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Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide VLI Separate Account
Individual Single Premium Variable Life Insurance Contract
PROSPECTUS
May 1, 1995
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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
One Nationwide Plaza
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES*
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
terminated during the lifetime of the Insured. The Death Benefit and Cash
Value of the Policies may vary to reflect the experience of the Nationwide VLI
Separate Account (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus may meet the definition of "modified
endowment contracts" under Section 7702A of the Internal Revenue Code (the
"Code"). The Code provides for taxation of surrenders, partial surrenders,
loans, collateral assignments and other pre-death distributions from modified
endowment contracts in the same way annuities are taxed. Any distribution is
taxable to the extent the Cash Value of the Policy exceeds, at the time of the
distribution, the premiums paid into the Policy. The Code also provides for a
10% tax penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is 1) paid after the Policy Owner is 59-1/2
or disabled; or 2) the distribution is part of an annuity to the Policy Owner
as defined in the Code (see "Tax Matters").
It may not be advantageous to replace existing insurance with Policies
described in this prospectus. It may also be disadvantageous to purchase a
policy to obtain additional insurance protection if the purchaser already owns
another variable life insurance policy. The policies may not be advantageous
for persons who may wish to make policy loans or withdrawals prior to attaining
age 59-1/2 (see "Tax Matters"). The Policy Owner may allocate premiums and
Cash Value to one or more of the sub-accounts of the Variable Account and the
Fixed Account. The assets of each sub-account will be used to purchase, at net
asset value, shares of a designated underlying Mutual Fund of the following
series of the underlying Variable Account Mutual Fund options:
AMERICAN CAPITAL LIFE INVESTMENT TRUST:
-Money Market Portfolio
-Common Stock Portfolio
-Government Portfolio
-Multiple Strategy Portfolio
-Domestic Strategic Income Portfolio (formerly Corporate Bond Portfolio)
Nationwide Life Insurance Company (the "Company") guarantees that the Death
Benefit for a Policy will never be less than the Specified Amount stated on the
Policy data pages as long as the Policy is in force. There is no guaranteed
Cash Surrender Value. If the Cash Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option."
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*The contract is titled a "Flexible Premium Life Insurance Policy" in Texas.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
The date of this Prospectus is May 1, 1995.
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GLOSSARY OF TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Cash Value.
BENEFICIARY- The person to whom the proceeds due on the Insured's death are
paid.
CASH VALUE- The sum of the value of Policy assets in the Variable Account,
Fixed Account and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Internal Revenue Code as amended. It represents the
single premium required to mature the Policy under guaranteed mortality and
expense charges, and an interest rate of 6%.
INSURED- The person whose life is covered by the Policy, and who is named on
the Policy Data Page.
MATURITY DATE- The Policy Anniversary on or following the Insured's 95th
birthday.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS- The underlying mutual funds which correspond to the sub-accounts
of the Variable Account.
POLICY ANNIVERSARY- An anniversary of the Policy Date.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy Data Page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy
Loans.
POLICY OWNER- The person designated in the Policy application as the Owner. In
the State of New York, the variable life insurance Policies offered by the
Company are offered as "Certificates" for "Certificate Owners" under a group
contract rather than individual Policies. The provisions of both these
Certificates and the Policies are essentially the same and references to the
provisions of Policies and rights of Policy Owners in this prospectus include
Certificates and Certificate Owners.
POLICY YEAR- Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
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SPECIFIED AMOUNT- A dollar amount used to determine the Death Benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
VALUATION DATE- Each day the New York Stock Exchange and the Company's Home
Office is open for business, or any other day during which there is a
sufficient degree of trading that the current net asset value of the
Accumulation Units might be materially affected.
VALUATION PERIOD- A period commencing with the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT- A separate investment account of the Nationwide Life
Insurance Company.
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TABLE OF CONTENTS
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . 7
Variable Life Insurance . . . . . . . . . . . . . . . . . . . . 7
The Variable Account and its Sub-Accounts . . . . . . . . . . . 7
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . 7
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . 7
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
NATIONWIDE LIFE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . 9
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Investments of the Variable Account . . . . . . . . . . . . . . 9
American Capital Life Investment Trust . . . . . . . . . . . . . 10
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . 11
Substitution of Securities . . . . . . . . . . . . . . . . . . . 12
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . 12
INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . 13
Underwriting and Issuance . . . . . . . . . . . . . . . . . . . 13
-Minimum Requirements for Issuance of a Policy . . . . . . . . . 13
-Premium Payments . . . . . . . . . . . . . . . . . . . . . . . 13
-Allocation of Cash Value . . . . . . . . . . . . . . . . . . . 14
-Short-Term Right to Cancel Policy . . . . . . . . . . . . . . . 14
POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . 14
Deductions from Cash Value . . . . . . . . . . . . . . . . . . . 14
-Charges on Surrender . . . . . . . . . . . . . . . . . . . . . 14
-Annual Administrative Charge . . . . . . . . . . . . . . . . . 15
-Cost of Insurance Charge . . . . . . . . . . . . . . . . . . . 16
Deductions from the Sub-Accounts . . . . . . . . . . . . . . . . 16
-Mortality and Expense Risk Charge . . . . . . . . . . . . . . . 16
-Administrative Expense Charge . . . . . . . . . . . . . . . . . 17
-Premium Tax Recovery Charge . . . . . . . . . . . . . . . . . . 17
-Income Tax Charge . . . . . . . . . . . . . . . . . . . . . . . 17
HOW THE CASH VALUE VARIES . . . . . . . . . . . . . . . . . . . . . . . . 17
How the Investment Experience is Determined . . . . . . . . . . 17
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . 18
Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . 18
Determining The Cash Value . . . . . . . . . . . . . . . . . . . 18
Valuation Periods and Valuation Dates . . . . . . . . . . . . . 19
SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . 19
Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . 19
Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . 19
Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . 19
Maturity Proceeds . . . . . . . . . . . . . . . . . . . . . . . 20
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . 20
POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taking a Policy Loan . . . . . . . . . . . . . . . . . . . . . . 20
Effect on Investment Performance . . . . . . . . . . . . . . . . 20
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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Effect on Death Benefit and Cash Value . . . . . . . . . . . . . 21
Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . . 21
-Calculation of the Death Benefit . . . . . . . . . . . . . . . 21
-Proceeds Payable on Death . . . . . . . . . . . . . . . . . . . 23
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY . . . . . . . . . . . . . . 23
CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . 24
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . 25
CHANGES IN EXISTING INSURANCE COVERAGE . . . . . . . . . . . . . . . . . 25
Changes in the Specified Amount . . . . . . . . . . . . . . . . 25
Changes in the Death Benefit Option . . . . . . . . . . . . . . 25
OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 26
Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . 26
Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . 27
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Nonparticipating Policies . . . . . . . . . . . . . . . . . . . 27
LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 27
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . 27
CUSTODIAN OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 27
Taxation of the Company . . . . . . . . . . . . . . . . . . . . 28
Other Considerations . . . . . . . . . . . . . . . . . . . . . . 29
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Directors of the Company . . . . . . . . . . . . . . . . . . . . 30
Executive Officers of the Company . . . . . . . . . . . . . . . 31
OTHER CONTRACTS ISSUED BY THE COMPANY . . . . . . . . . . . . . . . . . . 31
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . 32
ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 33
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS . 37
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 47
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are similar in many ways to fixed-benefit whole life
insurance. As with fixed-benefit whole life insurance, the Owner of the Policy
pays a premium for life insurance coverage on the person insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. (As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid).
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the Death Benefit and
Cash Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated (see "How the Death Benefit Varies"). There is no
guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the
Cash Surrender Value is insufficient to pay Policy Charges, the Policy will
lapse.
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Cash Value in the Nationwide VLI Separate
Account (the "Variable Account") at the time the Policy is issued. The Policy
Owner chooses the sub-accounts of the Variable Account or the Fixed Account
into which the Cash Value will be allocated (see "Allocation of Cash Value").
At present, there are five sub-accounts. Assets of each sub-account are
invested at net asset value in shares of a corresponding underlying Mutual Fund
option. For a description of the underlying Mutual Fund options and their
investment objectives, see "Investments of the Variable Account."
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account.
Cash Values allocated to the Fixed Account are credited with interest daily at
a rate declared by the Company. The interest rate declared is at the Company's
sole discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks.
The Company deducts a charge for the cost of insurance from the Policy's Cash
Value on the Policy Date and each Monthly Anniversary Day. The Company deducts
an annual policy administrative charge from the Policy's Cash Value at the
beginning of each Policy Year after the first. The current annual charge is
$90 ($65 in New York) for total premium payments less than $25,000 and $50 for
total premium payments
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greater than or equal to $25,000. This charge is guaranteed never to exceed
$135 ($120 in New York) for total premium payments less than $25,000 and $75
for total premium payments greater than or equal to $25,000. The Company also
deducts on a daily basis from the assets of the Variable Account a charge to
provide for mortality and expense risks, administrative charges and premium tax
recovery. These current charges are equal on an annual basis to 1.30% of the
Variable Account assets for the first 10 Policy Years and 1.00% thereafter and
are guaranteed never to exceed 1.60% and 1.30% respectively. For Policies
which are surrendered, the Company may deduct a Surrender Charge. The
Surrender Charge associated with each premium payment will not exceed 8.5% of
the premium payment, and will be applied for nine years after the effective
date of the premium payment. The Surrender Charge is designed to recover
certain expenses incurred by the Company related to the sale of Policies.
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each underlying Mutual Fund's investment adviser
for managing the underlying Mutual Fund and selecting its portfolio of
securities. Other underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the underlying Mutual Fund. The
management fees and other expenses for each underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the underlying
Mutual Fund's average assets, are as follows:
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
<TABLE>
<S> <C>
Money Market Portfolio
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.23%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 0.37%
Total Portfolio Company Expenses . . . . . . . . . . . . . . . 0.60%
Common Stock Portfolio
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.42%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 0.18%
Total Portfolio Company Expenses . . . . . . . . . . . . . . . 0.60%
Government Portfolio
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.40%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 0.20%
Total Portfolio Company Expenses . . . . . . . . . . . . . . . 0.60%
Multiple Strategy Portfolio
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.38%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 0.22%
Total Portfolio Company Expenses . . . . . . . . . . . . . . . 0.60%
Domestic Strategic Income Portfolio
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.15%
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 0.45%
Total Portfolio Company Expenses . . . . . . . . . . . . . . . 0.60%
</TABLE>
The Mutual Fund expenses shown above are assessed at the underlying Mutual Fund
level and are not direct charges against the Variable Account or reductions in
Cash Value. These underlying Mutual Fund expenses are taken into consideration
in computing each underlying Mutual Fund's net asset value, which is the share
price used to calculate the Variable Account's unit value. The management fees
and other expenses are more fully described in the prospectuses for each
individual underlying Mutual Fund.
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PREMIUMS
The minimum premium for which a Policy may be issued is $10,000. A Policy may
be issued to an insured up to age 80.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid (see "Short Term Right to Cancel
Policy").
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise of companies which includes Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity
Insurance Company, Nationwide Property and Casualty Insurance Company, National
Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity
Company, Nationwide Indemnity Company and Nationwide General Insurance Company.
The Company's home office is at One Nationwide Plaza, Columbus, Ohio 43216.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states,
the District of Columbia and Puerto Rico (for additional information, see "The
Company").
THE VARIABLE ACCOUNT
The Nationwide VLI Separate Account (the "Variable Account"), was established
by a resolution of the Company's Board of Directors, on August 8, 1984,
pursuant to the provisions of Ohio law. The Company has caused the Variable
Account to be registered with the Securities and Exchange Commission as a unit
investment trust pursuant to the provisions of the Investment Company Act of
1940. Such registration does not involve supervision of the management of the
Variable Account or the Company by the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The Death Benefit and Cash Value under
the Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
Premium payments and Cash Value are allocated within the Variable Account among
one or more sub-accounts. The assets of each sub- account are used to purchase
shares of the underlying Mutual Funds designated by the Policy Owner. Thus,
the investment performance of a Policy depends upon the investment performance
of the underlying Mutual Funds designated by the Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Cash Value
allocated among one or more of the Variable Account sub- accounts and the Fixed
Account (see "Allocation of Cash Value"). When the policy is issued, the
Policy's Cash Value not allocated to the Fixed Account is placed in the Money
Market Portfolio Sub-Account (for any Cash Value Allocated to a Sub-Account on
the Application) or the Fixed Account, as designated by the Policy Owner, until
expiration of the period in which the Policy Owner may exercise his or her
short-term right to cancel the Policy. At the expiration of the period in
which the Policy Owner may exercise his or her short-term right to cancel the
Policy, shares of the underlying Mutual Funds specified by the Policy Owner are
purchased at net asset value
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for the respective sub-account(s). Such election is subject to any minimum
premium limitations which may be imposed by the underlying Mutual Fund
option(s). In addition, no less than 5% of premium may be allocated to any one
sub-account or the Fixed Account. The Policy Owner may change the allocation
of Cash Value or may transfer Cash Value from one sub-account to another,
subject to such terms and conditions as may be imposed by each underlying
Mutual Fund and as set forth in this prospectus (see "Transfers" and
"Allocation of Cash Value" and "Short-Term Right to Cancel Policy").
Each of the underlying Mutual Fund options receives investment advice from
American Capital Asset Management, Inc., which is paid fees for its services by
the underlying Mutual Funds. A summary of investment objectives is contained
in the description of each underlying Mutual Fund below. These underlying
Mutual Fund options are available only to serve as the underlying investment
for variable annuity and variable life contracts issued through separate
accounts of life insurance companies which may or may not be affiliated, also
known as" mixed and shared funding." There are certain risks associated with
mixed and shared funding, which is disclosed in the underlying Mutual Funds'
prospectuses. A full description of the underlying Mutual Fund options, their
investment policies and restrictions, risks and charges are contained in the
prospectuses of the respective underlying Mutual Funds. A prospectus for the
underlying Mutual Fund option(s) being considered must accompany this
prospectus and should be read in conjunction herewith.
AMERICAN CAPITAL LIFE INVESTMENT TRUST
- - MONEY MARKET PORTFOLIO
The investment objective of this Fund is to seek 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.
- - COMMON STOCK PORTFOLIO
The investment objective of this Fund is to seek capital appreciation by
investing in securities believed by the Advisor to have above average
potential for capital appreciation. Any income received on such
securities is incidental to the objective of capital appreciation.
- - GOVERNMENT PORTFOLIO
The investment objective of this Fund is to provide investors with a
high current return consistent with preservation of capital. The
Portfolio invests primarily in debt securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. In order to
hedge against changes in interest rates, the Portfolio may also purchase
or sell options and engage in transactions involving interest rate
futures contracts and options on such contracts.
- - MULTIPLE STRATEGY PORTFOLIO
The investment objective of this Fund is to seek a high total investment
return consistent with prudent risk through a fully managed investment
policy utilizing equity, intermediate and long-term debt and money
market securities. Total investment return consists of current income,
including dividends, interest, and discount accruals, and capital
appreciation. The Advisor may vary the composition of the portfolio
from time to time based upon an evaluation of economic and market trends
and the anticipated relative total return available from a particular
type of security.
- - DOMESTIC STRATEGIC INCOME PORTFOLIO (FORMERLY CORPORATE BOND PORTFOLIO)
This Fund seeks current income as its primary objective. Capital
appreciation is a secondary objective. The Portfolio attempts to
achieve these objectives through investment primarily in a
10
<PAGE> 12
diversified portfolio of fixed-income securities. The Portfolio may
invest in investment grade securities and lower rated and nonrated
securities. Lower rated securities are regarded by the rating agencies
as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.
REINVESTMENT
The Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the underlying Mutual
Funds. The distribution of additional shares will not affect the number of
Accumulation Units attributable to a particular Policy (see "Allocation of
Cash Value").
TRANSFERS
The Policy Owner may request a transfer of up to 100% of the Cash Value from
the Variable Account to the Fixed Account. The Owner's Cash Value in each
Sub-Account will be determined as of the date the transfer request is received
in the Home Office in good order. The Company reserves the right to restrict
transfers to the Fixed Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account and a portion of the Variable Account to the
Fixed Account, without penalty or adjustment. The Company reserves the right
to limit the amount of Cash Value transferred out of the Fixed Account each
Policy Year. Transfers from the Fixed Account must be made within 30 days
after the termination date of the interest rate guarantee period.
Transfers among sub-accounts may be made once per Valuation Date and may be
made either in writing or, in states allowing such transfers, by telephone.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include any or all
of the following, or such other procedures as the Company may, from time to
time, deem reasonable: requesting identifying information, such as name,
contract number, Social Security number, and/or personal identification number;
tape recording all telephone transactions; and providing written confirmation
thereof to both the Policy owner and any agent of record at the last address of
record. Although failure to follow reasonable procedures may result in the
Company's liability for any losses due to unauthorized or fraudulent telephone
transfers, the Company will not be liable for following instructions
communicated by telephone which it reasonably believes to be genuine. The
Company may withdraw the telephone exchange privilege upon 30 days written
notice to Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the
Money Market sub-account or the Fixed Account to any other sub-account within
the Variable Account on a monthly basis. This service is intended to allow the
Policy Owner to utilize Dollar Cost Averaging, a long-term investment program
which provides for regular, level investments over time. The Company makes no
guarantees that Dollar Cost Averaging, will result in a profit or protect
against loss in a declining market. To qualify for Dollar Cost Averaging,
there must be a minimum total Cash Value, less policy indebtedness, of $15,000.
