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Registration No. 33-44290
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 7
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
----------------------------
NATIONWIDE VLI SEPARATE ACCOUNT
(Exact Name of Trust)
----------------------------
NATIONWIDE LIFE INSURANCE COMPANY
One Nationwide Plaza
Columbus, Ohio 43215
(Exact Name and Address of Depositor and Registrant)
Gordon E. McCutchan
Secretary
One Nationwide Plaza
Columbus, Ohio 43215
(Name and address of Agent for Service)
----------------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and Financial Statements.
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed its Rule 24f-2 Notice for the fiscal year
ended December 31, 1996, on February 25, 1997.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
1.........................................Nationwide Life Insurance Company
The Variable Account
2.........................................Nationwide Life Insurance Company
3.........................................Custodian of Assets
4.........................................Distribution of The Policies
5.........................................The Variable Account
6.........................................Not Applicable
7.........................................Not Applicable
8.........................................Not Applicable
9.........................................Legal Proceedings
10.........................................Information About The Policies;
How The Cash Value Varies; Right
to Exchange for a Fixed Benefit
Policy; Reinstatement; Other Policy
Provisions
11.........................................Investments of The Variable
Account
12.........................................The Variable Account
13.........................................Policy Charges
...........................................Reinstatement
14.........................................Underwriting and Issuance -
...........................................Premium Payments;
...........................................Minimum Requirements for
...........................................Issuance of a Policy
15.........................................Investments of the Variable
...........................................Account; Premium Payments
16.........................................Underwriting and Issuance -
...........................................Allocation of Cash Value
17.........................................Surrendering The Policy for Cash
18.........................................Reinvestment
19.........................................Not Applicable
20.........................................Not Applicable
21.........................................Policy Loans
22.........................................Not Applicable
23.........................................Not Applicable
24.........................................Not Applicable
25.........................................Nationwide Life Insurance Company
26.........................................Not Applicable
27.........................................Nationwide Life Insurance Company
28.........................................Company Management
29.........................................Company Management
30.........................................Not Applicable
31.........................................Not Applicable
32.........................................Not Applicable
33.........................................Not Applicable
34.........................................Not Applicable
35.........................................Nationwide Life Insurance Company
36.........................................Not Applicable
37.........................................Not Applicable
38.........................................Distribution of The Policies
39.........................................Distribution of The Policies
40.........................................Not Applicable
41(a)......................................Distribution of The Policies
42.........................................Not Applicable
43.........................................Not Applicable
44.........................................How The Cash Value Varies
45.........................................Not Applicable
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N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
46.........................................How The Cash Value Varies
47.........................................Not Applicable
48.........................................Custodian of Assets
49.........................................Not Applicable
50.........................................Not Applicable
51.........................................Summary of The Policies;
...........................................Information About The Policies
52.........................................Substitution of Securities
53.........................................Taxation of The Company
54.........................................Not Applicable
55.........................................Not Applicable
56.........................................Not Applicable
57.........................................Not Applicable
58.........................................Not Applicable
59.........................................Financial Statements
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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
FLEXIBLE PREMIUM VARIABLE UNIVERSAL 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 and the flexibility to vary the
amount and frequency of premium payments. The Policies may also provide a Cash
Surrender Value if the Policy is terminated during the lifetime of the Insured.
Nationwide Life Insurance Company guarantees to keep the Policy in force during
the first three years so long as the Minimum Premium requirement has been met.
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, meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code (the "Code").
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
Variable Account sub-account will be used to purchase, at net asset value,
shares of the following Underlying Mutual Fund options:
Van Kampen American Capital Life Investment Trust:
- Asset Allocation Fund
- Domestic Income Fund
- Emerging Growth Fund
- Enterprise Fund
- Global Equity Fund
- Government Fund
- Money Market Fund
- Real Estate Securities Fund
Nationwide Life Insurance Company (the "Company") guarantees that the death
benefit for a Policy will never be less than the Specified Amount stated on the
Policy Data Pages as long as the Policy is in force. There is no guaranteed Cash
Surrender Value. If the Cash Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse without value. The Company
guarantees to keep the Policy in force during the first three years so long as
the Minimum Premium requirement has been met.
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."
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 AND SHOULD BE READ IN
CONJUNCTION HEREWITH.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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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 Death Proceeds are paid.
Break Point Premium- The level annual premium at which the sales load is reduced
on a current basis.
Cash Value- The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
Cash Surrender Value- The Policy's Cash Value, less any Indebtedness under the
Policy, less any Surrender Charge.
Code- The Internal Revenue Code of 1986, as amended.
Company- Nationwide Life Insurance Company.
Death Proceeds- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
Fixed Account- An investment option which is funded by the General Account of
the Company.
General Account- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
Guideline Level Premium- The amount of level annual premium calculated in
accordance with the provisions of the Code. It represents the level annual
premiums required to mature the Policy under guaranteed mortality and expense
charges and an interest rate of 4%.
Home Office- The main office of the Company located in Columbus, Ohio.
Indebtedness- Amounts owed the Company as a result of Policy loans including
both principal and accrued interest.
Initial Premium- The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy Data Page.
Insured- The person whose life is covered by the Policy, and who is named on
the Policy Data Page.
Maturity Date- The Policy Anniversary on or following the Insured's 95th
birthday.
Minimum Premium- The Minimum Premium is shown on the Policy Date Page. It is
used to measure the total amount of premiums that must be paid during the first
three Policy Years to guarantee the Policy remains in force.
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.
Net Asset Value- The worth of one share of an Underlying Mutual Fund at the end
of a market day or at the close of the New York Stock Exchange. It is computed
by adding the value of all portfolio holdings, plus other assets, deducting
liabilities and dividing the results by the number of shares outstanding.
Net Premiums- Net Premiums are equal to the actual premiums minus the percent
of premium charge. The percent of premium charges are shown on the Policy Data
Page.
Policy Anniversary- The same day and month as the Policy Date for succeeding
years.
Policy Charges- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
Policy Date- The date the provisions of the Policy take effect, as shown on the
Policy's Owner's Policy Data Page.
Policy Loan Account- The Portion of the Cash value which results from Policy
indebtedness.
Policy Owner- The person designated in the Policy application as the Owner. 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.
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Policy Year- Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
Scheduled Premium- The Scheduled Premium is shown on the Policy Date Page.
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 of the New York Stock Exchange and the Company's Home
Office are open for business or any other day during which there is a
sufficient degree of trading of the Variable Accounts's underlying Mutual Fund
Shares such that the current net asset value of its Accumulation Units might be
materially affected.
Valuation Period- A period commencing with the close of a Valuation Date and
ending at the close of business for the next succeeding Valuation Date.
Variable Account- A separate investment account of the Company.
3
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TABLE OF CONTENTS
GLOSSARY OF TERMS..............................................................2
SUMMARY OF THE POLICIES........................................................6
Variable Life Insurance...............................................6
The Variable Account and its Sub-Accounts.............................6
The Fixed Account.....................................................6
Deductions and Charges................................................6
Underlying Mutual Fund Annual Expenses................................8
Premiums..............................................................8
NATIONWIDE LIFE INSURANCE COMPANY..............................................9
THE VARIABLE ACCOUNT...........................................................9
Investments of the Variable Account...................................9
Van Kampen 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................................................12
Underwriting and Issuance............................................12
-Minimum Requirements for Issuance of a Policy.......................12
-Premium Payments....................................................12
Allocation of Cash Value.............................................13
Short-Term Right to Cancel Policy....................................13
POLICY CHARGES................................................................14
Deductions from Premiums.............................................14
Surrender Charges....................................................14
-Reductions to Surrender Charges.....................................15
Deductions from Cash Value...........................................15
-Monthly Cost of Insurance...........................................15
-Monthly Administrative Charge.......................................16
-Increase Charge.....................................................16
Deductions from the Sub-Accounts.....................................16
HOW THE CASH VALUE VARIES.....................................................16
How the Investment Experience is Determined..........................16
Net Investment Factor................................................17
Valuation of Assets..................................................17
Determining the Cash Value...........................................17
Valuation Date and Valuation Period..................................17
SURRENDERING THE POLICY FOR CASH..............................................18
Right to Surrender...................................................18
Cash Surrender Value.................................................18
Partial Surrenders...................................................18
Maturity Proceeds....................................................18
Income Tax Withholding...............................................18
POLICY LOANS..................................................................19
Taking a Policy Loan.................................................19
Effect on Investment Performance.....................................19
Interest.............................................................19
Effect on Death Benefit and Cash Value...............................20
Repayment............................................................20
HOW THE DEATH BENEFIT VARIES..................................................20
Calculation of the Death Benefit.....................................20
Proceeds Payable on Death............................................21
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY..................................21
CHANGES OF INVESTMENT POLICY..................................................21
GRACE PERIOD..................................................................21
-First Three Policy Years............................................21
-Policy Years Four and After.........................................21
-All Policy Years....................................................22
4
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REINSTATEMENT.................................................................22
THE FIXED ACCOUNT OPTION......................................................22
CHANGES IN EXISTING INSURANCE COVERAGE........................................22
Specified Amount Increases...........................................23
Specified Amount Decreases...........................................23
Changes in the Death Benefit Option..................................23
OTHER POLICY PROVISIONS.......................................................23
Policy Owner.........................................................23
Beneficiary..........................................................23
Assignment...........................................................24
Incontestability.....................................................24
Error in Age or Sex..................................................24
Suicide..............................................................24
Nonparticipating Policies............................................24
LEGAL CONSIDERATIONS..........................................................24
DISTRIBUTION OF THE POLICIES..................................................25
CUSTODIAN OF ASSETS...........................................................25
TAX MATTERS...................................................................25
Policy Proceeds......................................................25
Federal Estate and Generation-Skipping Transfer Taxes................26
Non-Resident Aliens..................................................26
Taxation of the Company..............................................26
Tax Changes..........................................................27
THE COMPANY...................................................................27
COMPANY MANAGEMENT............................................................28
Directors of the Company.............................................28
Executive Officers of the Company....................................29
OTHER CONTRACTS ISSUED BY THE COMPANY.........................................29
STATE REGULATION..............................................................29
REPORTS TO POLICY OWNERS......................................................29
LEGAL PROCEEDINGS.............................................................30
ADVERTISING...................................................................30
EXPERTS.......................................................................30
REGISTRATION STATEMENT........................................................30
LEGAL OPINIONS................................................................30
APPENDIX 1....................................................................31
APPENDIX 2....................................................................33
FINANCIAL STATEMENTS..........................................................50
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.
