<PAGE> 1
Registration No. 333-31725
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VLI SEPARATE ACCOUNT-4
(EXACT NAME OF TRUST)
-------------------
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus.
It is proposed that this filing will become effective (check appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[X ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities being registered: Flexible Premium Variable Universal Life
Insurance Policies
================================================================================
1 of 97
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
1.........................................Nationwide Life Insurance Company
The Variable Account
2.........................................Nationwide Life Insurance Company
3.........................................Custodian of Assets
4.........................................Distribution of The Policies
5.........................................The Variable Account
6.........................................Not Applicable
7.........................................Not Applicable
8.........................................Not Applicable
9.........................................Legal Proceedings
10.........................................Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11.........................................Investments of The Variable
Account
12.........................................The Variable Account
13.........................................Policy Charges
Reinstatement
14.........................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for
Issuance of a Policy
15.........................................Investments of the Variable
Account; Premium Payments
16.........................................Underwriting and Issuance -
Allocation of Cash Value
17.........................................Surrendering The Policy for Cash
18.........................................Reinvestment
19.........................................Not Applicable
20.........................................Not Applicable
21.........................................Policy Loans
22.........................................Not Applicable
23.........................................Not Applicable
24.........................................Not Applicable
25.........................................Nationwide Life Insurance Company
26.........................................Not Applicable
27.........................................Nationwide Life Insurance Company
28.........................................Company Management
29.........................................Company Management
30.........................................Not Applicable
31.........................................Not Applicable
32.........................................Not Applicable
33.........................................Not Applicable
34.........................................Not Applicable
35.........................................Nationwide Life Insurance Company
36.........................................Not Applicable
37.........................................Not Applicable
38.........................................Distribution of The Policies
39.........................................Distribution of The Policies
40.........................................Not Applicable
41(a)......................................Distribution of The Policies
42.........................................Not Applicable
43.........................................Not Applicable
2 of 97
<PAGE> 3
N-8B-2 ITEM CAPTION IN PROSPECTUS
44.........................................How The Cash Value Varies
45.........................................Not Applicable
46.........................................How The Cash Value Varies
47.........................................Not Applicable
48.........................................Custodian of Assets
49.........................................Not Applicable
50.........................................Not Applicable
51.........................................Summary of The Policies;
Information About The Policies
52.........................................Substitution of Securities
53.........................................Taxation of The Company
54.........................................Not Applicable
55.........................................Not Applicable
56.........................................Not Applicable
57.........................................Not Applicable
58.........................................Not Applicable
59.........................................Financial Statements
3 of 97
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
Flexible Premium Variable Universal Life Insurance Policies
Issued by Nationwide Life Insurance Company through its Nationwide VLI
Separate Account-4
The date of this prospectus is _____________, 1999
- --------------------------------------------------------------------------------
This prospectus contains basic information you should know about the policies
before investing. Please read it and keep it for future reference
The following underlying mutual funds are available under the policies:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS
- American Century VP Income & Growth
- American Century VP International
- American Century VP Value
DREYFUS
- The Dreyfus Socially Responsible Growth Fund, Inc.
- Dreyfus Stock Index Fund
- Dreyfus Variable Investment Fund - Capital Appreciation Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- VIP Equity-Income Portfolio: Service Class
- VIP Growth Portfolio: Service Class
- VIP High Income Portfolio: Service Class*
- VIP Overseas Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- VIP II Contrafund Portfolio: Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
- VIP III Growth Opportunities Portfolio: Service Class
MORGAN STANLEY
- Morgan Stanley Dean Witter Universal Funds, Inc. - Emerging Markets
Debt Portfolio
- Van Kampen Life Investment Trust - Morgan Stanley Real Estate
Securities Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST
- Capital Appreciation Fund
- Total Return Fund
- Government Bond Fund
- Money Market 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
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
- AMT Guardian Portfolio
- AMT Mid-Cap Growth Portfolio
- AMT Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS
- Oppenheimer Aggressive Growth 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.
*These underlying mutual funds invest in lower quality debt securities commonly
referred to as junk bonds.
To obtain copies of any underlying mutual fund prospectus, please call:
1-800-547-7548
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182150
COLUMBUS, OHIO 43218-2150
1
<PAGE> 5
Material incorporated by reference to this prospectus can be found on the SEC
website at: www.sec.gov.
Information about this and other Best of America Products can be found on the
world-wide web at: www.bestofamerica.com.
This policy is NOT:
- a bank deposit;
- endorsed by a bank or government agency;
- federally insured; or
- available in every state.
The life insurance policies offered by this prospectus are flexible premium
variable universal life insurance policies. They provide flexibility with the
amount and frequency of premium payments. A cash surrender value may be offered
if the policy is terminated during the lifetime of the insured.
The purpose of this policy is to provide life insurance protection for the
beneficiary named in the policy. No claim is made that the policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.
The death benefit and cash value of this policy may vary to reflect the
experience of the Nationwide VLI Separate Account -4 (the "variable account") or
the fixed account, depending on how premium payments are invested.
Investors assume certain risks when investing in the policies, including the
risk of losing of money.
Nationwide guarantees the death benefit for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges.
Nationwide guarantees to keep the policy in force during the first three years
so long as the minimum premium requirement has been met.
BENEFITS DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN EVERY JURISDICTION
- - REFER TO YOUR POLICY FOR SPECIFIC BENEFIT INFORMATION.
THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION WHERE SUCH OFFERING MAY
NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 6
GLOSSARY OF SPECIAL TERMS
ATTAINED AGE- The insured's age on the policy date, plus the number of full
years since the policy date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the cash
value of the variable account.
FIXED ACCOUNT- An investment option which is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
SEC GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the
policy under reasonable mortality and expense charges with an annual effective
interest rate of 5%. It is calculated pursuant to Rule 6e-3(T) of the Investment
Company Act of 1940.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.
MATURITY DATE- The policy anniversary on or next following the insured's 100th
birthday.
MINIMUM REQUIRED DEATH BENEFIT- Is the lowest death benefit which will qualify
the policy as life insurance under Section 7702 of the Internal Revenue Code.
NATIONWIDE - Nationwide Life Insurance Company.
NET AMOUNT AT RISK- Net amount at risk is the death benefit minus the cash
value. On a monthly anniversary day, the net amount at risk is the death benefit
minus the cash value prior to subtraction of the base policy cost of insurance
charge.
NET PREMIUMS- Net premiums are equal to the actual premiums minus the percent of
premium charges. The percent of premium charges are shown on the policy data
page.
VALUATION DATE - Each day the New York Stock Exchange and Nationwide's home
office are open for business.
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 valuation date
(usually a period from the end of one business day to the next).
VARIABLE ACCOUNT- Nationwide VLI Separate Account -4, a separate account of
Nationwide Life Insurance Company that contains variable account allocations.
The variable account is divided into sub-accounts, each of which invests in
shares of a separate underlying mutual fund.
3
<PAGE> 7
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.....................................................3
SUMMARY OF POLICY EXPENSES....................................................6
Policy Deductions and Charges
UNDERLYING MUTUAL FUND ANNUAL EXPENSES........................................6
SYNOPSIS OF THE POLICIES......................................................8
Cash Surrender Value
Premiums
Taxation
Nonparticipating Policies
Riders
Ten Day Free Look
NATIONWIDE LIFE INSURANCE COMPANY.............................................9
NATIONWIDE ADVISORY SERVICES, INC.............................................9
The Variable Account and Underlying Mutual Funds
Changes of Investment Policy
Voting Rights
Substitution of Securities
Material Conflicts
The Fixed Account
INFORMATION ABOUT THE POLICIES................................................10
Underwriting and Issuance
Minimum Requirements for Issuance of a Policy
Premium Payments
Pricing
POLICY CHARGES................................................................12
Deductions from Premiums - Sales Load
Deductions from Premiums - Tax Expense Charge
Deductions from Cash Value - Surrender Charges
Deductions from Cash Value - Increases in Specified Amount
Reductions to Surrender Charges
Deductions from Cash Value - Monthly Cost of Insurance
Deductions from Cash Value - Monthly Administrative Charge
Deductions from Cash Value - Mortality and Expense Risk Charge
Income Tax
Reduction of Charges
SURRENDERING THE POLICY FOR CASH..............................................16
Cash Surrender Value
Partial Surrenders
Preferred Partial Surrenders
Reduction of the Specified Amount
Income Tax Withholding
VARIATION IN CASH VALUE.......................................................17
Error in Age or Sex
POLICY PROVISIONS.............................................................17
Policy owner
Beneficiary
Changes in Existing Insurance Coverage
Specified Amount Increases
Specified Amount Decreases
OPERATION OF THE POLICY.......................................................18
Allocation of Net Premium and Cash Value
How the Investment Experience is Determined
Net Investment Factor
Determining the Cash Value
Transfers
Right to Revoke
POLICY LOANS..................................................................20
Taking a Policy Loan
Effect on Investment Performance
Interest
Effect on Death Benefit and cash value
Repayment
Assignment
DEATH BENEFIT INFORMATION.....................................................22
Calculation of the Death Benefit
Changes in the Death Benefit Option
Proceeds Payable on Death
Incontestability
Suicide
Maturity Proceeds
EXCHANGE RIGHTS...............................................................24
GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PERIOD........................24
Grace Period
Guaranteed Policy Continuation Period
Reinstatement
TAX MATTERS...................................................................25
Policy Proceeds
Withholding
Federal Estate and Generation-Skipping Transfer Taxes
Non-Resident Aliens
4
<PAGE> 8
Taxation of Nationwide
Tax Changes
LEGAL CONSIDERATIONS..........................................................28
YEAR 2000 COMPLIANCE ISSUES...................................................28
STATE REGULATION..............................................................29
REPORTS TO POLICY OWNERS......................................................29
ADVERTISING...................................................................29
LEGAL PROCEEDINGS.............................................................29
EXPERTS.......................................................................30
REGISTRATION STATEMENT........................................................30
LEGAL OPINIONS................................................................30
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS............................31
APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES.................................41
APPENDIX C: ILLUSTRATION OF CASH VALUES,
CASH SURRENDER VALUES, AND DEATH BENEFIT......................................43
APPENDIX D: DISTRIBUTION OF THE POLICIES......................................60
APPENDIX E: ADDITION INFORMATION ABOUT NATIONWIDE.............................61
Directors of Nationwide
Executive Officers of Nationwide
FINANCIAL STATEMENTS..........................................................65
5
<PAGE> 9
SUMMARY OF POLICY EXPENSES
POLICY DEDUCTIONS AND CHARGES
Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, tax expenses, providing life insurance
protection and assuming the mortality and expense risks (see "Policy Charges").
Nationwide deducts a sales load and a tax expense charge from premium payments.
The sales load is guaranteed never to exceed 2.5% of each premium payment. The
tax expense charge is equal to 3.5% of each premium payment. It consists of a
state premium tax rate of 2.25% and a federal tax rate of 1.25% (see "Deductions
from Premiums - Sales Load" and "Deductions from Premiums - Tax Expenses").
Nationwide deducts the following charges from the cash value of the policy (see
"Policy Charges"):
- monthly cost of insurance
- monthly cost of any additional benefits provided by riders to
the policy
- administrative expense charge
- mortality and expense risk charge.
For policies which are surrendered during the first nine policy years,
Nationwide deducts a surrender charge (see "Deductions from Cash Value-Surrender
Charges").
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of underlying mutual fund net assets, after expense reimbursement)
- ----------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc. -
American Century VP Income & Growth 0.70% 0.00% 0.00% 0.70%
- ----------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. -
American Century VP International 1.50% 0.00% 0.00% 1.50%
- ----------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. -
American Century VP Value 1.00% 0.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75% 0.01% 0.00% 0.76%
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund, Inc. 0.25% 0.03% 0.00% 0.28%
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund -
Capital Appreciation Portfolio 0.75% 0.05% 0.00% 0.80%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio: Service Class* 0.50% 0.05% 0.10% 0.65%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service Class* 0.60% 0.07% 0.10% 0.77%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio: Service Class* 0.59% 0.11% 0.10% 0.80%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio: Service Class* 0.75% 0.16% 0.10% 1.01 %
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio: Service Class* 0.60% 0.08% 0.10% 0.78%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities Portfolio:
Service Class* 0.60% 0.13% 0.10% 0.83%
- ----------------------------------------------------------------------------------------------------------------------------
Morgan Stanley DEAN WITTER Universal Funds, Inc. -
Emerging Markets Debt Portfolio 0.04% 1.26% 0.00% 1.30%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT - Capital Appreciation Fund 0.60% 0.09% 0.00% 0.69%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT - Government Bond Fund 0.50% 0.08% 0.00% 0.58%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT - Money Market Fund 0.40% 0.08% 0.00% 0.48%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT - Total Return Fund 0.60% 0.07% 0.00% 0.67%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Balanced Fund 0.75% 0.15% 0.00% 0.90%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Equity Income Fund 0.80% 0.15% 0.00% 0.95%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NSAT - Nationwide Global Equity Fund 1.00% 0.20% 0.00% 1.20%
- ---------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide High Income Bond Fund 0.80% 0.15% 0.00% 0.95%
- ---------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Multi-Sector Bond Fund 0.75% 0.15% 0.00% 0.90%
- ---------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Select Advisers Mid Cap Fund 1.05% 0.15% 0.00% 1.20%
- ---------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small Cap Value Fund 0.90% 0.15% 0.00% 1.05%
- ---------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small Company Fund 1.00% 0.11% 0.00% 1.11%
- ---------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic Growth Fund 0.90% 0.10% 0.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic Value Fund 0.90% 0.10% 0.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT - Guardian Portfolio 0.60% 0.40% 0.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT - Mid-Cap Growth Portfolio 0.60% 0.40% 0.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT - Partners Portfolio 0.80% 0.06% 0.00% 0.86%
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds -
Oppenheimer Aggressive Growth Fund 0.71% 0.02% 0.00% 0.73%
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds -
Oppenheimer Growth Fund 0.73% 0.02% 0.00% 0.75%
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds -
Oppenheimer Growth & Income Fund 0.75% 0.08% 0.00% 0.83%
- ---------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust -
Worldwide Emerging Markets Fund 0.80% 0.00% 0.00% 0.80%
- ---------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust -
Worldwide Hard Assets Fund 1.00% 0.17% 0.00% 1.17%
- ---------------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust -
Morgan Stanley Real Estate Securities Portfolio 1.00% 0.07% 0.00% 1.07%
- ---------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income Portfolio 0.65% 0.35% 0.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity Portfolio 1.00% 0.35% 0.00% 1.35%
- ---------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post-Venture Capital Portfolio 1.07% 0.33% 0.00% 1.40%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The expenses shown above are deducted by the underlying mutual fund
before it provides Nationwide with the daily net asset value.
Nationwide then deducts applicable variable account charges from the
net asset value to calculate the unit value of the corresponding
sub-account. The management fees and other expenses are more fully
described in the prospectus for each underlying mutual fund.
Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have
been for such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income Portfolio: Service Class 0.50% 0.18% 0.00% 0.68%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio: Service Class 0.60% 0.19% 0.00% 0.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio: Service Class 0.75% 0.27% 0.00% 1.02%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 11
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Management Other 12b-1 Total Mutual
Fees Expenses Fees Fund Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP II Contrafund Portfolio: Service Class 0.60% 0.21% 0.00% 0.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Opportunities Portfolio: Service Class 0.60% 0.24% 0.00% 0.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley DEAN WITTER Universal Funds, Inc. -
Emerging Markets Debt Portfolio 0.80% 1.26% 0.00% 2.06%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Balanced Fund 0.75% 4.15% 0.00% 4.90%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Equity Income Fund 0.80% 4.83% 0.00% 5.63%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Global Equity Fund 1.00% 1.84% 0.00% 2.84%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide High Income Bond Fund 0.80% 1.38% 0.00% 2.18%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Multi-Sector Bond Fund 0.75% 3.66% 0.00% 4.41%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Select Advisers Mid Cap Fund 1.05% 2.26% 0.00% 3.31%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Small Cap Value Fund 0.90% 5.41% 0.00% 6.31%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic Growth Fund 0.90% 5.43% 0.00% 6.33%
- ------------------------------------------------------------------------------------------------------------------------------------
NSAT - Nationwide Strategic Value Fund 0.90% 4.64% 0.00% 5.54%
- ------------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust -
Worldwide Emerging Markets Fund 1.00% 0.34% 0.00% 1.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust -
Worldwide Hard Assets Fund 1.00% 0.18% 0.00% 1.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Growth & Income Fund 0.75% 0.45% 0.00% 1.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - International Equity Portfolio 1.00% 0.36% 0.00% 1.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Post-Venture Capital Portfolio 1.25% 0.33% 0.00% 1.58%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SYNOPSIS OF THE POLICIES
The policy offered by this prospectus provide for life insurance coverage on the
insured. The death benefit and cash value of the policy may increase or decrease
to reflect the performance of the investment options chosen by the policy owner
(see "Death Benefit Information").
Cash Surrender Value
If the policy is terminated during the insured's lifetime, a cash surrender
value may be payable under the policy. However, there is no guaranteed cash
surrender value (see "Variation in Cash Value "). The policy will lapse without
value if the cash surrender value falls below what is needed to cover policy
charges. Nationwide will keep the policy in force during the guaranteed policy
continuation period provided premium requirements are met (see "Grace Period and
Guaranteed Policy Continuation Period" and "Underwriting and Issuance").
Premiums
The minimum initial premium for which a policy may be issued is equal to three
times the initial minimum monthly premium. The initial premium is shown on the
policy data page. Each premium payment must be at least $50. Additional premium
payments may be made at any time while the policy is in force, subject to
certain restrictions (see "Premium Payments").
Taxation
The policies described in this prospectus meet the definition of "life
insurance" under Section
8
<PAGE> 12
7702 of the Internal Revenue Code. Nationwide will monitor compliance with the
tests provided by Section 7702 to insure the policies continue to receive this
favored tax treatment (see "Tax Matters").
Nonparticipating Policies
The policies are nonparticipating policies on which no dividends are payable.
The policies do not share in the profits or surplus earnings of Nationwide.
Riders
A rider may be added to the policy (availability varies by state).
Riders currently include:
- Maturity Extension Endorsement;
- Spouse Rider;
- Child Rider;
- Waiver of Monthly Deductions Rider; Accidental Death Benefit Rider;
- Additional Protection Rider; and Change of Insured Rider.
TEN DAY FREE LOOK
Policy owners may return the policy for any reason within ten (10) days of
receipt and Nationwide will refund the policy value or the amount required by
law (see "Right to Revoke").
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in March 1929. It is a member of the "Nationwide Insurance
Enterprise" with its Home Office at One Nationwide Plaza, Columbus, Ohio 43215.
Nationwide is a provider of life insurance, annuities and retirement products.
It is admitted to do business in all states, the District of Columbia and Puerto
Rico.
Custodian of Assets
Nationwide serves as the custodian of the assets of the variable account.
Other Contracts Issued by Nationwide
Nationwide does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of Nationwide.
NATIONWIDE ADVISORY SERVICES, INC.
The policies are distributed by Nationwide Advisory Services, Inc., Three
Nationwide Plaza, Columbus, Ohio 43215. NAS is a wholly owned subsidiary of
Nationwide Life Insurance Company.
INVESTING IN THE POLICY
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide VLI Separate Account - 4 is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on December 3, 1987, pursuant to Ohio law. Although the
separate account is registered with the SEC as a unit investment trust pursuant
to the Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise
the management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not chargeable with liabilities
incurred in any other business of Nationwide. Nationwide is obligated to pay all
amounts promised to policy owners under the policies.
The variable account is divided into sub-accounts. Policy owners elect to have
net premiums allocated among the sub-accounts and the fixed account at the time
of application.
Nationwide uses the assets of each sub-account to buy shares of the underlying
mutual funds based on policy owner instructions. A policy's investment
performance depends upon the performance of the underlying mutual fund options
chosen by the policy owner.
9
<PAGE> 13
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. The underlying mutual fund options are available as investment options in
variable life insurance policies or variable annuity contracts issued by life
insurance companies or, in some cases, through participation in certain
qualified pension or retirement plans.
However the underlying mutual funds are NOT directly related to any publicly
traded mutual fund. Policy owners should not compare the performance of a
publicly traded fund with the performance of underlying mutual funds
participating in the variable account. The performance of the underlying mutual
funds could differ substantially from that of any publicly traded funds.
Changes of Investment Policy
Nationwide may materially change the investment policy of the variable account.
Nationwide must inform policy owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the policy owners or if it renders Nationwide's operations hazardous to the
public. If a policy owner objects, the policy may be converted to a
substantially comparable general account life insurance policy offered by
Nationwide. The policy owner has the later of 60 days (6 months in Pennsylvania)
from the date of the investment policy change or 60 days (6 months in
Pennsylvania) from being informed of the change to make the conversion.
Nationwide will not require evidence of insurability for this conversion.
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the policy converted on the date of the conversion.
Voting Rights
Policy owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote policy owner shares at
special shareholder meetings based on policy owner instructions. However, if the
law changes allowing Nationwide to vote in its own right, it may elect to do so.
Policy owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholder's vote as soon as possible prior to
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a policy owner may vote is determined by dividing the
cash value of the amount they have allocated to an underlying mutual fund by the
net asset value of that underlying mutual fund. Nationwide will designate a date
for this determination not more than 90 days before the shareholder meeting.
Substitution of Securities
Nationwide may substitute, eliminate and/or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occur:
1) shares of a current underlying mutual fund option are no longer available
for investment; or
2) further investment in an underlying mutual fund option is inappropriate.
No substitution, elimination, and/or combination of shares may take place
without the prior approval of the SEC and state insurance departments.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the
10
<PAGE> 14
interests of the variable account and one or more of the other separate accounts
in which these underlying mutual funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. Purchase payments will be
allocated to the fixed account by election of the contract owner.
The investment income earned by the fixed account will be allocated to the
contracts at varying rate(s) set by Nationwide. The guaranteed rate for any
purchase payment will be effective for not less than twelve months. Nationwide
guarantees that the rate will not be less than 3.0% per year.
Any interest in excess of 3.0% will be credited to fixed account allocations at
Nationwide's sole discretion. . The contract owner assumes the risk that
interest credited to fixed account allocations may not exceed the minimum
guarantee of 3.0% for any given year.