Transfers for purposes of Dollar Cost Averaging can only be made from the Money
Market sub-account or the Fixed Account. The minimum monthly Dollar Cost
Averaging
11
<PAGE> 13
transfer is $100. In addition, Dollar Cost Averaging monthly transfers from
the Fixed Account must be equal to or less than 1/30th of the Fixed Account
value when the Dollar Cost Averaging program is requested. Transfers out of
the Fixed Account, other than for Dollar Cost Averaging, may be subject to
certain additional restrictions (see "Transfers"). A written election of
this service, on a form provided by the Company, must be completed by the
Policy Owner in order to begin transfers. Once elected, transfers from the
Money Market sub-account or the Fixed Account will be processed monthly until
either the value in the Money Market sub-account or the Fixed Account is
completely depleted or the Policy Owner instructs the Company in writing to
cancel the monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Policy Owners however, any such discontinuation
would not affect Dollar Cost Averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
SUBSTITUTION OF SECURITIES
If shares of the underlying Mutual Fund options described in this prospectus
should no longer be available for investment by the Variable Account or, if in
the judgment of the Company's management further investment in such underlying
Mutual Funds should become inappropriate in view of the purposes of the Policy,
the Company may substitute shares of another underlying Mutual fund for shares
already purchased or to be purchased in the future by premium payments under
the Policy. No substitution of securities in the Variable Account may take
place without prior approval of the Securities and Exchange Commission, and
under such requirements as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply with respect to Cash Value allocated to
the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote
the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual Funds
in accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the underlying
Mutual Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that underlying Mutual Fund by the net asset
value of one share of that underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as
of a date chosen by the Company, but not more than 90 days prior to the meeting
of the underlying Mutual Fund. Voting instructions will be solicited by
written communication prior to such meeting.
The Company will vote underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares
held in the Variable Account as to which no timely instructions are received
will be voted by the Company in the same proportion as the voting instructions
which are received.
12
<PAGE> 14
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the
underlying Mutual Funds' proxy material and a form with which to give such
voting instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
underlying Mutual Fund shares in any manner necessary to enable the underlying
Mutual Fund to (1) make or refrain from making any change in the investments or
investment policies for any of the underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment advisor or principal underwriter of any
portfolio which may be initiated by Policy Owners or the underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or
investment advisor, based on a good faith determination that such change would
be contrary to state law or otherwise inappropriate in light of the portfolio's
objective and purposes; or (3) enter into or refrain from entering into any
advisory agreement or underwriting contract, if required by any insurance
regulatory authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The minimum amount of initial premium that will be accepted by the Company is
$10,000. Policies may be issued to Insureds issue ages 80 or younger. Before
issuing any Policy, the Company requires evidence of insurability satisfactory
to it, which may include a medical examination.
- -Premium Payments
The initial premium for a Policy is payable in full at the Company's home
office. The minimum amount of initial premium required is $10,000 for issue
ages 75 or younger and $50,000 for issue ages 76 through 80. The Specified
Amount is determined by treating the initial premium as equal to 100% of the
Guideline Single Premium. Upon payment of an initial premium, temporary
insurance may be provided, subject to a maximum amount. The effective date of
permanent insurance coverage is dependent upon completion of all underwriting
requirements, payment of the initial premium, and delivery of the Policy while
the Insured is still living.
The Policy Owner may make additional premium payments. The Policy is primarily
intended to be a single premium with a limited ability to make additional
payments. Subsequent premium payments under the Policy are permitted under the
following circumstances:
1. an additional premium payment is required to keep the Policy in force
(see "Grace Period"); or
2. except in Virginia, additional premium payments of at least $1,000 may
be made at any time provided the premium limits prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance
contract are not violated.
Payment of additional premiums if accepted, may increase the Specified Amount
of insurance. However, the Company reserves the right to require satisfactory
evidence of insurability before accepting any additional premium payment which
results in an increase in the net amount at risk. The Company may also require
that any existing Policy indebtedness is repaid prior to accepting any
additional premium payments.
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<PAGE> 15
The Company will not accept a subsequent premium payment which would result in
total premiums paid exceeding the premium limitations prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance contract.
- -Allocation of Cash Value
At the time a Policy is issued, its Cash Value will be based on the Money
Market Portfolio Sub-Account value or the Fixed Account as if the Policy had
been issued and the premium invested on the date the premium was received in
good order by the Company. When the Policy is issued, the Cash Value will be
allocated to the Money Market Portfolio Sub-Account (for any Cash Value
Allocated to a Sub- Account on the Application) or the Fixed Account until the
expiration of the period in which the Policy Owner may exercise his or her
short-term right to cancel the Policy. Cash Value not designated for the Fixed
Account will be placed in the Money Market Portfolio Sub-Account. At the
expiration of the period in which the Policy Owner may exercise his or her
short term right to cancel the Policy, shares of the 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 Cash Value or may
transfer Cash Value from one sub-account to another, subject to such terms and
conditions as may be imposed by each underlying Mutual Fund option and as set
forth in the prospectus. Cash Value allocated to the Fixed Account at the time
of application may not be transferred prior to the first Policy Anniversary.
(see "Transfers" and "Investments of the Variable Account").
The designation of investment allocations will be made by the prospective
Policy Owner at the time of application for a Policy. The Policy Owner may
change the way in which future premiums are allocated by giving written notice
to the Company. All percentage allocations must be in whole numbers, and must
be at least 5%. The sum of allocations must equal 100%.
- -Short-Term Right to Cancel Policy
A Policy may be returned for cancellation and a full refund of premium within
10 days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed
or delivered to the registered representative who sold it, or the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the total premiums paid within seven
days after it receives the Policy.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
No deduction is made from any premium at the time of payment. 100% of each
premium payment is applied to the Cash Value.
DEDUCTIONS FROM CASH VALUE
The Company may deduct certain charges from the Policy's Cash Value. While the
Company reserves the right to change current charges, it has no present intent
to do so. These are comprised of the following items:
- -Charges on Surrender
No charges are deducted from any premium payment. The Company incurs certain
expenses related to the sale of the Policies. These expenses include
commissions paid to sales personnel, the cost of sales literature and other
promotional activity. To recover these expenses, the Company imposes a
14
<PAGE> 16
Surrender Charge. The Surrender Charge may be insufficient to recover all
these expenses. Unrecovered expenses are born by the Company's general assets
which may include profits, if any, from Mortality and Expense Risk Charges.
The initial premium payment and any subsequent premium payment which results in
an increased net amount at risk will have a Surrender Charge associated with
it, that will be less than or equal to 8.5% of such premium payment, as set
forth in the following chart. The Surrender Charge applies for nine years
after the effective date of each premium payment. Certain surrenders may
result in adverse tax consequences (see "Tax Matters").
<TABLE>
<CAPTION>
COMPLETED YEAR(S) SINCE CHARGES ON SURRENDER AS A
PREMIUM PAYMENT % PREMIUM PAYMENT
--------------- -----------------
<S> <C>
0 8.5%
1 8.5%
2 8.0%
3 8.0%
4 7.5%
5 7.0%
6 6.0%
7 5.0%
8 4.0%
9 0.0%
</TABLE>
In no event will the surrender charge deducted on surrender exceed 8.5% of the
total premiums paid.
The amount of the Surrender Charge may be eliminated when the Policies are
issued to an officer, director, former director, partner, employee, or retired
employee of the Company; an employee of the General distributor of the
Policies, American Capital Marketing, Inc.; or an employee of an affiliate of
the Company or the General Distributor; or, a duly appointed representative of
the company who receives no commission as a result of the purchase.
Elimination of the Surrender Charge will be permitted by the Company only in
those situations where the Company does not incur sales or administrative
expenses normally associated with sales of a Policy. In no event will
reduction of the Surrender Charge be permitted where such reduction will be
unfairly discriminatory to any person.
- -Annual Administrative Charge
The Company deducts an annual administrative charge at the beginning of each
Policy Year after the first. It will be charged proportionately to the Cash
Values in each Variable sub-account and the Fixed Account. The amount of this
annual charge is determined by the total net premium payments (premium payments
less any previous partial surrenders) as follows:
<TABLE>
<CAPTION>
Total Net Premium Payments
Greater than But Less Current Annual Administrative Guaranteed Maximum Annual
or Equal to than Charge Administrative Charge
----------- ---- ------ ---------------------
<S> <C> <C> <C>
$10,000 $25,000 $90 Non-New York $135 Non-New York
$25,000 $65 In New York $120 In New York
$50 All States $ 75 All States
</TABLE>
15
<PAGE> 17
- -Cost of Insurance Charge
A monthly deduction for the Cost of insurance is charged proportionately
against the Cash Value in each Sub-account and the Fixed Account on the Policy
Date and each Monthly Anniversary Day. The Company will determine the Monthly
Cost of Insurance charge by multiplying the Applicable Cost of Insurance rate
by the net amount at risk. The net amount at risk is equal to the Death
Benefit minus the Cash Value.
Guaranteed cost of insurance charges will not exceed the cost based on the
guaranteed cost of insurance rate and the Policy's net amount at risk.
Guaranteed cost of insurance rates for Standard-Simplified issues are based on
the 1980 Commissioner's Extended Term Mortality Table, Age Last Birthday (1980
CET). Guaranteed cost of insurance rates for Standard Preferred issues are
based on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO). Guaranteed cost of insurance rates for substandard issues
are based on appropriate percentage multiples of the 1980 CSO. These mortality
tables are sex distinct. In addition, separate mortality tables will be used
for standard and non-tobacco.
For Policies issued in Texas, guaranteed cost of insurance rates for
Standard-Simplified issues ("Special Class-Simplified" in Texas) are based on
130% of the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rate class of an Insured may affect the cost of insurance rate. The
Company currently places Insureds into both standard rate classes and
substandard classes that involve a higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will have a lower cost
of insurance than an Insured in a rate class with higher mortality risks. The
Company may also issue certain Policies on a "Simplified Issue" basis to
certain categories of individuals. Due to the underwriting criteria
established for Policies issued on a Simplified Issue basis, actual rates for
healthy individuals will be higher than the current cost of insurance rates
being charged under otherwise identical Policies that are issued on a Preferred
basis.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company will deduct, on a daily basis, certain charges from the assets of
the Variable Account. On an annual basis, these charges are equivalent to:
<TABLE>
<CAPTION>
Policy Years Policy Years
1-10 11+
---- ---
<S> <C> <C>
Current 1.30% 1.00%
Guaranteed Maximum 1.60% 1.30%
</TABLE>
While the Company reserves the right to change current charges, it has no
present intent to do so.
These charges consist of the following items:
- -Mortality and Expense Risk Charge
The Company assumes certain risks for guaranteeing 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, the Company assumes risks associated with the
nonrecovery of policy issue, underwriting, and other administrative expenses
due to Policies which lapse or are surrendered during the first ten years
following each premium payment.
16
<PAGE> 18
To compensate the Company for assuming these risks associated with the
Policies, the Company deducts a daily charge from the assets of the
sub-accounts of the Variable Account. This charge currently is equivalent to
an effective annual rate of 0.75%. To the extent that future levels of
mortality and expenses are less than or equal to those expected, the Company
may realize a profit from these charges. This charge is guaranteed not to
exceed 0.90%.
- -Administrative Expense Charge
The Company deducts a daily Administrative Expense Charge to reimburse it for
expenses related to issuance and maintenance of the Policies including
underwriting, establishing policy records, accounting and record keeping, and
periodic reporting to Policy Owners. This charge is designed only to reimburse
the Company for its actual administrative expenses. In the aggregate, the
Company expects that the charges for administrative costs will be approximately
equal to the related expenses.
This charge is deducted daily from the assets of the sub-accounts of the
Variable Account. This charge currently is equivalent to an annual effective
rate of 0.25%. This charge is guaranteed not to exceed 0.40%.
- -Premium Tax Recovery Charge
Premium taxes are not deducted at the time a premium is paid. The Company pays
any state premium taxes attributable to a particular Policy when incurred by
the Company. The Company expects to pay an average state premium tax rate of
approximately 2.5% of premiums for all states, although such tax rates
gradually can range from 0% to 4%. To reimburse the Company for the payment of
state premium taxes associated with the Policies, during the first ten Policy
Years the Company deducts a daily charge from the assets of the sub-accounts.
This charge is computed on a daily basis, and is equivalent to an annual
effective rate of 0.30% of the assets of the Variable Account during the first
ten Policy Years, and 0% thereafter. This charge may be more or less than the
amount actually assessed by the state in which a particular Policy owner lives.
The Company does not expect to make a profit from this charge.
- -Income Tax Charge
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the sub- accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any premium applied since the previous Valuation
Date, plus or minus any investment results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the
investment experience of the Variable Account and/or the daily crediting of
interest in the Fixed Account and Policy Loan Account depending on the
allocation of Cash Value by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash
Value allocated to a sub-account by the
17
<PAGE> 19
value of an Accumulation Unit for the sub-account of the Valuation Period
during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the underlying Mutual Fund shares in that sub-account
were available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each sub-account for
the immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing
(a) by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the underlying Mutual Fund held in
the sub-account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the underlying Mutual Fund held in the sub- account if the
"ex-dividend" date occurs during the current Valuation Period.
(b) is the net asset value per share of the underlying Mutual Fund held in
the sub-account determined at the end of the immediately preceding
Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk Charge,
Administration Expense Charge and Premium Tax Recovery Charge deducted
from the Variable Account. Such factor is equal to an annual rate of
1.30% for the first ten years and then 1.00% thereafter of the daily net
asset value of the Variable Account.
For underlying Mutual Funds that credit dividends on a daily basis and pay such
dividends once a month, the Net Investment Factor allows for the monthly
reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. 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, Administration Expense Charge,
and Premium Tax Recovery Charge and any charge or credit for tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
net asset value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account is the Cash Value. The
number of Accumulation Units credited per each sub-account are determined by
dividing the net amount allocated to the sub-account by the Accumulation Unit
Value for the sub-account for the Valuation Period during which the premium is
received by the Company. In the event part or all of the Cash Value is
surrendered or charges or deductions are made against the Cash Value, an
appropriate number of Accumulation Units from the
18
<PAGE> 20
Variable Account and an appropriate amount from the Fixed Account will be
deducted in the same proportion that the Policy Owner's interest in the
Variable Account and the Fixed Account bears to the total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited
with interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's home office is open for business or any other day during
which there is sufficient degree of trading that the current net asset value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a Commercial
Bank or a Savings and Loan, which is a member of the Federal Deposit Insurance
Corporation. In some cases, the Company may require additional documentation
of a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, indebtedness
or other deductions due on that date, which may also include a Surrender
Charge.
PARTIAL SURRENDERS
After the Policy has been in force for 5 Policy Years, the Policy Owner may
request a partial surrender. Partial surrenders will be permitted only if they
satisfy the following requirements:
1 The maximum partial surrender in any Policy Year is limited to 10%
of the total premium payment;
2 Partial surrenders must not result in a reduction of the Cash
Surrender Value below $10,000; and
3 After the partial surrender, the Policy continues to qualify as
life insurance.
When a partial surrender is made, the Cash Value is reduced by the amount of
the partial surrender. Also, under Death Benefit Option 1, the Specified
Amount is reduced by the amount of the partial surrender. Partial surrender
amounts must be first deducted from the values in the Variable sub-
19
<PAGE> 21
accounts. Partial surrenders will be deducted from the Fixed Account only to
the extent that insufficient values are available in the Variable sub-accounts.
Surrender Charges will be waived for any partial surrenders which satisfy the
above conditions. Certain partial surrenders may result in currently taxable
income and tax penalties (See "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The Maturity Proceeds will be payable to the Policy Owner on
the Maturity Date provided the Policy is still in force. The Maturity Proceeds
will be equal to the amount of the Policy's Cash Value, less any indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
POLICY LOANS
TAKING A POLICY LOAN
The Policy Owner may take a loan using the Policy as security. During the
first year, maximum Policy indebtedness is limited to 50% of the Cash Surrender
Value less interest due on the next Policy Anniversary. After the first Policy
Year, the maximum Policy indebtedness is limited to 90% of the Cash Surrender
Value less interest due on the next Policy Anniversary. The Company will not
grant a loan for an amount less than $1,000 ($200 in Connecticut, $500 in New
York). Should the Death Benefit become payable, the Policy be surrendered, or
the Policy mature while a loan is outstanding, the amount of Policy
indebtedness will be deducted from the Death Benefit, Cash Surrender Value or
the Maturity Value, respectively.
Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Surrender
Value in the sub-accounts and 100% of the Cash Surrender Value in the Fixed
Account less interest due on the next Policy Anniversary.
Any request for a Policy loan must be in written form satisfactory to the
Company. 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 Exchange; or by a Commercial Bank or a Savings
and Loan which is a member of the Federal Deposit Insurance Corporation.
Certain Policy loans may result in currently taxable income and tax penalties
(see "Tax Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating
to a Policy are held in more than one sub-account, withdrawals from
sub-accounts will be made in proportion to the assets in each Variable
Sub-account at the time of the loan. Policy Loans will be transferred from the
Fixed Account only when insufficient amounts are available in the Variable
Sub-accounts. The amount taken out of the Variable
20
<PAGE> 22
Account will not be affected by the Variable Account's investment experience
while the loan is outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from
the date of transfer.
Policy Loans will be currently credited interest daily at an annual effective
rate of 5.0%. This rate is guaranteed never to be lower than 4%. The Company
may change the current interest crediting rate on Policy Loans at any time at
its sole discretion. This earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary.