5
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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 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 the Policy Charges, the Policy will lapse
without value. The Company guarantees to keep the Policy in force during the
first three years so long as certain requirements are met (see "Underwriting and
Issuance").
Under certain conditions, a Policy may become a modified endowment contract as a
result of a material change or a reduction in benefits as defined by the Code.
Excess premiums paid may also cause the Policy to become a modified endowment
contract. The Company will monitor premiums paid and other policy transactions
and will notify the Policy Owner when the Policy's non-modified endowment
contract status is in jeopardy (see "Tax Matters").
The Variable Account and its Sub-Accounts
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner 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"). When the Policy is
issued, the Policy's Net Premiums not allocated to the Fixed Account will be
placed in the Van Kampen American Capital Life Investment Trust Money Market
Fund until the expiration of the period in which the Policy Owner may exercise
his or her short-term right to cancel the Policy (see "Short-Term Right to
Cancel Policy). Assets of each Variable Account sub-account are invested at net
asset value in shares of a corresponding Underlying Mutual Fund option(s). 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. For a discussion of any charges
imposed by the underlying Mutual Fund options, see the prospectuses of the
respective underlying Mutual Fund options.
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end load plus any sales surrender
charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
3. an administrative expense charge. This charge is $12.50 per month in
the first year and $5 per month in renewal years. The charges may be
increased at the sole discretion of the Company but may not exceed $25
per month in the first year and $7.50 per month in renewal years; plus
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4. an increase charge per $1000 applied to any increase in the Specified
Amount. The increase charge is $2.04 per year per $1000 and is shown
on the Policy data page. This charge is designed to cover the costs
associated with increasing the Specified Amount (see "Policy
Charges"). This charge will be deducted on each Monthly Anniversary
Day for the first 12 months after the increase becomes effective.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equivalent to an annual effective rate of 0.80% of the daily net assets of the
Variable Account. On each Policy Anniversary beginning with the 10th, the
mortality and expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a Standard basis (see
Appendix 1 for specific examples).
Initial Specified Amount $50,000-$99,999
Issue Age Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
Initial Specified Amount $100,000+
Issue Age Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
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:
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UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(After Expense Reimbursement)
<TABLE>
<CAPTION>
===========================================================================
Management Fees Other Expenses Total Portfolio Expenses
===============================================================================================================
<S> <C> <C> <C>
Van Kampen American Capital Life 0.00% 0.60% 0.60%
Investment Trust Asset Allocation
Fund*
- ---------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 0.60% 0.60%
Investment Trust Domestic Income
Fund*
- ---------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 0.85% 0.85%
Investment Trust Emerging Growth
Fund
- ---------------------------------------------------------------------------------------------------------------
Van Kampen American Capitial Life 0.37% 0.23% 0.60%
Investment Trust Enterprise Fund*
- ---------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 1.20% 1.20%
Investment Trust Global Equity Fund
- ---------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.33% 0.27% 0.60%
Investment Trust Government Fund*
- ---------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.00% 0.60% 0.60%
Investment Trust Money Market Fund*
- ---------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life 0.83% 0.27% 1.10%
Investment Trust Real Estate
Securities Fund
===============================================================================================================
</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. None of the above
underlying Mutual Funds are subject to 12(b)(1) fees.
* Pursuant to an agreement with the Advisor, the ordinary business expenses of
the Van Kampen American Capital Life Investment Trust Asset Allocation Fund,
Domestic Income Fund, Enterprise Fund, Government Fund and Money Market Fund,
are limited to 0.60% per year of the average net assets by reducing the other
expenses in excess of such limitations. Without such an agreement, the total
expenses would have been 0.60%, 0.69%, 0.58%, 0.59% and 0.70% respectively.
The information relating to the underlying Mutual Fund expenses was provided by
the underlying Mutual Fund and was not independently verified by the Company.
Premiums
The minimum Initial Premium for which a Policy may be issued is equal to three
minimum monthly premiums. 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").
The Initial Premium is due on the Policy Date. It will be credited on the Policy
Date. Any due and unpaid monthly deductions will be subtracted from the Cash
Value at this time. Insurance will not be effective until the Initial Premium is
paid. The Initial Premium is shown on the Policy data page.
Premiums, other than the Initial Premium may be made at any time while your
Policy is in force subject to the limits described below. During the first three
Policy Years, the total premium payments less any Policy Indebtedness, less any
partial surrenders, and less any partial surrender fee must be greater than or
equal to the Minimum Premium requirement in order to guarantee the Policy remain
in force.
The Minimum Premium requirement is equal to the monthly Minimum Premium
multiplied by the number of completed policy months. The monthly Minimum Premium
is shown on the Policy data page. We will send Scheduled Premium payment
reminder notices to you. We will send them according to the premium mode shown
on the Policy data page.
You may pay the Initial Premium to us at our Home Office or to an authorized
agent. All premiums after the first are payable at our Home Office. Premium
receipts will be furnished upon request.
Each premium must be at least equal to the monthly Minimum Premium. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any additional premium payment which results in
8
<PAGE> 12
any increase in the net amount at risk. Also, we will refund any portion of any
premium payment which is determined to be in excess of the premium limit
established by law to qualify your Policy as a contract for life insurance.
Where permitted by state law, we may also require that any existing Policy
Indebtedness is repaid prior to accepting any additional premium payments.
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide 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 43215.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states, the
District of Columbia, and Puerto Rico (for additional information, see "The
Company").
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on 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").
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more sub-accounts (see "Tax Matters"). The assets of each Variable
Account 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 Net Premiums
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account (see "Allocation of Cash Value"). During the period in which the Policy
Owner may exercise his or her short-term right to cancel the Policy, all Net
Premiums not allocated to the Fixed Account are placed in the Van Kampen
American Capital Life Investment Trust Money Market Fund. At the end of this
period, the Cash Value in that sub-account will be transferred to the Variable
Account sub-accounts based on the underlying Mutual Fund allocation factors. Any
subsequent Net Premiums received after this period will be allocated based on
the underlying Mutual Fund allocation factors.
No less than 5% of Net Premiums may be allocated to any one Variable Account
sub-account or the Fixed Account. The Policy Owner may change the allocation of
Net Premiums or may transfer Cash Value from one sub-account to another, subject
to such terms and conditions as may be imposed by each Underlying Mutual Fund
and as set forth in this prospectus (see "Transfers", "Allocation of Cash Value"
and "Short-Term Right to Cancel Policy"). Additional Premium Payments, upon
acceptance, will be allocated to the Van Kampen American Capital Life Investment
Trust Money Market Fund unless the Policy Owner specifies otherwise (see
"Premium Payments").
These underlying Mutual Funds are available only to serve as the underlying
investment for variable annuity and variable life contracts issued through
separate accounts of the 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 each underlying
Mutual Fund prospectus. 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 Fund options.
Each of the underlying Mutual Fund option receives investment advice from Van
Kampen American Capital Asset Management, Inc., (the "Advisor") 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 option
below.
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More detailed information may be found in the current prospectus for each
underlying Mutual Fund. A prospectus for the underlying Mutual Fund options
being considered should be read in conjunction herewith.
Van Kampen American Capital Life Investment Trust
The Van Kampen American Capital Life Investment Trust is an open-end
diversified management investment company organized as a Massachusetts business
trust on June 3, 1985. The Trust offers shares in separate funds which are sold
only to insurance companies to provide funding for variable life insurance
policies and variable annuity contracts. Van Kampen American Capital Asset
Management, Inc. (the "Advisor") serves as the Fund's investment adviser.
Asset Allocation Fund
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 fund 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 Income Fund
The investment objective of this Fund is to seek current income as its
primary objective. Capital appreciation is a secondary objective. The
Fund attempts to achieve these objectives through investment primarily in
a diversified portfolio of fixed-income securities. The Fund 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.