New purchase payments deposited to the contract which are allocated to the fixed
account may receive a different rate of interest than amounts transferred from
the sub-accounts to the fixed account and amounts maturing in the fixed account.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
Minimum Requirements for Issuance of a Policy
This policy provides life insurance coverage with the flexibility to vary the
amount and frequency of premium payments. Minimum requirements for policy
issuance include:
- - the insured must be 80 or younger;
- - Nationwide may require satisfactory evidence of insurability (including
a medical exam);
- - a minimum specified amount of:
$50,000 (non-preferred policies); $100,000 (non-preferred policies in
Pennsylvania, New Jersey, Texas Alabama and New York); and $100,000
(preferred policies).
Premium Payments
Each premium payment must be at least $50. The initial premium is payable in
full at Nationwide's home office or to an authorized agent of Nationwide.
Upon payment of the initial premium, temporary insurance may be provided.
Issuance of the continuing insurance coverage is dependent upon completion of
all underwriting requirements, payment of initial premium, and delivery of the
policy while the insured is still living.
Additional premium payments may be made at any time while the policy is in
force, subject to the following conditions:
- - Nationwide may require satisfactory evidence of insurability before
accepting any additional premium payment which results in an increase in
the net amount at risk.
- - During the guaranteed policy continuation period, the total premium -
payments, less any policy indebtedness and less any partial surrenders,
must be greater than or equal to the sum of the minimum monthly premiums in
order to guarantee the policy remain in
11
<PAGE> 15
force. (The minimum monthly premiums are shown in the policy data page.)
- - Premium payments in excess of the premium limit established by the IRS to
qualify the policy as a contract for life insurance will be refunded.
- - Nationwide may require policy indebtedness be repaid prior to accepting any
additional premium payments.
Additional premium payments or other changes to the policy, may jeopardize the
policy's non-modified endowment status. Nationwide will monitor premiums paid
and other policy transactions and will notify the policy owner when non-modified
endowment contract status is in jeopardy.
Nationwide will send scheduled premium payment reminder notices to policy owners
according to the premium mode shown on the policy data page.
PRICING
Premiums will not be priced on the following nationally recognized holidays:
- New Year's Day - Independence Day
- Martin Luther King, Jr. Day - Labor Day
- Presidents Day - Thanksgiving
- Good Friday - Christmas
- Memorial Day
POLICY CHARGES
Deductions from Premiums - Sales Load
Nationwide deducts a sales load from each premium payment received. It is
guaranteed never to exceed 2.5% of each premium payment. Currently, for all
policy years the sales load is 2.5% of premium paid up to the target premium.
Once the target premium is reached, the load is reduced to 0.5% of each premium
payment. The target premium is a premium level based upon a percentage of the
guideline level premium. It is the level annual premium amount at which the
sales load is reduced.
The total sales load actually deducted from any policy will be equal to the sum
of this front-end sales load plus any sales surrender charge.
Deductions from Premiums - Tax Expense Charge
Nationwide deducts a tax expense charge equal to 3.5% from each premium payment.
This charge reimburses Nationwide for premium taxes imposed by various state and
local jurisdictions and for federal taxes imposed under Section 848 of the
Internal Revenue Code. This charge consists of two components:
(1) a state premium tax rate of 2.25%; and
(2) a federal tax rate of 1.25%.
There is no tax expense charge in Oregon. However, there is a charge for
administrative expenses equal to 3.5% on both a current and guaranteed basis of
all premium payments.
Nationwide expects to pay an average state premium tax rate of approximately
2.25% of premiums for all states (except Oregon). State tax rates can range from
0% to 4%. This charge may be more or less than the amount actually assessed by
the state in which a particular policy owner lives.
The 1.25% federal tax component is designed to reimburse Nationwide for expenses
incurred from federal taxes imposed under Section 848 of the Internal Revenue
Code.
Nationwide does not expect to make a profit from these charges.
Deductions from Cash Value - Surrender Charges
Nationwide deducts a surrender charge from the cash value of any policy
surrendered during the first nine years. The maximum initial surrender charge
varies by issue age, sex, specified amount and underwriting classification. The
surrender charge is calculated based on the initial specified amount. The
following tables illustrate the maximum initial surrender charge per $1,000 of
initial specified amount for policies which are issued on a standard basis (see
Appendix B for specific examples).
12
<PAGE> 16
<TABLE>
<CAPTION>
INITIAL SPECIFIED AMOUNT $50,000-$99,999
----------------------------------------------------------------------------------------------
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $7.773 $7.518 $8.369 $7.818
----------------------------------------------------------------------------------------------
35 $8.817 $8.396 $9.811 $8.889
----------------------------------------------------------------------------------------------
45 $12.185 $11.390 $13.884 $12.164
----------------------------------------------------------------------------------------------
55 $15.628 $13.995 $18.410 $15.106
----------------------------------------------------------------------------------------------
65 $22.274 $19.043 $26.559 $20.607
----------------------------------------------------------------------------------------------
<CAPTION>
INITIAL SPECIFIED AMOUNT $100,000+
--------------------------------------------------------------------------------------------
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $5.773 $5.518 $6.369 $5.818
--------------------------------------------------------------------------------------------
35 $6.817 $6.396 $7.811 $6.889
--------------------------------------------------------------------------------------------
45 $9.685 $8.890 $11.384 $9.664
--------------------------------------------------------------------------------------------
55 $13.128 $11.495 $15.910 $12.606
--------------------------------------------------------------------------------------------
65 $21.274 $18.043 $25.559 $19.607
--------------------------------------------------------------------------------------------
</TABLE>
The surrender charge is comprised of two components:
- an underwriting component; and
- sales component.
The underwriting component varies by issue age in the following manner:
<TABLE>
<CAPTION>
$1,000 OF INITIAL SPECIFIED AMOUNT
------------------------------------------------------------------------------
Issue Specified Amounts Specified Amounts
Age less than $100,000 $100,000 or more
------------------------------------------------------------------------------
<S> <C> <C>
0-35 $6.00 $4.00
------------------------------------------------------------------------------
36-55 $7.50 $5.00
------------------------------------------------------------------------------
56-80 $7.50 $6.50
------------------------------------------------------------------------------
</TABLE>
The underwriting component is designed to cover the administrative expenses
associated with underwriting and issuing policies, including the costs of:
- processing applications;
- conducting medical exams;
- determining insurability and the insured's underwriting class;
and
- establishing policy records.
The remainder of the surrender charge which is not attributable to the
underwriting component represents the sales component. In no event will this
component exceed 26 1/2% of the lesser of the SEC Guideline Level Premium
required in the first year or the premiums actually paid in the first year. The
purpose of the sales component is to reimburse Nationwide for some of the
expenses incurred in the distribution of the policies.
The surrender charge may be insufficient to recover certain expenses related to
the sale of the policies. Unrecovered expenses are borne by Nationwide's general
assets which may include profits, if any, from mortality and expense risk
charges. Additional premiums and/or income earned on assets in the variable
account have no effect on these charges.
Deductions from Cash Value - Increases in Specified Amount
Policies surrendered during the first nine policy years following an increase in
the specified amount will incur a surrender charge associated with the increase.
This surrender charge is comprised of an underwriting component and sales
component. The maximum initial surrender charge associated with the increase is
based on the attained age at the time of the increase, the underwriting
classification of the increase, sex, and the amount of the increase in specified
amount. The actual initial surrender charge associated with the increase is
based upon the maximum initial surrender charge and the premium received within
one year of the increase in specified amount.
Increases that are caused by a change in death benefit option that do not change
the net amount at risk are not subject to a surrender charge. The surrender
charge associated with the increase for policy years following the increase is a
percentage of the initial surrender charge.
13
<PAGE> 17
The following table illustrates the maximum initial surrender charge per $1,000
of specified amount increase for policies increasing coverage on a standard
basis.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Male Female Male Female
Issue Age Non-Tobacco Non-Tobacco Standard Standard
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $3.464 $3.311 $3.821 $3.491
- --------------------------------------------------------------------------------
35 4.090 3.837 4.686 4.133
- --------------------------------------------------------------------------------
45 5.811 5.334 6.830 5.798
- --------------------------------------------------------------------------------
55 7.877 6.897 9.546 7.563
- --------------------------------------------------------------------------------
65 12.764 10.826 15.335 11.764
- --------------------------------------------------------------------------------
</TABLE>
Deductions from Cash Value - Reduction in Specified Amount
Decreases in specified amount, requested by a policy owner, will incur a
proportional surrender charge. This proportion is equal to the decrease in
specified amount divided by the specified amount prior to the decrease. In the
case of a policy with prior increases, these fractional surrender charges will
be calculated separately for the initial specified amount and each increase in
specified amount. For a policy with prior increases in specified amounts, these
decreases will be made on a last in first out ("LIFO") basis and therefore
decrease each segment in reverse order of its effective date.
Decreases in specified amount resulting from a partial surrender or a death
benefit option change that do not change the net amount risk will not incur a
proportional surrender charge.
Reductions to Surrender Charges
Surrender charges are reduced in subsequent policy years as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Completed Surrender Charge as a % of
Policy Years Initial Surrender Charges
- ----------------------------------------------------------------------------
<S> <C>
0 100%
- ----------------------------------------------------------------------------
1 100%
- ----------------------------------------------------------------------------
2 90%
- ----------------------------------------------------------------------------
3 80%
- ----------------------------------------------------------------------------
4 70%
- ----------------------------------------------------------------------------
5 60%
- ----------------------------------------------------------------------------
6 50%
- ----------------------------------------------------------------------------
7 40%
- ----------------------------------------------------------------------------
8 30%
- ----------------------------------------------------------------------------
9+ 0%
- ----------------------------------------------------------------------------
</TABLE>
The renewal surrender charge is reduced by any partial surrender charge actually
paid on previous decreases in specified amount.
For the initial specified amount, a completed policy year (in the chart above)
is measured from the issue date. For any increase in specified amount, a
completed policy year (in the chart above) is measured from the effective date
of the increase.
Special guaranteed maximum surrender charges apply in Pennsylvania (see Appendix
B).
Deductions from Cash Value - Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. This
deduction is charged proportionately to the cash value in each sub-account and
the fixed account.
If Death Benefit Option 1 or Option 3 is in effect and there have been increases
in the specified amount, then the cash value will first be considered a part of
the initial specified amount. If the cash value exceeds the initial specified
amount, it will then be considered a part of the additional increases in
specified amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the policy.
Guaranteed cost of insurance rates for policies issued on specified amounts less
than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table,
Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for policies
issued on specified amounts $100,000 or more are based on the 1980 Commissioners
Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost
of insurance rates for policies issued on a substandard basis are based on
appropriate percentage multiples of the guaranteed cost of insurance rate on a
standard basis. These mortality tables are sex distinct. In addition, separate
mortality tables will be used for tobacco and non-tobacco.
14
<PAGE> 18
Mortality tables are unisex for:
- - policies issued in the State of Montana
- - group or sponsored arrangements (including employees of Nationwide and
their family members)
- - special exchange programs which Nationwide may make available from time to
time
The rate class of an insured may affect the cost of insurance rate. Nationwide
currently places insureds into both standard rate classes and substandard rate
classes that involve a higher mortality risk. In an otherwise identical policy,
an insured in the standard rate class will have a lower cost of insurance than
an insured in a rate class with higher mortality risks. Nationwide may also
issue certain policies on a "Non Medical" basis to certain categories of
individuals. Due to the underwriting criteria established for policies issued on
a Non Medical basis, actual rates will be higher than the current cost of
insurance rates being charged under policies that are medically underwritten.
Deductions from Cash Value - Monthly Administrative Charge
Nationwide deducts an administrative expense charge proportionately to the cash
value in each sub-account and the fixed account on a monthly basis. This charge
reimburses Nationwide for certain actual expenses related to maintenance of the
policies including accounting and record keeping, and periodic reporting to
policy owners. Nationwide does not expect to recover any amount in excess of
aggregate maintenance expenses from this charge. Currently, this charge is $10
per month in the first year, $5 per month in renewal years. Nationwide may, at
its sole discretion, increase this charge. However, Nationwide guarantees that
this charge will never exceed $10 per month in the first year and $7.50 per
month in renewal years
Deductions from Cash Value - Mortality and Expense Risk Charge
Nationwide assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the policies is that the insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the policies may be greater than
expected. In addition, Nationwide assumes risks associated with the non-recovery
of policy issue, underwriting and other administrative expenses due to policies
which lapse or are surrendered in the early policy years.
Nationwide deducts the mortality and expense risk charge from the variable
account on a monthly basis. Mortality and expense risk deductions will be
charged proportionally to the cash value in each sub-account. The mortality and
expense risk charge compensates Nationwide for assuming risks associated with
mortality and administrative costs. The charge is equivalent to an annual
effective rate of 0.60% of the first $25,000 of cash value attributable to the
variable account, 0.30% of the next $225,000 of cash value attributable to the
variable account, and 0.10% of cash value attributable to the variable account
in excess of $250,000.
These charges are all guaranteed. Nationwide may realize a profit from these
charges.
Income Tax
No charge is assessed to policy owners for income taxes incurred by Nationwide
as a result of the operations of the sub-accounts. However, Nationwide reserves
the right to assess a charge for income taxes against the variable account if
income taxes are incurred.
REDUCTION OF CHARGES
The policy is available for purchase by individuals, corporations and other
groups. Nationwide may reduce or eliminate certain charges (sales load,
surrender charge, monthly administrative charge, monthly cost of insurance
charge, or other charges), where the size or nature of the group results in
savings in sales, underwriting, administrative or other costs, to Nationwide.
These charges may be reduced in certain group, sponsored arrangements or special
exchange programs made available by Nationwide, (including employees of
Nationwide and their families).
15
<PAGE> 19
Eligibility for reduction in charges and the amount of any reduction is
determined by a number of factors, including:
- - the number of insureds;
- - the total premium expected to be paid;
- - total assets under management for the policy owner;
- - the nature of the relationship among individual insureds;
- - the purpose for which the policies are being purchased;
- - the expected persistency of individual policies;
- - and any other circumstances which are rationally related to the expected
reduction in expenses.
The extent and nature of reductions may change from time to time. The charge
structure may vary. Variations are determined in a manner not unfairly
discriminatory to policy owners which reflects differences in costs of services.
SURRENDERING THE POLICY FOR CASH
SURRENDER (REDEMPTION)
Policies may be surrendered for the cash surrender value any time while the
insured is living. The cancellation will be effective as of the date Nationwide
receives the policy accompanied by a signed, written request for cancellation.
Nationwide may require the policy owner's signature to be guaranteed by a member
firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock
Exchanges, or by a commercial bank or a savings and loan, which is a member of
the Federal Deposit Insurance Corporation. In some cases, Nationwide may require
additional documentation of a customary nature.
Cash Surrender Value
The cash surrender value increases or decreases daily to reflect the investment
experience of the variable account and the daily crediting of interest in the
fixed account and the policy loan account.
The cash surrender value equals the policy's cash value, next computed after the
date Nationwide receives a proper written request for surrender and the policy,
minus any charges, indebtedness or other deductions due on that date, which may
also include a surrender charge.
Partial Surrenders
After the policy has been in force for one year, the policy owner may request a
partial surrender.
Partial surrenders are permitted if they satisfy the following requirements:
1) the minimum partial surrender is $200;
2) partial surrenders may not reduce the specified amount below the minimum
specified amount;
3) during the first ten policy years, the maximum amount of a partial
surrender cannot exceed 10% of cash surrender value as of the beginning of
the policy year;
4) after the completion of ten policy years, the maximum amount of a partial
surrender is the cash surrender value less the greater of $500 or three
monthly deductions; and
5) after the partial surrender, the policy continues to qualify as life
insurance.
When a partial surrender is made, the cash value will be reduced by the amount
of the partial surrender. Further, the specified amount will be reduced by the
amount necessary to prevent any increase to the net amount at risk, unless the
partial surrender is treated as a preferred partial surrender.
Preferred Partial Surrenders
A partial surrender is considered a preferred partial surrender if the following
conditions are met:
(1) the surrender occurs before the 15th policy anniversary; and
(2) the surrender amount plus the amount of any previous preferred policy
surrenders in that same policy year does not exceed 10% of the cash
surrender value as of the beginning of the policy year.
Reduction of the Specified Amount
When a partial surrender is made, in addition to the cash value being reduced by
the amount of the partial surrender, the specified amount may
16
<PAGE> 20
also be reduced, (except in the case of a preferred partial surrender.) The
reduction to the specified amount will be made in the following order:
(1) against the most recent increase in the specified amount;
(2) against the next most recent increases in the specified amount in
succession; and
(3) against the specified amount under the original application.
Nationwide reserves the right to deduct a fee from the partial surrender amount.
The maximum fee is $25.00. Certain partial surrenders may result in currently
taxable income and tax penalties.
INCOME TAX WITHHOLDING
Federal law requires Nationwide to withhold income tax from any portion of
surrender proceeds subject to tax. Nationwide will withhold income tax unless
the policy owner advises Nationwide, in writing, of his or her request not to
withhold. If a policy owner requests that taxes not be withheld, or if the taxes
withheld are insufficient, the policy owner may be liable for payment of an
estimated tax. Policy owners should consult a tax adviser.
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
(4) 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 adviser, to determine the tax
consequences, if any, of their employer-sponsored life insurance arrangements.
VARIATION IN CASH VALUE
On any date during the policy year, the cash value equals the cash value on the
preceding valuation date plus any net premium applied since the previous
valuation date, minus any partial surrenders plus or minus any investment
results, minus any surrender charge for decreases in specified amount, and less
any policy charges.
There is no guaranteed cash value. The cash value will vary with the investment
experience of the variable account and/or the daily crediting of interest in the
fixed account and policy loan account depending on the allocation of cash value
by the policy owner.
Error in Age or Sex
If the age or sex of the insured has been misstated, the death benefit and cash
value will be adjusted. The cash value will be adjusted to reflect the cost of
insurance charges on the correct age and sex from the policy date.
POLICY PROVISIONS
Policy Owner
While the insured is living, all rights in this policy are vested in the policy
owner named in the application or as subsequently changed, subject to
assignment, if any.
The policy owner may name a contingent policy owner or a new policy owner while
the insured is living. Any change must be in a written form satisfactory to
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.
If the policy owner is other than the Insured and names no contingent policy
owner, and dies before the Insured, the policy owner's rights in this policy
belong to the policy owner's estate.
17
<PAGE> 21
Beneficiary
The Beneficiary(ies) will be as named in the application or as subsequently
changed, subject to assignment, if any.
The policy owner may name a new Beneficiary while the insured is living. Any
change must be in a written form satisfactory to Nationwide and recorded at
Nationwide's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by
Nationwide before it was recorded.
If any beneficiary predeceases the insured, that beneficiary's interest passes
to any surviving beneficiary(ies), unless otherwise provided. Multiple
beneficiaries will be paid in equal shares, unless otherwise provided. If no
named beneficiary survives the insured, the death proceeds will be paid to the
policy owner or the policy owner's estate.
Changes in Existing Insurance Coverage
The policy owner may request certain changes in the insurance coverage under the
policy. Requests must be in writing and received by Nationwide. No change will
take effect unless the cash surrender value after the change is sufficient to
keep the policy in force for at least 3 months.
Specified Amount Increases
After the first policy year, the policy owner may request an increase to the
specified amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the 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 Nationwide approves the supplemental application.
Nationwide reserves the right to limit the number of specified amount increases
to one each policy year.
Specified Amount Decreases
After the first policy year, the policy owner may also request a decrease to the
specified amount. Any approved decrease will be effective on the monthly
anniversary day on or next following the date Nationwide receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
Nationwide reserves the right to limit the number of specified amount decreases
to one each policy year. Nationwide will refuse a request for a decrease which
would:
1. reduce the specified amount to less than the minimum specified amount; or
2. disqualify the policy as a contract for life insurance.
OPERATION OF THE POLICY
ALLOCATION OF NET PREMIUM AND CASH VALUE
Nationwide allocates premium payments to sub-accounts or the fixed account, as
instructed by policy owners. All percentage allocations must be in whole
numbers, and must be at least 5%. The sum of allocations must equal 100%. Future
premium allocations may be changed by giving written notice to Nationwide.
Premiums are allocated to the NSAT-Money Market Fund or the fixed account during
the Ten Day Free Look period (only in certain states) for any premiums allocated
to a sub-account on the application. At the expiration of the ten day free look
period, 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
18
<PAGE> 22
one sub-account to another. Changes are subject to the terms and conditions
imposed by each underlying mutual fund and those found in this prospectus. Net
premiums allocated to the fixed account at the time of application may not be
transferred from the fixed account prior to the first policy anniversary (see
"Transfers").
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The accumulation unit value for a valuation period is determined by multiplying
the accumulation unit value for each sub-account for the immediately preceding
valuation period by the net investment factor for the sub-account for the
subsequent valuation period. Though the number of accumulation units will not
change as a result of investment experience, the value of an accumulation unit
may increase or decrease from valuation period to valuation period.
NET INVESTMENT FACTOR
The net investment factor for any valuation period is determined by dividing (a)
by (b) where:
(a) is the net of:
(1) the net asset value per share of the underlying mutual fund held in
the sub-account as of the end of the current valuation period; and
(2) the per share amount of any dividend or income distributions made by
the underlying mutual fund (if the "ex-dividend" date occurs during
the current valuation period).
(b) is the net asset value per share of the underlying mutual fund determined
as of the end of the immediately preceding valuation period.
The net investment factor may be greater or less than one; therefore, the value
of an accumulation unit may increase or decrease. Currently, Nationwide does not
maintain a tax reserve with respect to the policies since income with respect to
the underlying mutual funds is not taxable to Nationwide or the variable
account. Nationwide reserves the right to adjust the calculation of the net
investment factor to reflect a tax reserve should such income of other items
become taxable to Nationwide. It should be noted that changes in the net
investment factor may not be directly proportional to changes in the net asset
value of underlying mutual fund shares, because of the deduction for mortality
and expense risk charge, and any charge or credit for tax reserves.
DETERMINING THE CASH VALUE
The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts credited to the fixed account and
the policy loan account.
The number of accumulation units credited to each sub-account is determined by
dividing the net amount allocated to the sub-account by the accumulation unit
value for the sub-account for the valuation period during which the premium is
received by Nationwide. In the event part or all of the cash value is
surrendered or charges or deductions are made against the cash value, an
appropriate number of accumulation units from the variable account and an
appropriate amount from the fixed account will be deducted in the same
proportion that the policy owner's interest in the variable account and the
fixed account bears to the total cash value.
The cash value in the fixed account and the policy loan account is credited with
interest daily at an effective annual rate which Nationwide periodically
declares. The annual effective rate will never be less than 3%. (For a
description of the annual effective credited rates, see "The Fixed Account" and
"Policy Loans.") Upon request, Nationwide will inform the policy owner of the
then applicable rates for each account.