It will be allocated according to the underlying Mutual Fund Allocation Factors
in effect at the time of the transfer.
The loan interest rate is 6% per year for all Policy Loans. Interest is
charged daily and is payable at the end of each Policy year. 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 loan indebtedness plus accrued interest exceeds the Cash
Value less any Surrender Charges, the Company will send a notice to the Policy
Owner and the assignee, if any. The Policy will terminate without value 61
days after the mailing of the notice unless a sufficient repayment is made
during that period. A repayment is sufficient if it is large enough to reduce
the total loan indebtedness plus accrued interest to an amount equal to the
total Cash Value less any Surrender Charges plus an amount sufficient to
continue the Policy in force for 3 months.
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 a loan may be repaid at any time while the Policy is in force
during the insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments
will be credited to the Variable Sub- accounts and the Fixed Account in
proportion to the Policy Owner's Premium allocation in effect at the time of
the repayment. Each repayment may not be less than $1,000 ($50 in Connecticut
and New York). The Company reserves the right to require that any loan
repayments resulting from Policy Loans transferred from the Fixed Account must
be first allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
- -Calculation of the Death Benefit
At issue, the Specified Amount is determined by treating the initial premium as
equal to 100% of the Guideline Single Premium. Additional premium payments, if
accepted, may increase the Specified Amount. Guideline Single Premiums vary by
attained age, sex, smoking classification, underwriting classification and
total premium payments. The following table illustrates representative initial
Specified Amounts, under Death Benefit Option 1, for non-tobacco.
21
<PAGE> 23
<TABLE>
<CAPTION>
Issue $25,000 Single $50,000 Single
Age Premium Premium
--- Male Female Male Female
---- ------ ---- ------
<S> <C> <C> <C> <C>
35 $179,733 $208,354 $364,774 $423,008
40 143,373 166,704 290,792 338,264
45 114,856 134,300 232,769 272,332
50 92,583 108,739 187,452 220,323
55 75,306 88,601 152,298 179,349
60 62,112 72,636 125,453 146,866
65 52,094 59,930 105,070 121,014
</TABLE>
Generally, for a given premium payment, the initial Specified Amount is greater
for non-tobacco than standard, females than males, preferred issue than
simplified issue. The Specified Amount is shown in the Policy.
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 two Death Benefit Options. Under Option
(1), the Death Benefit will be the greater of the Specified Amount or the
Applicable Percentage of Cash Value. Under Option (1), the amount of the Death
Benefit will ordinarily not change for several years to reflect the investment
performance and may not change at all. If investment performance is favorable
the amount of Death Benefit may increase. To see how and when investment
performance will begin to affect Death Benefits, please see the illustrations.
Under Option (2), the Death Benefit will be the greater of the Specified Amount
plus the Cash Value, or the Applicable Percentage of Cash Value and will vary
directly with the investment performance.
Policy Owners who are satisfied with the amount of their current insurance
coverage and prefer to have favorable investment performance and any future
premium payments reflected in increased Policy Cash Values should choose Death
Benefit Option (1). Policy Owners who prefer to have favorable investment
performance and any future premium payments increase Death Benefits should
choose Death Benefit Option (2).
The monthly Cost of Insurance for Option (1) will always be less than or equal
to the monthly Cost of Insurance for the same amount of Death Benefit under
Option (2) (see "Cost of Insurance Charge").
The term "applicable percentage" means:
1. 250% when the Insured is Attained Age 40 or less at the beginning
of a Policy Year, and
2. when the Insured is above Attained Age 40, the percentage shown
in the "Applicable Percentage of Cash Value Table" following.
22
<PAGE> 24
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
- -Proceeds Payable on Death
The actual Proceeds payable on the Insured's death will be the Death Benefit as
described above less any outstanding Policy loans, and less any unpaid Policy
Charges. Under certain circumstances, the proceeds may be adjusted (see
"Incontestability," "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a modified single premium life
insurance policy offered by the Company on the Policy Date. If not available,
the new policy may be a flexible premium adjustable life insurance policy
offered by the Company 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
23
<PAGE> 25
Policy Owner, the Company will pay the excess to the Policy Owner in cash. The
exchange may be subject to federal income tax withholding (see "Income Tax
Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the Investment Policy of a Variable Account.
The Company must inform the Policy Owner 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 holders or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy may be converted to a
substantially comparable Nationwide General Account Life Insurance Policy on
the life of the insured. The Policy Owner has the later of 60 days (6 months
in Pennsylvania) from the date of the Investment Policy change or 60 days (6
months in Pennsylvania) from being informed of such change to make this
conversion. The Company will not require Evidence of Insurability for this
conversion.
The new policy will not be affected by the investment experience of any
Variable Account. The New Policy will be for an amount of insurance not
exceeding the Death Benefit of the Policy converted on the date of such
conversion.
GRACE PERIOD
If the Cash Surrender Value in the Policy is insufficient to pay the Cost of
Insurance Charges, Policy loan interest, or other charges which become due but
are unpaid, a grace period of 61 days will be allowed for payment of sufficient
premium to continue the Policy in force. The Company will notify the Policy
Owner of the amount required to continue the Policy in force. If the required
amount is not received within 61 days of the notice, the Policy will terminate
without value. If the Insured dies during the Grace Period, the Company will
pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end of
the Grace Period and prior to the Maturity Date:
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all Policy Charges that were due and
unpaid during the Grace Period;
4. paying sufficient premium to keep the Policy in force for 3 months from
the date of reinstatement, and
5. paying or reinstating any indebtedness against the Policy which existed
at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day
on or next following the date the application for reinstatement is approved by
the Company. If your 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 appropriate Surrender Charge. Such Surrender Charge
will be based on the length of time from the date of premium payments to the
effective date of the reinstatement. Unless the Policy Owner has provided
otherwise, the allocation of the amount of the Surrender Charge,
24
<PAGE> 26
additional premium payments, and any loan repayments will be based on the
underlying Mutual Fund Allocation factors in effect at the start of the Grace
Period.
THE FIXED ACCOUNT OPTION
Because of exemptive and exclusionary provisions, interests in Nationwide's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor
any interests therein are subject to the provisions of these Acts, and
Nationwide has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus relating to the
Fixed Account option. Disclosures regarding the General Account may, however,
be subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of Nationwide's general assets (General Account).
Nationwide's General Account consists of all assets of the Company other than
those in the Variable Account and in other separate accounts that have been or
may be established by the Company. Subject to applicable law, the Company has
sole discretion over the investment of the assets of the General Account, and
Policy Owners do not share in the investment experience of those assets. The
Company guarantees that the part of the Cash Value invested under the Fixed
Account option will accrue interest daily at an effective annual rate that the
Company declares periodically. The Fixed Account crediting rate will not be
less than an effective annual rate of 4%. Upon request and in the annual
statement the Company will inform a Policy Owner of the then applicable rate.
The Company is not obligated to credit interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
After the first Policy Year, the Policy Owner may request certain changes in
the insurance coverage under the Policy. Any request must be in writing and
received at the Company's home office. No change will take effect unless the
Cash Surrender Value, after the change, is sufficient to keep the Policy in
force for at least 3 months.
CHANGES IN THE SPECIFIED AMOUNT
Payment of additional premiums or changes in the Death Benefit Option may
require an increase to the Specified Amount. The minimum increase in the
Specified Amount permitted by the Company is $10,000. An approved increase
will have an effective date of the Monthly Anniversary Day on or next following
the date we approve the supplemental application. The Company reserves the
right to limit such increases to one per Policy Year, and to require
satisfactory evidence of insurability for any increase in the Specified Amount.
In addition, the rate class, rate class multiple and rate type for the increase
in Specified Amount must be identical to those on the Policy Date. The
Specified Amount can not be decreased if, after the decrease the policy would
fail to satisfy the definition of Life Insurance under Section 7702 of the
Internal Revenue Code.
CHANGES IN THE DEATH BENEFIT OPTION
The Policy Owner may change the Death Benefit Option under the Policy. If the
change is from Option 1 to Option 2, the Specified Amount will be decreased by
the amount of the Cash Value. If the change is from Option 2 to Option 1, the
Specified Amount will be increased by the amount of the Cash Value. Evidence
of insurability is not required for a change from Option 2 to Option 1. The
Company reserves
25
<PAGE> 27
the right to require evidence of insurability for a change from Option 1 to
Option 2. The effective date of the change will be the Monthly Anniversary Day
on or next following the date the Company approves the request for change.
Only one change of option is permitted per Policy Year. 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 prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance contract.
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a contingent policy owner or a new policy owner while
the Insured is living. Any change must be in a written form satisfactory to
the Company and recorded at the Company's home office. Once recorded, the
change will be effective when signed. The change will not affect any payment
made or action taken by the Company before it was recorded. The Company may
require that the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent owner,
and dies before the Insured, the Policy Owner's rights in this Policy belong to
the Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at
the Company's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by the
Company before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving beneficiary, unless otherwise provided. Multiple
beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insureds, the proceeds shall be paid to the
Policy Owner or the Policy Owner's estate.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its home office. The Company is not responsible for
any assignment not submitted for recording, nor is the Company responsible for
the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before
it was recorded.
INCONTESTABILITY
The Company will not contest a Death Benefit based on representations in any
written application when such benefit has been in force, during the lifetime of
the Insured, for two years.
26
<PAGE> 28
ERROR IN AGE OR SEX
If the Insured's age, sex or both, as stated in the application, are incorrect,
the affected benefits will be adjusted to reflect the correct age or sex.
SUICIDE
If the Insured dies by suicide within two years from the Policy Date, the
Company will pay no more than the sum of the premiums, less any unpaid loan.
If the Insured dies by suicide within two years from the date an application is
accepted for an increase in the Specified Amount, the Company will pay no more
than the amount paid for such additional benefit.
NONPARTICIPATING POLICIES
The Policies are nonparticipating. This means that they do not participate in
any dividend distribution of the Company's surplus.
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 contributions made on or
after August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provided 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.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where
the Policies may lawfully be sold. Such agents will be registered
representatives of broker dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
(NASD). The Policies will be distributed by the General Distributor, American
Capital Marketing, Inc.
Gross commissions paid by the Company on the sale of these Policies plus fees
for marketing services provided by the General Distributor are not more than
7.50% of the premiums paid.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Internal Revenue Code ("Code") provides that if certain
tests are met, a Policy will be treated as a life insurance policy for federal
tax purposes. The Company will monitor compliance with these tests. The
Policy should thus receive the same Federal income tax treatment as fixed
benefit life insurance. As a result, the life insurance proceeds payable under
a Policy are excludable from gross income of the beneficiary under Section 101
of the Code.
27
<PAGE> 29
The Policies described in this prospectus, meet the definition of "modified
endowment contracts" under Section 7702A of the Code. The Code defines
modified endowment contracts as those policies issued or materially changed
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. The policies offered in
this prospectus typically fall within this definition. The Code provides for
taxation of surrenders, partial surrenders, loans, collateral assignments and
other pre-death distributions from modified endowment contracts in the same way
annuities are taxed. Any distribution is taxable to the extent the Cash Value
of the Policy exceeds, at the time of the distribution, the premiums paid into
the Policy. The code generally provides for a 10% tax penalty on the taxable
portion of such distributions. That penalty is applicable unless the
distribution is: (1) paid after the Policy Owner is 59-1/2 or disabled; or (2)
the distribution is part of an annuity to the Policy Owner as defined in the
Code.
Even though exchanges under Section 1035 of the Code qualify as material
changes, certain exchanges of pre-June 22, 1988 policies may retain their
non-modified endowment status. Therefore, the policies offered by this
prospectus may or may not be issued as modified endowment contracts. The
Company will monitor premiums paid and will notify the Policy Owner when the
policy's non- modified endowment status is in jeopardy. If a policy is not a
modified endowment contract, a cash distribution during the first fifteen years
after a policy is issued which causes a reduction in death benefits may still
become fully or partially taxable to the Owner pursuant to Section 7702(f)(7)
of the Code. The Policy Owner should carefully consider this potential effect
and seek further information before initiating any changes in the terms of the
policy. Under certain conditions, a policy may become a modified endowment as
a result of certain material changes or a reduction in benefits as defined by
Section 7702A(c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h)
of the Code requires that the investments of separate accounts such as the
Variable Account be adequately diversified. Regulations issued by the
Secretary of the Treasury, set the standards for measuring the adequacy of this
diversification. A Variable Life policy that is not adequately diversified
under these regulations would not be treated as life insurance under Section
7702 of the Code. To be adequately diversified, each sub-account of the
Variable Account must meet certain tests. The Company believes that the
investments of the Variable Account meet the applicable diversification
standards. The Company will monitor compliance with these regulations and, to
the extent necessary, will change the objectives or assets of the sub-account
investments to remain in compliance.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the value of Accumulation Units. As a
result, such investment income and realized capital gains are automatically
applied to increase reserves under the Policies.
28
<PAGE> 30
The Company 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, the Company determines that on a
separate company basis such taxes may be incurred, it reserves the right to
assess a charge for such taxes against the Variable Account.
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as tax advice. Counsel
and other competent advisors should be consulted for more complete information.
This discussion is based on the Company's understanding of federal income tax
laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of continuation of these current
laws and interpretations.
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In
general, all states have statutory administrative powers. Such regulation
relates, among other things, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves, the form and
content of statutory financial statements, the amount of policyholders' and
stockholders' dividends, and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete
with the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the
other insurance companies in the group. In addition to its direct salaried
employees, the Company shares employees with Nationwide Mutual Insurance
Company and Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity
Insurance Company, Nationwide Property and Casualty Insurance Company, National
Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity
Company, Nationwide Indemnity Company and Nationwide General Insurance Company
and all of their affiliated companies comprise the Nationwide Insurance
Enterprise.
29
<PAGE> 31
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Corporation is the sole
shareholder of Nationwide Life.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Director
Name Since Principal Occupation
---- ----- --------------------
<S> <C> <C>
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Willard J. Engel 1994 General Manager Lyon County Cooperative Oil Company (1)
Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm; Operator, Melrose
Orchard
Peter F. Frenzer 1991 President, Nationwide Corporation; President and Chief Operating
Officer, Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company; Executive Vice President -
Investments, Nationwide Mutual Insurance Company, Nationwide
Mutual Fire Insurance Company, Nationwide General Insurance
Company, Nationwide Property and Casualty Insurance Company
Charles L. Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf Electric Company, Electrical
Construction and Engineering Services (1)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
D. Richard McFerson *+ 1988 President and Chief Executive Officer, Nationwide Mutual,
Nationwide Mutual Fire, Nationwide General, and Nationwide
Property and Casualty Insurance Companies, Chief Executive
Officer, Nationwide Life Insurance Company and Nationwide Life
and Annuity Insurance Company (2)
David O. Miller *+ 1985 Farm Owner and Land Developer; President, Owen Potato Farm, Inc.;
Partner, M&M Enterprises (1)
C. Ray Noecker 1994 Farm Owner and Operator (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc.; President Patterson Farms, Inc.
Robert H. Rickel 1984 Rancher (1)
Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and Chief
Executive Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Farm Owner and Operator; Owner, Sunnydale Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farm (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
</TABLE>
____________________________________
*Member, Executive Committee +Member, Investment Committee
1) Principal occupation for last five years.
30
<PAGE> 32
2) Prior to assuming his current position, Mr. McFerson held other
executive management positions with the companies.
Each of the directors is a director of the major insurance affiliates of the
Nationwide Insurance Enterprise, except Mr. Frenzer who is a director only of
the Company and Nationwide Life and Annuity Insurance Company. Each of the
directors of the Company is a director of Nationwide Financial Services, Inc.,
a registered broker-dealer.
Messrs. Frenzer, Holloway, McFerson Miller, Patterson and Shisler are directors
of Nationwide Corporation. Messrs. Fuellgraf, Frenzer, McFerson, Ms. Thomas,
and Mr. Weihl are trustees of Nationwide Investing Foundation, a registered
investment company. Messrs. Frenzer and McFerson are trustees of Nationwide
Separate Account Trust, Financial Horizons Investment Trust, and Nationwide
Investing Foundation II, registered investment companies. Mr. Engel is a
director of Western Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME OFFICE HELD
- ---- -----------
<S> <C>
D. Richard McFerson President and Chief Executive Officer-Nationwide Insurance
Enterprise
Peter F. Frenzer President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate Services and
Secretary
James E. Brock Senior Vice President - Investment Product Operations
W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
Richard A. Karas Senior Vice President - Sales and Financial Services
Robert A. Oakley Senior Vice President-Chief Financial Officer
Carl Santillo Senior Vice President-Life and Health Operations
Mark A. Folk Vice President and Treasurer
</TABLE>
Mr. Frenzer is also President and Chief Operating Officer of Nationwide Life
and Annuity Insurance Company and President of Nationwide Corporation and
Executive Vice President-Investments of Nationwide Mutual Insurance Company.
Mr. Galloway is also an officer of Nationwide Mutual Insurance Company and
Nationwide Life and Annuity Insurance Company. Each of the other officers
listed above is also an officer of each of the companies comprising the
Nationwide Insurance Enterprise. Each of the executive officers listed above
has been associated with the registrant in an executive capacity for more than
the past five years, except Mr. Folk.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable
contracts and policies with benefits which vary in accordance with the
investment experience of a separate account of the Company.
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<PAGE> 33
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a
prescribed form is filed with the Insurance Department each year covering the
operation of the Company for the preceding year and its financial condition as
of the end of such year. Regulation by the Insurance Department includes
periodic examination to determine the Company's contract liabilities and
reserves so that the Insurance Department may certify the items are correct.