Emerging Growth Fund
The investment objective of this Fund is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common
stocks of small and medium sized companies considered by the Advisor to
be emerging growth companies. Under normal market conditions, at least
65% of the Fund's total assets will be invested in common stocks of small
and medium sized companies (less than $2 billion of market
capitalization), both domestic and foreign. The Fund may invest up to 20%
of its total assets in securities of foreign issuers. Additionally, the
Fund may invest up to 15% of the value of its assets in restricted
securities (i.e., securities which may not be sold without registration
under the Securities Act of 1933) and in other securities not having
readily available market quotations.
Enterprise Fund
The investment objective of this Fund is to seek capital appreciation by
investing securities believed by the Advisor to have above average
appreciation. Any income received on such securities is incidental to the
objective of capital appreciation.
Global Equity Fund
The investment objective of this Fund is to seek long term capital growth
through investments in an internationally diversified portfolio of equity
securities of companies of any nation including the United States. The
Fund intends to be invested in equity securities of companies of at least
three countries including the United States. Under normal market
conditions, at least 65% of the Fund's total assets are so invested.
Equity securities include common stocks, preferred stocks and warrants or
options to acquire such securities.
Government Fund
The investment objective of this Fund is to provide investors with a high
current return consistent with preservation of capital. The Fund 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 Fund may also purchase or sell options and engage in
transactions involving interest rate futures contracts and options on
such contracts.
Money Market Fund
The investment objective of this Fund is to seek a high level of current
income as is considered consistent with the preservation of capital and
liquidity by investing primarily in money market instruments.
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<PAGE> 14
Real Estate Securities Fund
The investment objective of this Fund is to seek long-term capital growth
by investing in a portfolio of securities of companies operating in the
real estate industry ("Real Estate Securities"). Current income is a
secondary consideration. Real Estate Securities include equity
securities, including common stocks and convertible securities, as well
as non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate
investment trusts. The Fund may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of which may also be
Real Estate Securities. There can be no assurance that the Fund will
achieve its investment objective.
Reinvestment
The underlying Mutual Fund options 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
After the first Policy Anniversary, the Policy Owner may annually transfer a
portion of the value of the Variable Account to the Fixed Account, without
penalty or adjustment. The Policy Owner may request a transfer of up to 100% of
the Cash Value from the Variable Account to the Fixed Account. The Company
reserves the right to restrict transfers to the Fixed Account to 25% of the Cash
Value. The Policy 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 Policy Owner may transfer a portion of the value of the Fixed Account to the
Variable Account once each Policy Year, without penalty or adjustment. The
Policy Owner may request a transfer of up to 100% of the Cash Value in the Fixed
Account to the Variable Account. The Company reserves the right to restrict the
amount of such transfers to 25% of the Cash Value in the Fixed Account.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. This telephone exchange privilege is made available to Policy
Owners automatically without the Policy Owner's election. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include the following: requesting
identifying information, such as name, contract number, Social Security Number,
and/or personal identification number; tape recording all telephone
transactions; or providing written confirmation thereof to both the Policy Owner
and any agent of record, at the last address of record; or such other procedures
as the Company may deem reasonable. Although failure to follow reasonable
procedures may result in the Company's liability for any losses to unauthorized
or fraudulent telephone transfers, the Company will not be liable for following
instructions communicated by telephone which it reasonably believes to be
genuine. Any losses incurred pursuant to actions taken by the Company in
reliance on telephone instructions reasonably believed to be genuine shall be
borne by the Policy Owner. The Company may withdraw the telephone exchange
privilege upon 30 days' written notice to the Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging") 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 Fund or the Fixed Account to any other sub-account within the Variable
Account on a monthly basis or as frequently as otherwise authorized by the
Company. This service is intended to allow the Policy Owner to utilize Dollar
Cost Averaging, a long-term investment program which provides for regular, level
investments over time. The Company makes no guarantees that Dollar Cost
Averaging will result in a profit or protect against loss. 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 Fund or from the Fixed Account. The minimum
monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost
Averaging monthly transfers from the Fixed Account must be equal to or less than
1/30th of the Fixed Account value when the Dollar Cost Averaging program is
requested. Transfers out of the Fixed Account, other than for Dollar Cost
Averaging, may be subject to certain additional restrictions (see "Transfers").
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 Fund or from the Fixed Account will be processed
monthly until either the value in the Money Market Fund or from the Fixed
Account is completely depleted or the Policy Owner instructs the Company in
writing to cancel the transfers.
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<PAGE> 15
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Policy Owners however, any discontinuation will
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 above Underlying Mutual Funds 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, the Company may eliminate sub-accounts, combine two or more
sub-accounts, or substitute shares of one or more underlying Mutual Fund for
other underlying Mutual Fund shares already purchased or to be purchased in the
future by Net Premium payments under the Policy. No substitution of securities
in the Variable Account may take place without prior approval of the Securities
and Exchange Commission, and under such requirements as it and any state
insurance department may impose.
Voting Rights
Voting rights under the Policies apply only with respect to Cash Value allocated
to the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote the
shares of the underlying Mutual Funds held in the Variable Account at regular
and special meetings of the shareholders of the underlying Mutual Funds. These
shares will be voted in accordance with instructions received from Policy Owners
who have an interest in the Variable Account. 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, it may elect to do so.
The Policy Owner shall be the person who has the voting interest under the
Contract. The number of underlying Mutual Fund shares attributable to each
Policy Owner is determined by dividing the Policy Owner's interest in each
respective Sub-Account of the Variable Account by the net asset value of the
underlying Mutual Fund corresponding to the Sub-Account. The number of shares
which a person has the right to vote will be determined as of the date to be
chosen by the Company not more than 90 days prior to the meeting of the
underlying Mutual Fund. Each person having a voting interest will receive
periodic reports relating to the underlying Mutual Fund, proxy material and a
form with which to give such voting instructions.
Voting instructions will be solicited by written communication at least 21 days
prior to such meeting. 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
with respect to all Contracts participating in the Variable Account.
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 underyling Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance requlatory
authority.
INFORMATION ABOUT THE POLICIES
Underwriting and Issuance
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to provide life insurance coverage and the flexibility
to vary the amount and frequency of premium payments. At issue, the Policy Owner
selects the initial Specified Amount and premium. The minimum Specified Amount
is $50,000 ($100,000 in Pennsylvania). Policies may be issued to Insureds with
issue ages 80 or younger. Before issuing any Policy, the Company requires
satisfactory evidence of insurability which may include a medical examination.
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's Home
Office. Upon payment of an initial premium, temporary insurance may be provided,
subject to 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.
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<PAGE> 16
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the first three
Policy Years, the total premium payments less any Policy Indebtedness, less any
partial surrenders, and less any partial surrender fee must be greater than or
equal to the Minimum Premium requirement in order to guarantee the Policy
remains in force. The Minimum Premium requirement is equal to the monthly
Minimum Premium multiplied by the number of completed policy months. The monthly
Minimum Premium is shown on the Policy data page.
Each premium payment must be at least equal to the monthly Minimum Premium.
Additional premium payments may be made at any time while the Policy is in
force. 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. Also, the Company will refund any portion
of any premium payment which is determined to be in excess of the premium limit
established by law to qualify the Policy as a contract for life insurance. The
Company may also require that any existing Policy Indebtedness is repaid prior
to accepting any additional premium payments. Additional premium payments or
other changes to the contract, may jeopardize the Policy's non-modified
endowment contract status. The Company will monitor premiums paid and other
policy transactions and will notify the Policy Owner when non-modified endowment
contract status is in jeopardy (see "Tax Matters").
Allocation of Cash Value
At the time a Policy is issued, its Cash Value will be based on the Van Kampen
American Capital Life Investment Trust Money Market Fund value or the Fixed
Account as if the Policy had been issued and the Initial Net Premium invested on
the date such premium was received in good order by the Company. When the Policy
is issued, the Net Premiums will be allocated to the Van Kampen American Capital
Life Investment Trust Money Market Fund (for any Net Premiums allocated to any
other Variable Account 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. At the expiration of the period in
which the Policy Owner may exercise his or her short term right to cancel the
Policy, shares of the Underlying Mutual Funds specified by the Policy Owner are
purchased at net asset value for the respective sub-account(s). The Policy Owner
may change the allocation of Net Premiums or may transfer Cash Value from one
Variable Account 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. Net Premiums 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 Net 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 to 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.
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POLICY CHARGES
Deductions from Premiums
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment (the Company may reduce this sales load at
its discretion). On a current basis, the sales load is reduced to 1.5% on any
portion of the annual premium paid in excess of the annual Break Point Premium.
The total sales load actually deducted from any Policy will be equal to the sum
of this front-end sales load plus any sales surrender charge that may be
deducted from Policies that are surrendered. The Company also 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 generally can range
from 0% to 4%. To reimburse the Company for the payment of state premium taxes
associated with the Policies, the Company deducts a charge for state premium
taxes equal to 2.5% of all premium payments received. This charge may be more or
less than the amount actually assessed by the state in which a particular Policy
Owner lives. The Company does not expect to make a profit from this charge.