TRANSFERS
Policy owners can transfer allocations without penalty or adjustment subject to
the following conditions:
- - Nationwide reserves the right to restrict transfers between the fixed
account and the sub-accounts to one per policy year.
- - Transfers made to the fixed account may not be made in the first policy
year.
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- - Nationwide reserves the right to restrict the amount transferred from the
fixed account to 20% of that portion of the cash value attributable to the
fixed account as of the end of the previous policy year (subject to state
restrictions). Policy owners who have entered into Dollar Cost Averaging
agreements with Nationwide may transfer under the terms of that agreement.
- - Nationwide reserves the right to restrict the amount transferred to the
fixed account to 20% of that portion of cash value attributable to the
sub-accounts as of the close of business of the prior valuation period.
- - Nationwide reserves the right to refuse a transfer to the fixed account if
the fixed account value is greater than or equal to 30% of the total policy
value.
Transfer Requests
Nationwide will accept transfer requests in writing or in those states that
allow, over the telephone. Nationwide will use reasonable procedures to confirm
that telephone instructions are genuine. Nationwide's failure to follow these
procedures will result in its liability for fraudulent or unauthorized
transfers. However, Nationwide will not be liable for following instructions it
reasonably believed to be genuine. Nationwide may withdraw the telephone
exchange privilege upon 30 days written notice to policy owners.
Market-Timing Firms
Some policy owners may use market-timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market- timing firms will submit transfer requests on behalf of
multiple policy owners at the same time. Sometimes this can result in unusually
large transfers of funds. These large transfers might interfere with the ability
of Nationwide or the underlying mutual fund to process transactions. This can
potentially disadvantage policy owners not using market-timing firms. To avoid
this, Nationwide may modify the transfer rights of policy owners who use
market-timing firms (or other third parties) to initiate transfers on their
behalf.
The transfer rights of individual policy owners will not be modified in any way
when instructions are submitted directly by the policy owner, or by the policy
owner's representative (as authorized by the execution of a valid Nationwide
Limited Power of Attorney Form).
To protect policy owners, Nationwide may refuse transfer requests:
submitted by any agent acting under a power of attorney on behalf of more than
one policy owner; or
- - submitted on behalf of individual policy owners who have executed
pre-authorized exchange forms which are submitted by market-timing firms
(or other third parties) on behalf of more than one policy owner at the
same time.
- - Nationwide will not restrict transfer rights unless Nationwide believes it
necessary for the protection of all policy owners.
RIGHT TO REVOKE
Policy owners have a ten day "free look" to examine a policy. Policies may be
returned for cancellation on the latest of ten (10) days after the policy is
received; 45 days after the application was signed; or 10 days after Nationwide
delivers a Notice of Right of Withdrawal. The policy can be mailed to the
registered representative who sold it, or directly to Nationwide.
Returned policies are deemed void from the beginning. Nationwide will refund the
amount prescribed by the state in which the policy was issued within seven days
after it receives the policy. This right varies by state.
POLICY LOANS
Taking a Policy Loan
The policy owner may take a policy loan at any time using the policy as
security. Maximum policy indebtedness is limited to cash value attributable to
both fixed and policy loan accounts, and 90% of the cash value of the
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variable account, less any surrender charges. Nationwide will not grant a loan
for an amount less than $200. 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 in the following order: the death
benefit, cash surrender value or the maturity proceeds.
Any request for a policy loan must be in written form. The request must be
signed and, where permitted, the signature guaranteed by a member firm of the
New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or
by a commercial bank or a savings and loan which is a member of the Federal
Deposit Insurance Corporation. Certain policy loans may result in currently
taxable income and tax penalties.
A policy owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the policy from lapsing. The amount of the payments necessary to prevent
the policy from lapsing will increase with age.
Effect on Investment Performance
When a loan is made, an amount equal to the amount of the loan is transferred
from the variable account to the policy loan account. If the assets relating to
a policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each sub-account at the time of the
loan. Policy loans will be transferred from the fixed account only when
sufficient amounts are not available in the sub-accounts.
The amount taken out of the variable account will not be affected by the
variable account's investment experience while the loan is outstanding.
Interest
The annual effective loan interest rate charged on policy loans is 3.9%.
On a current basis, the cash value in the policy loan account is credited with
an annual effective rate of 3% during policy years 1 through 10 and an annual
effective rate of 3.9% during the 11th and subsequent policy years. Nationwide
may change the current interest crediting rate on the policy loans at any time
at its sole discretion. However, the crediting rate is guaranteed never to be
lower than 3% during policy years 1 through 10 and 3.65% during the 11th and
subsequent policy years.
If it is determined that such loans will be treated, as a result of the
differential between the interest crediting rate and the loan interest rate, as
taxable distributions under any applicable ruling, regulation, or court
decision, Nationwide retains the right to increase the net cost (by decreasing
the interest crediting rate) on all subsequent policy loans to an amount that
would result in the transaction being treated as a loan under federal tax law.
If this amount is not prescribed by such ruling, regulation, or court decision,
the amount will be that which Nationwide considers to be more likely to result
in the transaction being treated as a loan under federal tax law.
Amounts transferred to the policy loan account will earn interest daily from the
date of transfer. The earned interest is transferred from the policy loan
account to 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 less any surrender
charges, and if the Guaranteed Policy Continuation Period is not in effect,
Nationwide will send a notice to the policy owner and the assignee, if any. The
policy will terminate without value 61 days after the mailing of the notice
unless a sufficient repayment is made during that period. A repayment is
sufficient if it is large enough to reduce the total policy indebtedness to an
amount equal to the total cash value less any
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surrender charges 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 sub-accounts and the fixed account in proportion to the
policy owner's underlying mutual fund allocation factors in effect at the time
of the repayment. Each repayment may not be less than $50. Nationwide reserves
the right to require that any loan repayments resulting from policy loans
transferred from the fixed account must be first allocated to the fixed account.
ASSIGNMENT
While the insured is living, the policy owner may assign his or her rights in
the policy. The assignment must be in writing, signed by the policy owner and
recorded at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
responsible for the sufficiency or validity of any assignment.
Assignments are subject to any indebtedness owed to Nationwide before being
recorded.
POLICY OWNER SERVICES
Dollar Cost Averaging
Dollar cost averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from certain sub-accounts into other sub-accounts or the fixed
account. Policy owners may participate in this program if their policy value is
at least $15,000. Nationwide does not guarantee that this program will result in
profit or protect policy owners from loss.
Policy owners direct Nationwide to automatically transfer specified amounts from
the fixed account and the following underlying mutual fund options: Fidelity VIP
High Income Portfolio; NSAT-Government Bond Fund; NSAT-Nationwide High Income
Bond Fund; and the NSAT-Money Market Fund.
The minimum monthly transfer is $100. Transfers from the fixed account must be
equal to 1/30th of the fixed account value at the time the program is requested.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the policy owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new dollar cost averaging
programs. Nationwide reserves the right to assess a processing fee for this
service.
DEATH BENEFIT INFORMATION
Calculation of the Death Benefit
At issue, the policy owner selects the specified amount and the death benefit
option. At issue, the policy owner also irrevocably elects either of the
following tests qualifying the policy as life insurance under Section 7702 of
the Internal Revenue Code: (1) Guideline Premium/Cash Value Corridor Test; or
(2) the Cash Value Accumulation Test.
While the policy is in force, the death benefit will never be less than the
specified amount. The death benefit may vary with the cash value of the policy,
which depends on investment performance.
The policy owner may choose one of three death benefit options.
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OPTION 1: the death benefit will be the greater of the specified amount or
Minimum Required Death Benefit. Under OPTION 1, the amount of the death benefit
will ordinarily not change for several years to reflect the investment
performance and may not change at all. If investment performance is favorable,
the amount of death benefit may increase. To see how and when investment
performance will begin to affect death benefits, see the illustrations in
Appendix C.
OPTION 2: the death benefit will be the greater of the specified amount plus the
cash value as of the date of death, or Minimum Required Death Benefit and will
vary directly with the investment performance.
OPTION 3: the death benefit is the greater of the Minimum Required Death Benefit
or the sum of the specified amount on the date of death and accumulated premium
account which consists of all premium payments accumulated to date of death less
partial surrenders accumulated to date of death. The accumulations will be
calculated based on the OPTION 3 interest rate shown on the policy data page. In
no event will the accumulated premium account be less than zero or greater than
the maximum accumulated premium account shown on the policy data page.
For any death benefit option, the calculation of the Minimum Required Death
Benefit is shown on the policy data page. The Minimum Required Death Benefit is
the lowest death benefit which will qualify the policy as life insurance under
Section 7702 of the Internal Revenue Code. A change in death benefit option will
not be permitted if it results in the total premiums paid exceeding the then
current maximum premium limitations under Section 7702 of the Internal Revenue
Code where the policy owner has selected Guideline Premium/Cash Value Corridor
Test.
Changes in the Death Benefit Option
After the first policy year, the policy owner may elect to change the death
benefit option under the policy from either Option 1 to Option 2, or from Option
2 to Option 1. Only one change of death benefit option is permitted per policy
year. The effective date of a change will be the monthly anniversary day
following the date the change is approved by Nationwide.
In order for any change in the death benefit option to become effective, the
cash surrender value, after a change, must be sufficient to keep the policy in
force for at least three months.
Nationwide will adjust the specified amount so that the net amount at risk
remains constant before and after the death benefit option change. A change in
death benefit option will not be permitted if it results in the total premiums
paid exceeding the then current maximum premium limitations under Section 7702
of the Internal Revenue Code where the policy owner has selected Guideline
Premium/Cash Value Corridor Test.
Proceeds Payable on Death
The actual death proceeds payable on the Insured's death will be the death
benefit as described above, less any policy indebtedness and less any unpaid
policy charges. Under certain circumstances, the death proceeds may be adjusted
(see "Incontestability", "Error in Age or Sex", and "Suicide").
Incontestability
Nationwide will not contest payment of the death proceeds based on the initial
specified amount after the policy has been in force during the insured's
lifetime for 2 years from the policy date. For any increase in specified amount
requiring evidence of insurability, Nationwide will not contest payment of the
death proceeds based on such an increase after it has been in force during the
insured's lifetime for 2 years from its effective date.
Suicide
If the insured dies by suicide, while sane or insane, within two years from the
policy date, Nationwide will pay no more than the sum of the premiums paid, less
any indebtedness and less any partial surrenders. If the insured dies by
suicide, while sane or insane, within two years from the date an application is
accepted for an increase in the specified amount, Nationwide will pay no more
than the amount paid for the additional benefit.
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MATURITY PROCEEDS
The maturity date is the policy anniversary on or next following the insured's
100th birthday. If the policy is still in force, maturity proceeds are payable
to the policy owner on the maturity date (if the policy is still in force).
Maturity proceeds are equal to the amount of the policy's cash value, less any
indebtedness.
EXCHANGE RIGHTS
The policy owner may exchange the policy for a flexible premium adjustable life
insurance policy offered by Nationwide on the policy date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the policy date. No evidence
of insurability will be required.
The policy owner and beneficiary under the new policy will be the same as those
under the exchanged policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original policy immediately prior to the exchange date. The new policy
will have the same policy date and issue age as the original policy. The initial
specified amount and any increases in specified amount will have the same rate
class as those of the original policy. Any indebtedness may be transferred to
the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two policies.
After adjustment, if any excess is owed the policy owner, Nationwide will pay
the excess to the policy owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PERIOD
Grace Period
If the cash surrender value on a monthly anniversary day is not sufficient to
cover the current monthly deduction, and the Guaranteed Policy continuation
period is not in effect, a grace period will be allowed for the payment of a
premium of at least four times the current monthly deduction. Nationwide will
send the policy owner a notice at the start of the grace period, at the address
in the application or another address specified by the policy owner, stating the
amount of premium required. The grace period will end 61 days after the day the
notice is mailed. If sufficient premium is not received by Nationwide by the end
of the grace period, the policy will lapse without value.
If death proceeds become payable during the grace period, Nationwide will pay
the death proceeds.
Guaranteed Policy Continuation Period
This policy will not lapse during the guaranteed policy continuation period
provided that on each monthly anniversary day (1) is greater than or equal to
(2) where:
(1) is the sum of all premiums paid to date minus any indebtedness, and
minus any partial surrenders; and
(2) is the sum of minimum monthly premiums required since the policy date
including the minimum monthly premium for the current monthly
anniversary day.
The guaranteed policy continuation period is the lesser of 30 policy years or
the number of policy years until the insured reaches attained age 65. For
policies issued to ages greater than 55, the guaranteed policy continuation
period is 10 policy years. This provision is subject to state insurance
restrictions.
Reinstatement
If the grace period ends and the policy owner has neither paid the required
premium nor surrendered the policy for its cash surrender value, the policy
owner may reinstate the policy by:
1. submitting a written request at any time within 3 years after the end of
the grace period and prior to the maturity date;
2. providing evidence of insurability satisfactory to Nationwide;
3. paying sufficient premium to cover all policy charges that were due and
unpaid during the grace period;
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4. paying sufficient premium to keep the policy in force for 3 months from the
date of reinstatement; and
5. paying or reinstating any indebtedness against the policy which existed at
the end of the grace period.
The effective date of a reinstated policy will be the monthly anniversary day on
or next following the date the application for reinstatement is approved by
Nationwide. If the policy is reinstated, the cash value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
1. the cash value at the end of the grace period; or
2. the surrender charge for the policy year in which the policy was reinstated.
Amounts allocated to underlying mutual funds at the start of the grace period
will be reinstated, unless the policy owner provides otherwise.
TAX MATTERS
Policy Proceeds
Section 7702 of the Internal Revenue Code provides that if certain tests are
met, a policy will be treated as a life insurance policy for federal tax
purposes. Nationwide will monitor compliance with these tests. The policy should
thus receive the same federal income tax treatment as fixed benefit life
insurance. As a result, the Death Proceeds payable under a policy are excludable
from gross income of the beneficiary under Section 101 of the Internal Revenue
Code.
Section 7702A of the Internal Revenue Code defines modified endowment contracts
as those policies issued or materially changed on or after June 21, 1988 on
which the total premiums paid during the first seven years exceed the amount
that would have been paid if the policy provided for paid up benefits after
seven level annual premiums (see "Information about the policies"). The Internal
Revenue Code states that taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions from modified endowment
contracts (other than certain distributions to terminally ill individuals) are
subject to federal income taxes in a manner similar to the way annuities are
taxed. Modified endowment contract distributions are defined by the Internal
Revenue Code as amounts not received as an annuity and are taxable to the extent
the cash value of the policy exceeds, at the time of distribution, the premiums
paid into the policy. A 10% tax penalty generally applies to the taxable portion
of such distributions unless the policy owner is over age 59 1/2 or disabled or
the distribution is part of an annuity to the policy owner as defined in the
Internal Revenue Code. Under certain circumstances, certain distributions made
under a policy on the life of a "terminally ill individual", as that term is
defined in the Internal Revenue Code, are excludable from gross income.
The policies offered by this prospectus may or may not be issued as modified
endowment contracts. Nationwide will monitor premiums paid and will notify the
policy owner when the policy's non-modified endowment status is in jeopardy. If
a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the policy owner
pursuant to Section 7702(f)(7) of the Internal Revenue Code. The policy owner
should carefully consider this potential effect and seek further information
before initiating any changes in the terms of the policy. Under certain
conditions, a policy may become a modified endowment as a result of a material
change or a reduction in benefits as defined by Section 7702A(c) of the Internal
Revenue Code. In addition to meeting the tests required under Section 7702,
Section 817(h) of the Internal Revenue Code requires that the investments of
separate accounts such as the variable account be adequately diversified.
Regulations under 817(h) provide that a variable life policy that fails to
satisfy the diversification standards will not be treated as life insurance
unless such failure was inadvertent, is corrected, and the policy owner or
Nationwide pays an amount to the IRS. The amount will be based on the tax that
would have been paid by the policy owner if
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the income, for the period the policy was not diversified, had been received by
the policy owner.
If the failure to diversify is not corrected in this manner, the policy owner
will be deemed the owner of the underlying securities and taxed on the earnings
of his or her account.
Representatives of the IRS have suggested, from time to time, that the number of
underlying mutual funds available or the number of transfer opportunities
available under a variable product may be relevant in determining whether the
product qualifies for the desired tax treatment. No formal guidance has been
issued in this area. Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of underlying mutual funds, transfers between
underlying mutual funds, exchanges of underlying mutual funds or changes in
investment objectives of underlying mutual funds such that the policy would no
longer qualify as life insurance under Section 7702 of the Internal Revenue
Code, Nationwide will take whatever steps are available to remain in compliance.
Nationwide will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Sub-Account investments
to remain in compliance.
A total surrender or cancellation of the policy by lapse or the maturity of the
policy on its Maturity date may have adverse tax consequences. If the amount
received by the policy owner plus total policy Indebtedness exceeds the premiums
paid into the policy, the excess generally will be treated as taxable income,
regardless of whether or not the policy is a modified endowment contract.
Withholding
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise of no Taxpayer Identification Number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.
Federal Estate and Generation-Skipping Transfer Taxes
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1998, an estate of less than $625,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the insured dies, the death benefit will generally be included in the
lnsured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the insured's estate; or (2) the insured held any "incident of
ownership" in the policy at death or at any time within three years of death. An
incident of ownership is, in general, any right that may be exercised by the
policy owner, such as the right to borrow on the policy, or the right to name a
new Beneficiary.
If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.
Similarly, if the beneficiary is two or more generations younger than the
insured, the payment of the Death Proceeds at the death of the insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
Treasury Department, Nationwide may be required to withhold a portion of the
Death Proceeds and pay them directly to the IRS as the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
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The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the policy owner should consult with counsel and
other competent advisers regarding these taxes,
Non-Resident Aliens
Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. Nationwide is
required to withhold such amount from the distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to Nationwide sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, the NRA must obtain an individual Taxpayer Identification Number from
the IRS, and furnish that number to Nationwide prior to the distribution. If
Nationwide does not have the proper proof of citizenship or residency and a
proper individual Taxpayer Identification Number prior to any distribution,
Nationwide will be required to withhold 30% of the income, regardless of any
treaty provision.
A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to Nationwide that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includible in the recipient's gross income for United
States federal income tax purposes, Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no Taxpayer
Identification Number, or an incorrect Taxpayer Identification Number, is
provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
policy owner or beneficiary.
TAXATION OF NATIONWIDE
Nationwide is taxed as a life insurance company under the Internal Revenue Code.
Since the variable account is not a separate entity from Nationwide and its
operations form a part of Nationwide, it will not be taxed separately as a
"regulated investment company" under Sub-chapter M of the Internal Revenue Code.
Investment income and realized capital gains on the assets of the variable
account are reinvested and taken into account in determining the value of
accumulation units. As a result, such investment income and realized capital
gains are automatically applied to increase reserves under the policies.
Nationwide does not initially expect to incur any federal income tax liability
that would be chargeable to the variable account. Based upon these expectations,
no charge is currently being made against the variable account for federal
income taxes. If, however, Nationwide determines that on a separate company
basis such taxes may be incurred, it reserves the right to assess a charge for
such taxes against the variable account.
Nationwide may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on Nationwide's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
The Internal Revenue Code has been subjected to numerous amendments and changes,
and it is reasonable to believe that it will continue to be revised. The United
States Congress has, in the past, considered numerous legislative proposals
that, if enacted, could change the tax treatment of the policies. It is
reasonable to believe that such proposals, and future proposals, may be enacted
into law. In addition, the U.S. Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing law
that may be at variance with its current positions on these
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<PAGE> 31
matters. In addition, current state law (which is not discussed herein), and
future amendments to state law, may affect the tax consequences of the policy.
If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
Death Proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE POLICIES. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVISE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISER.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women. Thus the policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this policy.
YEAR 2000 COMPLIANCE ISSUES
Nationwide has developed and implemented a plan to address issues related to the
Year 2000. The problem relates to many existing computer systems using only two
digits to identify a year in a date field. These systems were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer systems could fail or create erroneous results
when processing information dated after December 31, 1999.
Like many organizations, Nationwide is required to renovate or replace computer
systems so that the systems will function properly after December 31, 1999.
Nationwide has completed an inventory and assessment of all computer systems and
has developed a plan to renovate or replace all applications that were
identified as not Year 2000 compliant.
Nationwide has renovated all applications that required renovation. Testing of
the renovated programs is in process, including running each application with
the date moved forward to Year 2000. Nationwide expects to complete the testing
of all renovated applications by the end of 1998. For applications being
replaced, Nationwide anticipates all replacement systems to be in place and
functioning by the end of 1998. Contingency plans are substantially completed
which identify actions to be taken if Nationwide's renovation and replacement
strategies fall behind schedule.
Nationwide has completed an inventory and assessment of all vendor products. As
of the end of September 1998, 76% of vendor products had been tested and
certified as Year 2000 compliant. Nationwide anticipates having all vendor
products assessed and certified by the end of 1998. Any vendor products that
cannot be certified as Year 2000 compliant will be replaced or eliminated.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
working with all business partners to assess Year 2000 issues associated with
the exchange of electronic data. Nationwide has completed an inventory and
assessment of all interfaces with business partners and is in the process of
testing those
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interfaces. Nationwide has also initiated plans to survey producer business
partners to ascertain their Year 2000 readiness.
Operating expenses in 1997 and in the first nine months of 1998 include
approximately $32.7 million and $33.5 million, respectively, for technology
projects, including costs related to Year 2000. In the fourth quarter of 1998,
Nationwide anticipates spending approximately $8 million on technology projects,
including Year 2000. At this time, no significant Year 2000 costs are
anticipated in 1999. Management does not anticipate that the completion of Year
2000 renovation and replacement activities will result in a reduction in
operating expenses. Rather, personnel and resources currently allocated to Year
2000 issues will be assigned to other technology-related projects. These
expenses do not have an effect on the assets of the variable account and are not
charged through to the contract owner.
STATE REGULATION
Nationwide is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
Nationwide for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine Nationwide's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Nationwide's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, Nationwide is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
REPORTS TO POLICY OWNERS
Nationwide will mail to the policy owner at the last known address of record, an
annual statement showing the amount of the current death benefit, the cash
value, cash surrender value, premiums paid, monthly charges deducted since the
last report, and the amounts invested in the fixed account, each sub-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
Nationwide is ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of
Nationwide. The ratings are not intended to reflect the investment experience or
financial strength of the variable account. Nationwide may advertise these
ratings from time to time. In addition, Nationwide may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend Nationwide or the policies. Furthermore,
Nationwide may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance and
annuity pricing and sales practices. A number of these lawsuits have resulted in
substantial jury awards or settlements.