The Company's books and accounts are subject to review by the Insurance
Department at all times and a full examination of its operations is conducted
periodically by the National Association of Insurance Commissioners. Such
regulation does not, however, involve any supervision of management or
investment practices or policies. In addition, the Company is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO POLICY OWNERS
The Company 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, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each sub-account of the Variable Account, and any
Policy debt, as well as interest on the debt for the preceding year.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as change in Specified Amount, change in Death Benefit Option, changes in
future premium allocation, transfers among sub-accounts, premium payments,
loans, increase in loan principal, loan repayments, unpaid loan interest added
to principal, reinstatement and termination.
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts . Furthermore,
the Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business to which the Company and the Variable Account are
parties or to which any of their property is the subject.
The American Capital Marketing, Inc., is not engaged in any material litigation
of any nature.
32
<PAGE> 34
EXPERTS
The financial statements and schedule included herein 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, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement
of the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216.
All the members of such firm are employed by the Nationwide Mutual Insurance
Company.
33
<PAGE> 35
APPENDIX 1
ILLUSTRATIONS OF WHEN ADDITIONAL PREMIUM PAYMENTS ARE PERMITTED
Example 1: A male non-tobacco, age 35, purchases a Policy with an initial
premium of $25,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a Specified
Amount of $179,733. In the 12th and subsequent policy years, annual premiums
of $2,177 may be paid without violating the premium limitations prescribed by
the Internal Revenue Service to qualify the Policy as a life insurance
contract. Additional premiums which increase the Specified Amount may be made
at any time, subject to the $1,000 minimum. The Company reserves the right to
require satisfactory evidence of insurability with any premium payment which
increases the net amount at risk. In addition, premium payments may be made at
any time if they are required to continue the Policy in force.
Example 2: A male non-tobacco, age 55, purchases a Policy with an initial
premium of $100,000 and selects Death Benefit Option 1. The initial premium is
treated as 100% of the Guideline Single Premium which results in a Specified
Amount of $306,283. In the 11th and subsequent policy years, annual premiums
of $9,591 may be paid without violating the premium limitations prescribed by
the Internal Revenue Service to qualify the Policy as a life insurance
contract. Additional premiums which increase the Specified Amount may be made
at any time, subject to the $1,000 minimum. The Company reserves the right to
require satisfactory evidence of insurability with any premium payment which
increases the net amount at risk. In addition, premium payments may be made at
any time if they are required to continue the Policy in force.
34
<PAGE> 36
APPENDIX 2
ILLUSTRATIONS OF CASH VALUES
CASH SURRENDER VALUES
AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and Death Benefits under a
Policy would vary over time if the hypothetical gross investment rates of
return were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and Death Benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is no Policy Indebtedness, no additional
premium payments are made, no Cash Values are allocated to the Fixed Account,
and there are no changes in the Specified Amount or Death Benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is
due to the daily charges made against the assets of the sub-accounts for
assuming mortality and expense risks, recovering premium taxes and providing
for administrative expenses. On a current basis, these charges are equivalent
to an annual effective rate of 1.30% in the first 10 policy years and 1.00%
thereafter. On a guaranteed basis, these charges are equivalent to an annual
maximum effective rate of 1.60% in the first 10 policy years and 1.30%
thereafter. In addition, the net investment returns also reflect the deduction
of underlying Mutual Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.60%.
Taking account of the current charges for mortality and expense risks,
recovering premium taxes and providing for administrative and underlying Mutual
Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net
investment experience at constant annual rates of -1.9%, 4.1%, and 10.1%,
respectively, in policy years 1 through ten, and -1.6%, 4.4% and 10.4%
thereafter. Taking account of guaranteed charges, gross annual rates of return
of 0%, 6% and 12% correspond to net investment experience at constant annual
rates of -2.2%, 3.8% and 9.8%, respectively, in policy years 1 through 10, and
- -1.9%, 4.1% and 10.1% thereafter.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for policies which are
issued as standard (including non-tobacco). Policies issued on a substandard
basis would result in lower Cash Values and Death Benefits than those
illustrated. Death Benefit Option 1 has been assumed in all the illustrations.
35
<PAGE> 37
In addition, the illustrations reflect the fact that the Company deducts an
annual administrative charge at the beginning of each Policy Year after the
first. The illustrations also reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account. If such a
charge is made in the future, it will require a higher gross investment return
than illustrated in order to produce the net after-tax returns shown in the
illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
36
<PAGE> 38
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,677 8,827 43,190 10,262 9,412 43,190 10,848 9,998 43,190
2 11,025 9,284 8,434 43,190 10,458 9,608 43,190 11,701 10,851 43,190
3 11,576 8,885 8,085 43,190 10,651 9,851 43,190 12,632 11,832 43,190
4 12,155 8,479 7,679 43,190 10,840 10,040 43,190 13,649 12,849 43,190
5 12,763 8,064 7,314 43,190 11,024 10,274 43,190 14,759 14,009 43,190
6 13,401 7,639 6,939 43,190 11,202 10,502 43,190 15,973 15,273 43,190
7 14,071 7,201 6,601 43,190 11,372 10,772 43,190 17,300 16,700 43,190
8 14,775 6,747 6,247 43,190 11,529 11,029 43,190 18,752 18,252 43,190
9 15,513 6,273 5,873 43,190 11,672 11,272 43,190 20,342 19,942 43,190
10 16,289 5,776 5,776 43,190 11,797 11,797 43,190 22,085 22,085 43,190
15 20,789 2,964 2,964 43,190 12,309 12,309 43,190 34,386 34,386 46,078
20 26,533 (*) (*) (*) 12,079 12,079 43,190 54,382 54,382 66,346
25 33,864 (*) (*) (*) 10,056 10,056 43,190 86,087 86,087 99,861
30 43,219 (*) (*) (*) 3,259 3,259 43,190 136,446 136,446 145,997
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$65 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
37
<PAGE> 39
$10,000 INITIAL PREMIUM: $43,190 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NEW YORK
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,635 8,785 43,190 10,219 9,369 43,190 10,803 9,953 43,190
2 11,025 9,147 8,297 43,190 10,310 9,460 43,190 11,542 10,692 43,190
3 11,576 8,654 7,854 43,190 10,392 9,592 43,190 12,343 11,543 43,190
4 12,155 8,154 7,354 43,190 10,462 9,662 43,190 13,211 12,411 43,190
5 12,763 7,645 6,895 43,190 10,520 9,770 43,190 14,154 13,404 43,190
6 13,401 7,125 6,425 43,190 10,562 9,862 43,190 15,176 14,476 43,190
7 14,071 6,591 5,991 43,190 10,586 9,986 43,190 16,287 15,687 43,190
8 14,775 6,039 5,539 43,190 10,587 10,087 43,190 17,493 16,993 43,190
9 15,513 5,464 5,064 43,190 10,561 10,161 43,190 18,803 18,403 43,190
10 16,289 4,862 4,862 43,190 10,504 10,504 43,190 20,229 20,229 43,190
15 20,789 1,329 1,329 43,190 9,727 9,727 43,190 30,096 30,096 43,190
20 26,533 (*) (*) (*) 7,048 7,048 43,190 46,073 46,073 56,209
25 33,864 (*) (*) (*) 92 92 43,190 70,746 70,746 82,066
30 43,219 (*) (*) (*) (*) (*) (*) 109,061 109,061 116,695
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $120 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
38
<PAGE> 40
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,691 8,841 41,661 10,277 9,427 41,661 10,863 10,013 41,661
2 11,025 9,289 8,439 41,661 10,463 9,613 41,661 11,707 10,857 41,661
3 11,576 8,883 8,083 41,661 10,648 9,848 41,661 12,629 11,829 41,661
4 12,155 8,473 7,673 41,661 10,831 10,031 41,661 13,637 12,837 41,661
5 12,763 8,056 7,306 41,661 11,011 10,261 41,661 14,740 13,990 41,661
6 13,401 7,632 6,932 41,661 11,187 10,487 41,661 15,946 15,246 41,661
7 14,071 7,197 6,597 41,661 11,356 10,756 41,661 17,268 16,668 41,661
8 14,775 6,750 6,250 41,661 11,517 11,017 41,661 18,716 18,216 41,661
9 15,513 6,288 5,888 41,661 11,667 11,267 41,661 20,304 19,904 41,661
10 16,289 5,807 5,807 41,661 11,803 11,803 41,661 22,046 22,046 41,661
15 20,789 3,142 3,142 41,661 12,438 12,438 41,661 34,334 34,334 46,008
20 26,533 (*) (*) (*) 12,471 12,471 41,661 54,226 54,226 66,156
25 33,864 (*) (*) (*) 11,014 11,014 41,661 85,817 85,817 99,548
30 43,219 (*) (*) (*) 5,627 5,627 41,661 136,076 136,076 145,602
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$90 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE> 41
$10,000 INITIAL PREMIUM: $41,661 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
NON-NEW YORK
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,642 8,792 41,661 10,226 9,376 41,661 10,810 9,960 41,661
2 11,025 9,147 8,297 41,661 10,309 9,459 41,661 11,541 10,691 41,661
3 11,576 8,646 7,846 41,661 10,383 9,583 41,661 12,334 11,534 41,661
4 12,155 8,140 7,340 41,661 10,447 9,647 41,661 13,194 12,394 41,661
5 12,763 7,626 6,876 41,661 10,498 9,748 41,661 14,128 13,378 41,661
6 13,401 7,102 6,402 41,661 10,534 9,834 41,661 15,142 14,442 41,661
7 14,071 6,565 5,965 41,661 10,552 9,952 41,661 16,245 15,645 41,661
8 14,775 6,010 5,510 41,661 10,549 10,049 41,661 17,443 16,943 41,661
9 15,513 5,434 5,034 41,661 10,519 10,119 41,661 18,746 18,346 41,661
10 16,289 4,833 4,833 41,661 10,459 10,459 41,661 20,165 20,165 41,661
15 20,789 1,326 1,326 41,661 9,695 9,695 41,661 30,011 30,011 41,661
20 26,533 (*) (*) (*) 7,106 7,106 41,661 45,886 45,886 55,981
25 33,864 (*) (*) (*) 415 415 41,661 70,358 70,358 81,616
30 43,219 (*) (*) (*) (*) (*) (*) 108,360 108,360 115,945
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $135 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE> 42
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,222 22,097 114,856 25,687 23,562 114,856 27,151 25,026 114,856
2 27,563 23,385 21,260 114,856 26,329 24,204 114,856 29,446 27,321 114,856
3 28,941 22,535 20,535 114,856 26,975 24,975 114,856 31,954 29,954 114,856
4 30,388 21,671 19,671 114,856 27,623 25,623 114,856 34,695 32,695 114,856
5 31,907 20,790 18,915 114,856 28,271 26,396 114,856 37,694 35,819 114,856
6 33,502 19,887 18,137 114,856 28,916 27,166 114,856 40,976 39,226 114,856
7 35,178 18,958 17,458 114,856 29,555 28,055 114,856 44,570 43,070 114,856
8 36,936 17,996 16,746 114,856 30,182 28,932 114,856 48,507 47,257 114,856
9 38,783 16,994 15,994 114,856 30,790 29,790 114,856 52,822 51,822 114,856
10 40,722 15,945 15,945 114,856 31,375 31,375 114,856 57,556 57,556 114,856
15 51,973 10,073 10,073 114,856 34,404 34,404 114,856 90,866 90,866 121,760
20 66,332 2,048 2,048 114,856 36,347 36,347 114,856 145,024 145,024 176,930
25 84,659 (*) (*) (*) 35,304 35,304 114,856 231,224 231,224 268,220
30 108,049 (*) (*) (*) 26,195 26,195 114,856 368,648 368,648 394,454
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL
$50 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 43
$25,000 INITIAL PREMIUM: $114,856 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,058 21,933 114,856 25,516 23,391 114,856 26,974 24,849 114,856
2 27,563 23,026 20,901 114,856 25,942 23,817 114,856 29,031 26,906 114,856
3 28,941 21,975 19,975 114,856 26,351 24,351 114,856 31,261 29,261 114,856
4 30,388 20,902 18,902 114,856 26,738 24,738 114,856 33,680 31,680 114,856
5 31,907 19,802 17,927 114,856 27,099 25,224 114,856 36,306 34,431 114,856
6 33,502 18,668 16,918 114,856 27,428 25,678 114,856 39,158 37,408 114,856
7 35,178 17,492 15,992 114,856 27,717 26,217 114,856 42,256 40,756 114,856
8 36,936 16,265 15,015 114,856 27,956 26,706 114,856 45,623 44,373 114,856
9 38,783 14,975 13,975 114,856 28,133 27,133 114,856 49,283 48,283 114,856
10 40,722 13,611 13,611 114,856 28,238 28,238 114,856 53,269 53,269 114,856
15 51,973 5,399 5,399 114,856 27,700 27,700 114,856 80,839 80,839 114,856
20 66,332 (*) (*) (*) 22,707 22,707 114,856 125,439 125,439 153,035
25 84,659 (*) (*) (*) 7,577 7,577 114,856 194,266 194,266 225,349
30 108,049 (*) (*) (*) (*) (*) (*) 301,147 301,147 322,227
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $75 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 44
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,030 88,530 306,283 102,897 94,397 306,283 108,765 100,265 306,283
2 110,250 93,951 85,451 306,283 105,776 97,276 306,283 118,298 109,798 306,283
3 115,763 90,806 82,806 306,283 108,686 100,686 306,283 128,739 120,739 306,283
4 121,551 87,583 79,583 306,283 111,623 103,623 306,283 140,188 132,188 306,283
5 127,628 84,267 76,767 306,283 114,579 107,079 306,283 152,755 145,255 306,283
6 134,010 80,839 73,839 306,283 117,545 110,545 306,283 166,566 159,566 306,283
7 140,710 77,283 71,283 306,283 120,515 114,515 306,283 181,765 175,765 306,283
8 147,746 73,569 68,569 306,283 123,473 118,473 306,283 198,514 193,514 306,283
9 155,133 69,670 65,670 306,283 126,404 122,404 306,283 217,002 213,002 306,283
10 162,889 65,558 65,558 306,283 129,297 129,297 306,283 237,452 237,452 306,283
15 207,893 41,537 41,537 306,283 145,090 145,090 306,283 380,646 380,646 441,549
20 265,330 4,981 4,981 306,283 158,283 158,283 306,283 611,196 611,196 653,979
25 338,635 (*) (*) (*) 162,327 162,327 306,283 984,129 984,129 1,033,335
30 432,194 (*) (*) (*) 138,289 138,289 306,283 1,572,097 1,572,097 1,650,702
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL $50
ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 45
$100,000 INITIAL PREMIUM: $306,283 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,141 87,641 306,283 101,980 93,480 306,283 107,820 99,320 306,283
2 110,250 92,083 83,583 306,283 103,796 95,296 306,283 116,204 107,704 306,283
3 115,763 87,883 79,883 306,283 105,510 97,510 306,283 125,298 117,298 306,283
4 121,551 83,514 75,514 306,283 107,102 99,102 306,283 135,176 127,176 306,283
5 127,628 78,942 71,442 306,283 108,542 101,042 306,283 145,924 138,424 306,283
6 134,010 74,128 67,128 306,283 109,800 102,800 306,283 157,638 150,638 306,283
7 140,710 69,029 63,029 306,283 110,841 104,841 306,283 170,436 164,436 306,283
8 147,746 63,580 58,580 306,283 111,613 106,613 306,283 184,447 179,447 306,283
9 155,133 57,715 53,715 306,283 112,061 108,061 306,283 199,831 195,831 306,283
10 162,889 51,361 51,361 306,283 112,128 112,128 306,283 216,784 216,784 306,283
15 207,893 9,774 9,774 306,283 106,241 106,241 306,283 336,946 336,946 390,857
20 265,330 (*) (*) (*) 74,467 74,467 306,283 526,669 526,669 563,535
25 338,635 (*) (*) (*) (*) (*) (*) 827,681 827,681 869,065
30 432,194 (*) (*) (*) (*) (*) (*) 1,285,482 1,285,482 1,349,756
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $75 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE 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> 46
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,703 88,203 211,021 102,580 94,080 211,021 108,459 99,959 211,021
2 110,250 93,234 84,734 211,021 105,110 96,610 211,021 117,691 109,191 211,021
3 115,763 89,630 81,630 211,021 107,640 99,640 211,021 127,860 119,860 211,021
4 121,551 85,868 77,868 211,021 110,167 102,167 211,021 139,093 131,093 211,021
5 127,628 81,922 74,422 211,021 112,683 105,183 211,021 151,539 144,039 211,021
6 134,010 77,756 70,756 211,021 115,178 108,178 211,021 165,373 158,373 211,021
7 140,710 73,325 67,325 211,021 117,637 111,637 211,021 180,802 174,802 211,021
8 147,746 68,572 63,572 211,021 120,040 115,040 211,021 198,041 193,041 219,825
9 155,133 63,436 59,436 211,021 122,370 118,370 211,021 217,081 213,081 236,618
10 162,889 57,857 57,857 211,021 124,615 124,615 211,021 238,038 238,038 254,700
15 207,893 18,885 18,885 211,021 135,371 135,371 211,021 383,076 383,076 402,230
20 265,330 (*) (*) (*) 137,114 137,114 211,021 611,741 611,741 642,328
25 338,635 (*) (*) (*) 108,822 108,822 211,021 963,480 963,480 1,011,654
30 432,194 (*) (*) (*) (*) (*) (*) 1,520,814 1,520,814 1,536,022
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ANNUAL $50
ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE 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> 47
$100,000 INITIAL PREMIUM: $211,021 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,324 86,824 211,021 101,175 92,675 211,021 107,029 98,529 211,021
2 110,250 90,284 81,784 211,021 102,069 93,569 211,021 114,564 106,064 211,021
3 115,763 84,909 76,909 211,021 102,727 94,727 211,021 122,770 114,770 211,021
4 121,551 79,138 71,138 211,021 103,112 95,112 211,021 131,760 123,760 211,021
5 127,628 72,893 65,393 211,021 103,172 95,672 211,021 141,661 134,161 211,021
6 134,010 66,068 59,068 211,021 102,836 95,836 211,021 152,633 145,633 211,021
7 140,710 58,528 52,528 211,021 102,013 96,013 211,021 164,878 158,878 211,021
8 147,746 50,095 45,095 211,021 100,583 95,583 211,021 178,653 173,653 211,021
9 155,133 40,556 36,556 211,021 98,404 94,404 211,021 194,308 190,308 211,795
10 162,889 29,676 29,676 211,021 95,315 95,315 211,021 211,961 211,961 226,799
15 207,893 (*) (*) (*) 59,718 59,718 211,021 332,809 332,809 349,450
20 265,330 (*) (*) (*) (*) (*) (*) 516,597 516,597 542,426
25 338,635 (*) (*) (*) (*) (*) (*) 787,220 787,220 826,581
30 432,194 (*) (*) (*) (*) (*) (*) 1,208,787 1,208,787 1,220,875
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ANNUAL $75 ADMINISTRATIVE EXPENSE CHARGE.