Surrender Charges
The Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a standard basis (see
Appendix 1 for specific examples).
Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
Initial Specified Amount $100,000+
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
Charge per $1,000 of
Initial Specified Amount
Issue Specified Amounts Specified Amounts
Age less than $100,000 $100,000 or more
--- ------------------ -----------------
0-35 $6.00 $4.00
36-55 7.50 5.00
56-80 7.50 6.50
The underwriting surrender charge is designed to cover the administrative
expenses associated with underwriting and issuing the Policy, including the
costs of processing applications, conducting medical exams, determining
insurability and the Insured's underwriting class, and establishing policy
records. The Company does not expect to profit from the underwriting surrender
charges. The Surrender Charge may be insufficient to recover certain expenses
related to the sale of the Policies. Unrecovered expenses are borne by the
Company's general assets which may include profits, if any, from Mortality and
Expense Risk Charges (see "Deductions from the Sub-Accounts"). Additional
premiums and/or income earned on assets in the Variable Account have no effect
on these charges. The remainder of the Surrender Charge which is not
attributable to
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<PAGE> 18
the underwriting surrender charge component represents the sales surrender
charge component. In no event will this component exceed 26 1/2% of the lesser
of the Guideline Level Premium required in the first year or the premiums
actually paid in the first year. The purpose of the sales surrender charge
component is to reimburse the Company for some of the expenses incurred in the
distribution of the Policies. The Company also deducts 3.5% of each premium for
sales load (see "Deductions from Premiums").
- -Reductions to Surrender Charges
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
------------ ----------------- ------------ -----------------
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see Appendix
1).
Deductions from Cash Value
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by riders; plus
3. monthly administrative expense charge; plus
4. the increase charge per $1000 applied to any increase in the Specified
Amount (see "Specified Amount Increases"). The increase charge is
$2.04 per year per $1000 and is shown on the Policy data page. This
charge is designed to cover the costs associated with increasing the
Specified Amount (see "Policy Charges"). This charge will be deducted
on each Monthly Anniversary Day for the first 12 months after the
increase becomes effective.
These deductions will be charged proportionately to the Cash Value in each
Variable Account sub-account and the Fixed Account.
- -Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
If death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value shall first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on Specified Amounts less
than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table,
Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for Policies
issued on Specified Amounts $100,000 or more are based on the 1980 Commissioners
Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost
of insurance rates for Policies issued on a substandard basis are based on
appropriate percentage multiples of the 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 on a standard basis ("Special Class - Standard" in
Texas), guaranteed cost of insurance rates for Specified Amounts less than
$100,000 are based on 130% of the 1980 Commissioners 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 "Non Medical" basis to
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<PAGE> 19
certain categories of individuals. Due to the underwriting criteria established
for Policies issued on a Non Medical basis, actual rates will be higher than the
current cost of insurance rates being charged under otherwise identical Policies
that are medically underwritten.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only to
reimburse the Company for certain actual administrative expenses. The Company
does not expect to recover from this charge any amount in excess of aggregate
maintenance expenses. Currently, this charge is $12.50 per month in the first
year, $5 per month in renewal years. The Company may at its sole discretion
increase this charge. However, the Company guarantees that this charge will
never exceed $25 per month in the first year, and $7.50 per month in renewal
years.
- -Increase Charge
The Increase Charge is comprised of two components: (1) an underwriting and
administration charge; and (2) a sales charge (see "Specified Amount
Increases"). The underwriting and administration charge is $1.50 per year per
$1000. This charge is to cover the cost of underwriting the increases and any
processing expenses. The Company does not expect to profit from this charge. The
sales charge is equal to .54 per year per $1000 and reimburses the Company for
expenses incurred in distribution.
Deductions from the Sub-Accounts
The Company assumes certain risks for guaranteeing the Mortality and Expense
Charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts on a daily basis from the assets of the Variable Account a
charge to provide for mortality and expense risks. This charge is equivalent to
an annual effective rate of 0.80% of the daily net assets of the Variable
Account. On each Policy Anniversary beginning with the 10th, the mortality and
expense risk charge is reduced to 0.50% on an annual basis of the daily net
assets of the Variable Account, provided the Cash Surrender Value is $25,000 or
more on such anniversary. To the extent that future levels of mortality and
expenses are less than or equal to those expected, the Company may realize a
profit from this charge. The Surrender Charge may be insufficient to recover
certain expenses related to the sale of the Policies. Unrecovered expenses are
borne by the Company's general assets which may include profits, if any, from
Mortality and Expense Risk Charges (see "Surrender Charges").
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the sub-accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
How the Investment Experience is Determined
The Cash Value in each Variable Account sub-account is converted to Accumulation
Units of that Variable Account sub-account. The conversion is accomplished by
dividing the amount of Cash Value allocated to a Variable Account sub-account by
the value of an Accumulation Unit for the Variable Account sub-account of the
Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each Variable Account sub-account was
arbitrarily set initially at $10 when the underlying Mutual Fund shares in that
Variable Account sub-account were available for purchase. The value for any
subsequent Valuation Period is determined by multiplying the Accumulation Unit
value for each Variable Account sub-account for the immediately preceding
Valuation Period by the Net Investment
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<PAGE> 20
Factor for the Variable Account 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 Variable Account 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 option held in
the Variable Account sub-account if the "ex-dividend" date occurs
during the current Valuation Period.
(b) is the net of:
(1) the Net Asset Value per share of the underlying Mutual Fund held
in the Variable Account sub-account determined at the end of the
immediately preceding Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved
for in the immediately preceding Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk Charge
deducted from the Variable Account. Such factor is equal to an annual
rate of .80% of the daily net asset value of the Variable Account. On
each Policy Anniversary beginning with the 10th, the mortality and
expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender
Value is $25,000 or more on such anniversary.
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, 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 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 Variable Account sub-account are determined
by dividing the net amount allocated to the Variable Account sub-account by the
Accumulation Unit Value for the sub-account for the Valuation Period during
which the premium is received by the Company. If part or all of the Cash Value
is surrendered or charges or deductions are made against the Cash Value, an
appropriate number of Accumulation Units from the Variable Account and an
appropriate amount from the Fixed Account will be deducted in the same
proportion that the Policy Owner's interest in the Variable Account and the
Fixed Account bears to the total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited with
interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
Valuation Date and Valuation Period
A Valuation Date is each day that the New York Stock Exchange and the Company's
Home Office are open for business or any other day during which there is
sufficient degree of trading that the current Net Asset Value of its
Accumulation Units might be materially affected. A Valuation Period is the
period commencing at the close of the Variable Accounts' underlying Mutual Fund
Shares.
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<PAGE> 21
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 or other eligible guarantor institution as defined by the federal
securities laws and regulations. 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 one year, the Policy Owner may request a
partial surrender. Partial surrenders will be permitted only if they satisfy the
following requirements:
1. the minimum partial surrender is $500;
2. the partial surrender may not reduce the Specified Amount to less than
$50,000;
3. after the partial surrender, the Cash Surrender Value is greater than
$500 or an amount equal to three times the current monthly deduction
if higher;
4. the maximum total partial surrenders in any policy year are limited to
10% of the total premium payments. On a current basis, this
requirement is waived in years 15 and beyond provided the Cash
Surrender Value is $10,000 or more after the withdrawal; and
5. 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. Under Death Benefit Option 1, the Specified Amount is reduced
by the amount of the partial surrender, unless the death benefit is based on the
applicable percentage of Cash Value. In such a case, a partial surrender will
decrease the Specified Amount by the amount by which the partial surrender
exceeds the difference between the death benefit and Specified Amount. Partial
surrender amounts must be first deducted from the values in the Variable Account
sub-accounts. Partial surrenders will be deducted from the Fixed Account only to
the extent that insufficient values are available in the Variable Account
sub-accounts. The Company reserves the right to deduct a $25.00 fee from the
partial surrender amount.
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 own personal tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided; (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value of the
Policy exceeds the employer's interest in the Policy. Participants should
consult with the sponsor or the administrator of the plan, and/or with their
personal tax or legal advisers, to determine the tax consequences, if any, of
their employer-sponsored life insurance arrangements.
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<PAGE> 22
POLICY LOANS
Taking a Policy Loan
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Value less Surrender Charge less interest due on the next Policy Anniversary.
Maximum policy indebtedness, in Texas, is limited to 90% of the Cash Value in
the Variable Account sub-accounts and 100% of the Cash Value in the Fixed
Account less Surrender Charge less interest due on the next Policy Anniversary.
The Company will not grant a loan for an amount less than $200. Should the Death
Proceeds become payable, the Policy be surrendered, or the Policy mature while a
loan is outstanding, the amount of Policy Indebtedness will be deducted from the
death benefit, Cash Surrender Value or the maturity value, respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed 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 or other
eligible guarantor institution as defined by the federal securities laws and
regulations. Certain policy loans may result in currently taxable income and tax
penalties (see "Tax Matters").
A Policy Owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the Policy from lapsing. The amount of such payments necessary to prevent
the Policy from lapsing would increase with age (see "Tax Matters").
