------------------------------------------------------------------------------------------
13. PERSONAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
YES NO
a. Have you ever had any application for Life or Health Insurance (or for reinstatement of Life or Health
Insurance) declined, postponed, rated-up or limited?.............................................................. [ ] [ ]
(If "Yes", provide details below.)
b. Have you ever applied for or received disability payments for any illness or injury?.............................. [ ] [ ]
(If "Yes", provide details below.)
c. Has either of your natural parents suffered cardiovascular disease or death prior to age 60?...................... [ ] [ ]
d. Have you ever had your driver's license suspended or revoked; or been convicted of driving while
impaired or intoxicated; or been convicted in the past three years of more than one moving violation?............. [ ] [ ]
(If "Yes", provide details, driver's license #, and state of issue below.)
e. Have you ever been convicted of a felony, misdemeanor, or any other crime or have you ever used
drugs other than as prescribed by a physician?.................................................................... [ ] [ ]
(If "Yes", provide details below.)
f. In the past 3 years have you engaged in, or do you intend to engage in: flying as a pilot, student pilot,
or crew member; racing of an automobile, motorcycle, or any type of motor-powered vehicle; scuba
diving, mountain climbing, hang gliding, parachuting, sky diving, bungee jumping, or any type of
body-contact or life-threatening sport?........................................................................... [ ] [ ]
(If "Yes", complete an Aviation/Hazardous Activities Questionnaire.)
DETAILS:
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
14. MEDICAL QUESTIONS AND INFORMATION
(For each "yes" answer circle the appropriate item and provide details in #15 below.)
- ------------------------------------------------------------------------------------------------------------------------------------
YES NO
To the best of your knowledge and belief, in the past 10 years have you been
treated for or been diagnosed by a member of the medical profession as having:
a. Alcoholism, drug use other than as prescribed by a physician, nervous or mental disorder?......................... [ ] [ ]
b. High blood pressure, epilepsy or stroke, Alzheimer's disease, disease of the pancreas or lymph glands,
blood disorder?................................................................................................... [ ] [ ]
c. Chest pains, heart attack or other heart disorder, diabetes, kidney disorder, lung or respiratory disorder
or any cancer or malignancy?...................................................................................... [ ] [ ]
d. AIDS (Acquired Immune Deficiency Syndrome), ARC (AIDS-related complex), or any other AIDS-related.................
condition, or received a positive result of an HIV test?.......................................................... [ ] [ ]
e. Any chronic or persistent disease not mentioned previously?....................................................... [ ] [ ]
Within the past five years, have you:
f. Consulted, or been examined or treated by any physician, chiropractor, or other medical practitioner,
or by any hospital, clinic, or other medical facility not previously mentioned?................................... [ ] [ ]
g. Had any disease, disorder, injury, or operation not previously mentioned?......................................... [ ] [ ]
Within the past two years, have you:
h. Taken or do you currently take any prescription medication (If so, state name of drug, reason for taking
drug and frequency below)?........................................................................................ [ ] [ ]
i. Been advised to have any surgery, hospitalization, treatment or test that was not completed?...................... [ ] [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
15. DETAILS OF MEDICAL HISTORY
- ------------------------------------------------------------------------------------------------------------------------------------
QUESTION NUMBER
& LETTER DATES DETAILS (BE SPECIFIC. GIVE FULL NAMES, ADDRESSES AND TELEPHONE
NUMBER, IF AVAILABLE, OF PHYSICIANS, HOSPITALS, ETC.)
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
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<PAGE> 6
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- ------------------------------------------------------------------------------------------------------------------------------------
16. PERSONAL PHYSICIAN INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Name, address, and phone number of Personal Physician
----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Date last consulted, reason and results
-------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Proposed Insured's Height: Weight:
----------------- ------------------
17. INSURANCE INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
List all Life Insurance now in force on Proposed Insured. If none, write "NONE".
---------------------------------------------------------------------------------------------------------------------------------
Year Accidental
Insurance Company Policy Number Amount Issued Death To Be Replaced?
----------------------------- ----------------------- --------------- ----------- ----------------- -----------------------------
----------------------------- ----------------------- --------------- ----------- ----------------- -----------------------------
----------------------------- ----------------------- --------------- ----------- ----------------- -----------------------------
---------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
18. SPECIAL INSTRUCTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
AGREEMENT, AUTHORIZATION AND SIGNATURES
- --------------------------------------------------------------------------------
I have read this application. I understand each of the questions. All of the
answers and statements on this form are complete and true to the best of my
knowledge and belief. I understand and agree that:
1. This application and any amendments to it, and any related medical
examinations will become a part of the Policy. They are the basis of any
insurance issued upon this application.
2. Any person who submits an application or a claim containing a false or
deceptive statement, and does so with intent to defraud or knowing that
he/she is facilitating a fraud against an insurer, is guilty of insurance
fraud.
3. No medical examiner or no agent or other representative of Nationwide may
accept risks or make or change any contract, or waive or change any of the
Company's rights or requirements.