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In February 1997, Nationwide Life Insurance Company was named as a defendant in
a lawsuit filed in New York Supreme Court related to the sale of whole life
policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Life
Insurance Co.). The plaintiff in this lawsuit seeks to represent a national
class of Nationwide policyholders and claims unspecified compensatory and
punitive damages. On August 20, 1998, the Court in the Snyder case signed an
order preliminarily approving a class for settlement purposes and scheduled a
fairness hearing for December 17, 1998. The proposed settlement, if ultimately
approved, is not expected to have a material adverse effect on the financial
condition of Nationwide Life Insurance Company.
In April 1998, Nationwide Life Insurance Company was named as a defendant in a
lawsuit filed in Ohio State Court similar to the Snyder lawsuit (David Mishler
v. Nationwide Life Insurance Co.). These plaintiffs seek to represent a similar
class, make similar allegations and seek unspecified compensatory and punitive
damages.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance contract and the other who was the owner of a variable annuity
contract, brought an action in a Texas federal court against Nationwide Life
Insurance Company and the American Century Group as defendants (Robert Young and
David D. Distad v. Nationwide Life Insurance Company et al.). In this action,
plaintiffs seek to represent a class of variable life insurance policy owners
and variable annuity contract owners who they claim were misled when purchasing
these variable contracts. Plaintiffs alleged the purchasers were led to believe
that the performance of an underlying mutual fund managed by American Century,
whose shares may only be purchased by insurance companies, would track the
performance of a public mutual fund, also managed by American Century. The
amended complaint seeks unspecified compensatory and punitive damages. On April
27, 1998, the Court denied, in part, and granted, in part, motions to dismiss
the complaint filed by Nationwide Life Insurance Company and American Century.
The parties are presently engaged in discovery on the issue of whether the
lawsuit should be certified as a class action. Plaintiffs filed their motion in
support of class certification and Nationwide Life Insurance Company intends to
file a response opposing class certification. Nationwide Life Insurance Company
intends to defend this case vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
EXPERTS
The audited financial statements have been included herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants, and
upon the authority of said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the variable account, Nationwide, and the policies
offered hereby. Statements contained in this prospectus as to the content of
policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the policies described herein are being passed
upon by 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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APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investment
vehicles for variable annuity contracts and variable life insurance policies
issued by insurance companies.
There is no guarantee that the investment objectives will be met.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS.
American Century Variable Portfolios, Inc. was organized as a Maryland
corporation in 1987. It is a diversified, open-end investment management company
which offers its shares only as investment vehicles for variable annuity and
variable life insurance products of insurance companies. American Century
Variable Portfolios, Inc. is managed by American Century Investment Management,
Inc.
-AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective
by investing in common stocks. The investment manager constructs
the portfolio to match the risk characteristics of the S&P 500
Stock Index and then optimizes each portfolio to achieve the
desired balance of risk and return potential. This includes
targeting a dividend yield that exceeds that of the S&P 500. Such
a management technique known as "portfolio optimization" may cause
the Fund to be more heavily invested in some industries than in
others. However, the Fund may not invest more than 25% of its
total assets in companies whose principal business activities are
in the same industry.
-AMERICAN CENTURY VP INTERNATIONAL
Investment Objective: To seek capital growth. The Fund will seek
to achieve its investment objective by investing primarily in
securities of foreign companies that meet certain fundamental and
technical standards of selection and, in the opinion of the
investment manager, have potential for appreciation. Under normal
conditions, the Fund will invest at least 65% of its assets in
common stocks or other equity securities of issuers from at least
three countries outside the United States. While securities of
United States issuers may be included in the portfolio from time
to time, it is the primary intent of the manager to diversify
investments across a broad range of foreign issuers. Although the
primary investment of the Fund will be common stocks (defined to
include depository receipts for common stock and other equity
equivalents), the Fund may also invest in other types of
securities consistent with the Fund's objective. When the manager
believes that the total capital growth potential of other
securities equals or exceeds the potential return of common
stocks, the Fund may invest up to 35% of its assets in such other
securities. There can be no assurance that the Fund will achieve
its objectives.
-AMERICAN CENTURY VP VALUE
Investment Objective: The investment objective of the Fund is
long-term capital growth; income is a secondary objective. The
equity securities in which the Fund will invest will be primarily
securities of well-established companies with
intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase. Under normal
market conditions, the Fund expects to invest at least 80% of the
value of its total asset in equity securities, including common
and
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preferred stock, convertible preferred stock and convertible debt
obligations.
DREYFUS STOCK INDEX FUND, INC.
The Dreyfus Stock Index Fund, Inc. ("Fund") is an open-end, non-diversified,
management investment company incorporated under Maryland law on January 24,
1989 and commenced operations on September 29, 1989. The Fund offers its shares
only as investment vehicles for variable annuity and variable life insurance
products of insurance companies. The Dreyfus Corporation ("Dreyfus") serves as
the Fund's manager, while Mellon Equity Associates, an affiliate of Dreyfus,
serves as the Fund's index manager. Dreyfus is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation.
Investment Objective: To provide investment results that
correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard &
Poor's 500 Composite Stock Price Index. The Fund is neither
sponsored by nor affiliated with Standard & Poor's Corporation.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund ("Fund") is an open-end, management investment
company. It was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts on October 29, 1986 and commenced operations
on August 31, 1990. The Fund offers it's shares only as investment vehicles for
variable annuity and variable life insurance products of insurance companies.
Dreyfus serves as the Fund's manager. Fayez Sarofim & Company serves as the
sub-adviser and provides day-to-day management of the portfolio.
-CAPITAL APPRECIATION PORTFOLIO
Investment Objective: The Portfolio's primary investment
objective is to provide long-term capital growth consistent with
the preservation of capital; current income is a secondary
investment objective. This Portfolio invests primarily in the
common stocks of domestic and foreign issuers.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company incorporated under Maryland law on July 20, 1992
and commenced operations on October 7, 1993. The Fund offers its share only as
investment vehicles for variable annuity and variable life insurance products of
insurance companies. Dreyfus serves as the Fund's investment adviser. NCM
Capital Management Group, Inc. serves as the Fund's sub-investment adviser and
provides day-to-day management of the Fund's portfolio.
Investment Objective: Capital growth through equity investment in
companies that, in the opinion of the Fund's advisers, not only
meet traditional investment standards, but which also show
evidence that they conduct their business in a manner that
contributes to the enhancement of the quality of life in America.
Current income is secondary to the primary goal.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.
-VIP EQUITY-INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: Reasonable income by investing primarily in
income-producing equity securities. In choosing these securities
FMR also will consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite
yield on the
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securities comprising the Standard & Poor's 500 Composite Stock
Price Index.
-VIP GROWTH PORTFOLIO: SERVICE CLASS
Investment Objective: Capital appreciation. This Portfolio will
invest in the securities of both well-known and established
companies, and smaller, less well-known companies which may have a
narrow product line or whose securities are thinly traded. These
latter securities will often involve greater risk than may be
found in the ordinary investment security. FMR's analysis and
expertise plays an integral role in the selection of securities
and, therefore, the performance of the Portfolio. Many securities
which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may
involve greater risk than is inherent in other underlying mutual
funds. It is also important to point out that this Portfolio makes
sense for you if you can afford to ride out changes in the stock
market because it invests primarily in common stocks. FMR can also
make temporary investments in securities such as investment-grade
bonds, high-quality preferred stocks and short-term notes, for
defensive purposes when it believes market conditions warrant.
-VIP HIGH INCOME PORTFOLIO: SERVICE CLASS
Investment Objective: High level of current income by investing
primarily in high-risk, lower-rated, high-yielding, fixed-income
securities, while also considering growth of capital. FMR will
seek high current income normally by investing the Portfolio's
assets as follows:
- 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 Investor Service, Inc.
("Moody's"); BB or lower by Standard & Poor's and may be deemed to
be of a speculative nature. The Portfolio may also purchase
lower-quality bonds such as those rated Ca3 by Moody's or C- by
Standard & Poor's which provide poor protection for payment of
principal and interest (commonly referred to as "junk bonds"). For
a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Portfolio's
prospectus.
-VIP OVERSEAS PORTFOLIO: SERVICE CLASS
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This Portfolio provides a
means for investors to diversify their own portfolios by
participating in companies and economies outside the United
States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP II and its portfolios.
-VIP II CONTRAFUND PORTFOLIO: SERVICE CLASS
Investment Objective: To seek capital appreciation by investing
primarily in companies that FMR believes to be undervalued due to
an overly pessimistic appraisal by the public. This strategy can
lead to investments in domestic or foreign companies, small and
large, many of which may not be well known. The Portfolio
primarily invests in common
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stock and securities convertible into common stock, but it has
the flexibility to invest in any type of security that may
produce capital appreciation.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III (VIP III) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on July 14, 1994. VIP III's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP III and it's portfolios.
-VIP III GROWTH OPPORTUNITIES PORTFOLIO: SERVICE CLASS
Investment Objective: Capital growth by investing primarily in
common stocks and securities convertible into common stocks. The
Portfolio, under normal conditions, will invest at least 65% of
its total assets in securities of companies that FMR believes have
long-term growth potential. Although the Portfolio invests
primarily in common stock and securities convertible into common
stock, it has the ability to purchase other securities, such as
preferred stock and bonds, that may produce capital growth. The
Portfolio may invest in foreign securities without limitation.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Morgan Stanley DEAN WITTER Universal Funds, Inc. is a mutual fund designed to
provide investment vehicles for variable annuity contracts and variable life
insurance policies and for certain tax-qualified investors. Its Emerging Markets
Debt Portfolio is managed by Morgan Stanley DEAN WITTER Investment Management,
Inc.
- -EMERGING MARKETS DEBT PORTFOLIO
Investment Objective: High total return by investing primarily in
dollar and non-dollar denominated fixed income securities of
government and government-related issuers located in emerging
market countries, which securities provide a high level of current
income, while at the same time holding the potential for capital
appreciation if the perceived creditworthiness of the issuer
improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. NSAT offers shares
in the mutual funds listed below, each with its own investment objectives.
Shares of NSAT will be sold primarily to separate accounts to fund the benefits
under variable life insurance policies and variable annuity contracts issued by
life insurance companies. The assets of NSAT are managed by Nationwide Advisory
Services, Inc. ("NAS"), a wholly-owned subsidiary of Nationwide Life Insurance
Company.
-CAPITAL APPRECIATION FUND
Investment Objective: Long-term growth by primarily investing in a
diversified portfolio of the common stock of companies which NAS
determines have a better-than-average potential for sustained
capital growth over the long term.
-GOVERNMENT BOND FUND
Investment Objective: As high a level of income as is consistent
with the preservation of capital by investing in a diversified
portfolio of securities issued or backed by the U.S. Government,
its agencies or instrumentalities.
-MONEY MARKET FUND
Investment Objective: As high a level of current income as is
considered consistent with the preservation of capital and
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-
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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 stock, warrants and options to purchase such stocks.
SUB-ADVISED NATIONWIDE FUNDS
-NATIONWIDE BALANCED FUND
Subadviser: Salomon Brothers Asset Management, Inc.
Investment Objective: Primarily seeks above-average income
compared to a portfolio entirely invested in equity securities.
The Fund's secondary objective is to take advantage of
opportunities for growth of capital and income. The Fund seeks its
objective primarily through investments in a broad variety of
securities, including equity securities, fixed-income securities
and short term obligations. Under normal market conditions, it is
anticipated that the Fund will invest at least 40% of the Fund's
total assets in equity securities and at least 25% in fixed-income
senior securities. The Fund's subadviser, Salomon Brothers Asset
Management, Inc., will have discretion to invest in the full range
of maturities of fixed-income securities. Generally, most of the
Fund's long-term debt investments will consist of "investment
grade" securities, but the Fund may invest up to 20% of its net
assets in non-convertible fixed-income securities rated below
investment grade or determined by the subadviser to be of
comparable quality. These securities are commonly known as junk
bonds. In addition, the Fund may invest an unlimited amount in
convertible securities rated below investment grade.
-NATIONWIDE EQUITY INCOME FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks above average income and capital
appreciation by investing at least 65% of its assets in
income-producing equity securities. Such equity securities include
common stocks, preferred stocks, and securities (including debt
securities) that are convertible into common stocks. The portion
of the Fund's total assets invested in each type of equity
security will vary according to the Fund's subadviser's assessment
of market, economic conditions and outlook.
-NATIONWIDE GLOBAL EQUITY FUND
Subadviser: J. P. Morgan Investment Management Inc.
Investment Objective: To provide high total return from a globally
diversified portfolio of equity securities. Total return will
consist of income plus realized and unrealized capital gains and
losses. The Fund seeks its investment objective through country
allocation, stock selection and management of currency exposure.
Under normal market conditions, J.P. Morgan Investment Management
Inc., intends to keep the Fund essentially fully invested with at
least 65% of the value of its total assets in equity securities
consisting of common stocks and other securities with equity
characteristics such as preferred stocks, warrants, rights,
convertible securities, trust certificates, limited partnership
interests and equity participations. The Fund's primary equity
instruments are the common stock of companies based in the
developed countries around the world. The assets of the Fund will
ordinarily be invested in the securities of at least five
different countries.
-NATIONWIDE HIGH INCOME BOND FUND
Subadviser: Federated Investment Counseling
Investment Objective: Seeks to provide high current income by
investing primarily in a professionally managed, diversified
portfolio of fixed income securities. To meet its objective, the
Fund intends to invest at least 65% of its assets in lower-rated
fixed income securities
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such as preferred stocks, bonds, debentures, notes, equipment
lease certificates and equipment trust certificates which are
rated BBB or lower by Standard & Poor's or Fitch Investors Service
or Baa or lower by Moody's (or if not rated, are determined by the
Fund's subadviser to be of a comparable quality). Such investments
are commonly referred to as "junk bonds." For a further discussion
of lower-rated securities, please see the "High Yield Securities"
section of the Fund's prospectus.
-NATIONWIDE MULTI SECTOR BOND FUND
Subadviser: Salomon Brothers Asset Management, Inc. with Salomon
Brothers Asset Management Limited
Investment Objective: Primarily seeks a high level of current
income. Capital appreciation is a secondary objective. The Fund
seeks to achieve its objectives by investing in a globally diverse
portfolio of fixed-income investments and by giving the
subadviser, Salomon Brothers Asset Management, Inc. broad
discretion to deploy the Fund's assets among certain segments of
the fixed-income market that the subadviser believes will best
contribute to achievement of the Fund's investment objectives. The
Fund reserves the right to invest predominantly in securities
rated in medium or lower categories, or as determined by the
subadviser to be of comparable quality, commonly referred to as
"junk bonds." 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 The Dreyfus Corporation, the
Fund's subadviser.
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-NATIONWIDE SMALL COMPANY FUND
Subadvisers: The Dreyfus Corporation, Neuberger & Berman, L.P.,
Lazard Asset Management, Strong Capital Management, Inc. and
Warburg Pincus Asset Management, Inc.
Investment Objective: 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 Management Inc.
Investment Objective: Capital growth by investing primarily in
equity securities that the Fund's subadviser believes have
above-average growth prospects. The Fund will generally invest in
companies whose earnings are believed to be in a relatively strong
growth trend, and to a lesser extent, in companies in which
significant further growth is not anticipated but whose market
value is thought to be undervalued. Under normal market
conditions, the Fund will invest at least 65% of its total assets
in equity securities, including common stocks, preferred stocks,
and securities convertible 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 Growth Portfolios of N&B AMT invest all of
their investable assets in a corresponding series of Advisers Managers Trust
managed by Neuberger & Berman Management
37
<PAGE> 41
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.
-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 a
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 primarily in the
common stock of established companies. Its investment program
seeks securities believed to be undervalued based on fundamentals
such as low price-to-earnings ratios, consistent cash flows, and
the company's track record through all parts of the market cycle.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds are an open-end, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold to provide benefits under variable life insurance policies
and variable annuity contracts. OppenheimerFunds, Inc. is the investment
adviser.
-OPPENHEIMER AGGRESSIVE GROWTH FUND (FORMERLY "OPPENHEIMER CAPITAL
APPRECIATION FUND")
Investment Objective: Capital appreciation by investing in "growth
type" companies. Such companies are believed to have relatively
favorable long-term prospects for increasing demand for their
goods or services, or to be developing new products, services or
markets and normally retain a relatively larger portion of their
earnings for research, development and investment in capital
assets. The Fund may also invest in cyclical industries in
"special situations" that OppenheimerFunds, Inc. believes present
opportunities for capital growth.
-OPPENHEIMER 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
38
<PAGE> 42
have an operating history of at least five years including
predecessors). Current income is a secondary consideration in the
selection of the Fund's portfolio securities.
-OPPENHEIMER GROWTH & INCOME FUND
Investment Objective: High total return, which stocks, preferred
stocks, convertible securities and warrants. Debt investments will
include bonds, participation includes growth in the value of its
shares as well as current income from quality and debt securities.
In seeking its investment objectives, the Fund may invest in
equity and debt securities. Equity investments will include common
interests, asset-backed securities, private-label mortgage-backed
securities and CMOs, zero coupon securities and U.S. debt
obligations, and cash and cash equivalents. From time to time, the
Fund may focus on small to medium capitalization issuers, the
securities of which may be subject to greater price volatility
than those of larger capitalized issuers.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust ("Van Eck Trust") is an open-end management
investment company organized as a business trust under the laws of the
Commonwealth of Massachusetts on January 7, 1987. Shares of Van Eck Trust are
offered only to separate accounts of insurance companies to fund the benefits of
variable life insurance policies and variable annuity contracts. The investment
advisor and manager is Van Eck Associates Corporation.
-WORLDWIDE EMERGING MARKETS FUND
Investment Objective: Seeks long-term capital appreciation by
investing primarily in equity securities in emerging markets
around the world. The Fund emphasizes investment in countries
that, compared to the world's major economies, exhibit relatively
low gross national product per capita, as well as the potential
for rapid economic growth.
-WORLDWIDE HARD ASSETS FUND
Investment Objective: Long-term capital appreciation by investing
primarily in "Hard Asset Securities." For the Fund's purpose,
"Hard Assets" are real estate, energy, timber, and industrial and
precious metals. Income is a secondary consideration.
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen Life Investment Trust is an open-end diversified management
investment company organized as a Delaware business trust. Shares are offered in
separate portfolios which are sold only to insurance companies to provide
funding for variable life insurance policies and variable annuity contracts. Van
Kampen Asset Management, Inc. serves as the Fund's investment adviser.
-MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
Investment Objective: Long-term capital growth by investing
principally in a diversified portfolio of securities of companies
operating in the real estate industry ("Real Estate Securities").
Current income is a secondary consideration. Real Estate
Securities include equity securities, including common stocks and
convertible securities, as well as non-convertible preferred
stocks and debt securities of real estate industry companies. A
"real estate industry company" is a company that derives at least
50% of its assets (marked to market), gross income or net profits
from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal
market conditions, at least 65% of the Fund's total assets will be
invested in Real Estate Securities, primarily equity securities of
real estate investment trusts. The Portfolio may invest up to 25%
of its total assets in securities issued by foreign issuers, some
or all of which may also be Real Estate Securities.
39
<PAGE> 43
WARBURG PINCUS TRUST
The Warburg Pincus Trust is an open-end management investment company organized
in March 1995 as a business trust under the laws of The Commonwealth of
Massachusetts. The Trust offers its shares to insurance companies for allocation
to separate accounts for the purpose of funding variable annuity and variable
life contracts. Portfolios are managed by Warburg Pincus Asset Management, Inc.
("Warburg").
-GROWTH & INCOME PORTFOLIO
Investment Objective: Long-term growth of capital and income by
investing primarily in dividend-paying equity securities. Under
normal market conditions, the Portfolio will invest substantially
all of its asset in equity securities that Warburg considers to be
relatively undervalued based upon research and analysis, taking
into account factors such as price/book ratio, price/cash flow
ratio, earnings growth, debt/capital ratio and multiples of
earnings of comparable securities. Although the Portfolio may hold
securities of any size, it currently expects to focus on companies
with market capitalizations of $1 billion or greater at the time
of initial purchase.
-INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: Long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities
of companies, wherever organized, that in the judgment of Warburg
have their principal business activities and interests outside the
United States. The Portfolio will ordinarily invest substantially
all of its assets, but no less than 65% of its total assets, in
common stocks, warrants and securities convertible into or
exchangeable for common stocks. The Portfolio intends to invest
principally in the securities of financially strong companies with
opportunities for growth within growing international economies
and markets through increased earning power and improved
utilization or recognition of assets.
-POST-VENTURE CAPITAL PORTFOLIO
Investment Objective: Long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment
strategy. Under normal market conditions, the Portfolio will
invest at least 65% of its total assets in equity securities of
"post-venture capital companies." A post-venture capital company
is one that has received venture 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.
40
<PAGE> 44
APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a policy with a Specified
Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender
the policy during the first policy year. By using the initial Surrender Charge
table reproduced below, (also see "Surrender Charges") the total Surrender
Charge per thousand multiplied by the Specified Amount expressed in thousands
equals the total Surrender Charge of $569.50 ($11.390 x 50=569.50).
Example 2: A male non-tobacco, age 35, purchases a policy with a Specified
Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender
the policy in the sixth policy year. The total initial Surrender Charge is
calculated using the method illustrated above. (Surrender Charge per 1000 6.817
x 100=681.70 maximum initial Surrender Charge). Because the fifth policy year
has been completed, the maximum initial Surrender Charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below. (Also see "Reductions to Surrender Charges.") In
this case, $681.70 x 60%=$409.02. Maximum Surrender Charge per $1,000 of initial
Specified Amount for policies which are issued on a standard basis.
<TABLE>
<CAPTION>
Initial Specified Amount $50,000-$99,999
- ------------------------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $7.773 $7.518 $8.369 $7.818
- ------------------------------------------------------------------------------------------------------------------------
35 8.817 8.396 9.811 8.889
- ------------------------------------------------------------------------------------------------------------------------
45 12.185 11.390 13.884 12.164
- ------------------------------------------------------------------------------------------------------------------------
55 15.628 13.995 18.410 15.106
- ------------------------------------------------------------------------------------------------------------------------
65 22.274 19.043 26.559 20.607
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Initial Specified Amount $100,000+
- ------------------------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $5.773 $5.518 $6.369 $5.818
- ------------------------------------------------------------------------------------------------------------------------
35 6.817 6.396 7.811 6.889
- ------------------------------------------------------------------------------------------------------------------------
45 9.685 8.890 11.384 9.664
- ------------------------------------------------------------------------------------------------------------------------
55 13.128 11.495 15.910 12.606
- ------------------------------------------------------------------------------------------------------------------------
65 21.274 18.043 25.559 19.607
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Reductions to Surrender Charges.