Effect on Investment Performance
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one Variable Account sub-account, withdrawals
from the Variable Account sub-accounts will be made in proportion to the assets
in each Variable Account 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 Account sub-accounts. The amount taken out of the
Variable Account will not be affected by the Variable Account's investment
experience while the loan is outstanding.
Interest
On a current basis, policy loans are credited with an annual effective rate of
5.1% during policy years 2 through 14 and an annual effective rate of 6% during
the 15th and subsequent policy years. The rate is guaranteed never to be lower
than 5.1%. The Company may change the current interest crediting rate on policy
loans at any time its sole discretion. The loan interest rate is 6% per year for
all Policy loans. In the event that it is determined that such loans will be
treated, as a result of the differential between the interest crediting rate and
the loan interest rate, as taxable distributions under any applicable ruling,
regulation, or court decision, the Company retains the right to increase the net
cost (by decreasing the interest crediting rate) on all subsequent policy loans
to an amount that would result in the transaction being treated as a loan under
Federal tax law. If this amount is not prescribed by such ruling, regulation, or
court decision, the amount will be that which the Company considers to be more
likely to result in the transaction being treated as a loan under Federal tax
law.
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary or
at the time of loan repayment. It will be allocated according to the underlying
Mutual Fund allocation factors in effect at the time of the transfer.
Interest is charged daily and is payable at the end of each Policy Year or at
the time of loan repayment. Unpaid interest will be added to the existing Policy
Indebtedness as of the due date and will be charged interest at the same rate as
the rest of the Indebtedness.
Whenever the total Policy Indebtedness exceeds the Cash Value less any Surrender
Charges, the Company will send a notice to the Policy Owner and the assignee, if
any. The Policy will terminate without value 61 days after the mailing of the
notice unless a sufficient repayment is made during that period. A repayment is
sufficient if it is large enough to reduce the total Policy Indebtedness to an
amount equal to the total Cash Value less any Surrender Charges plus an amount
sufficient to continue the Policy in force for 3 months.
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<PAGE> 23
Effect on Death Benefit and Cash Value
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
Repayment
All or part of the Indebtedness may be repaid at any time while the Policy is in
force during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the Variable Account sub-accounts and the Fixed Account in
proportion to the Policy Owner's Underlying Mutual Fund allocation factors in
effect at the time of the repayment. Each repayment may not be less than $50.
The Company reserves the right to require that any loan repayments resulting
from Policy loans transferred from the Fixed Account must be first allocated to
the Fixed Account.
HOW THE DEATH BENEFIT VARIES
Calculation of the Death Benefit
At issue, the Policy Owner selects the Specified Amount.
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.
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" shown in this provision.
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
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%
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<PAGE> 24
Proceeds Payable on Death
The actual Death Proceeds payable on the Insured's death will be the death
benefit as described above, less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted
(see "Incontestability", "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for 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 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 the Variable Account.
The Company must inform the Policy Owners and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the Policy Owners or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, the Policy may be converted to a
substantially comparable Nationwide General Account life insurance policy
offered by the Company 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 separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the Policy converted on the date of such conversion.
GRACE PERIOD
- -First Three Policy Years
This Policy will not lapse during the first three Policy Years provided that on
each Monthly Anniversary Day (1) is greater than or equal to (2) where:
(1) is the sum of all premiums paid to date minus any Policy Indebtedness,
minus any partial surrenders, and minus any partial surrender fee; and
(2) is the sum of monthly Minimum Premiums required since the Policy Date
including the monthly Minimum Premium for the current Monthly
Anniversary Day.
If (1) is less than (2) and the Cash Surrender Value is less than zero, a Grace
Period of 61 days from the Monthly Anniversary Day will be allowed for the
payment of sufficient premium to satisfy the Minimum Premium requirement. If
sufficient premium is not paid by the end of the Grace Period, the Policy will
lapse without value. In any event the Policy will not lapse as long as there is
a positive Cash Surrender Value.
- -Policy Years Four and After
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current Policy Charges, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of sufficient premium to cover
the current Policy Charges due plus an amount equal to three times the current
monthly deduction.
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<PAGE> 25
- -All Policy Years
The Company will send such a notice at the start of the Grace Period to the
Policy Owner's last known address. 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 an amount of premium equal to the sum of the Minimum Monthly
Premiums missed since the beginning of the Grace Period, if the Policy
terminated in the first three policy years;
4. paying sufficient premium to cover all policy charges that were due
and unpaid during the Grace Period if the Policy terminated in the
fourth or later policy year;
5. paying sufficient premium to keep the Policy in force for 3 months
from the date of reinstatement; and
6. paying or reinstating any Indebtedness against the Policy which
existed at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day on
or next following the date the application for reinstatement is approved by the
Company. If the Policy is reinstated, the Cash Value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
1. the Cash Value at the end of the Grace Period; or
2. the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the Underlying Mutual Fund allocation factors in effect at the start of
the Grace Period.
THE FIXED ACCOUNT OPTION
A Policy Owner may elect to allocate or transfer all or part of the Cash Value
to the Fixed Account and the amount allocated or transferred becomes part of the
Company's General Account. The Company's General Account consists of all assets
of the Company other than those in the Variable Account and in other separate
accounts that have been or may be established by the Company. Subject to
applicable law, the Company has sole discretion over the investment of the
assets of the General Account, and Policy Owners do not share in the investment
experience of those assets.
Because of exemptive and exclusionary provisions, interests in the Company's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor any
interests therein are subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this prospectus relating to the Fixed Account
option. Disclosures regarding the General Account may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses.
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 the Company will inform a
Policy Owner of the then applicable rate. The Company is not obligated to credit
interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under the
Policy. Any request must be in writing and received at the Company's Home
Office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
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<PAGE> 26
Specified Amount Increases
After the first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy in force
for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the Monthly Anniversary Day
on or next following the date the Company approves the supplemental application.
The Company reserves the right to limit the number of Specified Amount increases
to one each Policy Year.
Specified Amount Decreases
After the first Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
1. reduce the Specified Amount to less than $50,000; or
2. disqualify the Policy as a contract for life insurance.
Changes in the Death Benefit Option
After the first Policy Year, the Policy Owner may 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 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 Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
Beneficiary
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
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<PAGE> 27
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Company's Home Office. Once recorded, the change will be effective when signed.
The change will not affect any payment made or action taken by the Company
before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insureds, the Death 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. Any assignment will not affect any
payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before it
was recorded.
Incontestability
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not contest payment of the
Death Proceeds based on such an increase after it has been in force during the
Insured's lifetime for 2 years from its effective date.
Error in Age or Sex
If the age or sex of the Insured has been misstated, the affected benefits will
be adjusted. The amount of the death benefit (1) will be multiplied by (2) and
then the result added to (3), where:
(1) is the amount of the death benefit at the time of the Insured's death
reduced by the amount of the Cash Value at the time of the Insured's
death;
(2) is the ratio of the monthly cost of insurance applied in the policy
month of death and the monthly cost of insurance that should have been
applied at the true age and sex in the policy month of death; and
(3) is the Cash Value at the time of the Insured's death.
Suicide
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in the
Specified Amount, the Company will pay no more than the amount paid for such
additional benefit.
Nonparticipating Policies
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee vs.
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
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with legal
counsel, the impact of Norris on any employment related insurance or benefit
program before purchasing this Policy.
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<PAGE> 28
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 first year commissions plus any expense allowance payments paid by the
Company on the sale of these policies provided by the General Distributor will
not exceed 80% of the target Premium plus 4% of any excess premium payments.
Gross renewal commissions in years 2-10 paid by the Company will not exceed 4%
of actual premium payment, and will not exceed 1% in years 11+.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
Policy Proceeds
Section 7702 of the Code provides that if certain tests are met, a policy will
be treated as a life insurance policy for federal tax purposes. The Company will
monitor compliance with these tests. The policy should thus receive the same
federal income tax treatment as fixed benefit life insurance. As a result, the
Death Proceeds payable under a policy are excludable from gross income of the
beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those policies
issued or materially changed on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (see "Information about the Policies"). The Code 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. Modified endowment contract distributions are defined by
the Code as amounts not received as an annuity and are taxable to the extent the
cash value of the policy exceeds, at the time of distribution, the premiums paid
into the policy. A 10% tax penalty generally applies to the taxable portion of
such distributions unless the Policy Owner is over age 59 1/2 or disabled.
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 offered by this prospectus may or may not be issued as modified
endowment contracts. The Company will monitor premiums paid and will notify the
Policy Owner when the policy's non-modified endowment status is in jeopardy. If
a policy is not a modified endowment contract, a cash distribution during the
first 15 years after a policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Policy Owner
Pursuant to Section 7702 (f) (7) of the Code. The Policy Owner should carefully
consider this potential effect and seek further information before initiating
any changes in the terms of the policy. Under certain conditions, a policy may
become a modified endowment as a result of a material change or a reduction in
benefits as defined by Section 7702A (c) of the Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations under 817(h) provide that a
variable life policy which does not satisfy the diversification standards will
not be treated as life insurance unless the failure to satisfy the regulations
was inadvertent, the failure is corrected, and the Policy Owner or the Company
pays an amount to the Internal Revenue Service. The amount will be based on the
tax that would have been paid by the Policy Owner if the income, for the period
the policy was not diversified, had been received by the Policy Owner. If the
failure to diversify is not corrected in this manner, the Policy Owner will be
deemed the owner of the Underlying securities and taxed on the earnings of his
or her account.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfers between funds, exchanges of underlying
Mutual Funds or changes in investment objectives of underlying Mutual Funds such
that the Policy would no longer qualify as life insurance under Section 7702 of
the Code, the Company will take whatever steps are available to remain in
compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Variable Account
sub-account investments to remain in compliance.