(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 NOT STAY IN FORCE.
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 REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
46
<PAGE> 48
Independent Auditors' Report
The Board of Directors of Nationwide Life
Insurance Company and Contract Owners
of Nationwide VLI Separate Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account as of December 31,
1994, and the related statements of operations and changes in contract owners'
equity for each of the years in the three year period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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. Our
procedures included confirmation of securities owned as of December 31, 1994,
by correspondence with the custodian and the transfer agents of the underlying
mutual funds. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide VLI Separate
Account as of December 31, 1994, and the results of its operations and its
changes in contract owners' equity for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included
in Schedule I is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
KPMG Peat Marwick LLP
Columbus, Ohio
February 3, 1995
47
<PAGE> 49
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments in American Capital Life
Investment Trust, at market value:
Common Stock Portfolio
1,811,894 shares (cost $22,508,364) . . . . . . . . . . . . . . . . . . . . . $ 22,449,361
Domestic Strategic Income Portfolio
438,088 shares (cost $3,697,219) . . . . . . . . . . . . . . . . . . . . . . 3,219,945
Government Portfolio
6,647,977 shares (cost $58,401,724) . . . . . . . . . . . . . . . . . . . . . 55,045,249
Money Market Portfolio
11,106,155 shares (cost $11,106,155) . . . . . . . . . . . . . . . . . . . . . 11,106,155
Multiple Strategy Portfolio
2,119,515 shares (cost $23,337,191) . . . . . . . . . . . . . . . . . . . . . 21,173,955
-------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,994,665
ACCOUNTS PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,453
-------------
CONTRACT OWNERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,992,212
=============
</TABLE>
Contract owners' equity represented by:
<TABLE>
<CAPTION>
UNITS UNIT VALUE
----- ----------
<S> <C> <C> <C>
Single Premium contracts issued prior to
April 16, 1990:
Common Stock Sub-account . . . . . . . . 1,332,602 $ 16.580891 $ 22,095,729
Domestic Strategic Income
Sub-account . . . . . . . . . . . . . . . 222,296 14.336077 3,186,853
Government Sub-account . . . . . . . . . 3,365,427 16.344365 55,005,767
Money Market Sub-account . . . . . . . . 731,709 15.022875 10,992,373
Multiple Strategy Sub-account . . . . . . 1,270,683 16.538427 21,015,098
Single Premium contracts issued on or after
April 16, 1990:
Common Stock Sub-account . . . . . . . . 17,020 15.720497 267,563
Domestic Strategic Income
Sub-account . . . . . . . . . . . . . . . 2,315 14.272889 33,042
Government Sub-account . . . . . . . . . 2,896 12.480782 36,144
Money Market Sub-account . . . . . . . . 10,307 11.189053 115,326
Multiple Strategy Sub-account . . . . . . 5,237 14.311997 74,952
Multiple Payment Contracts and Flexible
Premium Contracts:
Common Stock Sub-account . . . . . . . . 6,429 13.346462 85,804
Multiple Strategy Sub-account . . . . . . 6,546 12.765144 83,561
========= =========== -------------
$ 112,992,212
=============
</TABLE>
See accompanying notes to financial statements.
48
<PAGE> 50
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends (note 1c) . . . . $ 9,791,294 8,172,407 8,243,494
------------ ----------- -----------
Gain (loss) on investments:
Proceeds from redemptions of mutual
fund shares . . . . . . . . . . . . . . . . . . . . . . 22,040,399 23,152,130 30,378,253
Cost of mutual fund shares sold . . . . . . . . . . . . (20,667,556) (20,977,882) (28,706,186)
------------ ----------- -----------
Realized gain on investments . . . . . . . . . . . . . 1,372,843 2,174,248 1,672,067
Change in unrealized (loss) on investments . . . . . . (15,672,902) (360,705) (1,920,746)
------------ ----------- -----------
Net gain (loss) on investments . . . . . . . . . . . (14,300,059) 1,813,543 (248,679)
------------ ----------- -----------
Net investment activity . . . . . . . . . (4,508,765) 9,985,950 7,994,815
------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments from contract owners . . . . . . . . . 25,229 19,352 355,356
Surrenders (note 2d) . . . . . . . . . . . . . . . . . . (9,547,706) (9,817,586) (11,644,419)
Death benefits (note 4) . . . . . . . . . . . . . . . . . (1,196,526) (1,033,549) (740,759)
Policy loans (net of repayments) (note 5) . . . . . . . 1,817,775 (226,605) (215,486)
------------ ----------- -----------
Net equity transactions . . . . . . . . . (8,901,228) (11,058,388) (12,245,308)
------------ ----------- -----------
EXPENSES:
Deductions for surrender charges (note 2d) . . . . . . . (377,936) (421,375) (571,071)
Redemptions to pay cost of insurance charges
and administrative charges (notes 2b and 2c) . . . . . (2,043,874) (2,027,161) (2,206,981)
Deductions for asset charges (note 3) . . . . . . . . . (1,135,456) (1,270,553) (1,291,322)
------------ ----------- -----------
Total expenses . . . . . . . . . . . . . (3,557,266) (3,719,089) (4,069,374)
------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY . . . . . . . . . . . (16,967,259) (4,791,527) (8,319,867)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD . . . . . . . . 129,959,471 134,750,998 143,070,865
------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD . . . . . . . . . . . $112,992,212 129,959,471 134,750,998
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
49
<PAGE> 51
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
The Nationwide VLI Separate Account (''Separate Account'') was
established pursuant to a resolution of the Board of Directors of
Nationwide Life Insurance Company (the Company) on August 8, 1984. The
Separate Account has been registered as a unit investment trust under
the Investment Company Act of 1940 and consists of five sub-accounts.
Assets of each sub- account are invested at net asset value in shares
of corresponding mutual fund portfolios offered by American Capital
Life Investment Trust. The funds consist of Common Stock, Domestic
Strategic Income (formerly Corporate Bond), Government, Money Market
and Multiple Strategy Portfolios. At December 31, 1994, contract
owners have invested in all of the above funds.
(b) THE CONTRACTS
Prior to December 31, 1990, only single premium life insurance
contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, were offered for
purchase. Beginning December 31, 1990, multiple payment life insurance
contracts and flexible premium life insurance contracts with a
front-end sales charge, a contingent deferred sales charge and certain
other fees, are offered for purchase. See note 2 for a discussion of
policy charges.
The contract owners' equity is affected by the investment results of
each fund and certain policy charges (see note 2). The accompanying
financial statements include only contract owners' purchase payments
pertaining to the variable portions of their contracts and exclude any
purchase payments for fixed dollar benefits, the latter being included
in the accounts of the Company.
(c) SECURITY VALUATION, TRANSACTIONS AND RELATED INVESTMENT INCOME
The market value of investments is based on the closing net asset
value per share at December 31, 1994. Fund purchases and sales are
accounted for on the trade date (date the order to buy or sell is
executed). The cost of investments sold is determined on a specific
identification basis, and dividends (which include capital gain
distributions) are accrued as of the ex-dividend date.
(d) FEDERAL INCOME TAXES
Operations of the Account form a part of, and are taxed with,
operations of the Company, which is taxed as a life insurance company
under the provisions of the Internal Revenue Code.
The Company does not provide for income taxes within the Account.
Taxes are the responsibility of the contract owner upon termination or
withdrawal.
50
<PAGE> 52
2. POLICY CHARGES
(a) DEDUCTIONS FROM PREMIUMS
On multiple payment contracts and flexible premium contracts, the
Company deducts a charge for state premium taxes equal to 2.5% of all
premiums received to cover the payment of these premium taxes. The
Company also deducts a sales load from each premium payment received
not to exceed 3.5% of each premium payment. The Company may at its
sole discretion reduce this sales loading.
(b) COST OF INSURANCE
A cost of insurance charge is assessed monthly against each contract
by liquidating units. The amount of the charge is based upon age, sex,
rate class and net amount at risk (death benefit less total contract
value).
(c) ADMINISTRATIVE CHARGES
For single premium contracts, the Company deducts an annual
administrative charge which is determined as follows:
Contracts issued prior to April 16, 1990:
Purchase payments totalling less than $25,000 - $10/month
Purchase payments totalling $25,000 or more - none
Contracts issued on or after April 16, 1990:
Purchase payments totalling less than $25,000 - $90/year
($65/year in New York)
Purchase payments totalling $25,000 or more - $50/year
For multiple payment contracts the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum) to
recover policy maintenance, accounting, record keeping and other
administrative expenses.
For flexible premium contracts, the Company currently deducts a
monthly administrative charge of $25 during the first policy year and
$5 per month thereafter (may deduct up to $7.50, maximum) to recover
policy maintenance, accounting, record keeping and other
administrative expenses. Additionally, the Company deducts an increase
charge of $2.04 per year per $1,000 applied to any increase in the
specified amount during the first 12 months after the increase becomes
effective.
The above charges are assessed against each contract by liquidating
units.
(d) SURRENDERS
Policy surrenders result in a redemption of the contract value from
the Separate Account and payment of the surrender proceeds to the
contract owner or designee. The surrender proceeds consist of the
contract value, less any outstanding policy loans, and less a
surrender charge, if applicable. The charge is determined according to
contract type.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. For single
premium contracts issued prior to April 16, 1990, the charge is 8% in
the first year and declines to 0% after the ninth year. For single
premium contracts issued on or after April 16, 1990, the charge is
8.5% in the first year and declines to 0% after the ninth year.
For multiple payment contracts and flexible premium contracts, the
amount charged is based upon a specified percentage of the initial
surrender charge, which varies by issue age, sex and rate class. The
charge is 100% of the initial surrender charge in the first year, with
certain exceptions, declining to 0% after the ninth year.
The Company may waive the surrender charge for certain contracts in
which the sales expenses normally associated with the distribution of
a contract are not incurred.
51
<PAGE> 53
3. ASSET CHARGES
For single premium contracts, the Company deducts a charge from the
contract to cover mortality and expense risk charges related to
operations, and to recover policy maintenance and premium tax charges.
For contracts issued prior to April 16, 1990, the charge is equal to
an annual rate of .95% during the first ten policy years, and .50%
thereafter. A reduction of charges on these contracts is possible in
policy years six through ten for those contracts achieving certain
investment performance criteria; for contracts issued on or after
April 16, 1990, the charge is equal to an annual rate of 1.30% during
the first ten policy years, and 1.00% thereafter.
For multiple payment contracts and flexible premium contracts, the
Company deducts a charge equal to an annual rate of .80%, with certain
exceptions, to cover mortality and expense risk charges related to
operations.
The above charges are assessed through the daily unit value
calculation.
4. DEATH BENEFITS
Death benefits result in a redemption of the contract value from the
Separate Account and payment of the death benefit proceeds, less any
outstanding policy loans and policy charges, to the legal beneficiary.
The excess of the death benefit proceeds over the contract value on
the date of death is paid by the Company's general account.
5. POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% (50%
during first year of single premium contracts) of a policy's cash
surrender value. For single premium contracts issued prior to April
16, 1990, 6.5% interest is due and payable annually in advance. For
single premium contracts issued on or after April 16, 1990, multiple
payment contracts and flexible premium contracts, 6% interest is due
and payable in advance on the policy anniversary when there is a loan
outstanding on the policy.
At the time the loan is granted, the amount of the loan is transferred
from the Account to the Company's general account as collateral for
the outstanding loan. Collateral amounts in the general account are
credited with the stated rate of interest in effect at the time the
loan is made, subject to a guaranteed minimum rate. Loan repayments
result in a transfer of collateral, including interest, back to the
Account.
6. SCHEDULE I
Schedule I presents the components of the change in unit values, which
are the basis for determining contract owners' equity. This schedule
is presented for each sub-account in the following format:
- Beginning unit value - Jan. 1
- Reinvested dividends and capital gains
(This amount reflects the increase in the unit value due to
dividend and capital gain distributions from the underlying
mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit
value resulting from the market appreciation (depreciation) of
the fund.)
- Asset charges
(This amount reflects the decrease in the unit value due to
the charges discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
52
<PAGE> 54
SCHEDULE I
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
DOMESTIC
COMMON STRATEGIC MONEY MULTIPLE
STOCK INCOME GOVERNMENT MARKET STRATEGY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1994
Beginning unit value - Jan. 1 $17.325425 15.127964 17.301801 14.623465 17.329774
- -----------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.976086 1.490981 1.062855 .539516 1.995739
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.559308) (2.144766) (1.862740) .000000 (2.627910)
- -----------------------------------------------------------------------------------------------------------------
Asset charges (.161312) (.138102) (.157551) (.140106) (.159176)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $16.580891 14.336077 16.344365 15.022875 16.538427
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% (5)% (6)% 3% (5)%
=================================================================================================================
1993
Beginning unit value - Jan. 1 $16.049449 13.129409 16.194306 14.379569 16.243698
- -----------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .988860 1.177277 1.044833 .381680 1.376516
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .443906 .958277 .225301 .000000 (.130378)
- -----------------------------------------------------------------------------------------------------------------
Asset charges (.156790) (.136999) (.162639) (.137784) (.160062)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.325425 15.127964 17.301801 14.623465 17.329774
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 8% 15% 7% 2% 7%
=================================================================================================================
1992
Beginning unit value - Jan. 1 $15.075503 11.782407 15.462914 14.044611 15.285401
- -----------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .256106 1.060446 1.144304 .470345 1.286725
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .859833 .405694 (.263283) .000000 (.183793)
- -----------------------------------------------------------------------------------------------------------------
Asset charges (.141993) (.119138) (.149629) (.135387) (.144635)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $16.049449 13.129409 16.194306 14.379569 16.243698
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 6% 11% 5% 2% 6%
=================================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
53
<PAGE> 55
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
DOMESTIC
COMMON STRATEGIC MONEY MULTIPLE
STOCK INCOME GOVERNMENT MARKET STRATEGY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1994
Beginning unit value - Jan. 1 $16.483852 15.113958 13.258615 10.929642 15.049256
- ------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.874048 1.484668 .813111 .402452 1.727365
- ------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.427739) (2.137258) (1.425714) .000000 (2.275800)
- ------------------------------------------------------------------------------------------------------------------
Asset charges (.209664) (.188479) (.165230) (.143041) (.188824)
- ------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $15.720497 14.272889 12.480782 11.189053 14.311997
- ------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (5)% (6)% (6)% 2% (5)%
==================================================================================================================
1993
Beginning unit value - Jan. 1 $15.324267 13.163967 12.453930 10.785653 14.156355
- ------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .941020 1.176441 .802266 .285158 1.195810
- ------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .423067 .961164 .173553 .000000 (.112372)
- ------------------------------------------------------------------------------------------------------------------
Asset charges (.204502) (.187614) (.171134) (.141169) (.190537)
- ------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $16.483852 15.113958 13.258615 10.929642 15.049256
- ------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 8% 15% 6% 1% 6%
==================================================================================================================
1992
Beginning unit value - Jan. 1 $14.447105 11.856724 11.935067 10.573044 13.370037
- ------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .244625 1.063438 .881812 .353474 1.121604
- ------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .820593 .409497 (.203342) .000000 (.160439)
- ------------------------------------------------------------------------------------------------------------------
Asset charges (.188056) (.165692) (.159607) (.140865) (.174847)
- ------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $15.324267 13.163967 12.453930 10.785653 14.156355
- ------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 6% 11% 4% 2% 6%
==================================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
54
<PAGE> 56
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON MULTIPLE
STOCK STRATEGY
SUB-ACCOUNT SUB-ACCOUNT
----------- -----------
<S> <C> <C>
1994**
Beginning unit value - Jan. 1 $13.924920 13.355954
---------------------------------------------------------------------------
Reinvested dividends and capital gains 1.590429 1.540293
---------------------------------------------------------------------------
Unrealized gain (loss) (2.059623) (2.027726)
---------------------------------------------------------------------------
Asset charges (.109264) (.103377)
---------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.346462 12.765144
---------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% (4)%
===========================================================================
1993**
Beginning unit value - Jan. 1 $12.880252 12.500360
---------------------------------------------------------------------------
Reinvested dividends and capital gains .794704 1.060708
---------------------------------------------------------------------------
Unrealized gain (loss) .356007 (.101308)
---------------------------------------------------------------------------
Asset charges (.106043) (.103806)
---------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.924920 13.355954
---------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 8% 7%
===========================================================================
1992**
Beginning unit value - Jan. 1 $12.080925 11.745696
---------------------------------------------------------------------------
Reinvested dividends and capital gains .205505 .990121
---------------------------------------------------------------------------
Unrealized gain (loss) .690167 (.141352)
---------------------------------------------------------------------------
Asset charges (.096345) (.094105)
---------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.880252 12.500360
---------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 7% 6%
===========================================================================
</TABLE>
**An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
**No other investment options were utilized.
See accompanying independent auditors' report.