- ------------------------------------------------------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 100% 5 60%
- ------------------------------------------------------------------------------------------------------------------------------
1 100% 6 50%
- ------------------------------------------------------------------------------------------------------------------------------
2 90% 7 40%
- ------------------------------------------------------------------------------------------------------------------------------
3 80% 8 30%
- ------------------------------------------------------------------------------------------------------------------------------
4 70% 9+ 0%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 45
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14
years. The guaranteed maximum Surrender Charge in subsequent years in
Pennsylvania is reduced in the following manner:
<TABLE>
<CAPTION>
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE
POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL
YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES
<S> <C> <C> <C> <C> <C>
0 100% 5 60% 10 20%
1 100% 6 50% 11 15%
2 90% 7 40% 12 10%
3 80% 8 30% 13 5%
4 70% 9 25% 14+ 0%
</TABLE>
The illustrations of current values in this prospectus are the same for
Pennsylvania. However, the illustrations of guaranteed values in this prospectus
do not reflect guaranteed maximum Surrender Charges which are spread out over 14
years. If this policy is issued in Pennsylvania, please contact the Home Office
for an illustration.
Nationwide has no plans to change the current Surrender Charges.
42
<PAGE> 46
APPENDIX C: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the policies change with investment performance. The illustrations
illustrate how cash values, cash surrender values and death benefits under a
policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the cash values, cash surrender values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the policies would go into default, at which time additional
premium payments would be required to continue the policy in force. The
illustrations also assume there is no policy Indebtedness, no additional premium
payments are made, no cash values are allocated to the fixed account, and there
are no changes in the Specified Amount or death benefit option.
The amounts shown for the cash value, cash surrender value and death benefit as
of each policy anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the deduction of underlying mutual fund investment advisory fees and other
expenses which are equivalent to an annual effective rate of 0.95%. This
effective rate is based on the average of the fund expenses for the preceding
year for all underlying mutual fund options available under the policy as of
March 13, 1998. Taking into account the underlying mutual fund expenses, gross
annual rates of return of 0%, 6% and 12% correspond to net investment experience
at constant annual rates of -0.65%, 5.35% and 11.35%.
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection, recovering taxes, providing for
administrative expenses, and assuming mortality and expense risks. Current
values reflect current cost of insurance charges and guaranteed values reflect
the maximum cost of insurance charges guaranteed in the policy. The values shown
are for policies which are issued as standard. Policies issued on a substandard
basis would result in lower cash values and death benefits than those
illustrated.
The cash surrender values shown in the illustrations reflect the fact that
Nationwide will deduct a surrender charge from the policy's cash value for any
policy surrendered in full during the first nine policy years.
The illustrations also reflect the fact that no charges for federal or state
income taxes are currently made against the variable account. If such a charge
is made in the future, it will require a higher gross investment return than
illustrated in order to produce the net after-tax returns shown in the
illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insured's age, sex, smoking classification, rating classification and
premium payment requested.
43
<PAGE> 47
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 788 407 0 50,000 440 0 50,000
2 1,614 857 283 50,000 949 376 50,000
3 2,483 1,288 772 50,000 1,470 953 50,000
4 3,394 1,702 1,243 50,000 2,003 1,544 50,000
5 4,351 2,102 1,700 50,000 2,552 2,150 50,000
6 5,357 2,486 2,142 50,000 3,118 2,774 50,000
7 6,412 2,856 2,569 50,000 3,701 3,414 50,000
8 7,520 3,211 2,981 50,000 4,301 4,071 50,000
9 8,683 3,549 3,377 50,000 4,919 4,747 50,000
10 9,905 3,871 3,871 50,000 5,557 5,557 50,000
11 11,188 4,177 4,177 50,000 6,213 6,213 50,000
12 12,535 4,466 4,466 50,000 6,890 6,890 50,000
13 13,949 4,736 4,736 50,000 7,588 7,588 50,000
14 15,434 4,989 4,989 50,000 8,307 8,307 50,000
15 16,993 5,223 5,223 50,000 9,049 9,049 50,000
16 18,630 5,437 5,437 50,000 9,814 9,814 50,000
17 20,349 5,603 5,603 50,000 10,579 10,579 50,000
18 22,154 5,718 5,718 50,000 11,339 11,339 50,000
19 24,049 5,782 5,782 50,000 12,100 12,100 50,000
20 26,039 5,800 5,800 50,000 12,864 12,864 50,000
21 28,129 5,757 5,757 50,000 13,623 13,623 50,000
22 30,323 5,647 5,647 50,000 14,372 14,372 50,000
23 32,626 5,460 5,460 50,000 15,105 15,105 50,000
24 35,045 5,187 5,187 50,000 15,819 15,819 50,000
25 37,585 4,818 4,818 50,000 16,508 16,508 50,000
26 40,252 4,341 4,341 50,000 17,165 17,165 50,000
27 43,052 3,744 3,744 50,000 17,786 17,786 50,000
28 45,992 3,012 3,012 50,000 18,363 18,363 50,000
29 49,079 2,125 2,125 50,000 18,888 18,888 50,000
30 52,321 1,059 1,059 50,000 19,348 19,348 50,000
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 472 0 50,000
2 1,046 472 50,000
3 1,667 1,151 50,000
4 2,343 1,884 50,000
5 3,082 2,681 50,000
6 3,891 3,547 50,000
7 4,778 4,492 50,000
8 5,752 5,522 50,000
9 6,821 6,649 50,000
10 7,996 7,996 50,000
11 9,290 9,290 50,000
12 10,717 10,717 50,000
13 12,290 12,290 50,000
14 14,028 14,028 50,000
15 15,950 15,950 50,000
16 18,078 18,078 50,000
17 20,417 20,417 50,000
18 22,993 22,993 50,000
19 25,841 25,841 50,000
20 29,011 29,011 50,000
21 32,544 32,544 50,000
22 36,494 36,494 50,000
23 40,924 40,924 50,000
24 45,887 45,887 53,688
25 51,374 51,374 59,594
26 57,432 57,432 66,047
27 64,139 64,139 72,477
28 71,571 71,571 79,444
29 79,814 79,814 86,997
30 88,969 88,969 95,197
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) Unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 356 0 50,000 387 0 50,000
2 3,229 721 147 50,000 806 232 50,000
3 4,965 1,064 548 50,000 1,228 711 50,000
4 6,788 1,385 926 50,000 1,650 1,191 50,000
5 8,703 1,680 1,278 50,000 2,071 1,669 50,000
6 10,713 1,948 1,604 50,000 2,489 2,145 50,000
7 12,824 2,185 1,898 50,000 2,899 2,613 50,000
8 15,040 2,388 2,159 50,000 3,299 3,069 50,000
9 17,367 2,552 2,380 50,000 3,681 3,509 50,000
10 19,810 2,672 2,672 50,000 4,042 4,042 50,000
11 22,376 2,745 2,745 50,000 4,377 4,377 50,000
12 25,069 2,766 2,766 50,000 4,680 4,680 50,000
13 27,898 2,732 2,732 50,000 4,947 4,947 50,000
14 30,868 2,637 2,637 50,000 5,170 5,170 50,000
15 33,986 2,473 2,473 50,000 5,339 5,339 50,000
16 37,261 2,231 2,231 50,000 5,445 5,445 50,000
17 40,699 1,901 1,901 50,000 5,474 5,474 50,000
18 44,309 1,468 1,468 50,000 5,409 5,409 50,000
19 48,099 915 915 50,000 5,230 5,230 50,000
20 52,079 224 224 50,000 4,915 4,915 50,000
21 56,258 (*) (*) (*) 4,440 4,440 50,000
22 60,646 (*) (*) (*) 3,779 3,779 50,000
23 65,253 (*) (*) (*) 2,899 2,899 50,000
24 70,091 (*) (*) (*) 1,762 1,762 50,000
25 75,170 (*) (*) (*) 314 314 50,000
26 80,504 (*) (*) (*) (*) (*) (*)
27 86,104 (*) (*) (*) (*) (*) (*)
28 91,984 (*) (*) (*) (*) (*) (*)
29 98,158 (*) (*) (*) (*) (*) (*)
30 104,641 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 418 0 50,000
2 895 321 50,000
3 1,406 889 50,000
4 1,951 1,492 50,000
5 2,534 2,133 50,000
6 3,157 2,813 50,000
7 3,820 3,533 50,000
8 4,525 4,296 50,000
9 5,272 5,100 50,000
10 6,064 6,064 50,000
11 6,902 6,902 50,000
12 7,789 7,789 50,000
13 8,730 8,730 50,000
14 9,730 9,730 50,000
15 10,789 10,789 50,000
16 11,913 11,913 50,000
17 13,106 13,106 50,000
18 14,370 14,370 50,000
19 15,710 15,710 50,000
20 17,133 17,133 50,000
21 18,649 18,649 50,000
22 20,274 20,274 50,000
23 22,026 22,026 50,000
24 23,928 23,928 50,000
25 26,007 26,007 50,000
26 28,301 28,301 50,000
27 30,855 30,855 50,000
28 33,726 33,726 50,000
29 36,995 36,995 50,000
30 40,779 40,779 50,000
- --------------------------------------------------------------------------------
</TABLE>
1. no policy loans and no partial withdrawals have been made.
2. guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. guaranteed values reflect a 6% of premium charge on all
premiums.
3. net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions shown in the prospectus appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 788 405 0 50,405 438 0 50,438
2 1,614 851 278 50,851 943 369 50,943
3 2,483 1,277 760 51,277 1,457 940 51,457
4 3,394 1,683 1,224 51,683 1,980 1,521 51,980
5 4,351 2,073 1,671 52,073 2,516 2,114 52,516
6 5,357 2,445 2,101 52,445 3,064 2,720 53,064
7 6,412 2,800 2,513 52,800 3,625 3,338 53,625
8 7,520 3,137 2,908 53,137 4,198 3,968 54,198
9 8,683 3,456 3,284 53,456 4,783 4,611 54,783
10 9,905 3,755 3,755 53,755 5,380 5,380 55,380
11 11,188 4,035 4,035 54,035 5,988 5,988 55,988
12 12,535 4,295 4,295 54,295 6,608 6,608 56,608
13 13,949 4,534 4,534 54,534 7,238 7,238 57,238
14 15,434 4,751 4,751 54,751 7,879 7,879 57,879
15 16,993 4,945 4,945 54,945 8,530 8,530 58,530
16 18,630 5,117 5,117 55,117 9,189 9,189 59,189
17 20,349 5,234 5,234 55,234 9,825 9,825 59,825
18 22,154 5,291 5,291 55,291 10,431 10,431 60,431
19 24,049 5,290 5,290 55,290 11,006 11,006 61,006
20 26,039 5,237 5,237 55,237 11,554 11,554 61,554
21 28,129 5,116 5,116 55,116 12,057 12,057 62,057
22 30,323 4,920 4,920 54,920 12,505 12,505 62,505
23 32,626 4,641 4,641 54,641 12,885 12,885 62,885
24 35,045 4,270 4,270 54,270 13,185 13,185 63,185
25 37,585 3,799 3,799 53,799 13,390 13,390 63,390
26 40,252 3,218 3,218 53,218 13,487 13,487 63,487
27 43,052 2,520 2,520 52,520 13,459 13,459 63,459
28 45,992 1,694 1,694 51,694 13,289 13,289 63,289
29 49,079 729 729 50,729 12,957 12,957 62,957
30 52,321 (*) (*) (*) 12,438 12,438 62,438
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 470 0 50,470
2 1,039 465 51,039
3 1,652 1,136 51,652
4 2,316 1,857 52,316
5 3,037 2,636 53,037
6 3,823 3,478 53,823
7 4,677 4,390 54,677
8 5,608 5,379 55,608
9 6,623 6,451 56,623
10 7,729 7,729 57,729
11 8,936 8,936 58,936
12 10,253 10,253 60,253
13 11,690 11,690 61,690
14 13,261 13,261 63,261
15 14,977 14,977 64,977
16 16,854 16,854 66,854
17 18,873 18,873 68,873
18 21,045 21,045 71,045
19 23,386 23,386 73,386
20 25,922 25,922 75,922
21 28,660 28,660 78,660
22 31,617 31,617 81,617
23 34,806 34,806 84,806
24 38,242 38,242 88,242
25 41,943 41,943 91,943
26 45,926 45,926 95,926
27 50,212 50,212 100,212
28 54,823 54,823 104,823
29 59,779 59,779 109,779
30 65,100 65,100 115,100
- -------------------------------------------------------------------------------
</TABLE>
1. no policy loans and no partial withdrawals have been made.
2. current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated
46
<PAGE> 50
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
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 788 353 0 50,353 384 0 50,384
2 1,614 714 141 50,714 799 225 50,799
3 2,483 1,051 535 51,051 1,212 696 51,212
4 3,394 1,363 904 51,363 1,623 1,164 51,623
5 4,351 1,647 1,245 51,647 2,029 1,628 52,029
6 5,357 1,901 1,556 51,901 2,427 2,083 52,427
7 6,412 2,121 1,834 52,121 2,812 2,525 52,812
8 7,520 2,304 2,074 52,304 3,179 2,949 53,179
9 8,683 2,443 2,271 52,443 3,521 3,349 53,521
10 9,905 2,536 2,536 52,536 3,832 3,832 53,832
11 11,188 2,578 2,578 52,578 4,107 4,107 54,107
12 12,535 2,564 2,564 52,564 4,338 4,338 54,338
13 13,949 2,492 2,492 52,492 4,519 4,519 54,519
14 15,434 2,357 2,357 52,357 4,642 4,642 54,642
15 16,993 2,150 2,150 52,150 4,696 4,696 54,696
16 18,630 1,865 1,865 51,865 4,669 4,669 54,669
17 20,349 1,493 1,493 51,493 4,547 4,547 54,547
18 22,154 1,020 1,020 51,020 4,311 4,311 54,311
19 24,049 435 435 50,435 3,941 3,941 53,941
20 26,039 (*) (*) (*) 3,418 3,418 53,418
21 28,129 (*) (*) (*) 2,720 2,720 52,720
22 30,323 (*) (*) (*) 1,827 1,827 51,827
23 32,626 (*) (*) (*) 717 717 50,717
24 35,045 (*) (*) (*) (*) (*) (*)
25 37,585 (*) (*) (*) (*) (*) (*)
26 40,252 (*) (*) (*) (*) (*) (*)
27 43,052 (*) (*) (*) (*) (*) (*)
28 45,992 (*) (*) (*) (*) (*) (*)
29 49,079 (*) (*) (*) (*) (*) (*)
30 52,321 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 415 0 50,415
2 887 313 50,887
3 1,388 872 51,388
4 1,920 1,461 51,920
5 2,483 2,081 52,483
6 3,077 2,733 53,077
7 3,702 3,415 53,702
8 4,357 4,127 54,357
9 5,037 4,865 55,037
10 5,742 5,742 55,742
11 6,468 6,468 56,468
12 7,213 7,213 57,213
13 7,975 7,975 57,975
14 8,750 8,750 58,750
15 9,529 9,529 59,529
16 10,304 10,304 60,304
17 11,065 11,065 61,065
18 11,796 11,796 61,796
19 12,478 12,478 62,478
20 13,092 13,092 63,092
21 13,616 13,616 63,616
22 14,028 14,028 64,028
23 14,304 14,304 64,304
24 14,413 14,413 64,413
25 14,316 14,316 64,316
26 13,960 13,960 63,960
27 13,282 13,282 63,282
28 12,201 12,201 62,201
29 10,631 10,631 60,631
30 8,477 8,477 58,477
- -------------------------------------------------------------------------
</TABLE>
1. no policy loans and no partial withdrawals have been made.
2. Guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all
premiums.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 592 0 50,000 642 0 50,000
2 3,229 1,200 507 50,000 1,340 647 50,000
3 4,965 1,784 1,160 50,000 2,054 1,430 50,000
4 6,788 2,358 1,804 50,000 2,800 2,245 50,000
5 8,703 2,923 2,438 50,000 3,580 3,095 50,000
6 10,713 3,478 3,062 50,000 4,397 3,981 50,000
7 12,824 4,023 3,676 50,000 5,253 4,906 50,000
8 15,040 4,559 4,282 50,000 6,150 5,873 50,000
9 17,367 5,085 4,878 50,000 7,090 6,882 50,000
10 19,810 5,603 5,603 50,000 8,077 8,077 50,000
11 22,376 6,111 6,111 50,000 9,113 9,113 50,000
12 25,069 6,523 6,523 50,000 10,120 10,120 50,000
13 27,898 6,852 6,852 50,000 11,109 11,109 50,000
14 30,868 7,108 7,108 50,000 12,092 12,092 50,000
15 33,986 7,283 7,283 50,000 13,065 13,065 50,000
16 37,261 7,328 7,328 50,000 13,987 13,987 50,000
17 40,699 7,242 7,242 50,000 14,861 14,861 50,000
18 44,309 7,009 7,009 50,000 15,678 15,678 50,000
19 48,099 6,626 6,626 50,000 16,439 16,439 50,000
20 52,079 6,096 6,096 50,000 17,152 17,152 50,000
21 56,258 5,386 5,386 50,000 17,799 17,799 50,000
22 60,646 4,467 4,467 50,000 18,365 18,365 50,000
23 65,253 3,303 3,303 50,000 18,831 18,831 50,000
24 70,091 1,850 1,850 50,000 19,178 19,178 50,000
25 75,170 56 56 50,000 19,379 19,379 50,000
26 80,504 (*) (*) (*) 19,415 19,415 50,000
27 86,104 (*) (*) (*) 19,251 19,251 50,000
28 91,984 (*) (*) (*) 18,846 18,846 50,000
29 98,158 (*) (*) (*) 18,142 18,142 50,000
30 104,641 (*) (*) (*) 17,059 17,059 50,000
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 693 0 50,000
2 1,486 793 50,000
3 2,347 1,724 50,000
4 3,301 2,747 50,000
5 4,358 3,873 50,000
6 5,530 5,114 50,000
7 6,831 6,485 50,000
8 8,278 8,000 50,000
9 9,886 9,678 50,000
10 11,677 11,677 50,000
11 13,671 13,671 50,000
12 15,821 15,821 50,000
13 18,162 18,162 50,000
14 20,736 20,736 50,000
15 23,574 23,574 50,000
16 26,694 26,694 50,000
17 30,163 30,163 50,000
18 34,044 34,044 50,000
19 38,425 38,425 50,000
20 43,412 43,412 50,000
21 49,122 49,122 51,578
22 55,487 55,487 58,261
23 62,518 62,518 65,644
24 70,282 70,282 73,796
25 78,850 78,850 82,792
26 88,302 88,302 92,717
27 98,722 98,722 103,658
28 110,204 110,204 115,714
29 122,847 122,847 128,989
30 136,757 136,757 143,594
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 470 0 50,000 516 0 50,000
2 3,229 915 222 50,000 1,038 345 50,000
3 4,965 1,303 680 50,000 1,533 909 50,000
4 6,788 1,630 1,075 50,000 1,993 1,439 50,000
5 8,703 1,887 1,402 50,000 2,411 1,926 50,000
6 10,713 2,067 1,651 50,000 2,776 2,360 50,000
7 12,824 2,162 1,815 50,000 3,078 2,731 50,000
8 15,040 2,157 1,880 50,000 3,299 3,021 50,000
9 17,367 2,040 1,832 50,000 3,421 3,213 50,000
10 19,810 1,794 1,794 50,000 3,425 3,425 50,000
11 22,376 1,404 1,404 50,000 3,290 3,290 50,000
12 25,069 853 853 50,000 2,993 2,993 50,000
13 27,898 124 124 50,000 2,505 2,505 50,000
14 30,868 (*) (*) (*) 1,793 1,793 50,000
15 33,986 (*) (*) (*) 811 811 50,000
16 37,261 (*) (*) (*) (*) (*) (*)
17 40,699 (*) (*) (*) (*) (*) (*)
18 44,309 (*) (*) (*) (*) (*) (*)
19 48,099 (*) (*) (*) (*) (*) (*)
20 52,079 (*) (*) (*) (*) (*) (*)
21 56,258 (*) (*) (*) (*) (*) (*)
22 60,646 (*) (*) (*) (*) (*) (*)
23 65,253 (*) (*) (*) (*) (*) (*)
24 70,091 (*) (*) (*) (*) (*) (*)
25 75,170 (*) (*) (*) (*) (*) (*)
26 80,504 (*) (*) (*) (*) (*) (*)
27 86,104 (*) (*) (*) (*) (*) (*)
28 91,984 (*) (*) (*) (*) (*) (*)
29 98,158 (*) (*) (*) (*) (*) (*)
30 104,641 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 563 0 50,000
2 1,167 474 50,000
3 1,784 1,160 50,000
4 2,410 1,856 50,000
5 3,039 2,554 50,000
6 3,666 3,250 50,000
7 4,284 3,937 50,000
8 4,879 4,602 50,000
9 5,439 5,231 50,000
10 5,949 5,949 50,000
11 6,393 6,393 50,000
12 6,753 6,753 50,000
13 7,009 7,009 50,000
14 7,134 7,134 50,000
15 7,089 7,089 50,000
16 6,823 6,823 50,000
17 6,265 6,265 50,000
18 5,319 5,319 50,000
19 3,863 3,863 50,000
20 1,742 1,742 50,000
21 (*) (*) (*)
22 (*) (*) (*)
23 (*) (*) (*)
24 (*) (*) (*)
25 (*) (*) (*)
26 (*) (*) (*)
27 (*) (*) (*)
28 (*) (*) (*)
29 (*) (*) (*)
30 (*) (*) (*)
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all
premiums.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated
50
<PAGE> 54
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.