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<PAGE> 29
A total surrender or cancellation of the Policy by lapse or the maturity of the
Policy on its Maturity Date may have adverse tax consequences. If the amount
received by the Policy Owner plus total Policy Indebtedness exceeds the premiums
paid into the Policy, the excess will generally be treated as taxable income,
regardless of whether or not the Policy is a modified endowment contract.
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.
Federal Estate and Generation - Skipping Transfer Taxes
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, an estate of less than $600,000 (inclusive of
certain pre-death gifts) will not incur a federal estate tax liability. In
addition, an unlimited marital deduction may be available for federal estate tax
purposes, for certain amounts that pass to the surviving spouse.
When the Insured dies, the death benefit will generally be included in the
Insured's federal gross estate if (1) the proceeds were payable to or for the
benefit of the Insured's estate, or (2) the Insured held any "incident of
ownership" in the Policy at death or at any time within three years of death. An
incident of ownership is, in general, any right that may be exercised by the
owner of a policy, such as the right to borrow on the policy, or the right to
name a new beneficiary.
If the Policy Owner (whether or not he or she is the Insured) transfers
ownership of the Policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such Policy Owner transfers the Policy to
someone two or more generations younger than the Policy Owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the Policy.
Similarly, if the Beneficiary is two or more generations younger than the
Insured, the payment of the Death Proceeds at the death of the Insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the
Internal Revenue Service, the Company may be required to withhold a portion of
the Death Proceeds and pay them directly to the Internal Revenue Service as the
GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes. The tax rate is a flat rate equal to the maximum estate
tax rate (currently 55%), and there is a provision for an aggregate $1 million
exemption. Due to the complexity of these rules, the Policy Owner should consult
with their counsel or other competent advisors regarding these taxes.
Non-Resident Aliens
Distributions to nonresident aliens (NRAs) are generally subject to federal
income tax and tax withholding, at a statutory rate of thirty percent (30%) of
the amount of income that is distributed. The Company is required to withhold
such amount from the Distribution and remit it to the Internal Revenue Service.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the Internal
Revenue Service. In addition, for any Distribution made after December 31, 1997,
the NRA must obtain an Individual Taxpayer Identification Number from the
Internal Revenue Service, and furnish that number to the Company prior to the
Distribution. If the Company does not have the proper proof of citizenship or
residency and (for Distributions after December 31, 1997) a proper Individual
Taxpayer Identification Number prior to any Distribution, the Company will be
required to withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that such
payment is includable in the recipient's gross income for United States federal
income tax purposes. Any such distributions may be subject to back-up
withholding at the statutory rate (currently 31%) if no taxpayer identification
number, or an incorrect taxpayer identification number, is provided.
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.
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.
26
<PAGE> 30
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
Tax Changes
The foregoing discussion, which is based on the Company's understanding of
federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice.
In the recent past, the Internal Revenue Code has been subjected to numerous
amendments and changes, and it is reasonable to believe that it will continue to
be revised. The United States Congress has, in the past, considered numerous
legislative proposals that, if enacted, could change the tax treatment of the
Policies. It is reasonable to believe that such proposals, and other proposals
will be considered in the future, and some of them may be enacted into law. In
addition, the Treasury Department may amend existing regulations, issue new
regulations, or adopt new interpretations of existing law that may be in
variance with its current positions on these matters. In addition, current state
law (which is not discussed herein), and future amendments to state law, may
affect the tax consequences of the Policy.
If the Policy Owner, Insured, or Beneficiary or other person receiving any
benefit or interest in or from the Policy is not both a resident or citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the Policy, the
Death Benefit, or other distributions under the Policy. If there is currently a
treaty that provides favorable treatment for distributions from the Policy
and/or ownership of the Policy, that treaty may be amended and all or part of
the favorable treatment may be eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a Policy may be changed retroactively. There
is no way of predicting whether, when, and to what extent any such change may
take place. No representation is made as to the likelihood of the continuation
of these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE CONTRACTS. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company serves as depositor for Nationwide Variable Account, Nationwide
Variable Account-II, Nationwide Variable Account-3, Nationwide Variable
Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6,
Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8, MFS
Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI
Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, NACo Variable Account, Nationwide DC Variable Account, and Nationwide
DCVA-II, each of which is a registered investment company, and each of which is
a separate investment account of the Company.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
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 its Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
27
<PAGE> 31
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.
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)
Keith W. Eckel 1996 Partner, Fred W. Eckel Sons; President, Eckel Farms, Inc. (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
Charles L. Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf Electric Company, Electrical
Construction and Engineering Services (1)
Joseph J. Gasper *+ 1996 President and Chief Operating Officer, Nationwide Life Insurance Company
and Nationwide Life and Annuity Insurance Company (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
Dimon Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide Insurance Enterprise (2)
David O. Miller *+ 1985 Farm Owner and Land Developer; President, Owen Potato Farm, Inc.;
Partner, M&M Enterprises (1)
C. Ray Noecker 1994 Owner and Operator, Noecker Farms (1)
James F. Patterson + 1989 Vice President, Pattersons, Inc. ; President, Patterson Farms, Inc. (1)
Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and Chief Executive
Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Owner and Operator; Sunnydale Farms and Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farms (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
</TABLE>
- ---------------------------------
*Member, Executive +Member, Investment Committee
Committee
(1) Principal occupation for last five years.
(2) Prior to assuming their current positions, Messrs. McFerson and Gasper held
other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life Insurance Company. Messrs. Gasper and McFerson
are directors of Nationwide Advisory Services, Inc., a registered broker-dealer.
Messrs. Gasper, Holloway, McFerson, Miller, Patterson Shisler and Fuellgraf are
directors of Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson,
Ms. Thomas, and Mr. Weihl are trustees of Nationwide Investing Foundation, a
registered investment company. Mr. McFerson is a trustee of Nationwide Separate
Account Trust, Financial Horizons Investment Trust, Nationwide Asset Allocation
Trust, and Nationwide Investing Foundation II, registered investment companies.
Mr. Engel is a director of Western Cooperative Transport.
28
<PAGE> 32
Executive Officers of the Company
<TABLE>
<CAPTION>
Name Office Held
- ---- -----------
<S> <C>
Dimon Richard McFerson Chairman and Chief Executive Officer-Nationwide Insurance Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate Services and Secretary
Robert A. Oakley Executive Vice President - Chief Financial Officer
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
James E. Brock Senior Vice President - Life Company 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
Mark R. Thresher Vice President - Controller
Duane M. Campbell Vice President - Treasurer
</TABLE>
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life and
Annuity Insurance Company. Mr. Galloway is also an officer of Nationwide Mutual
Insurance Company and Nationwide Life and Annuity Insurance Company. Each of the
other officers listed above is also an officer of each of the companies
comprising the Nationwide Insurance Enterprise. Each of the executive officers
listed above has been associated with the registrant in an executive capacity
for more than the past five years, except Mr. Thresher, who joined the
Registrant in 1996. From 1988-1996, Mr. Thresher served as a partner in the
accounting firm KPMG Peat Marwick LLP and lead partner for Nationwide Insurance
Enterprise from 1993-1996.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of the Company.
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
the Company for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine the Company's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. The Company's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, the Company is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
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
Indebtedness.
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 changes in Specified Amount, changes in death benefit option, changes in
future premium allocation, transfers among Variable Account sub-accounts,
premium payments, loans, loan repayments, reinstatement and termination.
29
<PAGE> 33
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In October, 1996, a policyholder of Nationwide Life
filed a complaint in Alabama state court against Nationwide Life and an agent of
Nationwide Life (Wayne M. King v. Nationwide Life Insurance Company and Danny
Nix) related to the sale of a whole life policy on a "vanishing premium" basis
and seeking unspecified compensatory and punitive damages. In February, 1997,
Nationwide Life was named as a defendant in a lawsuit filed in New York Supreme
Court which also related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Mutual Insurance Company,
Nationwide Mutual Insurance Co. and Nationwide Life Insurance Co.). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide Life
policyholders and claims unspecified compensatory and punitive damages. This
lawsuit is in an early stage and has not been certified as a class action.
Nationwide Life intends to defend these cases vigorously. There can be no
assurance that any future litigation relating to pricing and sales practices
will not have a material adverse effect on the Company.
The General Distributor, Van Kampen American Capital Distributors, Inc., is not
engaged in any material litigation of any nature.
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.
EXPERTS
The financial statements and schedules 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 43215. All
the members of such firm are employed by the Nationwide Mutual Insurance
Company.