4. Insurance will only take effect when all of the following conditions are
met:
a. If a Policy is issued by Nationwide and is accepted by me; and
b. If the full first premium is paid; and
c. If all the answers and statements made on the application and amendments
continue to be true to the best of my knowledge and belief.
I have received the pre-notice form of the Fair Credit Reporting Act of 1970.
Also, the Medical Information Bureau disclosure form has been given to me. I
certify that the Social Security Number given is correct and complete.
I authorize: any licensed physician or medical practitioner; any hospital,
clinic or other medical or medically related facility; any insurance company;
the Medical Information Bureau; or any other organization, institution or person
who has knowledge of me; to give that information to the Medical Director of the
Nationwide Insurance Company, or its reinsurers. This authorization, or a copy
of it, will be valid for a period of not more than one year from the date it was
signed.
Signed at , on , .
--------------------------------- ----------------------- -------
------------------------------------
Signature of Proposed Insured
- --------------------------------------------------------------------------------
I have truly and accurately recorded all Proposed Insured's answers on this
application and have witnessed his/her/their signature(s) hereon.
To the best of my knowledge, the insurance applied for [ ] will [ ] will not
(CHECK ONE) replace any life insurance or annuity.
- ---------------------------------------- --------------------------------------
Licensed Resident Agent Signature Firm Agent's Name (Print) License ID Number
- --------------------------------------------------------------------------------
<PAGE> 7
PROVIDE TO PROPOSED INSURED ONLY IF PART II OF APPLICATION IS COMPLETED
IMPORTANT NOTICE
DETACH AND GIVE TO PROPOSED INSURED
PRE-NOTICE OF PROCEDURES AS REQUIRED BY THE FAIR CREDIT REPORTING ACT OF 1970
This notice is to inform you that as part of our normal underwriting procedures
in connection with an application for insurance:
An investigative consumer report may be made whereby information is obtained
through personal interviews with your neighbors, friends or others with whom you
are acquainted. This inquiry will include information as to character, general
reputation, personal characteristics and mode of living, except as may be
related directly or indirectly to your sexual orientation, with respect to you,
members of your family, and others having an interest in or closely connected
with the insurance transaction; and
Upon your written request, made within a reasonable time after you receive this
notice, additional information as to the nature and scope of the investigation,
if one is made, will be provided. Requests for additional information should be
addressed to Nationwide Life Insurance Company, Box 182150, Columbus, Ohio
43218-2150.
MEDICAL INFORMATION BUREAU DISCLOSURE NOTICE
Information regarding your insurability will be treated as confidential.
Nationwide Life Insurance Company, or its reinsurer(s) may, however, make a
brief report thereon to the Medical Information Bureau, a non-profit membership
organization of life insurance companies, which operates an information exchange
on behalf of its members. If you apply to another Bureau member company for life
or health insurance coverage or a claim for benefits is submitted to such a
company, the Bureau, upon request, will supply such company with the information
in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. (Medical information will be disclosed
only to your attending physician.) If you question the accuracy of information
in the Bureau's file, you may contact the Bureau and seek a correction in
accordance with the procedures set forth in the Federal Fair Credit Reporting
Act. The address of the Bureau's information office is Post Office Box 105,
Essex Station, Boston Massachusetts, 02112, telephone number (617) 426-3660.
Nationwide Life Insurance Company, or its reinsurer(s) may also release
information in its file to other life insurance companies to whom you may apply
for life or health insurance, or to whom a claim for benefits may be submitted.
<PAGE> 1
[DUREN, DIETRICH, REYNOLDS & KOOGLER LETTERHEAD]
December 24, 1997
VIA EDGAR
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, OH 43216
Ladies and Gentlemen:
We have prepared the Registration Statement filed with the United States
Securities and Exchange Commission for the purpose of registering under the
Securities Act of 1933, as amended, Corporate Variable Universal Life Insurance
Policies to be sold by Nationwide Life Insurance Company (the "Company") and to
be issued and administered through Nationwide VLI Separate Account-4. In
connection therewith, we have examined the Articles of Incorporation and Code of
Regulations of the Company, minutes of meetings of the Board of Directors,
pertinent provisions of federal and Ohio laws, together with such other
documents as we have deemed relevant for the purposes of this opinion. Based on
the foregoing, it is our opinion that:
1. The Company is a stock life insurance company duly organized and validly
existing under the laws of the State of Ohio and duly authorized to issue and
sell life, accident and health insurance and annuity contracts.
2. Nationwide VLI Separate Account-4 has been properly created and is a validly
existing separate account pursuant to the laws of the State of Ohio.
3. The issuance and sale of the Corporate Variable Universal Life Insurance
Policies have been duly authorized by the Company. When issued and sold in the
manner stated in the prospectus constituting a part of the Registration
Statement, the policies will be legal and binding obligations of the Company in
accordance with their terms, except that clearance must be obtained, or the
policy must be approved, prior to the issuance thereof in certain jurisdictions.
<PAGE> 2
Nationwide Life Insurance Company
December 29, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Opinions" in the prospectus contained in the Registration Statement.
Very truly yours,
DRUEN, DIETRICH, REYNOLDS & KOOGLER
/s/ Brian M. Bacon
Brian M. Bacon