51
<PAGE> 55
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL. 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 585 0 50,585 635 0 50,635
2 3,229 1,180 487 51,180 1,317 624 51,317
3 4,965 1,744 1,121 51,744 2,008 1,384 52,008
4 6,788 2,293 1,739 52,293 2,722 2,167 52,722
5 8,703 2,827 2,342 52,827 3,460 2,975 53,460
6 10,713 3,345 2,929 53,345 4,224 3,809 54,224
7 12,824 3,848 3,501 53,848 5,015 4,669 55,015
8 15,040 4,335 4,058 54,335 5,834 5,556 55,834
9 17,367 4,807 4,600 54,807 6,681 6,473 56,681
10 19,810 5,264 5,264 55,264 7,558 7,558 57,558
11 22,376 5,706 5,706 55,706 8,466 8,466 58,466
12 25,069 6,033 6,033 56,033 9,305 9,305 59,305
13 27,898 6,259 6,259 56,259 10,082 10,082 60,082
14 30,868 6,394 6,394 56,394 10,805 10,805 60,805
15 33,986 6,432 6,432 56,432 11,464 11,464 61,464
16 37,261 6,314 6,314 56,314 11,993 11,993 61,993
17 40,699 6,045 6,045 56,045 12,389 12,389 62,389
18 44,309 5,607 5,607 55,607 12,626 12,626 62,626
19 48,099 5,006 5,006 55,006 12,700 12,700 62,700
20 52,079 4,251 4,251 54,251 12,611 12,611 62,611
21 56,258 3,318 3,318 53,318 12,324 12,324 62,324
22 60,646 2,186 2,186 52,186 11,807 11,807 61,807
23 65,253 834 834 50,834 11,024 11,024 61,024
24 70,091 (*) (*) (*) 9,937 9,937 59,937
25 75,170 (*) (*) (*) 8,506 8,506 58,506
26 80,504 (*) (*) (*) 6,703 6,703 56,703
27 86,104 (*) (*) (*) 4,487 4,487 54,487
28 91,984 (*) (*) (*) 1,816 1,816 51,816
29 98,158 (*) (*) (*) (*) (*) (*)
30 104,641 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 685 0 50,685
2 1,461 768 51,461
3 2,294 1,671 52,294
4 3,208 2,653 53,208
5 4,208 3,723 54,208
6 5,306 4,890 55,306
7 6,511 6,164 56,511
8 7,834 7,557 57,834
9 9,287 9,079 59,287
10 10,885 10,885 60,885
11 12,642 12,642 62,642
12 14,470 14,470 64,470
13 16,387 16,387 66,387
14 18,416 18,416 68,416
15 20,558 20,558 70,558
16 22,762 22,762 72,762
17 25,036 25,036 75,036
18 27,376 27,376 77,376
19 29,790 29,790 79,790
20 32,299 32,299 82,299
21 34,881 34,881 84,881
22 37,522 37,522 87,522
23 40,203 40,203 90,203
24 42,901 42,901 92,901
25 45,593 45,593 95,593
26 48,264 48,264 98,264
27 50,888 50,888 100,888
28 53,437 53,437 103,437
29 55,867 55,867 105,867
30 58,124 58,124 108,124
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
52
<PAGE> 56
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 461 0 50,461 507 0 50,507
2 3,229 891 198 50,891 1,012 319 51,012
3 4,965 1,258 634 51,258 1,480 856 51,480
4 6,788 1,556 1,001 51,556 1,904 1,349 51,904
5 8,703 1,777 1,292 51,777 2,272 1,787 52,272
6 10,713 1,914 1,498 51,914 2,574 2,158 52,574
7 12,824 1,959 1,612 51,959 2,796 2,450 52,796
8 15,040 1,898 1,621 51,898 2,921 2,644 52,921
9 17,367 1,720 1,512 51,720 2,929 2,721 52,929
10 19,810 1,412 1,412 51,412 2,801 2,801 52,801
11 22,376 962 962 50,962 2,517 2,517 52,517
12 25,069 360 360 50,360 2,058 2,058 52,058
13 27,898 (*) (*) (*) 1,402 1,402 51,402
14 30,868 (*) (*) (*) 524 524 50,524
15 33,986 (*) (*) (*) (*) (*) (*)
16 37,261 (*) (*) (*) (*) (*) (*)
17 40,699 (*) (*) (*) (*) (*) (*)
18 44,309 (*) (*) (*) (*) (*) (*)
19 48,099 (*) (*) (*) (*) (*) (*)
20 52,079 (*) (*) (*) (*) (*) (*)
21 56,258 (*) (*) (*) (*) (*) (*)
22 60,646 (*) (*) (*) (*) (*) (*)
23 65,253 (*) (*) (*) (*) (*) (*)
24 70,091 (*) (*) (*) (*) (*) (*)
25 75,170 (*) (*) (*) (*) (*) (*)
26 80,504 (*) (*) (*) (*) (*) (*)
27 86,104 (*) (*) (*) (*) (*) (*)
28 91,984 (*) (*) (*) (*) (*) (*)
29 98,158 (*) (*) (*) (*) (*) (*)
30 104,641 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 553 0 50,553
2 1,138 445 51,138
3 1,724 1,100 51,724
4 2,302 1,748 52,302
5 2,865 2,380 52,865
6 3,401 2,985 53,401
7 3,898 3,551 53,898
8 4,335 4,058 54,335
9 4,694 4,486 54,694
10 4,949 4,949 54,949
11 5,077 5,077 55,077
12 5,051 5,051 55,051
13 4,842 4,842 54,842
14 4,415 4,415 54,415
15 3,725 3,725 53,725
16 2,713 2,713 52,713
17 1,308 1,308 51,308
18 (*) (*) (*)
19 (*) (*) (*)
20 (*) (*) (*)
21 (*) (*) (*)
22 (*) (*) (*)
23 (*) (*) (*)
24 (*) (*) (*)
25 (*) (*) (*)
26 (*) (*) (*)
27 (*) (*) (*)
28 (*) (*) (*)
29 (*) (*) (*)
30 (*) (*) (*)
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all
premiums.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
53
<PAGE> 57
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 934 37 100,000 1,003 106 100,000
2 3,229 1,904 1,006 100,000 2,102 1,205 100,000
3 4,965 2,848 2,040 100,000 3,239 2,431 100,000
4 6,788 3,766 3,048 100,000 4,416 3,698 100,000
5 8,703 4,658 4,030 100,000 5,634 5,006 100,000
6 10,713 5,524 4,986 100,000 6,896 6,357 100,000
7 12,824 6,364 5,915 100,000 8,202 7,754 100,000
8 15,040 7,176 6,817 100,000 9,556 9,197 100,000
9 17,367 7,961 7,692 100,000 10,958 10,689 100,000
10 19,810 8,718 8,718 100,000 12,412 12,412 100,000
11 22,376 9,447 9,447 100,000 13,919 13,919 100,000
12 25,069 10,147 10,147 100,000 15,482 15,482 100,000
13 27,898 10,817 10,817 100,000 17,104 17,104 100,000
14 30,868 11,457 11,457 100,000 18,788 18,788 100,000
15 33,986 12,026 12,026 100,000 20,499 20,499 100,000
16 37,261 12,508 12,508 100,000 22,224 22,224 100,000
17 40,699 12,895 12,895 100,000 23,962 23,962 100,000
18 44,309 13,180 13,180 100,000 25,709 25,709 100,000
19 48,099 13,367 13,367 100,000 27,477 27,477 100,000
20 52,079 13,474 13,474 100,000 29,288 29,288 100,000
21 56,258 13,455 13,455 100,000 31,108 31,108 100,000
22 60,646 13,309 13,309 100,000 32,942 32,942 100,000
23 65,253 13,019 13,019 100,000 34,785 34,785 100,000
24 70,091 12,570 12,570 100,000 36,633 36,633 100,000
25 75,170 11,941 11,941 100,000 38,481 38,481 100,000
26 80,504 11,112 11,112 100,000 40,325 40,325 100,000
27 86,104 10,063 10,063 100,000 42,162 42,162 100,000
28 91,984 8,765 8,765 100,000 43,990 43,990 100,000
29 98,158 7,187 7,187 100,000 45,802 45,802 100,000
30 104,641 5,284 5,284 100,000 47,593 47,593 100,000
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,072 175 100,000
2 2,309 1,412 100,000
3 3,664 2,856 100,000
4 5,150 4,432 100,000
5 6,781 6,153 100,000
6 8,574 8,035 100,000
7 10,545 10,096 100,000
8 12,715 12,356 100,000
9 15,105 14,836 100,000
10 17,742 17,742 100,000
11 20,652 20,652 100,000
12 23,866 23,866 100,000
13 27,424 27,424 100,000
14 31,374 31,374 100,000
15 35,731 35,731 100,000
16 40,535 40,535 100,000
17 45,845 45,845 100,000
18 51,726 51,726 100,000
19 58,265 58,265 100,000
20 65,566 65,566 100,000
21 73,721 73,721 100,000
22 82,861 82,861 100,000
23 93,064 93,064 109,815
24 104,335 104,335 122,072
25 116,784 116,784 135,469
26 130,533 130,533 150,113
27 145,756 145,756 164,704
28 162,626 162,626 180,514
29 181,339 181,339 197,660
30 202,124 202,124 216,273
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
54
<PAGE> 58
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 934 36 100,000 1,003 105 100,000
2 3,229 1,862 964 100,000 2,059 1,161 100,000
3 4,965 2,753 1,945 100,000 3,139 2,331 100,000
4 6,788 3,605 2,887 100,000 4,241 3,523 100,000
5 8,703 4,415 3,787 100,000 5,365 4,737 100,000
6 10,713 5,181 4,642 100,000 6,508 5,970 100,000
7 12,824 5,897 5,448 100,000 7,666 7,217 100,000
8 15,040 6,557 6,198 100,000 8,834 8,475 100,000
9 17,367 7,156 6,887 100,000 10,007 9,737 100,000
10 19,810 7,688 7,688 100,000 11,179 11,179 100,000
11 22,376 8,147 8,147 100,000 12,346 12,346 100,000
12 25,069 8,527 8,527 100,000 13,503 13,503 100,000
13 27,898 8,825 8,825 100,000 14,645 14,645 100,000
14 30,868 9,032 9,032 100,000 15,767 15,767 100,000
15 33,986 9,137 9,137 100,000 16,859 16,859 100,000
16 37,261 9,129 9,129 100,000 17,909 17,909 100,000
17 40,699 8,996 8,996 100,000 18,907 18,907 100,000
18 44,309 8,716 8,716 100,000 19,834 19,834 100,000
19 48,099 8,269 8,269 100,000 20,671 20,671 100,000
20 52,079 7,633 7,633 100,000 21,399 21,399 100,000
21 56,258 6,786 6,786 100,000 21,997 21,997 100,000
22 60,646 5,705 5,705 100,000 22,444 22,444 100,000
23 65,253 4,364 4,364 100,000 22,716 22,716 100,000
24 70,091 2,729 2,729 100,000 22,784 22,784 100,000
25 75,170 757 757 100,000 22,607 22,607 100,000
26 80,504 (*) (*) (*) 22,129 22,129 100,000
27 86,104 (*) (*) (*) 21,278 21,278 100,000
28 91,984 (*) (*) (*) 19,961 19,961 100,000
29 98,158 (*) (*) (*) 18,065 18,065 100,000
30 104,641 (*) (*) (*) 15,459 15,459 100,000
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,072 174 100,000
2 2,265 1,367 100,000
3 3,558 2,750 100,000
4 4,961 4,243 100,000
5 6,484 5,856 100,000
6 8,137 7,598 100,000
7 9,929 9,480 100,000
8 11,871 11,512 100,000
9 13,976 13,707 100,000
10 16,258 16,258 100,000
11 18,734 18,734 100,000
12 21,424 21,424 100,000
13 24,353 24,353 100,000
14 27,554 27,554 100,000
15 31,059 31,059 100,000
16 34,907 34,907 100,000
17 39,141 39,141 100,000
18 43,808 43,808 100,000
19 48,967 48,967 100,000
20 54,693 54,693 100,000
21 61,075 61,075 100,000
22 68,226 68,226 100,000
23 76,282 76,282 100,000
24 85,412 85,412 100,000
25 95,635 95,635 110,936
26 106,895 106,895 122,929
27 119,342 119,342 134,857
28 133,119 133,119 147,762
29 148,390 148,390 161,745
30 165,355 165,355 176,930
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all
premiums.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
55
<PAGE> 59
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 930 33 100,930 999 101 100,999
2 3,229 1,892 994 101,892 2,089 1,192 102,089
3 4,965 2,824 2,017 102,824 3,212 2,405 103,212
4 6,788 3,727 3,009 103,727 4,370 3,652 104,370
5 8,703 4,599 3,971 104,599 5,561 4,933 105,561
6 10,713 5,441 4,902 105,441 6,788 6,249 106,788
7 12,824 6,251 5,802 106,251 8,051 7,602 108,051
8 15,040 7,029 6,670 107,029 9,350 8,991 109,350
9 17,367 7,774 7,505 107,774 10,686 10,417 110,686
10 19,810 8,486 8,486 108,486 12,060 12,060 112,060
11 22,376 9,164 9,164 109,164 13,472 13,472 113,472
12 25,069 9,807 9,807 109,807 14,922 14,922 114,922
13 27,898 10,413 10,413 110,413 16,412 16,412 116,412
14 30,868 10,983 10,983 110,983 17,942 17,942 117,942
15 33,986 11,470 11,470 111,470 19,464 19,464 119,464
16 37,261 11,853 11,853 111,853 20,958 20,958 120,958
17 40,699 12,126 12,126 112,126 22,412 22,412 122,412
18 44,309 12,279 12,279 112,279 23,814 23,814 123,814
19 48,099 12,316 12,316 112,316 25,165 25,165 125,165
20 52,079 12,261 12,261 112,261 26,489 26,489 126,489
21 56,258 12,061 12,061 112,061 27,728 27,728 127,728
22 60,646 11,716 11,716 111,716 28,876 28,876 128,876
23 65,253 11,210 11,210 111,210 29,912 29,912 129,912
24 70,091 10,529 10,529 110,529 30,811 30,811 130,811
25 75,170 9,655 9,655 109,655 31,548 31,548 131,548
26 80,504 8,572 8,572 108,572 32,094 32,094 132,094
27 86,104 7,265 7,265 107,265 32,423 32,423 132,423
28 91,984 5,717 5,717 105,717 32,502 32,502 132,502
29 98,158 3,906 3,906 103,906 32,293 32,293 132,293
30 104,641 1,804 1,804 101,804 31,750 31,750 131,750
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,068 170 101,068
2 2,295 1,397 102,295
3 3,634 2,826 103,634
4 5,095 4,377 105,095
5 6,691 6,063 106,691
6 8,435 7,897 108,435
7 10,342 9,893 110,342
8 12,428 12,069 112,428
9 14,711 14,442 114,711
10 17,210 17,210 117,210
11 19,948 19,948 119,948
12 22,947 22,947 122,947
13 26,237 26,237 126,237
14 29,855 29,855 129,855
15 33,787 33,787 133,787
16 38,046 38,046 138,046
17 42,659 42,659 142,659
18 47,652 47,652 147,652
19 53,071 53,071 153,071
20 58,985 58,985 158,985
21 65,391 65,391 165,391
22 72,340 72,340 172,340
23 79,875 79,875 179,875
24 88,040 88,040 188,040
25 96,885 96,885 196,885
26 106,464 106,464 206,464
27 116,838 116,838 216,838
28 128,074 128,074 228,074
29 140,238 140,238 240,238
30 153,401 153,401 253,401
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
56
<PAGE> 60
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 930 32 100,930 998 101 100,998
2 3,229 1,850 953 101,850 2,046 1,148 102,046
3 4,965 2,729 1,921 102,729 3,111 2,304 103,111
4 6,788 3,564 2,846 103,564 4,193 3,475 104,193
5 8,703 4,353 3,725 104,353 5,288 4,660 105,288
6 10,713 5,091 4,553 105,091 6,392 5,853 106,392
7 12,824 5,773 5,324 105,773 7,499 7,051 107,499
8 15,040 6,393 6,034 106,393 8,603 8,244 108,603
9 17,367 6,943 6,674 106,943 9,695 9,425 109,695
10 19,810 7,417 7,417 107,417 10,766 10,766 110,766
11 22,376 7,808 7,808 107,808 11,808 11,808 111,808
12 25,069 8,110 8,110 108,110 12,812 12,812 112,812
13 27,898 8,320 8,320 108,320 13,771 13,771 113,771
14 30,868 8,427 8,427 108,427 14,672 14,672 114,672
15 33,986 8,421 8,421 108,421 15,501 15,501 115,501
16 37,261 8,292 8,292 108,292 16,240 16,240 116,240
17 40,699 8,024 8,024 108,024 16,870 16,870 116,870
18 44,309 7,600 7,600 107,600 17,364 17,364 117,364
19 48,099 6,999 6,999 106,999 17,693 17,693 117,693
20 52,079 6,203 6,203 106,203 17,830 17,830 117,830
21 56,258 5,195 5,195 105,195 17,743 17,743 117,743
22 60,646 3,959 3,959 103,959 17,404 17,404 117,404
23 65,253 2,480 2,480 102,480 16,783 16,783 116,783
24 70,091 737 737 100,737 15,841 15,841 115,841
25 75,170 (*) (*) (*) 14,532 14,532 114,532
26 80,504 (*) (*) (*) 12,796 12,796 112,796
27 86,104 (*) (*) (*) 10,557 10,557 110,557
28 91,984 (*) (*) (*) 7,728 7,728 107,728
29 98,158 (*) (*) (*) 4,212 4,212 104,212
30 104,641 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,067 170 101,067
2 2,250 1,353 102,250
3 3,527 2,719 103,527
4 4,904 4,186 104,904
5 6,388 5,760 106,388
6 7,987 7,449 107,987
7 9,706 9,257 109,706
8 11,550 11,191 111,550
9 13,523 13,254 113,523
10 15,632 15,632 115,632
11 17,884 17,884 117,884
12 20,284 20,284 120,284
13 22,845 22,845 122,845
14 25,572 25,572 125,572
15 28,478 28,478 128,478
16 31,569 31,569 131,569
17 34,850 34,850 134,850
18 38,320 38,320 138,320
19 41,975 41,975 141,975
20 45,816 45,816 145,816
21 49,840 49,840 149,840
22 54,048 54,048 154,048
23 58,442 58,442 158,442
24 63,016 63,016 163,016
25 67,757 67,757 167,757
26 72,639 72,639 172,639
27 77,621 77,621 177,621
28 82,647 82,647 182,647
29 87,651 87,651 187,651
30 92,572 92,572 192,572
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all
premiums.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
57
<PAGE> 61
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,625 1,409 246 100,000 1,519 357 100,000
2 5,381 2,852 1,690 100,000 3,165 2,002 100,000
3 8,275 4,271 3,225 100,000 4,883 3,837 100,000
4 11,314 5,666 4,736 100,000 6,678 5,748 100,000
5 14,505 7,036 6,222 100,000 8,553 7,740 100,000
6 17,855 8,382 7,685 100,000 10,515 9,818 100,000
7 21,373 9,704 9,123 100,000 12,568 11,987 100,000
8 25,066 11,003 10,538 100,000 14,718 14,253 100,000
9 28,945 12,278 11,929 100,000 16,971 16,622 100,000
10 33,017 13,529 13,529 100,000 19,334 19,334 100,000
11 37,293 14,758 14,758 100,000 21,813 21,813 100,000
12 41,782 15,810 15,810 100,000 24,272 24,272 100,000
13 46,497 16,706 16,706 100,000 26,740 26,740 100,000
14 51,446 17,465 17,465 100,000 29,246 29,246 100,000
15 56,644 18,075 18,075 100,000 31,786 31,786 100,000
16 62,101 18,441 18,441 100,000 34,292 34,292 100,000
17 67,831 18,562 18,562 100,000 36,777 36,777 100,000
18 73,848 18,409 18,409 100,000 39,234 39,234 100,000
19 80,165 17,976 17,976 100,000 41,676 41,676 100,000
20 86,798 17,269 17,269 100,000 44,131 44,131 100,000
21 93,763 16,232 16,232 100,000 46,586 46,586 100,000
22 101,076 14,811 14,811 100,000 49,036 49,036 100,000
23 108,755 12,939 12,939 100,000 51,477 51,477 100,000
24 116,818 10,538 10,538 100,000 53,908 53,908 100,000
25 125,284 7,512 7,512 100,000 56,331 56,331 100,000
26 134,173 3,781 3,781 100,000 58,766 58,766 100,000
27 143,506 (*) (*) (*) 61,227 61,227 100,000
28 153,307 (*) (*) (*) 63,732 63,732 100,000
29 163,597 (*) (*) (*) 66,301 66,301 100,000
30 174,402 (*) (*) (*) 68,958 68,958 100,000
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,630 467 100,000
2 3,492 2,329 100,000
3 5,548 4,502 100,000
4 7,823 6,893 100,000
5 10,341 9,527 100,000
6 13,132 12,435 100,000
7 16,228 15,647 100,000
8 19,666 19,201 100,000
9 23,487 23,138 100,000
10 27,741 27,741 100,000
11 32,492 32,492 100,000
12 37,675 37,675 100,000
13 43,380 43,380 100,000
14 49,705 49,705 100,000
15 56,743 56,743 100,000
16 64,565 64,565 100,000
17 73,327 73,327 100,000
18 83,206 83,206 100,000
19 94,422 94,422 102,920
20 106,964 106,964 114,452
21 120,906 120,906 126,951
22 136,314 136,314 143,130
23 153,337 153,337 161,004
24 172,134 172,134 180,740
25 192,877 192,877 202,521
26 215,759 215,759 226,547
27 240,987 240,987 253,037
28 268,798 268,798 282,238
29 299,478 299,478 314,452
30 333,301 333,301 349,966
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
58
<PAGE> 62
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,625 1,397 235 100,000 1,507 345 100,000
2 5,381 2,737 1,574 100,000 3,045 1,883 100,000
3 8,275 3,986 2,940 100,000 4,582 3,535 100,000
4 11,314 5,139 4,209 100,000 6,110 5,180 100,000
5 14,505 6,185 5,372 100,000 7,622 6,808 100,000
6 17,855 7,116 6,419 100,000 9,107 8,409 100,000
7 21,373 7,920 7,339 100,000 10,554 9,973 100,000
8 25,066 8,579 8,114 100,000 11,945 11,480 100,000
9 28,945 9,077 8,728 100,000 13,263 12,914 100,000
10 33,017 9,395 9,395 100,000 14,489 14,489 100,000
11 37,293 9,515 9,515 100,000 15,605 15,605 100,000
12 41,782 9,420 9,420 100,000 16,593 16,593 100,000
13 46,497 9,089 9,089 100,000 17,432 17,432 100,000
14 51,446 8,497 8,497 100,000 18,097 18,097 100,000
15 56,644 7,606 7,606 100,000 18,550 18,550 100,000
16 62,101 6,366 6,366 100,000 18,743 18,743 100,000
17 67,831 4,709 4,709 100,000 18,611 18,611 100,000
18 73,848 2,548 2,548 100,000 18,068 18,068 100,000
19 80,165 (*) (*) (*) 17,014 17,014 100,000
20 86,798 (*) (*) (*) 15,337 15,337 100,000
21 93,763 (*) (*) (*) 12,908 12,908 100,000
22 101,076 (*) (*) (*) 9,572 9,572 100,000
23 108,755 (*) (*) (*) 5,133 5,133 100,000
24 116,818 (*) (*) (*) (*) (*) (*)
25 125,284 (*) (*) (*) (*) (*) (*)
26 134,173 (*) (*) (*) (*) (*) (*)
27 143,506 (*) (*) (*) (*) (*) (*)
28 153,307 (*) (*) (*) (*) (*) (*)
29 163,597 (*) (*) (*) (*) (*) (*)
30 174,402 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,618 455 100,000
2 3,368 2,205 100,000
3 5,231 4,184 100,000
4 7,214 6,284 100,000
5 9,324 8,510 100,000
6 11,568 10,870 100,000
7 13,956 13,375 100,000
8 16,493 16,028 100,000
9 19,188 18,839 100,000
10 22,053 22,053 100,000
11 25,109 25,109 100,000
12 28,387 28,387 100,000
13 31,925 31,925 100,000
14 35,761 35,761 100,000
15 39,941 39,941 100,000
16 44,518 44,518 100,000
17 49,558 49,558 100,000
18 55,145 55,145 100,000
19 61,395 61,395 100,000
20 68,473 68,473 100,000
21 76,601 76,601 100,000
22 86,075 86,075 100,000
23 97,279 97,279 102,143
24 109,889 109,889 115,383
25 123,768 123,768 129,957
26 139,031 139,031 145,982
27 155,796 155,796 163,586
28 174,189 174,189 182,899
29 194,340 194,340 204,057
30 216,385 216,385 227,204
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all
premiums.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
59
<PAGE> 63
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,625 1,393 231 101,393 1,503 340 101,503
2 5,381 2,810 1,647 102,810 3,117 1,955 103,117
3 8,275 4,189 3,143 104,189 4,788 3,741 104,788
4 11,314 5,531 4,601 105,531 6,515 5,585 106,515
5 14,505 6,836 6,022 106,836 8,303 7,489 108,303
6 17,855 8,103 7,406 108,103 10,152 9,455 110,152
7 21,373 9,333 8,752 109,333 12,066 11,485 112,066
8 25,066 10,526 10,061 110,526 14,047 13,582 114,047
9 28,945 11,682 11,333 111,682 16,097 15,748 116,097
10 33,017 12,800 12,800 112,800 18,220 18,220 118,220
11 37,293 13,880 13,880 113,880 20,417 20,417 120,417
12 41,782 14,740 14,740 114,740 22,504 22,504 122,504
13 46,497 15,402 15,402 115,402 24,495 24,495 124,495
14 51,446 15,887 15,887 115,887 26,410 26,410 126,410
15 56,644 16,180 16,180 116,180 28,229 28,229 128,229
16 62,101 16,164 16,164 116,164 29,823 29,823 129,823
17 67,831 15,844 15,844 115,844 31,182 31,182 131,182
18 73,848 15,186 15,186 115,186 32,257 32,257 132,257
19 80,165 14,197 14,197 114,197 33,034 33,034 133,034
20 86,798 12,896 12,896 112,896 33,515 33,515 133,515
21 93,763 11,233 11,233 111,233 33,629 33,629 133,629
22 101,076 9,169 9,169 109,169 33,313 33,313 133,313
23 108,755 6,658 6,658 106,658 32,493 32,493 132,493
24 116,818 3,656 3,656 103,656 31,092 31,092 131,092
25 125,284 115 115 100,115 29,026 29,026 129,026
26 134,173 (*) (*) (*) 26,244 26,244 126,244