Nationwide(R) is a registered federal service mark of
Nationwide Mutual Insurance Company
55
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and
subsidiaries as of December 31, 1994 and 1993, 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, 1994. 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.
Participating insurance and the related surplus are discussed in note 13. The
Company and its counsel are of the opinion that the ultimate ownership of the
participating surplus in excess of the contemplated equitable policyholder
dividends belongs to the shareholder. The accompanying consolidated financial
statements are presented on such basis.
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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, in 1994 the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
In 1993, the Company adopted the provisions of SFAS No. 109, Accounting for
Income Taxes and SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions.
KPMG Peat Marwick LLP
Columbus, Ohio
February 27, 1995
56
<PAGE> 58
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
<TABLE>
Consolidated Balance Sheets
December 31, 1994 and 1993
(000's omitted)
<CAPTION>
Assets 1994 1993
------ ----------- ----------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $8,318,865 in 1994) $ 8,045,906 -
Equity securities (cost $18,373 in 1994; $8,263 in 1993) 24,713 16,593
Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310
in 1994; $10,886,820 in 1993) 3,688,787 10,120,978
Mortgage loans on real estate 4,222,284 3,871,560
Real estate 252,681 253,831
Policy loans 340,491 315,898
Other long-term investments 63,914 118,490
Short-term investments (note 14) 131,643 41,797
----------- -----------
16,770,419 14,739,147
----------- -----------
Cash 7,436 21,835
Accrued investment income 220,540 190,886
Deferred policy acquisition costs 1,064,159 811,944
Deferred Federal income tax 36,515 -
Other assets 790,603 636,161
Assets held in Separate Accounts (note 8) 12,222,461 9,006,388
----------- -----------
$31,112,133 25,406,361
=========== ===========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) 16,321,461 14,092,255
Policyholders' dividend accumulations 338,058 322,686
Other policyholder funds 72,770 71,959
Accrued Federal income tax (note 7):
Current 13,126 12,294
Deferred - 31,659
----------- -----------
13,126 43,953
----------- -----------
Other liabilities 235,778 217,952
Liabilities related to Separate Accounts (note 8) 12,222,461 9,006,388
----------- -----------
29,203,654 23,755,193
----------- -----------
Shareholder's equity (notes 3, 4, 7 and 13):
Capital shares, $1 par value. Authorized 5,000 shares, issued and
outstanding 3,815 shares 3,815 3,815
Paid-in additional capital 622,753 422,753
Unrealized gains (losses) on securities available-for-sale, net of adjustment
to deferred policy acquisition costs of $82,525 ($0 in 1993) and net of
deferred Federal income tax benefit of $64,425 ($1,583 expense in 1993) (119,668) 6,747
Retained earnings 1,401,579 1,217,853
----------- -----------
1,908,479 1,651,168
----------- -----------
Commitments and contingencies (notes 9 and 16)
$31,112,133 25,406,361
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
57
<PAGE> 59
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 17):
Traditional life insurance premiums $ 209,538 215,715 226,888
Accident and health insurance premiums 324,524 312,655 430,009
Universal life and investment product policy charges 239,021 188,057 148,464
Net investment income (note 5) 1,289,501 1,204,426 1,120,157
Net ceded commissions from disposition of credit life and
credit accident and health business (note 12) - - 27,115
Realized gains (losses) on investments (notes 5 and 14) (16,384) 113,673 (19,315)
---------- ---------- ----------
2,046,200 2,034,526 1,933,318
---------- ---------- ----------
Benefits and expenses:
Benefits and claims 1,279,763 1,236,906 1,319,735
Provision for policyholders' dividends on participating
policies (note 13) 46,061 53,189 61,834
Amortization of deferred policy acquisition costs 94,744 102,134 99,197
Other operating costs and expenses 352,402 329,396 321,993
---------- ---------- ----------
1,772,970 1,721,625 1,802,759
---------- ---------- ----------
Income before Federal income tax and cumulative
effect of changes in accounting principles 273,230 312,901 130,559
---------- ---------- ----------
Federal income tax (note 7):
Current expense 79,847 75,124 47,402
Deferred expense (benefit) 9,657 31,634 (13,660)
---------- ---------- ----------
89,504 106,758 33,742
---------- ---------- ----------
Income before cumulative effect of changes in
accounting principles 183,726 206,143 96,817
Cumulative effect of changes in accounting principles,
net of tax (note 3) - 5,365 -
---------- ---------- ----------
Net income $ 183,726 211,508 96,817
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
58
<PAGE> 60
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Paid-in on securities Total
Capital additional available-for- Retained shareholder's
shares capital sale, net earnings equity
--------- ----------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1992:
Balance, beginning of year $ 3,815 311,753 96,048 933,179 1,344,795
Dividends paid to shareholder - - - (5,846) (5,846)
Net income - - - 96,817 96,817
Unrealized losses on equity
securities, net of deferred
Federal income tax - - (5,524) - (5,524)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 311,753 90,524 1,024,150 1,430,242
========= =========== ============== ========== =============
1993:
Balance, beginning of year 3,815 311,753 90,524 1,024,150 1,430,242
Capital contributions - 111,000 - - 111,000
Dividends paid to shareholder - - - (17,805) (17,805)
Net income - - - 211,508 211,508
Unrealized losses on equity
securities, net of deferred
Federal income tax - - (83,777) - (83,777)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 422,753 6,747 1,217,853 1,651,168
========= =========== ============== ========== =============
1994:
Balance, beginning of year 3,815 422,753 6,747 1,217,853 1,651,168
Capital contribution - 200,000 - - 200,000
Net income - - - 183,726 183,726
Adjustment for change in
accounting for certain
investments in debt and
equity securities, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax (note 3) - - 216,915 - 216,915
Unrealized losses on securities
available-for-sale, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax - - (343,330) - (343,330)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 622,753 (119,668) 1,401,579 1,908,479
========= =========== ============== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
59
<PAGE> 61
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 183,726 211,508 96,817
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalization of deferred policy acquisition costs (264,434) (191,994) (177,928)
Amortization of deferred policy acquisition costs 94,744 102,134 99,197
Amortization and depreciation 6,207 11,156 5,607
Realized losses (gains) on invested assets, net 15,949 (113,648) 19,092
Deferred Federal income tax benefit (2,166) (6,006) (13,105)
Increase in accrued investment income (29,654) (4,218) (11,518)
(Increase) decrease in other assets (112,566) (549,277) 6,132
Increase in policyholder account balances 1,038,641 509,370 19,087
Increase in policyholders' dividend accumulations 15,372 17,316 18,708
Increase (decrease) in accrued Federal income tax payable 832 16,838 (15,723)
Increase in other liabilities 17,826 26,958 73,512
Other, net (19,303) (11,745) (10,586)
---------- ---------- ----------
Net cash provided by operating activities 945,174 18,392 109,292
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 579,067 - -
Proceeds from sale of securities available-for-sale 247,876 247,502 27,844
Proceeds from maturity of fixed maturities held-to-maturity 516,003 1,192,093 1,030,397
Proceeds from sale of fixed maturities - 33,959 123,422
Proceeds from repayments of mortgage loans on real estate 220,744 146,047 259,659
Proceeds from sale of real estate 46,713 23,587 22,682
Proceeds from repayments of policy loans and
sale of other invested assets 134,998 59,643 99,189
Cost of securities available-for-sale acquired (2,569,672) (12,550) (12,718)
Cost of fixed maturities held-to-maturity acquired (675,835) (2,016,831) (2,687,975)
Cost of mortgage loans on real estate acquired (627,025) (475,336) (654,403)
Cost of real estate acquired (15,962) (8,827) (137,843)
Policy loans issued and other invested assets acquired (118,012) (76,491) (97,491)
---------- ---------- ----------
Net cash used in investing activities (2,261,105) (887,204) (2,027,620)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from capital contributions 200,000 111,000 -
Dividends paid to shareholder - (17,805) (5,846)
Increase in universal life and investment product account balances 3,640,958 2,249,740 2,468,236
Decrease in universal life and investment product account balances (2,449,580) (1,458,504) (575,180)
---------- ---------- ----------
Net cash provided by financing activities 1,391,378 884,431 1,887,210
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 75,447 15,619 (31,118)
Cash and cash equivalents, beginning of year 63,632 48,013 79,131
---------- ---------- ----------
Cash and cash equivalents, end of year $ 139,079 63,632 48,013
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
60
<PAGE> 62
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(000's omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned
subsidiary of Nationwide Corporation (Corp.). Wholly-owned
subsidiaries of NLIC include Financial Horizons Life Insurance
Company (FHLIC), West Coast Life Insurance Company (WCLIC), National
Casualty Company and subsidiaries (NCC), Nationwide Financial
Services, Inc. (NFS), and effective December 31, 1994, Employers Life
Insurance Company of Wausau and subsidiary (ELICW). NLIC and its
subsidiaries are collectively referred to as "the Company".
NLIC, FHLIC, WCLIC and ELICW are life and accident and health
insurers and NCC is a property and casualty insurer. The Company is
licensed in all 50 states, the District of Columbia, the Virgin
Islands and Puerto Rico. The Company offers a full range of life,
health and annuity products through exclusive agents and other
distribution channels and is subject to competition from other
insurers throughout the United States. The Company is subject to
regulation by the Insurance Departments of states in which it is
licensed, and undergoes periodic examinations by those departments.
The following is a description of the most significant risks facing
life and health insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal
or regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing
its products. That is, regulatory initiatives designed to
reduce insurer profits, new legal theories or insurance
company insolvencies through guaranty fund assessments may create
costs for the insurer beyond those recorded in the consolidated
financial statements. The Company mitigates this risk by offering
a wide range of products and by operating throughout the United
States, thus reducing its exposure to any single product or
jurisdiction, and also by employing underwriting practices
which identify and minimize the adverse impact of this risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes
this risk by adhering to a conservative investment strategy, by
maintaining sound reinsurance and credit and collection policies
and by providing for any amounts deemed uncollectible.
INTEREST RATE RISK is the risk that interest rates will change
and cause a decrease in the value of an insurer's investments.
This change in rates may cause certain interest-sensitive
products to become uncompetitive or may cause disintermediation.
The Company mitigates this risk by charging fees for
non-conformance with certain policy provisions, by offering
products that transfer this risk to the purchaser, and/or by
attempting to match the maturity schedule of its assets with the
expected payouts of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer
would have to borrow funds or sell assets prior to maturity and
potentially recognize a gain or loss.
(2) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. See note 4.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the consolidated
financial statements and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for future policy benefits and claims and
those used in determining valuation allowances for mortgage loans on
real estate and real estate. Although some variability is inherent in
these estimates, management believes the amounts provided are adequate.
61
<PAGE> 63
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(a) Consolidation Policy
--------------------
The December 31, 1994, 1993 and 1992 consolidated
financial statements include the accounts of NLIC and its
wholly owned subsidiaries FHLIC, WCLIC, NCC and NFS. The
December 31, 1994 consolidated balance sheet also
includes the accounts of ELICW, which was acquired by
NLIC effective December 31, 1994. See Note 14. All
significant intercompany balances and transactions have
been eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
Prior to January 1, 1994, the Company classified fixed
maturities in accordance with the then existing accounting
standards, and accordingly, fixed maturity securities were
carried at amortized cost, adjusted for amortization of
premium or discount, since the Company had both the
ability and intent to hold those securities until
maturity. Equity securities were carried at fair value
with the unrealized gains and losses, net of deferred
Federal income tax, reported as a separate component of
shareholder's equity.
In May 1993, the Financial Accounting Standards Board
(FASB) issued STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS 115). SFAS 115
requires fixed maturities and equity securities to be
classified as either held-to-maturity, available-for-sale,
or trading. The Company has no trading securities. The
Company adopted SFAS 115 as of January 1, 1994, with no
effect on consolidated net income. See note 3 regarding
the effect on consolidated shareholder's equity.
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.
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. Loans in foreclosure and loans
considered in-substance foreclosed as of the balance
sheet date are placed on non-accrual status and written
down to the fair value of the existing property to
derive a new cost basis. 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.
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.
In May, 1993, the FASB issued STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 114 - ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN (SFAS 114). SFAS 114, which
was amended by STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 118 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND
DISCLOSURE in October, 1994, requires the measurement of
impaired loans be 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
loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The
impact on the consolidated financial statements of
adopting SFAS 114 as amended is not expected to be
material. Previously issued consolidated financial
statements shall not be restated. The Company will adopt
SFAS 114 as amended in 1995.
62
<PAGE> 64
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(c) Revenues and Benefits
---------------------
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life
insurance products include those products with fixed and
guaranteed premiums and benefits and consist primarily of
whole life, limited-payment life, term life and certain
annuities with life contingencies. Premiums for
traditional life insurance products are recognized as
revenue when due and collected. 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.
UNIVERSAL LIFE AND INVESTMENT PRODUCTS: Universal life
products include universal life, variable universal life
and other interest-sensitive life insurance policies.
Investment products consist primarily of individual and
group deferred annuities, annuities without life
contingencies and guaranteed investment contracts.
Revenues for universal life and investment products
consist of 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 benefits and claims incurred in the period in
excess of related policy account balances and interest
credited to policy account balances.
ACCIDENT AND HEALTH INSURANCE: Accident and health
insurance premiums are recognized as revenue over the
terms of the policies. Policy claims are charged to
expense in the period that the claims are incurred.
(d) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally
commissions, certain expenses of the policy issue
and underwriting department and certain variable
agency expenses have been deferred. For traditional
life and individual health insurance products, these
deferred 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. For
universal life and investment 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, 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. Beginning January 1, 1994,
deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on
fixed maturity securities available-for-sale. See note
2(b).
(e) Separate Accounts
-----------------
Separate Account assets and liabilities represent
contractholders' funds which have been segregated into
accounts with specific investment objectives. The
investment income and gains or losses of these accounts
accrue directly to the contractholders. The activity of
the Separate Accounts is not reflected in the
consolidated statements of income and cash flows except
for the fees the Company receives for administrative
services and risks assumed.
(f) Future Policy Benefits
----------------------
Future policy benefits for traditional life and individual
health policies have been calculated using a net level
premium method based on estimates of mortality,
morbidity, investment yields and withdrawals which were
used or which were being experienced at the time the
policies were issued, rather than the assumptions
prescribed by state regulatory authorities. See note 6.
Future policy benefits for annuity policies in the
accumulation phase, universal life and variable universal
life policies have been calculated based on participants'
contributions plus interest credited less applicable
contract charges.
Future policy benefits and claims for group long-term
disability policies are the present value (primarily
discounted at 5.5%) of amounts not yet due on reported
claims and an estimate of amounts to be paid on incurred
but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on
other group health policies are not discounted.
63
<PAGE> 65
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
----------------------
Participating business represents approximately 45%
(48% in 1993 and 1992) of the Company's ordinary
life insurance in force, 72% (72% in 1993; 71% in 1992)
of the number of policies in force, and 41% (45% in 1993
and 1992) of life insurance premiums. The provision for
policyholder dividends is based on current dividend
scales. Future dividends are provided for ratably in
future policy benefits based on dividend scales in effect
at the time the policies were issued. Dividend scales are
approved by the Board of Directors.
Income attributable to participating policies in excess
of policyholder dividends is accounted for as belonging to
the shareholder. See note 13.
(h) Federal Income Tax
------------------
NLIC, FHLIC, WCLIC and NCC file a consolidated Federal
income tax return with Nationwide Mutual Insurance Company
(NMIC), the majority shareholder of Corp. Through 1994,
ELICW filed a consolidated Federal income tax return with
Employers Insurance of Wausau A Mutual Company.
Beginning in 1995, ELICW will file a separate Federal
income tax return.
In 1993, the Company adopted STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME
TAXES, which required a change from the deferred method
of accounting for income tax of APB Opinion 11 to the
asset and liability method of accounting for income tax.
Under the asset and liability 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.
Prior to 1993, the Company applied the deferred method
of accounting for income tax which recognized deferred
income tax for income and expense items that are reported
in different years for financial reporting purposes and
income tax purposes using the tax rate applicable for
the year of calculation. Under the deferred method,
deferred tax is not adjusted for subsequent changes in tax
rates. See note 7.
The Company has reported the cumulative effect of the
change in method of accounting for income tax in the
1993 consolidated statement of income. See note 3.
(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.
(j) Cash Equivalents
----------------
For purposes of the consolidated statements of cash
flows, the Company considers all short-term investments
with original maturities of three months or less to be
cash equivalents.
(k) Reclassification
----------------
Certain items in the 1993 and 1992 consolidated financial
statements have been reclassified to conform to the 1994
presentation.