30
<PAGE> 34
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco , age 45, purchases a Policy with a Specified
Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender
the Policy during the first Policy year. By using the initial surrender charge
table reproduced below, (also see "Surrender Charges") the total surrender
charge per thousand multiplied by the Specified Amount expressed in thousands
equals the total surrender charge of $569.80 ($11.396 x 50=569.80).
Example 2: A male non-tobacco, age 35, purchases a Policy with a Specified
Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender
the Policy in the sixth Policy Year. The total initial surrender charge is
calculated using the method illustrated above (surrender charge per 1000 6.817 x
100=681.70 maximum initial surrender charge). Because the fifth Policy Year has
been completed, the maximum initial surrender charge is reduced by multiplying
it by the applicable percentage factor from the "Reductions to Surrender
Charges" table below (Also see "Reductions to Surrender Charges"). In this case,
$681.70 x 60%=$409.02.
Maximum Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
Initial Specified Amount $50,000-$99,999
================================================================================
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
================================================================================
25 $7.776 $7.521 $8.369 $7.818
- -------------------------------------------------------------------------------
35 8.817 8.398 9.811 8.891
- -------------------------------------------------------------------------------
45 12.191 11.396 13.887 12.169
- -------------------------------------------------------------------------------
55 15.636 14.011 18.415 15.116
- -------------------------------------------------------------------------------
65 22.295 19.086 26.577 20.641
================================================================================
Initial Specified Amount $100,000+
================================================================================
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
================================================================================
25 $5.776 $5.521 $6.369 $5.818
- -------------------------------------------------------------------------------
35 6.817 6.398 7.811 6.891
- -------------------------------------------------------------------------------
45 9.691 8.896 11.387 9.669
- -------------------------------------------------------------------------------
55 13.136 11.511 15.915 12.616
- -------------------------------------------------------------------------------
65 21.295 18.086 25.577 19.641
================================================================================
Reductions to Surrender Charges.
================================================================================
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
================================================================================
0 100% 5 60%
- --------------------------------------------------------------------------------
1 100% 6 50%
- --------------------------------------------------------------------------------
2 90% 7 40%
- --------------------------------------------------------------------------------
3 80% 8 30%
- --------------------------------------------------------------------------------
4 70% 9+ 0%
================================================================================
31
<PAGE> 35
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14
years. The guaranteed maximum Surrender Charge in subsequent years in
Pennsylvania is reduced in the following manner:
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges Policy Years Surrender Charges
------------ ----------------- ------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
0 100% 5 60% 10 20%
1 100% 6 50% 11 15%
2 90% 7 40% 12 10%
3 80% 8 30% 13 5%
4 70% 9 25% 14+ 0%
</TABLE>
The illustrations of current values in this prospectus are the same for
Pennsylvania. However, the illustrations of guaranteed values in this prospectus
do not reflect guaranteed maximum Surrender Charges which are spread out over 14
years. If this contract is issued in Pennsylvania, please contact the Home
Office for an illustration.
The Company has no plans to change the current Surrender Charges.
32
<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. The Mortality and Expense Risk Charges are
equivalent to an annual effective rate of .80% of the daily net asset value of
the Variable Account. On each Policy Anniversary beginning with the 10th, the
Mortality and Expense Risk Charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary. 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 0.80% of
the daily net asset value of the Variable Account.
Considering current charges for Mortality and Expense Risks and Underlying
Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.60%, 4.40% and
10.40%. On each Policy Anniversary beginning with the 10th, the gross annual
rates of return of 0%, 6%, and 12% correspond to net investment experience at
constant annual rate of -1.30%, 4.70%, and 10.70% provided the Cash Surrender
Value is $25,000 or more on such anniversary. This is due to a guaranteed
reduction in the Mortality and Expense Risk Charge from an annual effective rate
of 0.80% to an annual effective rate of 0.50% if the aforementioned conditions
apply.
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.
The illustrations also reflect the fact that the Company deducts a sales load
from each premium payment. Current values reflect a deduction of 3.5% of each
premium payment up to Break Point Premium and 1.5% of any excess. Guaranteed
values reflect a deduction of 3.5% of each premium payment. The illustrations
also reflect the fact that the Company deducts a charge for state premium taxes
equal to 2.5% of all premium payments.
The Cash Surrender Values shown in the illustrations reflect the fact that the
Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered in full during the first nine years.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy Month. Current
values reflect a current monthly administrative expense charge of $12.50 per
month in the first year and $5 per month in renewal years. Guaranteed values
reflect the $25 maximum monthly administrative expense charge under the policy
in the first year, and the $7.50 maximum monthly charge under the policy in
renewal years. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the Variable Account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
33
<PAGE> 37
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 788 390 0 50,000 422 0 50,000 454 0 50,000
2 1,614 853 280 50,000 944 371 50,000 1,039 466 50,000
3 2,483 1,299 783 50,000 1,479 962 50,000 1,674 1,158 50,000
4 3,394 1,722 1,263 50,000 2,021 1,562 50,000 2,359 1,900 50,000
5 4,351 2,123 1,721 50,000 2,571 2,170 50,000 3,098 2,696 50,000
6 5,357 2,502 2,158 50,000 3,131 2,786 50,000 3,899 3,555 50,000
7 6,412 2,866 2,579 50,000 3,705 3,418 50,000 4,774 4,487 50,000
8 7,520 3,208 2,979 50,000 4,290 4,061 50,000 5,727 5,497 50,000
9 8,683 3,531 3,359 50,000 4,887 4,715 50,000 6,765 6,593 50,000
10 9,905 3,833 3,833 50,000 5,496 5,496 50,000 7,900 7,900 50,000
11 11,188 4,109 4,109 50,000 6,114 6,114 50,000 9,137 9,137 50,000
12 12,535 4,361 4,361 50,000 6,739 6,739 50,000 10,488 10,488 50,000
13 13,949 4,582 4,582 50,000 7,370 7,370 50,000 11,963 11,963 50,000
14 15,434 4,769 4,769 50,000 8,002 8,002 50,000 13,573 13,573 50,000
15 16,993 4,914 4,914 50,000 8,628 8,628 50,000 15,329 15,329 50,000
16 18,630 5,018 5,018 50,000 9,249 9,249 50,000 17,251 17,251 50,000
17 20,349 5,072 5,072 50,000 9,858 9,858 50,000 19,354 19,354 50,000
18 22,154 5,068 5,068 50,000 10,448 10,448 50,000 21,658 21,658 50,000
19 24,049 5,005 5,005 50,000 11,018 11,018 50,000 24,192 24,192 50,000
20 26,039 4,875 4,875 50,000 11,560 11,560 50,000 26,985 26,985 50,000
21 28,129 4,670 4,670 50,000 12,071 12,071 50,000 30,167 30,167 50,000
22 30,323 4,383 4,383 50,000 12,543 12,543 50,000 33,710 33,710 50,000
23 32,626 4,001 4,001 50,000 12,966 12,966 50,000 37,671 37,671 50,000
24 35,045 3,511 3,511 50,000 13,329 13,329 50,000 42,118 42,118 50,000
25 37,585 2,910 2,910 50,000 13,630 13,630 50,000 47,087 47,087 54,621
26 40,252 2,181 2,181 50,000 13,857 13,857 50,000 52,551 52,551 60,434
27 43,052 1,293 1,293 50,000 13,984 13,984 50,000 58,577 58,577 66,192
28 45,992 235 235 50,000 14,003 14,003 50,000 65,229 65,229 72,404
29 49,079 (*) (*) (*) 13,898 13,898 50,000 72,584 72,584 79,117
30 52,321 (*) (*) (*) 13,648 13,648 50,000 80,729 80,729 86,380
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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.
34
<PAGE> 38
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 788 175 0 50,000 200 0 50,000 226 0 50,000
2 1,614 540 0 50,000 608 34 50,000 679 105 50,000
3 2,483 881 365 50,000 1,015 498 50,000 1,161 644 50,000
4 3,394 1,198 739 50,000 1,420 961 50,000 1,672 1,213 50,000
5 4,351 1,489 1,087 50,000 1,823 1,421 50,000 2,216 1,814 50,000
6 5,357 1,751 1,407 50,000 2,219 1,875 50,000 2,792 2,448 50,000
7 6,412 1,982 1,695 50,000 2,605 2,318 50,000 3,401 3,115 50,000
8 7,520 2,178 1,948 50,000 2,977 2,748 50,000 4,044 3,814 50,000
9 8,683 2,333 2,161 50,000 3,330 3,157 50,000 4,718 4,546 50,000
10 9,905 2,445 2,445 50,000 3,657 3,657 50,000 5,425 5,425 50,000
11 11,188 2,509 2,509 50,000 3,955 3,955 50,000 6,166 6,166 50,000
12 12,535 2,521 2,521 50,000 4,217 4,217 50,000 6,940 6,940 50,000
13 13,949 2,477 2,477 50,000 4,440 4,440 50,000 7,751 7,751 50,000
14 15,434 2,373 2,373 50,000 4,615 4,615 50,000 8,600 8,600 50,000
15 16,993 2,199 2,199 50,000 4,731 4,731 50,000 9,486 9,486 50,000
16 18,630 1,948 1,948 50,000 4,780 4,780 50,000 10,409 10,409 50,000
17 20,349 1,610 1,610 50,000 4,747 4,747 50,000 11,369 11,369 50,000
18 22,154 1,168 1,168 50,000 4,614 4,614 50,000 12,363 12,363 50,000
19 24,049 608 608 50,000 4,361 4,361 50,000 13,389 13,389 50,000
20 26,039 (*) (*) (*) 3,966 3,966 50,000 14,446 14,446 50,000
21 28,129 (*) (*) (*) 3,403 3,403 50,000 15,533 15,533 50,000
22 30,323 (*) (*) (*) 2,646 2,646 50,000 16,653 16,653 50,000
23 32,626 (*) (*) (*) 1,662 1,662 50,000 17,811 17,811 50,000
24 35,045 (*) (*) (*) 411 411 50,000 19,009 19,009 50,000
25 37,585 (*) (*) (*) (*) (*) (*) 20,249 20,249 50,000
26 40,252 (*) (*) (*) (*) (*) (*) 21,532 21,532 50,000
27 43,052 (*) (*) (*) (*) (*) (*) 22,856 22,856 50,000
28 45,992 (*) (*) (*) (*) (*) (*) 24,219 24,219 50,000
29 49,079 (*) (*) (*) (*) (*) (*) 25,623 25,623 50,000
30 52,321 (*) (*) (*) (*) (*) (*) 27,165 27,165 50,000
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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.