27 143,506 (*) (*) (*) 22,664 22,664 122,664
28 153,307 (*) (*) (*) 18,204 18,204 118,204
29 163,597 (*) (*) (*) 12,762 12,762 112,762
30 174,402 (*) (*) (*) 6,207 6,207 106,207
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,613 450 101,613
2 3,439 2,277 103,439
3 5,439 4,393 105,439
4 7,630 6,700 107,630
5 10,031 9,217 110,031
6 12,664 11,967 112,664
7 15,554 14,973 115,554
8 18,727 18,262 118,727
9 22,213 21,864 122,213
10 26,045 26,045 126,045
11 30,272 30,272 130,272
12 34,740 34,740 134,740
13 39,497 39,497 139,497
14 44,595 44,595 144,595
15 50,053 50,053 150,053
16 55,783 55,783 155,783
17 61,816 61,816 161,816
18 68,146 68,146 168,146
19 74,806 74,806 174,806
20 81,850 81,850 181,850
21 89,262 89,262 189,262
22 97,036 97,036 197,036
23 105,158 105,158 205,158
24 113,612 113,612 213,612
25 122,378 122,378 222,378
26 131,472 131,472 231,472
27 140,881 140,881 240,881
28 150,590 150,590 250,590
29 160,562 160,562 260,562
30 170,740 170,740 270,740
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Current values reflect current cost of insurance charges and a monthly
$10.00 administrative expense charge for the first policy year and $5
thereafter. Current values reflect a 6% of premium charge on all premiums
up to the target premium and 4% on premiums in excess of target for any
single policy year.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
60
<PAGE> 64
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUMS
PAID PLUS CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,625 1,382 219 101,382 1,491 328 101,491
2 5,381 2,692 1,529 102,692 2,995 1,833 102,995
3 8,275 3,897 2,850 103,897 4,478 3,432 104,478
4 11,314 4,987 4,057 104,987 5,928 4,998 105,928
5 14,505 5,953 5,139 105,953 7,331 6,517 107,331
6 17,855 6,781 6,084 106,781 8,671 7,973 108,671
7 21,373 7,461 6,880 107,461 9,930 9,349 109,930
8 25,066 7,972 7,507 107,972 11,083 10,618 111,083
9 28,945 8,295 7,946 108,295 12,102 11,753 112,102
10 33,017 8,411 8,411 108,411 12,960 12,960 112,960
11 37,293 8,305 8,305 108,305 13,630 13,630 113,630
12 41,782 7,959 7,959 107,959 14,082 14,082 114,082
13 46,497 7,358 7,358 107,358 14,289 14,289 114,289
14 51,446 6,483 6,483 106,483 14,214 14,214 114,214
15 56,644 5,306 5,306 105,306 13,813 13,813 113,813
16 62,101 3,789 3,789 103,789 13,027 13,027 113,027
17 67,831 1,883 1,883 101,883 11,784 11,784 111,784
18 73,848 (*) (*) (*) 9,996 9,996 109,996
19 80,165 (*) (*) (*) 7,570 7,570 107,570
20 86,798 (*) (*) (*) 4,420 4,420 104,420
21 93,763 (*) (*) (*) 464 464 100,464
22 101,076 (*) (*) (*) (*) (*) (*)
23 108,755 (*) (*) (*) (*) (*) (*)
24 116,818 (*) (*) (*) (*) (*) (*)
25 125,284 (*) (*) (*) (*) (*) (*)
26 134,173 (*) (*) (*) (*) (*) (*)
27 143,506 (*) (*) (*) (*) (*) (*)
28 153,307 (*) (*) (*) (*) (*) (*)
29 163,597 (*) (*) (*) (*) (*) (*)
30 174,402 (*) (*) (*) (*) (*) (*)
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
CASH
POLICY CASH SURR DEATH
YEAR VALUE VALUE BENEFIT
<S> <C> <C> <C>
1 1,600 438 101,600
2 3,313 2,150 103,313
3 5,112 4,065 105,112
4 6,996 6,066 106,996
5 8,962 8,148 108,962
6 11,004 10,306 111,004
7 13,114 12,533 113,114
8 15,279 14,814 115,279
9 17,479 17,131 117,479
10 19,698 19,698 119,698
11 21,916 21,916 121,916
12 24,114 24,114 124,114
13 26,274 26,274 126,274
14 28,371 28,371 128,371
15 30,364 30,364 130,364
16 32,196 32,196 132,196
17 33,796 33,796 133,796
18 35,068 35,068 135,068
19 35,908 35,908 135,908
20 36,209 36,209 136,209
21 35,865 35,865 135,865
22 34,762 34,762 134,762
23 32,781 32,781 132,781
24 29,782 29,782 129,782
25 25,585 25,585 125,585
26 19,965 19,965 119,965
27 12,651 12,651 112,651
28 3,315 3,315 103,315
29 (*) (*) (*)
30 (*) (*) (*)
- --------------------------------------------------------------------------------
</TABLE>
1. No policy loans and no partial withdrawals have been made.
2. Guaranteed values reflect guaranteed cost of insurance charges and a
monthly $10 administrative expense charge for the first policy year and
$7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all
premiums.
3. Net investment returns are calculated as the hypothetical gross
investment return less all charges and deductions shown in the prospectus
appendix.
(*) unless additional premium is paid, the policy will lapse without value.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, prevailing rates and rates of
inflation. The death benefit and cash value for a policy would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual policy
years. No representation can be made by 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.
61
<PAGE> 65
APPENDIX D: DISTRIBUTION OF THE POLICIES
The policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Agents are registered representatives of broker
dealers registered under the Securities Exchange Act of 1934 who are member
firms of the National Association of Securities Dealers, Inc. ("NASD"). The
policies will be distributed by the General Distributor, Nationwide Advisory
Services, Inc. NAS acts as general distributor for the following separate
accounts, all of which are separate investment accounts of Nationwide or its
affiliates. NAS is a wholly owned subsidiary of Nationwide.
:
<TABLE>
- ------------------------------------------------------------- -------------------------------------------------------
<S> <C>
- Nationwide Multi-Flex Variable Account - Nationwide Variable Account-5
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide DC Variable Account - Nationwide Variable Account-6
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide DCVA-II - Nationwide Variable Account-8
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide Variable Account-II - Nationwide Variable Account-9
- ------------------------------------------------------------- -------------------------------------------------------
- NACo Variable Account - Nationwide VA Separate Account-A
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide Variable Account - Nationwide VA Separate Account-B
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide VL Separate Account -B - Nationwide VA Separate Account-C
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide VL Separate Account-C - Nationwide VL Separate Account-A
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide VL Separate Account-D
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide VLI Separate Account-3
- ------------------------------------------------------------- -------------------------------------------------------
- Nationwide VLI Separate Account-4
- ------------------------------------------------------------- -------------------------------------------------------
</TABLE>
NAS also acts as principal underwriter for the following open-end management
investment companies:
- Nationwide Investing Foundation;
- Nationwide Separate Account Trust;
- Financial Horizons Investment Trust;
- Nationwide Investing Foundation II;
- Nationwide Investing Foundation III; and
- Nationwide Asset Allocation Trust.
Gross first year commissions plus any expense allowance payments paid by
Nationwide on the sale of these policies provided by the General Distributor
will not exceed 90% of the target premium plus 3% of any excess premium
payments. Gross renewal commissions in years 2 through 10 paid by Nationwide
will not exceed 3% of actual premium payment, and will not exceed 2% in policy
years 11 and thereafter.
62
<PAGE> 66
APPENDIX E: ADDITIONAL INFORMATION ABOUT NATIONWIDE
The life insurance business, including annuities, is the only business in which
Nationwide is engaged.
Nationwide markets its policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
Nationwide serves as depositor for the 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 Nationwide.
Nationwide, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
Nationwide operates in the highly competitive field of life insurance. There are
approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
Nationwide shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company. Nationwide does not presently own or
lease any materially important physical properties when its property holdings
are viewed in relation to its total assets. Nationwide shares Home Office, other
facilities and equipment with Nationwide Mutual Insurance Company. Company
Management
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide Insurance Enterprise. The companies listed above have substantially
common boards of directors and officers. Nationwide Financial Services, Inc.
("NFS") is the sole shareholder of Nationwide Life Insurance Company. NFS serves
as a holding company for other financial institutions. Nationwide Life Insurance
Company is the sole owner of Nationwide Life and Annuity Insurance Company. Each
of the directors and officers listed below is a director or officer respectively
of at least one or more of the other major insurance affiliates of the
Nationwide Insurance Enterprise. Messrs. McFerson, Gasper, Woodward, Fuellgraf
and Weihl and Ms. Thomas are also trustees of one or more of the registered
investment companies distributed by Nationwide Advisory Services, a registered
broker-dealer affiliated with the Nationwide Insurance Enterprise.
63
<PAGE> 67
<TABLE>
DIRECTORS OF NATIONWIDE
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME AND PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator (1)
519 Bethel Church Road
Mount Olive, NC 28365
W. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
Keith W. Eckel Director Partner, Fred W. Eckel Sons; President,
1647 Falls Road
Clarks Summit, PA 18411 Eckel Farms, Inc. (1)
Willard J. Engel Director Retired General Manager, Lyon County
301 East Marshall Street Co-operative Oil Company (1)
Marshall, MN 44691
Fred C. Finney Director Owner and Operator, Moreland Fruit Farm;
1558 West Moreland Road Operator, Melrose Orchard (1)
Wooster, OH 44691
Charles L. Fuellgraf, Jr. Director Chief Executive Officer, Fuellgraf
600 South Washington Street Electric Company (1)
Butler, PA 16001
Joseph J. Gasper President and Chief President and Chief Operating Officer,
One Nationwide Plaza Operating Officer and Nationwide Life Insurance Company and
Columbus, OH 43215 Director Nationwide Life Insurance Company (2)
Dimon R. McFerson Chairman and Chief Executive Chairman and Chief Executive
One Nationwide Plaza Officer-Nationwide Insurance Officer-Nationwide Insurance
Columbus, OH 43215 Enterprise and Director Enterprise (2)
David O. Miller Chairman of the Board President, Owen Potato Farm, Inc.;
115 Sprague Drive and Director Partner, M&M Enterprises (1)
Hebron, OH 43025
Yvonne L. Montgomery Director Senior Vice President-General Manager
Suite 1600 Southern Customer Operations for U.S.
2859 Paces Ferry Road Customer Operations, Xerox
Atlanta, GA 30339 Corporation (2)
James F. Patterson Director Vice President, Pattersons, Inc.;
8765 Mulberry Road President, Patterson Farms, Inc. (1)
Chesterland, OH 44026
Arden L. Shisler Director President and Chief Executive Officer,
1356 North Wenger Road K&B Transport, Inc. (1)
Dalton, OH 44618
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE> 68
<TABLE>
DIRECTORS OF NATIONWIDE (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert L. Stewart Director Owner and Operator Sunnydale Farms and
88740 Fairview Road Mining (1)
Jewett, OH 43986
Nancy C. Thomas Director Farm Owner and Operator, Da-Ma-Lor Farms (1)
10835 Georgetown Street NE
Louisville, OH 44641
Harold W. Weihl Director Farm Owner and Operator, Weihl Farms (1)
14282 King Road
Bowling Green, OH 43402
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Principal Occupation for last 5 years
2. Prior to assuming this current position, held other executive management
positions with the same or affiliated companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson
and Gasper are directors of Nationwide Advisory Services, Inc., a registered
broker-dealer.
Messrs. McFerson, Miller, Patterson, Shisler and Fuellgraf are directors of
Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson, Ms. Thomas and
Mr. Weihl are trustees of Nationwide Investing Foundation, and Nationwide
Investing Foundation III, registered investment companies. Messrs. McFerson,
Gasper and Woodward are trustees of Nationwide Separate Account Trust and
Nationwide Asset Allocation Trust, registered investment companies. Mr. McFerson
is trustee of Financial Horizons Investment Trust and Nationwide Investing
Foundation II, registered investment companies. Mr. Engel is a director of
Western Cooperative Transport.
<TABLE>
EXECUTIVE OFFICERS OF NATIONWIDE
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
<S> <C>
Robert A. Oakley Executive Vice President-Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary, Health and Annuities
One Nationwide Plaza
Columbus, OH 43215
Richard A. Karas Senior Vice President - Sales and Financial Services
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE> 69
<TABLE>
EXECUTIVE OFFICERS OF NATIONWIDE (CONTINUED)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
Matthew S. Easley Vice President-Life Marketing and Administrative Services
One Nationwide Plaza
Columbus, OH 43215
Timothy E. Murphy Vice President-Strategic Marketing
One Nationwide Plaza
Columbus, OH 43215
R. Dennis Noice Vice President Retail Operations
One Nationwide Plaza
Columbus, OH 43215
Joseph P. Rath Vice President-Product and Market Compliance
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 70
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1997 and
1996, 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,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 30, 1998
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
ASSETS 1997 1996
------
----------------- ---------------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $13,204.1 $12,304.6
Equity securities 80.4 59.1
Mortgage loans on real estate, net 5,181.6 5,272.1
Real estate, net 311.4 265.8
Policy loans 415.3 371.8
Other long-term investments 25.2 28.7
Short-term investments 358.4 4.8
---------- ---------
19,576.4 18,306.9
---------- ---------
Cash 175.6 43.8
Accrued investment income 210.5 210.2
Deferred policy acquisition costs 1,665.4 1,366.5
Investment in subsidiaries classified as discontinued operations - 485.7
Other assets 438.4 426.5
Assets held in Separate Accounts 37,724.4 26,926.7
---------- ---------
$59,790.7 $47,766.3
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims $18,702.8 $17,600.6
Other liabilities 885.6 1,101.1
Liabilities related to Separate Accounts 37,724.4 26,926.7
---------- ---------
57,312.8 45,628.4
---------- ---------
Commitments and contingencies (notes 7 and 13)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 527.9
Retained earnings 1,312.3 1,432.6
Unrealized gains on securities available-for-sale, net 247.1 173.6
---------- ---------
2,477.9 2,137.9
---------- ---------
$59,790.7 $47,766.3
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Investment product and universal life insurance product policy charges $ 545.2 $ 400.9 $ 286.6
Traditional life insurance premiums 205.4 198.6 199.1
Net investment income 1,409.2 1,357.8 1,294.0
Realized gains (losses) on investments 11.1 (0.3) (1.7)
Other 46.5 35.9 20.7
---------- ---------- ----------
2,217.4 1,992.9 1,798.7
---------- ---------- ----------
Benefits and expenses:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Other benefits and claims 178.2 178.3 165.2
Policyholder dividends on participating policies 40.6 41.0 39.9
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Other operating expenses 384.9 342.4 273.0
---------- ---------- ----------
1,787.5 1,677.4 1,511.1
---------- ---------- ----------
Income from continuing operations before federal income tax expense 429.9 315.5 287.6
Federal income tax expense 150.2 110.9 99.8
---------- ---------- ----------
Income from continuing operations 279.7 204.6 187.8
Income from discontinued operations (less federal income tax expense
of $4.5 and $7.4 in 1996 and 1995, respectively) - 11.3 24.7
---------- ---------- ----------
Net income $ 279.7 $ 215.9 $ 212.5
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
(in millions of dollars)
<TABLE>
<CAPTION>
Unrealized
gains
(losses)
Additional on securities Total
Common paid-in Retained available- shareholder's
stock capital earnings for-sale, net equity
----------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $3.8 $ 606.2 $1,378.2 $(119.7) $1,868.5
Capital contribution - 51.0 - (4.1) 46.9
Net income - - 212.5 - 212.5
Dividends to shareholder - - (7.5) - (7.5)
Unrealized gains on securities available-
for-sale, net - - - 508.1 508.1
-------- -------- -------- -------- ---------
December 31, 1995 3.8 657.2 1,583.2 384.3 2628.5
Net income - - 215.9 - 215.9
Dividends to shareholder - (129.3) (366.5) (39.8) (535.6)
Unrealized losses on securities available-
for-sale, net - - - (170.9) (170.9)
-------- -------- -------- -------- ---------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Capital contribution - 836.8 - - 836.8
Net income - - 279.7 - 279.7
Dividends to shareholder - (450.0) (400.0) - (850.0)
Unrealized gains on securities available-
for-sale, net - - - 73.5 73.5
-------- -------- -------- -------- ---------
December 31, 1997 $3.8 $ 914.7 $1,312.3 $ 247.1 $2,477.9
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1997 1996 1995
------------------------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279.7 $ 215.9 $ 212.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,016.6 982.3 950.3
Capitalization of deferred policy acquisition costs (487.9) (422.6) (321.3)
Amortization of deferred policy acquisition costs 167.2 133.4 82.7
Amortization and depreciation (2.0) 7.0 10.2
Realized (gains) losses on invested assets, net (11.1) (0.3) 3.3
(Increase) decrease in accrued investment income (0.3) 2.8 (16.9)
(Increase) decrease in other assets (12.7) (38.9) 39.9
(Decrease) increase in policy liabilities (23.1) (151.0) 123.9
Increase in other liabilities 230.6 191.4 27.0
Other, net (10.9) (61.7) 1.8
----------- --------- --------
Net cash provided by operating activities 1,146.1 858.3 1,113.4
----------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 993.4 1,162.8 634.6
Proceeds from sale of securities available-for-sale 574.5 299.6 107.3
Proceeds from maturity of fixed maturity securities held-to-maturity - - 564.4
Proceeds from repayments of mortgage loans on real estate 437.3 309.0 207.8
Proceeds from sale of real estate 34.8 18.5 48.3
Proceeds from repayments of policy loans and sale of other invested assets 22.7 22.8 53.6
Cost of securities available-for-sale acquired (2,828.1) (1,573.6) (1,942.4)
Cost of fixed maturity securities held-to-maturity acquired - - (593.6)
Cost of mortgage loans on real estate acquired (752.2) (972.8) (796.0)
Cost of real estate acquired (24.9) (7.9) (10.9)
Policy loans issued and other invested assets acquired (62.5) (57.7) (75.9)
Short-term investments, net (354.8) 28.0 77.8
----------- --------- --------
Net cash used in investing activities (1,959.8) (771.3) (1,725.0)
----------- --------- --------
Cash flows from financing activities:
Proceeds from capital contributions 836.8 - -
Cash dividends paid - (50.0) (7.5)
Increase in investment product and universal life insurance
product account balances 2,488.5 1,781.8 1,883.7
Decrease in investment product and universal life insurance
product account balances (2,379.8) (1,784.5) (1,258.7)
----------- --------- --------
Net cash provided by (used in) financing activities 945.5 (52.7) 617.5
----------- --------- --------
Net increase in cash 131.8 34.3 5.9
Cash, beginning of year 43.8 9.5 3.6
----------- --------- --------
Cash, end of year $ 175.6 $ 43.8 $ 9.5
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 11 and 15. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. 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 from
discontinued operations" in the accompanying consolidated
statements of income. All significant intercompany balances and
transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1997 or 1996.