64
<PAGE> 66
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(3) Changes in Accounting Principles
--------------------------------
Effective January 1, 1994, the Company changed its method of
accounting for certain investments in debt and equity securities in
connection with the issuance of a new accounting standard by the FASB
as described in Note 2(b). As of January 1, 1994, the company
classified fixed maturity securities with amortized cost and fair value
of $6,593,844 and $7,024,736, respectively, as available-for-sale
and recorded the securities at fair value. Previously, these
securities were recorded at amortized cost. The effect as of January
1, 1994 has been recorded as a direct credit to shareholder's equity
as follows:
<TABLE>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $430,892
Adjustment to deferred policy acquisition costs (97,177)
Deferred Federal income tax (116,800)
--------
$216,915
========
</TABLE>
During 1993, the Company adopted accounting principles in
connection with the issuance of two accounting standards by the FASB.
The effect as of January 1, 1993, the date of adoption, has been
recognized in the 1993 consolidated statement of income as the
cumulative effect of changes in accounting principles, as follows:
<TABLE>
<S> <C>
Asset/liability method of recognizing income tax (note 7) $ 26,344
Accrual method of recognizing postretirement benefits other
than pensions (net of tax benefit of $11,296), (note 11) (20,979)
--------
Net cumulative effect of changes in accounting principles $ 5,365
========
</TABLE>
(4) Basis of Presentation
---------------------
The consolidated financial statements have been prepared in
accordance with GAAP. Annual Statements for NLIC and FHLIC, WCLIC,
ELICW and NCC, filed with the Department ofInsurance of the State of
Ohio, California Department of Insurance, Wisconsin Insurance
Department and Michigan Bureau of Insurance, respectively, are prepared
on the basis of accounting practices prescribed or permitted by
such regulatory authorities. 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.
The following reconciles the statutory net income of NLIC as
reported to regulatory authorities to the net income as shown
in the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Statutory net income $ 76,532 185,943 33,812
Adjustments to restate to the basis of GAAP:
Consolidating statutory net income of subsidiaries 14,350 19,545 21,519
Increase in deferred policy acquisition costs, net 167,166 89,860 78,731
Future policy benefits (76,310) (70,640) (63,355)
Deferred Federal income tax (expense) benefit (9,657) (31,634) 13,660
Equity in earnings of affiliates 1,013 7,121 4,618
Valuation allowances and other than temporary
declines accounted for directly in surplus 6,275 (6,638) 3,402
Interest maintenance reserve (7,332) 13,754 7,588
Cumulative effect of changes in accounting principles,
net of tax - 5,365 -
Other, net 11,689 (1,168) (3,158)
-------- ------- -------
Net income per accompanying consolidated
statements of income $183,726 211,508 96,817
======== ======= =======
</TABLE>
65
<PAGE> 67
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The following reconciles the statutory capital shares and
surplus of NLIC as reported to regulatory authorities to the
shareholder's equity as shown in the accompanying consolidated
financial statements:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Statutory capital shares and surplus $1,262,861 992,631 647,307
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs 1,064,159 811,944 722,084
Nonadmitted assets and furniture and equipment charged to
income in the year of acquisition, net of accumulated
depreciation 16,120 22,573 15,712
Asset valuation reserve 153,387 105,596 138,727
Interest maintenance reserve 18,843 21,069 7,315
Future policy benefits (310,302) (238,231) (167,591)
Deferred Federal income tax, including effect of changes in
accounting principles in 1993 36,515 (31,659) (82,724)
Cumulative effect of change in accounting principles for
postretirement benefits other than pensions, gross - (32,275) -
Difference between amortized cost and fair value of fixed
maturity securities available-for-sale, gross (272,959) - -
Other, net (60,145) (480) 149,412
---------- ---------- ----------
Shareholder's equity per accompanying consolidated
balance sheets $1,908,479 1,651,168 1,430,242
========== ========== ==========
</TABLE>
(5) Investments
-----------
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $ 674,346 - -
Equity securities 550 7,230 6,949
Fixed maturities held-to-maturity 193,009 800,255 754,876
Mortgage loans on real estate 376,783 364,810 334,769
Real estate 40,280 39,684 27,410
Short-term 6,990 5,080 7,298
Other 42,831 33,832 30,717
---------- -------- --------
Total investment income 1,334,789 1,250,891 1,162,019
Less investment expenses 45,288 46,465 41,862
---------- ---------- ----------
Net investment income $1,289,501 1,204,426 1,120,157
========== ========== ==========
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities held-to-maturity
follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ (703,851) - -
Equity securities (1,990) (128,837) (9,195)
Fixed maturities held-to-maturity (421,427) 223,392 17,774
----------- -------- --------
$(1,127,268) 94,555 8,579
=========== ======== ========
</TABLE>
66
<PAGE> 68
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
An analysis of realized gains (losses) on investments by investment
type follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Realized on disposition of investments:
Securities available-for-sale:
Fixed maturities $(13,720) - -
Equity securities 1,427 129,728 7,215
Fixed maturities - 21,159 13,399
Mortgage loans on real estate (16,130) (17,763) (30,334)
Real estate and other 5,765 (12,813) (12,997)
---------- -------- --------
(22,658) 120,311 (22,717)
---------- -------- --------
Valuation allowances:
Securities available-for-sale:
Fixed maturities 6,600 - -
Fixed maturities - (934) 1,792
Mortgage loans on real estate (4,332) (10,478) (5,969)
Real estate and other 4,006 4,774 7,579
---------- -------- --------
6,274 (6,638) 3,402
---------- -------- --------
$(16,384) 113,673 (19,315)
========== ======== ========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale and fixed maturities held-to-maturity were as
follows as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available-for-sale
-----------------------------
Fixed maturities:
US Treasury securities and obligations of US
government corporations and agencies $ 393,156 1,794 (18,941) 376,009
Obligations of states and political
subdivisions 2,202 55 (21) 2,236
Debt securities issued by foreign governments 177,910 872 (9,205) 169,577
Corporate securities 4,201,738 50,405 (128,698) 4,123,445
Mortgage-backed securities 3,543,859 18,125 (187,345) 3,374,639
----------- ---------- ---------- ----------
Total fixed maturities 8,318,865 71,251 (344,210) 8,045,906
Equity securities 18,373 6,636 (296) 24,713
----------- ---------- ---------- ----------
$8,337,238 77,887 (344,506) 8,070,619
=========== ========== ========== ==========
Fixed maturity securities held-to-maturity
------------------------------------------
Obligations of states and political
subdivisions $ 11,613 92 (255) 11,450
Debt securities issued by foreign governments 16,131 111 (39) 16,203
Corporate securities 3,661,043 34,180 (120,566) 3,574,657
----------- ---------- ---------- ----------
$3,688,787 34,383 (120,860) 3,602,310
=========== ========== ========== ==========
</TABLE>
67
<PAGE> 69
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of investments of fixed
maturity securities were as follows as of December 31, 1993:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of US
government corporations and agencies $ 287,738 18,204 (392) 305,550
Obligations of states and political
subdivisions 16,519 2,700 (5) 19,214
Debt securities issued by foreign governments 137,092 7,719 (1,213) 143,598
Corporate securities 6,819,355 647,778 (15,648) 7,451,485
Mortgage-backed securities 2,860,274 121,721 (15,022) 2,966,973
----------- ---------- ---------- ----------
$10,120,978 798,122 (32,280) 10,886,820
=========== ========== ========== ==========
</TABLE>
As of December 31, 1993 the net unrealized gain on equity
securities, before providing for deferred Federal income tax, was
$8,330, comprised of gross unrealized gains of $8,345 and gross
unrealized losses of $15.
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale and fixed maturity securities
held-to-maturity as of December 31, 1994, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
---------- -----------
<S> <C> <C>
Fixed maturity securities available-for-sale
--------------------------------------------
Due in one year or less $ 294,779 294,778
Due after one year through five years 2,553,825 2,490,886
Due after five years through ten years 1,382,311 1,327,089
Due after ten years 544,091 558,514
---------- -----------
4,775,006 4,671,267
Mortgage-backed securities 3,543,859 3,374,639
---------- -----------
$8,318,865 8,045,906
========== ===========
Fixed maturity securities held-to-maturity
------------------------------------------
Due in one year or less $ 333,517 333,000
Due after one year through five years 1,953,179 1,942,260
Due after five years through ten years 1,080,069 1,013,083
Due after ten years 322,022 313,967
---------- -----------
$3,688,787 3,602,310
========== ===========
</TABLE>
Proceeds from the sale of securities available-for-sale during
1994 were $247,876, while proceeds from sales of investments in
fixed maturity securities during 1993 were $33,959 ($123,422 during
1992). Gross gains of $3,406 ($2,413 in 1993 and $3,194 in 1992) and
gross losses of $21,866 ($39 in 1993 and $513 in 1992) were realized
on those sales.
Investments that were non-income producing for the twelve month
period preceding December 31, 1994 amounted to $11,513 ($13,158 for
1993) and consisted of $11,111 ($10,907 in 1993) in real estate and
$402 ($2,251 in 1993) in other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$29,275 in 1994 ($24,717 in 1993) and valuation allowances of $27,330
in 1994 ($31,357 in 1993). Other valuation allowances are $0 in 1994
($6,680 in 1993) on fixed maturities and $47,892 in 1994 ($42,350 in
1993) on mortgage loans on real estate.
68
<PAGE> 70
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company generally initiates foreclosure proceedings on all
mortgage loans on real estate delinquent sixty days. Foreclosures
of mortgage loans on real estate were $37,187 in 1994 ($39,281 in
1993) and mortgage loans on real estate in process of foreclosure or
in-substance foreclosed as of December 31, 1994 totaled $19,878
($24,658 as of December 31, 1993), which approximates fair value.
Investments with an amortized cost of $11,137 and $11,383 as of
December 31, 1994 and 1993, respectively, were on deposit with various
regulatory agencies as required by law.
(6) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for traditional life and
individual health policies has been established based upon the
following assumptions:
Interest rates: Interest rates vary as follows:
<TABLE>
<CAPTION>
Year of issue Life Health
------------- ---- ------
<S> <C> <C>
1994 7.2 %, not graded - permanent contracts with loan provisions; 5.0%
6.0%, not graded - all other contracts
1984-1993 7.4% to 10.5%, not graded 5.0% to 6%
1966-1983 6% to 8.1%, graded over 20 years to 4% to 6.6% 3.5% to 6%
1965 and prior generally lower than post 1965 issues 3.5% to 4%
</TABLE>
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 liability for future policy benefits for investment contracts
(approximately 81% and 80% of the total liability for future policy
benefits as of December 31, 1994 and 1993, respectively) has been
established based on policy term, interest rates and various contract
provisions. The average interest rate credited on investment product
policies was 6.5%, 7.0% and 7.5% for the years ended December 31, 1994,
1993 and 1992, respectively.
Future policy benefits and claims for group long-term disability
policies are the present value (primarily discounted at 5.5%) of
amounts not yet due on reported claims and an estimate of amounts to be
paid on incurred but unreported claims. The impact of reserve
discounting is not material. Future policy benefits and claims on
other group health policies are not discounted.
Activity in the liability for unpaid claims and claim adjustment
expenses is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Balance as of January 1 $591,258 760,312 672,581
Less reinsurance recoverables 429,798 547,786 445,934
--------- -------- --------
Net balance as of January 1 161,460 212,526 226,647
--------- -------- --------
Incurred related to:
Current year 273,299 309,721 360,545
Prior years (26,156) (26,248) (17,433)
--------- -------- --------
Total incurred 247,143 283,473 343,112
--------- -------- --------
Paid related to:
Current year 175,700 208,978 226,886
Prior years 73,889 125,561 130,347
--------- -------- --------
Total paid 249,589 334,539 357,233
--------- -------- --------
Unpaid claims of ELICW (note 14) 40,223 - -
--------- -------- --------
Net balance as of December 31 199,237 161,460 212,526
Plus reinsurance recoverables 457,694 429,798 547,786
--------- -------- --------
Balance as of December 31 $656,931 591,258 760,312
======== ======== ========
</TABLE>
69
<PAGE> 71
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
As a result of changes in estimates for insured events of prior
years, the provision for claims and claim adjustment expenses
decreased in each of the three years ended December 31, 1994 due to
lower-than-anticipated costs to settle accident and health claims.
(7) Federal Income Tax
------------------
Prior to 1984, the Life Insurance Company Income Tax Act of 1959 as
amended by the Deficit Reduction Act of 1984 (DRA), permitted the
deferral from taxation of a portion of statutory income under certain
circumstances. In these situations, the deferred income was
accumulated in the Policyholders' Surplus Account (PSA). Management
considers the likelihood of distributions from the PSA to be remote;
therefore, no Federal income tax has been provided for such
distributions in the consolidated financial statements. The DRA
eliminated any additional deferrals to the PSA. Any distributions
from the PSA, however, will continue to be taxable at the then current
tax rate. The balance of the PSA is approximately $35,344 as of
December 31, 1994.
The Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
109 - ACCOUNTING FOR INCOME TAXES (SFAS 109), as of January 1, 1993.
See note 3. The 1992 consolidated financial statements have not
been restated to apply the provisions of SFAS 109.
The significant components of deferred income tax expense for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Deferred income tax expense (exclusive of the
effects of other components listed below) $9,657 29,930
Adjustments to deferred income tax assets and
liabilities for enacted changes in tax laws
and rates - 1,704
------ ------
$9,657 31,634
====== ======
</TABLE>
For the year ended December 31, 1992, the deferred income tax
benefit results from timing differences in the recognition of
income and expense for income tax and financial reporting purposes.
The primary sources of those timing differences were deferred policy
acquisition costs (deferred expense of $16,457) and reserves for future
policy benefits (deferred benefit of $32,045).
Total Federal income tax expense for the years ended December 31,
1994, 1993 and 1992 differs from the amount computed by applying the
U.S. Federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
Amount % Amount % Amount %
------- ---- -------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $95,631 35.0 $109,515 35.0 $44,390 34.0
Tax exempt interest and dividends
received deduction (194) (0.1) (2,322) (0.7) (4,172) (3.2)
Current year increase in U.S. Federal
income tax rate - - 1,704 0.5 - -
Real estate valuation allowance
adjustment - - - - (3,463) (2.7)
Other, net (5,933) (2.1) (2,139) (0.7) (3,013) (2.3)
------- ---- -------- ---- ------- ----
Total (effective rate of each
year) $89,504 32.8 $106,758 34.1 $33,742 25.8
======= ==== ======== ==== ======= ====
</TABLE>
Total Federal income tax paid was $87,576, $58,286 and $63,124 during
the years ended December 31, 1994, 1993 and 1992, respectively.
70
<PAGE> 72
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $124,044 129,995
Fixed maturity securities available-for-sale 95,536 -
Liabilities in Separate Accounts 94,783 64,722
Mortgage loans on real estate and real estate 25,632 24,020
Other policyholder funds 7,137 7,759
Other assets and other liabilities 57,528 41,390
-------- ---------
Total gross deferred tax assets 404,660 267,886
-------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 317,224 243,731
Fixed maturities, equity securities and other
long-term investments 3,620 11,137
Other 47,301 44,677
-------- ---------
Total gross deferred tax liabilities 368,145 299,545
-------- ---------
Net deferred tax asset (liability) $ 36,515 (31,659)
======== =========
</TABLE>
The Company has determined that valuation allowances are not
necessary as of December 31, 1994 and 1993 and January 1, 1993 (date of
adoption of SFAS 109) based on its analysis of future deductible
amounts. All future deductible amounts can be offset by future
taxable amounts or recovery of Federal income tax paid within the
statutory carryback period. In addition, for future deductible
amounts for securities available-for-sale, affiliates of the Company
which are included in the same consolidated Federal income tax return
hold investments that could be sold for capital gains that could offset
capital losses realized by the Company should securities
available-for-sale be sold at a loss.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107 - DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) requires disclosure of
fair value information about existing on and off-balance sheet financial
instruments. In cases where quoted market prices are not available,
fair value is based on estimates using present value or other valuation
techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in the immediate
settlement of the instruments. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities that
are classified as investment contracts, are specifically exempted from
SFAS 107 disclosures, estimated fair value of policy reserves on
insurance contracts are provided to make the fair value disclosures more
meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying
amount reported in the balance sheets for these instruments
approximate their fair value.
71
<PAGE> 73
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
INVESTMENT SECURITIES: Fair value for fixed maturity
securities is based on quoted market prices, where available.
For fixed maturity securities not actively traded, fair value is
estimated using values obtained from independent pricing services
or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on quoted
market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices.
The fair value of liabilities related to Separate Accounts is the
amount payable on demand.
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans on
real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans
to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is valued at the estimated fair
value of the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value
is the amount payable on demand. For investment contracts with
known or determined maturities, fair value is estimated using
discounted cash flow analysis. Interest rates used are similar
to currently offered contracts with maturities consistent with
those remaining for the contracts being valued.
POLICY RESERVES ON INSURANCE CONTRACTS: Included are disclosures
for individual life, universal life and supplementary contracts with
life contingencies for which the estimated fair value is the
amount payable on demand. Also included are disclosures for the
Company's limited payment policies, which the Company has used
discounted cash flow analyses similar to those used for investment
contracts with known maturities to estimate fair value.