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities. 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.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs
are adjusted to reflect the impact of unrealized gains and losses
on fixed maturity securities available-for-sale as described in
note 2(b). For traditional life insurance products, these deferred
policy acquisition costs are predominantly being amortized with
interest over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits.
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. For all but $365.5 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the Separate Accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) FUTURE POLICY BENEFITS
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
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 4.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) PARTICIPATING BUSINESS
Participating business represents approximately 50% in 1997 (52%
in 1996 and 54% in 1995) of the Company's life insurance in force,
77% in 1997 (78% in 1996 and 79% in 1995) of the number of life
insurance policies in force, and 27% in 1997 (40% in 1996 and 47%
in 1995) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) FEDERAL INCOME TAX
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 11 and 15.
(j) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING
COMPREHENSIVE INCOME was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. The statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income includes all changes in equity during a
period except those resulting from investments by shareholders and
distributions to shareholders and includes net income.
Comprehensive income would be reported in addition to earnings
amounts currently presented. The Company will adopt the statement
and begin reporting comprehensive income in the first quarter of
1998.
(k) RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997
presentation.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) INVESTMENTS
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1997 and
1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ - $ 313.7
Obligations of states and political subdivisions 1.6 - - 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
------------ --------- --------- -----------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
------------ --------- --------- -----------
$ 12,800.7 $ 498.3 $ (14.5) $ 13,284.5
============ ========= ========= ===========
December 31, 1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 275.7 $ 4.8 $ (1.3) $ 279.2
Obligations of states and political subdivisions 6.2 0.5 - 6.7
Debt securities issued by foreign governments 100.7 2.1 (0.9) 101.9
Corporate securities 7,999.3 285.9 (33.7) 8,251.5
Mortgage-backed securities 3,589.0 91.4 (15.1) 3,665.3
------------ --------- --------- -----------
Total fixed maturity securities 11,970.9 384.7 (51.0) 12,304.6
Equity securities 43.9 15.6 (0.4) 59.1
------------ --------- --------- -----------
$ 12,014.8 $ 400.3 $ (51.4) $ 12,363.7
============ ========= ========= ===========
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1997, 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
(in millions of dollars) cost fair value
-------------- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 419.2 $ 422.1
Due after one year through five years 4,573.5 4,708.4
Due after five years through ten years 2,772.6 2,879.7
Due after ten years 1,333.4 1,443.6
----------- -----------
9,098.7 9,453.8
Mortgage-backed securities 3,634.2 3,750.3
----------- -----------
$ 12,732.9 $ 13,204.1
=========== ===========
</TABLE>
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- ----------
<S> <C> <C>
Gross unrealized gains $ 483.8 $349.0
Adjustment to deferred policy acquisition costs (103.7) (81.9)
Deferred federal income tax (133.0) (93.5)
-------- -------
$ 247.1 $173.6
======== =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------- -----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $137.5 $(289.2) $876.3
Equity securities (2.7) 8.9 -
Fixed maturity securities held-to-maturity - - 75.6
------- ------- -------
$134.8 $(280.3) $ 951.9
======= ======= =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1997,
1996 and 1995 were $574.5 million, $299.6 million and $107.3 million,
respectively. During 1997, gross gains of $9.9 million ($6.6 million
and $4.8 million in 1996 and 1995, respectively) and gross losses of
$18.0 million ($6.9 million and $2.1 million in 1996 and 1995,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25.4 million 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 $3.5
million.
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 nearly 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 $3.32 billion,
resulting in a gross unrealized gain of $155.9 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million ($51.8 million as
of December 31, 1996), which includes $3.9 million ($41.7 million as of
December 31, 1996) of impaired mortgage loans on real estate for which
the related valuation allowance was $0.1 million ($8.5 million as of
December 31, 1996) and $16.0 million ($10.1 million as of December 31,
1996) of impaired mortgage loans on real estate for which there was no
valuation allowance. During 1997, the average recorded investment in
impaired mortgage loans on real estate was approximately $31.8 million
($39.7 million in 1996) and interest income recognized on those loans
was $1.0 million ($2.1 million in 1996), which is equal to interest
income recognized using a cash-basis method of income recognition.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
------------- -------------
<S> <C> <C>
Allowance, beginning of year $51.0 $49.1
(Reductions) additions charged to operations (1.2) 4.5
Direct write-downs charged against the allowance (7.3) (2.6)
------ ------
Allowance, end of year $42.5 $51.0
====== ======
</TABLE>
Real estate is presented at cost less accumulated depreciation of $45.1
million as of December 31, 1997 ($30.3 million as of December 31, 1996)
and valuation allowances of $11.1 million as of December 31, 1997
($15.2 million as of December 31, 1996).
Investments that were non-income producing for the twelve month period
preceding December 31, 1997 amounted to $19.4 million ($26.8 million
for 1996) and consisted of $3.0 million ($0.2 million in 1996) in
securities available-for-sale, $16.4 million ($20.6 million in 1996) in
real estate and none ($5.9 million in 1996) in other long-term
investments.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 911.6 $ 917.1 $ 685.8
Equity securities 0.8 1.3 1.3
Fixed maturity securities held-to-maturity - - 201.8
Mortgage loans on real estate 457.7 432.8 395.5
Real estate 42.9 44.3 38.3
Short-term investments 22.7 4.2 10.6
Other 21.0 4.0 7.2
-------- -------- --------
Total investment income 1,456.7 1,403.7 1,340.5
Less investment expenses 47.5 45.9 46.5
-------- -------- --------
Net investment income $1,409.2 $1,357.8 $1,294.0
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $ 3.6 $(3.5) $ 4.2
Equity securities 2.7 3.2 3.4
Mortgage loans on real estate 1.6 (4.1) (7.1)
Real estate and other 3.2 4.1 (2.2)
------ ------ ------
$11.1 $(0.3) $(1.7)
====== ====== ======
</TABLE>
Fixed maturity securities with an amortized cost of $6.2 million as
of December 31, 1997 and 1996 were on deposit with various
regulatory agencies as required by law.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 86% and 87% of the total liability for future
policy benefits as of December 31, 1997 and 1996, respectively. The
average interest rate credited on investment product policies was
approximately 6.1%, 6.3% and 6.6% for the years ended December 31,
1997, 1996 and 1995, 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 by issue year and were 6.9%
and 6.6% in 1997 and 1996, respectively. Interest rates have
generally ranged from 6.0% to 10.5% for previous issue years.
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
$220.2 million and $240.5 million as of December 31, 1997 and 1996,
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 11. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(5) FEDERAL INCOME TAX
The Company's current federal income tax liability was $60.1 million
and $30.2 million as of December 31, 1997 and 1996, respectively.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $200.1 $183.0
Liabilities in Separate Accounts 242.0 188.4
Mortgage loans on real estate and real estate 19.0 23.4
Other assets and other liabilities 59.2 53.7
------- ------
Total gross deferred tax assets 520.3 448.5
Less valuation allowance (7.0) (7.0)
------- ------
Net deferred tax assets 513.3 441.5
------- ------
Deferred tax liabilities:
Deferred policy acquisition costs 480.5 399.3
Fixed maturity securities 193.3 133.2
Deferred tax on realized investment gains 40.1 37.6
Equity securities and other long-term investments 7.5 8.2
Other 22.2 25.4
------- ------
Total gross deferred tax liabilities 743.6 603.7
------- ------
Net deferred tax liability $230.3 $162.2
======= ======
</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, 1997, 1996 and 1995.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable $121.7 $116.5 $88.7
Deferred tax expense (benefit) 28.5 (5.6) 11.1
------ ------ ------
$150.2 $110.9 $99.8
====== ====== ======
</TABLE>
Total federal income tax expense for the years ended December 31, 1997,
1996 and 1995 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(in millions of dollars) Amount % Amount % Amount %
---------------------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $150.5 35.0 $110.4 35.0 $100.6 35.0
Tax exempt interest and dividends
received deduction - 0.0 (0.2) (0.1) - 0.0
Other, net (0.3) (0.1) 0.7 0.3 (0.8) (0.3)
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $150.2 34.9 $110.9 35.2 $ 99.8 34.7
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $91.8 million, $115.8 million and
$51.8 million during the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The fair value of a financial instrument is defined as the amount at
which the financial instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market
prices are not available, fair value is to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Although fair value estimates
are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in the immediate settlement of the instruments.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
FIXED MATURITY AND EQUITY SECURITIES: The fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
MORTGAGE LOANS ON REAL ESTATE, NET: The fair value for mortgage
loans on real estate is estimated using discounted cash flow
analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgage loans in default is the estimated fair
value of the underlying collateral.
POLICY LOANS, SHORT-TERM INVESTMENTS AND CASH: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
INVESTMENT CONTRACTS: The fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analysis. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 13.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $13,204.1 $13,204.1 $12,304.6 $12,304.6
Equity securities 80.4 80.4 59.1 59.1
Mortgage loans on real estate, net 5,181.6 5,509.7 5,272.1 5,397.9
Policy loans 415.3 415.3 371.8 371.8
Short-term investments 358.4 358.4 4.8 4.8
Cash 175.6 175.6 43.8 43.8
Assets held in Separate Accounts 37,724.4 37,724.4 26,926.7 26,926.7
Liabilities:
Investment contracts 14,708.2 14,322.1 13,914.4 13,484.5
Policy reserves on life insurance contracts 3,345.4 3,182.4 3,392.8 3,197.5
Liabilities related to Separate Accounts 37,724.4 36,747.0 26,926.7 26,164.2
</TABLE>
(7) RISK DISCLOSURES
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduce demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. The Company mitigates this risk by offering a wide range of
products and by operating throughout the United States, thus reducing
its exposure to any single product or jurisdiction, and also by
employing underwriting practices which identify and minimize the
adverse impact of this risk.
CREDIT RISK: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK: The risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in
rates may cause certain interest-sensitive products to become
uncompetitive or may cause disintermediation. The Company mitigates
this risk by charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to the
purchaser, and/or by attempting to match the maturity schedule of its
assets with the expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would
have to borrow funds or sell assets prior to maturity and potentially
recognize a gain or loss.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $341.4 million
extending into 1998 were outstanding as of December 31, 1997. The
Company also had $63.9 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1997.
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 20% (21% in 1996) in any geographic area and no more than 2% (2%
in 1996) with any one borrower as of December 31, 1997. As of December
31, 1997, 46% (44% in 1996) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1997 and 1996. See note 4.
(8) 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 year of service. 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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
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 (the 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, 1997, 1996 and 1995 were $7.5 million, $7.4
million and $10.5 million, respectively.
The Company had no net accrued pension expense as of December 31, 1997
($1.1 million as of December 31, 1996).
The net periodic pension cost for the Retirement Plan as a whole for
the years ended December 31, 1997 and 1996 and for the Nationwide
Insurance Companies and Affiliates Retirement Plan as a whole for the
year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 77.3 $ 75.5 $ 64.5
Interest cost on projected benefit obligation 118.6 105.5 95.3
Actual return on plan assets (328.0) (210.6) (249.3)
Net amortization and deferral 196.4 101.8 143.4
-------- -------- --------
$ 64.3 $ 72.2 $ 53.9
======== ======== ========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate 6.50% 6.00% 7.50%
Rate of increase in future compensation levels 4.75% 4.25% 6.25%
Expected long-term rate of return on plan assets 7.25% 6.75% 8.75%
</TABLE>
Information regarding the funded status of the Retirement Plan as a
whole as of December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,547.5 $1,338.6
Nonvested 13.5 11.1
-------- ---------
$1,561.0 $1,349.7
======== =========
Net accrued pension expense:
Projected benefit obligation for services rendered to date $2,033.8 $1,847.8
Plan assets at fair value 2,212.9 1,947.9
--------- ---------
Plan assets in excess of projected benefit obligation 179.1 100.1
Unrecognized prior service cost 34.7 37.9
Unrecognized net gains (330.7) (202.0)
Unrecognized net asset at transition 33.3 37.2
--------- ---------
$ (83.6) $ (26.8)
========= =========
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Weighted average discount rate 6.00% 6.50%
Rate of increase in future compensation levels 4.25% 4.75%
</TABLE>
Assets of the Retirement Plan are invested in group annuity contracts
of NLIC and Employers Life Insurance Company of Wausau (ELICW).
(9) 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 (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1997 and 1996 was $36.5 million and $34.9 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and
1995 was $3.0 million, $3.3 million and $3.1 million, respectively.
Information regarding the funded status of the plan as a whole as of
December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996
----------- -----------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 93.3 $ 93.0
Fully eligible, active plan participants 31.6 23.7
Other active plan participants 113.0 84.0
-------- --------
Accumulated postretirement benefit obligation 237.9 200.7
Plan assets at fair value 69.2 63.0
-------- --------
Plan assets less than accumulated postretirement benefit obligation (168.7) (137.7)
Unrecognized transition obligation of affiliates 1.5 1.7
Unrecognized net losses (gains) 1.6 (23.2)
-------- --------
$(165.6) $(159.2)
======== ========
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year) $ 7.0 $ 6.5 $ 6.2
Interest cost on accumulated postretirement
benefit obligation 14.0 13.7 14.2
Actual return on plan assets (3.6) (4.3) (2.7)
Amortization of unrecognized transition
obligation of affiliates 0.2 0.2 3.0
Net amortization and deferral (0.5) 1.8 (1.6)
------- ------ ------
$17.1 $17.9 $19.1
======= ====== ======
</TABLE>
Actuarial assumptions used for the measurement of the APBO and the
NPPBC for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
APBO:
Discount rate 6.70% 7.25% 6.75%
Assumed health care cost trend rate:
Initial rate 12.13% 11.00% 11.00%
Ultimate rate 6.12% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
NPPBC:
Discount rate 7.25% 6.65% 8.00%
Long term rate of return on plan
assets, net of tax 5.89% 4.80% 8.00%
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 10.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
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,
1997 by $0.4 million and have no impact on the NPPBC for the year ended
December 31, 1997.
(10) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and NLAIC each exceed
the minimum risk-based capital requirements.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The statutory capital and surplus of NLIC as of December 31, 1997, 1996
and 1995 was $1.13 billion, $1.00 billion and $1.36 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and
$86.5 million, respectively.
As a result of the $850.0 million dividend paid on February 24, 1997,
any dividend paid by NLIC during the twelve-month period immediately
following the $850.0 million dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could
be paid without prior regulatory approval. The Company has no reason to
believe that any reasonably foreseeable dividend to be paid by NLIC
would not receive the required 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 shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(11) TRANSACTIONS WITH AFFILIATES
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the
Company made lease payments to NMIC and its subsidiaries of $8.4
million, $9.1 million and $9.0 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $85.8 million, $101.6 million and $107.1
million in 1997, 1996 and 1995, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $20.5 million and $15.1 million as of
December 31, 1997 and 1996, 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 1997 and
1996 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> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW
-------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Premiums $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other revenue $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and other expenses $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $211.0 million and $4.8 million as of
December 31, 1997 and 1996, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
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 $46.9 million. As discussed in note 15, WCLIC
is accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1997 were $66.1
million, $76.9 million and $57.3 million, respectively.
(12) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(13) 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.
(14) SEGMENT INFORMATION
The Company has three product segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by 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 Fixed Annuities segment also includes the
fixed option under the Company's variable annuity contracts. 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 and
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.
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1997, 1996 and 1995 and assets as of December 31, 1997,
1996 and 1995, by segment.
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 404.0 $ 284.6 $ 189.1
Fixed Annuities 1,141.4 1,092.6 1,052.0
Life Insurance 473.1 435.6 409.1
Corporate and Other 198.9 180.1 148.5
----------- ---------- ----------
$ 2,217.4 $ 1,992.9 $ 1,798.7
=========== ========== ==========
Income from continuing operations before federal income tax
expense:
Variable Annuities $ 150.9 $ 90.3 $ 50.8
Fixed Annuities 169.5 135.4 137.0
Life Insurance 70.9 67.2 67.6
Corporate and Other 38.6 22.6 32.2
----------- ---------- ----------
$ 429.9 $ 315.5 $ 287.6
=========== ========== ==========
Assets:
Variable Annuities $ 35,278.7 $ 25,069.7 $ 17,333.0
Fixed Annuities 14,436.3 13,994.7 13,250.4
Life Insurance 3,901.4 3,353.3 3,027.4
Corporate and Other 6,174.3 5,348.6 4,896.8
----------- ---------- ----------
$ 59,790.7 $ 47,766.3 $ 38,507.6
=========== ========== ==========
</TABLE>
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(15) DISCONTINUED OPERATIONS
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 11 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Revenues $ - $ 668.9 $ 776.9
Net income $ - $ 11.3 $ 24.7
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Assets, consisting primarily of investments $247.3 $3,288.5 $3,206.7
Liabilities, consisting primarily of policy benefits and claims $247.3 $2,802.8 $2,700.0
</TABLE>
<PAGE> 71
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This POST-EFFECTIVE AMENDMENT to Form S-6 Registration Statement comprises the
following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 90 pages.
Representations and Undertakings.
The Signatures.
Accountants' Consent
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1. Power of Attorney dated MAY 22, 1998. Attached hereto.
2. Resolution of the Depositor's Board of Directors Filed previously in connection with Securities and
authorizing the establishment of the Registrant, Exchange Commission File No. 333-31725 and is hereby
adopted incorporated by reference.
3. Distribution Contracts Filed previously in connection with Securities and
Exchange Commission File No.333-27133 and is hereby
incorporated by reference.
4. Form of Security Filed previously in connection with Securities and
Exchange Commission File No. 333-31725 and is hereby
incorporated by reference.
5. Articles of Incorporation of Depositor Filed previously in connection with Securities and
Exchange Commission File No. 333-27133 and is hereby
incorporated by reference.
6. Application form of Security Filed previously in connection with Securities and
Exchange Commission File No. 333-31725 and is hereby
incorporated by reference.
7. Opinion of Counsel Filed previously in connection with Securities and
Exchange Commission File No. 333-31725 and is hereby
incorporated by reference.
</TABLE>
91
<PAGE> 72
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 contractholders 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.
92
<PAGE> 73
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 24, 1998
93
<PAGE> 74
SIGNATURES As required by the Securities Act of 1933, the Registrant, Nationwide
VLI Separate Account-4, has caused this Post-Effective Amendment to be signed on
its behalf in the City of Columbus, and the State of Ohio, on this 18th day of
January, 1999.
- --------------
NATIONWIDE VLI SEPARATE ACCOUNT-4
---------------------------------
(Registrant)
(Seal) NATIONWIDE INSURANCE COMPANY
Attest: ----------------------------------
(Depositor)
by /s/ GLENN W. SODEN By: /s/ JOSEPH P. RATH
--------------------- -------------------------------
Glenn W. Soden Joseph P. Rath. -
Assistant Secretary Vice President - Product and Market
Compliance
Pursuant to the requirements of the Securities Act of 1933, this POST-EFFECTIVE
AMENDMENT has been signed below by the following persons in the capacities
indicated on the 18th day of JANUARY, 1999.
SIGNATURE TITLE
LEWIS J. ALPHIN Director
- ---------------------------
Lewis J. Alphin
A. I. BELL Director
- ---------------------------
A. I. Bell
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 and Chief
- --------------------------- Operating Office and Director
Joseph J. Gasper
DIMON R. McFERSON Chairman and Chief Executive Officer
- --------------------------- Nationwide Insurance Enterprise and Director
Dimon R. McFerson
DAVID O. MILLER Chairman of the Board and Director
- ---------------------------
David O. Miller
YVONNE L. MONTGOMERY Director
- ---------------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President-
- --------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By /s/ JOSEPH P. RATH
- --------------------------- -----------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- ---------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- ---------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- ---------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- ---------------------------
Harold W. Weihl
94
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, and if applicable, of the Investment
Company Act of 1940, as amended, various Registration Statements and amendments
thereto for the registration under said Act of Individual Deferred Variable
Annuity Contracts in connection with MFS Variable Account, Nationwide Variable
Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B,
Nationwide VA Separate Account-C and Nationwide VA Separate Account-Q; and the
registration of fixed interest rate options subject to a market value adjustment
offered under some or all of the aforementioned individual Variable Annuity
Contracts in connection with Nationwide Multiple Maturity Separate Account and
Nationwide Multiple Maturity Separate Account-A, and the registration of Group
Flexible Fund Retirement Contracts in connection with Nationwide DC Variable
Account, Nationwide DCVA-II, and NACo Variable Account; and the registration of
Group Common Stock Variable Annuity Contracts in connection with Separate
Account No. 1; and the registration of variable life insurance policies in
connection with Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
Nationwide VLI Separate Account-5, Nationwide VL Separate Account-A and
Nationwide VL Separate Account-B, Nationwide VL Separate Account-C, and
Nationwide VL Separate Account-D hereby constitutes and appoints Dimon R.
McFerson, Joseph J. Gasper, W. Sidney Druen, Mark R. Thresher, and Joseph P.
Rath, and each of them with power to act without the others, his/her attorney,
with full power of substitution and resubstitution, for and in his/her name,
place and stead, in any and all capacities, to approve, and sign such
Registration Statements and any and all amendments thereto, with power to affix
the corporate seal of said corporation thereto and to attest said seal and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, hereby granting
unto said attorneys, and each of them, full power and authority to do and
perform all and every act and thing requisite to all intents and purposes as
he/she might or could do in person, hereby ratifying and confirming that which
said attorneys, or any of them, may lawfully do or cause to be done by virtue
hereof. This instrument may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 22nd day of May, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ Yvonne L. Montgomery
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director Yvonne L. Montgomery, Director
/s/ A. I. Bell /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
A. I. Bell, Director C. Ray Noecker, Director
/s/ Keith W. Eckel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Keith W. Eckel, Director Robert A. Oakley, Executive Vice President - Chief
Financial Officer
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Charles L. Fuellgraf /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Robert L. Stewart, Director
/s/ Joseph J. Gasper /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Nancy C. Thomas, Director
and Director
/s/ Dimon R. McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon R. McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
/s/ David O. Miller
- -------------------------------------------------
David O. Miller, Chairman of the Board, Director
</TABLE>