POLICYHOLDERS DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
FUNDS: The carrying amount reported in the consolidated
balance sheets for these instruments approximates their fair value.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on insurance contracts were as
follows as of December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturities $ 8,045,906 8,045,906 - -
Equity securities 24,713 24,713 16,593 16,593
Fixed maturities held-to-maturity 3,688,787 3,602,310 10,120,978 10,886,820
Mortgage loans on real estate 4,222,284 4,173,284 3,871,560 4,175,271
Policy loans 340,491 340,491 315,898 315,898
Short-term investments 131,643 131,643 41,797 41,797
Cash 7,436 7,436 21,835 21,835
Assets held in Separate Accounts 12,222,461 12,222,461 9,006,388 9,006,388
Liabilities
-----------
Investment contracts 12,189,894 11,657,556 10,332,661 10,117,288
Policy reserves on insurance contracts 3,170,085 2,934,384 2,945,120 2,873,503
Policyholders' dividend accumulations 338,058 338,058 322,686 322,686
Other policyholder funds 72,770 72,770 71,959 71,959
Liabilities related to Separate Accounts 12,222,461 11,807,331 9,006,388 8,714,586
</TABLE>
72
<PAGE> 74
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(9) Additional Financial Instruments Disclosures
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to
extend credit in the form of loans. These instruments involve, to
varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheets.
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
80% of collateral value. Should the commitment be funded, the
Company's exposure to credit loss in the event of nonperformance by
the borrower is represented by the contractual amounts of these
commitments less the net realizable value of the collateral. The
contractual amounts also represent the cash requirements for all
unfunded commitments. Commitments on mortgage loans on real estate
of $243,200 extending into 1995 were outstanding as of December 31,
1994.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 22% (23% in 1993) in any geographic area and no more than 2%
(2% in 1993) with any one borrower. The summary below depicts loans
by remaining principal balance as of each December 31:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1994:
East North Central $109,233 103,499 540,686 191,489 944,907
East South Central 24,298 10,803 127,845 76,897 239,843
Mountain 3,150 13,770 140,358 39,682 196,960
Middle Atlantic 61,299 53,285 140,847 30,111 285,542
New England 10,536 43,282 139,131 4 192,953
Pacific 195,393 210,930 397,911 68,768 873,002
South Atlantic 87,150 81,576 424,150 210,354 803,230
West North Central 127,760 11,766 80,854 4,738 225,118
West South Central 51,013 84,796 184,923 194,788 515,520
-------- --------- --------- --------- ----------
$669,832 613,707 2,176,705 816,831 4,277,075
======== ========= ========= =========
Less valuation allowances and unamortized discount 54,791
----------
Total mortgage loans on real estate, net $4,222,284
==========
1993:
East North Central $109,208 108,478 470,755 158,964 847,405
East South Central 27,562 1,460 117,341 69,991 216,354
Mountain 3,228 4,742 105,560 23,065 136,595
Middle Atlantic 56,664 52,766 132,821 15,414 257,665
New England 10,565 48,398 142,530 8 201,501
Pacific 174,409 185,116 389,428 65,497 814,450
South Atlantic 112,640 58,165 391,102 238,337 800,244
West North Central 104,933 13,458 78,408 3,917 200,716
West South Central 50,955 47,103 183,420 161,033 442,511
-------- --------- ------- --------- ----------
$650,164 519,686 2,011,365 736,226 3,917,441
======== ========= ========= =========
Less valuation allowances and unamortized discount 45,881
----------
Total mortgage loans on real estate, net $3,871,560
==========
</TABLE>
73
<PAGE> 75
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(10) Pension Plan
------------
NLIC, FHLIC, WCLIC, NCC, and NFS participate together with other
affiliated companies, in a pension plan covering all employees who
have completed at least one thousand hours of service within a
twelve-month period and who have met certain age requirements. Plan
contributions are invested in a group annuity contract of NLIC.
Benefits are based upon the highest average annual salary of any
three consecutive years of the last ten years of service. The Company
funds pension costs accrued for direct employees plus an allocation of
pension costs accrued for employees of affiliates whose work efforts
benefit the Company.
Pension costs charged to operations by the Company during the years
ended December 31, 1994, 1993 and 1992 were $10,451, $6,702 and
$4,613, respectively.
The Company's net accrued pension expense as of December 31, 1994
and 1993 was $1,836 and $1,472, respectively.
The net periodic pension cost for the plan as a whole for the years
ended December 31, 1994, 1993 and 1992 follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $64,740 47,694 44,343
Interest cost on projected benefit obligation 73,951 70,543 68,215
Actual return on plan assets (21,495) (105,002) (62,307)
Net amortization and deferral (62,150) 20,832 (24,281)
-------- -------- --------
Net periodic pension cost $55,046 34,067 25,970
======== ======== ========
Basis for measurements, net periodic pension cost:
Weighted average discount rate 5.75% 6.75% 7.25%
Rate of increase in future compensation levels 4.50% 4.75% 5.25%
Expected long-term rate of return on plan assets 7.00% 7.50% 8.00%
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 914,850 972,475
Nonvested 7,570 10,227
---------- ----------
$ 922,420 982,702
========== ==========
Projected benefit obligation for
services rendered to date 1,305,547 1,292,477
Plan assets at fair value 1,241,771 1,208,007
---------- ----------
Plan assets less than projected benefit
obligation (63,776) (84,470)
Unrecognized prior service cost 46,201 49,551
Unrecognized net losses 39,408 55,936
Unrecognized net assets at January 1, 1987 (21,994) (24,146)
---------- ----------
Net accrued pension expense $ (161) (3,129)
========== ==========
Basis for measurements, funded status of plan:
Weighted average discount rate 7.50% 5.75%
Rate of increase in future compensation levels 6.75% 4.50%
</TABLE>
74
<PAGE> 76
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
In addition to the defined benefit pension plan, NLIC, FHLIC, WCLIC,
NCC and NFS participate with other affiliated companies in life and
health care defined benefit plans for qualifying retirees.
Postretirement life and health care benefits are contributory and
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 life insurance contributions are based on age
and coverage amount of each retiree. Postretirement health care
benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. The accounting for the
health care plan anticipates future cost-sharing changes to the
written plan that are consistent with the Company's expressed intent
to increase the retiree contribution amount annually for expected
health care inflation. The Company's policy is to fund the cost of
health care benefits in amounts determined at the discretion of
management. The Company began funding in 1994. Plan assets are
invested in group annuity contracts of NLIC.
Effective January 1, 1993, the Company adopted the provisions of
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106 - EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106),
which requires the accrual method of accounting for postretirement
life and health care insurance benefits based on actuarially
determined costs to be recognized over the period from the date of
hire to the full eligibility date of employees who are expected to
qualify for such benefits. Postretirement benefit cost for 1992, which
was recorded on a cash basis, has not been restated.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation as of January 1, 1993. Accordingly,
a noncash charge of $32,275 ($20,979 net of related income tax
benefit) was recorded in the consolidated statement of income as a
cumulative effect of a change in accounting principle. See note 3.
The adoption of SFAS 106, including the cumulative effect of the
change in accounting principle, increased the expense for
postretirement benefits by $35,277 to $36,544 in 1993. Net periodic
postretirement benefit cost for 1994 was $4,627. The Company's
accrued postretirement benefit obligation as of December 31, 1994 and
1993 was $36,001 and $35,277, respectively.
Actuarial assumptions for the measurement of the December 31, 1994
accumulated postretirement benefit obligation include a discount rate
of 8% and an assumed health care cost trend rate of 11%, uniformly
declining to an ultimate rate of 6% over 12 years.
Actuarial assumptions for the measurement of the December 31, 1993
accumulated postretirement benefit obligation and the 1994 net
periodic postretirement benefit cost include a discount rate of 7% and
an assumed health care cost trend rate of 12%, uniformly declining to
an ultimate rate of 6% over 12 years.
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation as of January 1, 1993 and the 1993 net periodic
postretirement benefit cost include a discount rate of 8% and an
assumed health care cost trend rate of 14%, uniformly declining to an
ultimate rate of 6% over 12 years.
Information regarding the funded status of the plan as a whole as of
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 76,677 90,312
Fully eligible, active plan participants 22,013 24,833
Other active plan participants 59,089 84,103
--------- ---------
Accumulated postretirement benefit obligation 157,779 199,248
Plan assets at fair value 49,012 -
--------- ---------
Plan assets less than accumulated postretirement benefit
obligation (108,767) (199,248)
Unrecognized net (gains) losses (41,497) 15,128
--------- ---------
Accrued postretirement benefit obligation $(150,264) (184,120)
========= =========
</TABLE>
75
<PAGE> 77
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amount of net periodic postretirement benefit cost for the plan as
a whole for the years ended December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Net periodic postretirement benefit cost:
Service cost - benefits attributed to employee service during the year $ 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,011 13,928
Actual return on plan assets (1,622) -
Net amortization and deferral 1,622 -
------- ------
Net periodic postretirement benefit cost $22,597 21,018
======= ======
</TABLE>
The health care cost trend rate assumption has a significant effect
on the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1994 and 1993 by
$8,109 and $15,621, respectively, and the net periodic postretirement
benefit cost for the years ended December 31, 1994 and 1993 by $866 and
$2,377, respectively.
(12) Portfolio Transfer of Credit Life and Credit Accident and Health
----------------------------------------------------------------
On March 13, 1992, WCLIC entered into an assignment and assumption
agreement with American Bankers Life Assurance Company of Florida
(ABLAC) under which ABLAC assumed, by portfolio transfer, substantially
all of WCLIC's credit life and accident and health policies in force as
of January 1, 1992. A pre-tax loss of approximately $15,000 was
recognized from this transaction in 1992. The loss represents
approximately $34,000 of amortization of deferred policy acquisition
costs, less approximately $27,000 in ceded commissions earned, plus
death benefits incurred and other expenses. Under the terms defined in
the assignment and assumption agreement, WCLIC is contingently liable
for adverse development of claims activity up to a defined limit. As
of December 31, 1994, WCLIC has provided for a contingent liability
based on the development of claims experience through December 31,
1994. As of December 31, 1993, WCLIC had provided for the maximum
contingent liability in the absence of conclusive claims experience
development.
(13) Regulatory Risk-Based Capital, Retained Earnings and Dividend
-------------------------------------------------------------
Restrictions
------------
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The
formulas for determining the amount of risk-based capital specify
various weighting factors that are applied to financial balances or
various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by a ratio of the company's
regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level risk-based capital, as defined by the NAIC.
Companies below specific trigger points or ratios are classified
within certain levels, each of which requires specified corrective
action. NLIC and each of its insurance subsidiaries exceed the minimum
risk-based capital requirements.
In accordance with the requirements of the New York statutes, the
Company has agreed with the Superintendent of Insurance of that state
that so long as participating policies and contracts are held by
residents of New York, no profits on participating policies and
contracts in excess of the larger of (a) ten percent of such profits or
(b) fifty cents per year per thousand dollars of participating life
insurance in force, exclusive of group term, at the year-end shall
inure to the benefit of the shareholders. Such New York statutes
further provide that so long as such agreement is in effect, such
excess of profits shall be exhibited as "participating policyholders'
surplus" in annual statements filed with the Superintendent and shall be
used only for the payment or apportionment of dividends to participating
policyholders at least to the extent required by statute or for the
purpose of making up any loss on participating policies.
In the opinion of counsel for the Company, the ultimate ownership of
the entire surplus, however classified, of the Company resides with the
shareholder, subject to the usual requirements under state laws and
regulations that certain deposits, reserves and minimum surplus be
maintained for the protection of the policyholders until all policy
contracts are discharged.
76
<PAGE> 78
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Based on the opinion of counsel with respect to the ownership of its
surplus, the Company is of the opinion that the earnings attributable
to participating policies in excess of the amounts paid as dividends
to policyholders belong to the shareholder rather than the
policyholders, and such earnings are so treated by the Company.
The amount of shareholder's equity other than capital shares
was $1,904,664, $1,647,353, and $1,426,427 as of December 31,
1994, 1993 and 1992, respectively. The amount thereof not
presently available for dividends to the shareholder due to the New
York restrictions and to adjustments relating to GAAP was $929,934,
$954,037 and $841,583 as of December 31, 1994, 1993 and 1992,
respectively.
Ohio law limits the payment of dividends to shareholders. The
maximum dividend that may be paid by the Company without prior
approval of the Director of the Department of Insurance of the State
of Ohio is limited to the greater of statutory gain from operations of
the preceding calendar year or 10% of statutory shareholder's surplus
as of the prior December 31. Therefore, $1,707,110, of shareholder's
equity, as presented in the accompanying consolidated financial
statements, is restricted as to dividend payments in 1995.
California law limits the payment of dividends to shareholders of
WCLIC. The maximum dividend that may be paid by WCLIC without
prior approval of the Commissioner of the State of California
Department of Insurance is limited to the greater of WCLIC's
statutory net income of the preceding calendar year or 10% of
WCLIC's statutory shareholder's surplus as of the prior December 31.
Therefore, $126,489 of WCLIC's shareholder's equity is restricted as
to dividend payments in 1995.
Wisconsin law limits the payment of dividends to shareholders of ELICW.
The maximum dividend that may be paid by ELICW without prior approval
of the Commissioner of the State of Wisconsin is limited to the greater
of ELICW's statutory net income of the preceding calendar year or 10%
of ELICW s statutory surplus as of the prior December 31, Therefore,
$135,369 of ELICW's shareholder's equity is restricted as to dividend
payments in 1995.
Michigan law limits the payment of dividends to shareholders of NCC.
The maximum dividend that may be paid by NCC without prior approval
of the Commissioner of the State of Michigan Bureau of Insurance is
limited to the greater of NCC's statutory net income, not including
realized capital gains, of the preceding calendar year or 10% of
NCC's statutory shareholder's surplus as of the prior December 31.
Therefore, $66,564 of NCC's shareholder's equity is restricted as to
dividend payments in 1995. In addition, prior approval is not required
for a dividend which does not increase gross leverage to a point in
excess of the United States consolidated industry average for the most
recent available year.
(14) Transactions With Affiliates
----------------------------
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of ELICW from Wausau Service Corporation (WSC) for an
amount approximating $165,000, subject to specified adjustments, if
any, subsequent to year end. NLIC transferred fixed maturity
securities and cash with a fair value of $155,000 to WSC on
December 28, 1994, which resulted in a realized loss of $19,239 on
the disposition of the securities. An accrual approximating $10,000
is reflected in the accompanying consolidated balance sheet. The
purchase price approximated both the historical cost basis and fair
value of net assets of ELICW. ELICW has and will continue to share
home office, other facilities, equipment and common management and
administrative services with WSC.
The deferred compensation annuity line of business of the Company
is primarily sold through Public Employees Benefit Services
Corporation (PEBSCO). The Company paid PEBSCO commissions and
administrative fees of $26,699, $22,681 and $20,146 in 1994, 1993 and
1992, respectively. PEBSCO is a wholly owned subsidiary of Corp.
The Company and NEA Valuebuilder Investor Services, Inc. (NEAVIS) have
contracted with the National Education Association (NEA) to provide
individual annuity contracts to be marketed exclusively to members of
the NEA. The Company paid NEAVIS a marketing development fee of
$11,095, $9,229 and $6,426 in 1994, 1993 and 1992, respectively.
NEAVIS is a wholly owned subsidiary of Corp.
The Company shares home office, other facilities, equipment and
common management and administrative services with affiliates.
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<PAGE> 79
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company 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 1994 and 1993 were not material.
During 1993, the Company sold equity securities with a market value
$194,515 to NMIC, resulting in a realized gain of $122,823. With the
proceeds, the Company purchased securities with a market value of
$194,139 and cash of $376 from NMIC.
Intercompany reinsurance contracts exist between NLIC and NMIC,
NLIC and WCLIC, NLIC and NCC, WCLIC and NMIC and WCLIC and
ELICW as of December 31, 1994. These contracts are immaterial to
the consolidated financial statements.
NCC participates in several 100% quota share reinsurance agreements
with NMIC. NCC serves as the licensed insurer as required for an
affiliated excess and surplus lines company and cedes 100% of direct
written premiums to NMIC. In 1989, NCC transferred 100% of assets and
unearned premiums and loss reserves related to a discontinued block of
assumed reinsurance to NMIC (95.3%) and Nationwide Mutual Fire
Insurance Company (4.7%). Effective January 1, 1993, NCC entered into
a 100% quota share reinsurance agreement to cede to NMIC 100% of all
written premiums not subject to any other reinsurance agreements.
As a result of these agreements, and in accordance with STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 113 - ACCOUNTING AND REPORTING FOR
REINSURANCE OF SHORT-DURATION AND LONG-DURATION CONTRACTS, the
following amounts are included in the consolidated financial statements
as of December 31, 1994 and 1993 for reinsurance ceded:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Reinsurance recoverable $575,721 533,401
Unearned premium reserves (118,092) (102,644)
Loss and claim reserves (371,974) (352,303)
Loss and expense reserves (85,655) (78,454)
-------- --------
$ 0 0
======== ========
</TABLE>
The ceding of reinsurance does not discharge the original insurer
from primary liability to its policyholder. The insurer which assumes
the coverage assumes the related liability and it is the practice of
insurers to treat insured risks, to the extent of reinsurance ceded,
as though they were risks for which the original insurer is not liable.
Management believes the financial strength of NMIC reduces to an
acceptable level any risk to NCC under these intercompany reinsurance
agreements.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $92,531 and $28,683 at December 31,
1994 and 1993, respectively, and are included in short-term
investments on the accompanying consolidated balance sheets.
(15) Bank Lines of Credit
--------------------
As of December 31, 1994 and 1993, NLIC had $120,000 of confirmed but
unused bank lines of credit which support a $100,000 commercial paper
borrowing authorization. Additionally, NFS had $27,000 of confirmed
but unused bank lines of credit.
78