35
<PAGE> 39
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 788 389 0 50,389 420 0 50,420 452 0 50,452
2 1,614 848 275 50,848 939 365 50,939 1,033 460 51,033
3 2,483 1,289 772 51,289 1,467 951 51,467 1,661 1,145 51,661
4 3,394 1,705 1,246 51,705 2,000 1,541 52,000 2,334 1,875 52,334
5 4,351 2,096 1,694 52,096 2,538 2,136 52,538 3,057 2,655 53,057
6 5,357 2,463 2,119 52,463 3,080 2,736 53,080 3,834 3,490 53,834
7 6,412 2,813 2,526 52,813 3,633 3,347 53,633 4,679 4,392 54,679
8 7,520 3,138 2,908 53,138 4,192 3,962 54,192 5,590 5,360 55,590
9 8,683 3,440 3,268 53,440 4,755 4,583 54,755 6,575 6,403 56,575
10 9,905 3,719 3,719 53,719 5,324 5,324 55,324 7,641 7,641 57,641
11 11,188 3,970 3,970 53,970 5,893 5,893 55,893 8,791 8,791 58,791
12 12,535 4,191 4,191 54,191 6,460 6,460 56,460 10,031 10,031 60,031
13 13,949 4,378 4,378 54,378 7,020 7,020 57,020 11,366 11,366 61,366
14 15,434 4,526 4,526 54,526 7,568 7,568 57,568 12,799 12,799 62,799
15 16,993 4,627 4,627 54,627 8,092 8,092 58,092 14,330 14,330 64,330
16 18,630 4,681 4,681 54,681 8,593 8,593 58,593 15,971 15,971 65,971
17 20,349 4,680 4,680 54,680 9,060 9,060 59,060 17,722 17,722 67,722
18 22,154 4,614 4,614 54,614 9,479 9,479 59,479 19,582 19,582 69,582
19 24,049 4,483 4,483 54,483 9,848 9,848 59,848 21,563 21,563 71,563
20 26,039 4,279 4,279 54,279 10,156 10,156 60,156 23,666 23,666 73,666
21 28,129 3,997 3,997 53,997 10,393 10,393 60,393 25,897 25,897 75,897
22 30,323 3,628 3,628 53,628 10,546 10,546 60,546 28,346 28,346 78,346
23 32,626 3,162 3,162 53,162 10,600 10,600 60,600 30,944 30,944 80,944
24 35,045 2,589 2,589 52,589 10,538 10,538 60,538 33,695 33,695 83,695
25 37,585 1,910 1,910 51,910 10,355 10,355 60,355 36,613 36,613 86,613
26 40,252 1,115 1,115 51,115 10,032 10,032 60,032 39,704 39,704 89,704
27 43,052 177 177 50,177 9,535 9,535 59,535 42,955 42,955 92,955
28 45,992 (*) (*) (*) 8,854 8,854 58,854 46,382 46,382 96,382
29 49,079 (*) (*) (*) 7,970 7,970 57,970 49,992 49,992 99,992
30 52,321 (*) (*) (*) 6,860 6,860 56,860 53,789 53,789 103,789
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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.
36
<PAGE> 40
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 788 173 0 50,173 198 0 50,198 224 0 50,224
2 1,614 534 0 50,534 602 28 50,602 672 99 50,672
3 2,483 870 354 50,870 1,002 486 51,002 1,146 630 51,146
4 3,394 1,179 720 51,179 1,398 939 51,398 1,646 1,187 51,646
5 4,351 1,460 1,058 51,460 1,787 1,385 51,787 2,172 1,770 52,172
6 5,357 1,710 1,366 51,710 2,165 1,821 52,165 2,723 2,379 52,723
7 6,412 1,925 1,638 51,925 2,529 2,242 52,529 3,299 3,012 53,299
8 7,520 2,102 1,873 52,102 2,871 2,642 52,871 3,896 3,667 53,896
9 8,683 2,236 2,064 52,236 3,187 3,015 53,187 4,512 4,340 54,512
10 9,905 2,323 2,323 52,323 3,471 3,471 53,471 5,142 5,142 55,142
11 11,188 2,358 2,358 52,358 3,715 3,715 53,715 5,784 5,784 55,784
12 12,535 2,339 2,339 52,339 3,913 3,913 53,913 6,434 6,434 56,434
13 13,949 2,261 2,261 52,261 4,059 4,059 54,059 7,087 7,087 57,087
14 15,434 2,120 2,120 52,120 4,146 4,146 54,146 7,740 7,740 57,740
15 16,993 1,909 1,909 51,909 4,161 4,161 54,161 8,382 8,382 58,382
16 18,630 1,620 1,620 51,620 4,093 4,093 54,093 9,003 9,003 59,003
17 20,349 1,245 1,245 51,245 3,929 3,929 53,929 9,592 9,592 59,592
18 22,154 772 772 50,772 3,650 3,650 53,650 10,129 10,129 60,129
19 24,049 188 188 50,188 3,237 3,237 53,237 10,596 10,596 60,596
20 26,039 (*) (*) (*) 2,670 2,670 52,670 10,970 10,970 60,970
21 28,129 (*) (*) (*) 1,928 1,928 51,928 11,229 11,229 61,229
22 30,323 (*) (*) (*) 993 993 50,993 11,346 11,346 61,346
23 32,626 (*) (*) (*) (*) (*) (*) 11,297 11,297 61,297
24 35,045 (*) (*) (*) (*) (*) (*) 11,046 11,046 61,046
25 37,585 (*) (*) (*) (*) (*) (*) 10,552 10,552 60,552
26 40,252 (*) (*) (*) (*) (*) (*) 9,760 9,760 59,760
27 43,052 (*) (*) (*) (*) (*) (*) 8,602 8,602 58,602
28 45,992 (*) (*) (*) (*) (*) (*) 6,997 6,997 56,997
29 49,079 (*) (*) (*) (*) (*) (*) 4,854 4,854 54,854
30 52,321 (*) (*) (*) (*) (*) (*) 2,076 2,076 52,076
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 41
DEATH BENEFIT OPTION 1
$1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 1,260 642 0 50,000 694 1 50,000 746 53 50,000
2 2,583 1,343 650 50,000 1,490 797 50,000 1,643 950 50,000
3 3,972 2,009 1,385 50,000 2,295 1,672 50,000 2,607 1,984 50,000
4 5,431 2,635 2,081 50,000 3,108 2,554 50,000 3,644 3,089 50,000
5 6,962 3,214 2,729 50,000 3,920 3,435 50,000 4,752 4,266 50,000
6 8,570 3,749 3,333 50,000 4,733 4,317 50,000 5,942 5,526 50,000
7 10,259 4,230 3,883 50,000 5,540 5,193 50,000 7,218 6,872 50,000
8 12,032 4,650 4,373 50,000 6,332 6,055 50,000 8,583 8,305 50,000
9 13,893 5,010 4,802 50,000 7,111 6,903 50,000 10,050 9,842 50,000
10 15,848 5,302 5,302 50,000 7,870 7,870 50,000 11,627 11,627 50,000
11 17,901 5,522 5,522 50,000 8,604 8,604 50,000 13,328 13,328 50,000
12 20,056 5,662 5,662 50,000 9,306 9,306 50,000 15,167 15,167 50,000
13 22,318 5,711 5,711 50,000 9,967 9,967 50,000 17,160 17,160 50,000
14 24,694 5,660 5,660 50,000 10,579 10,579 50,000 19,326 19,326 50,000
15 27,189 5,507 5,507 50,000 11,139 11,139 50,000 21,698 21,698 50,000
16 29,808 5,239 5,239 50,000 11,638 11,638 50,000 24,308 24,308 50,000
17 32,559 4,827 4,827 50,000 12,051 12,051 50,000 27,187 27,187 50,000
18 35,447 4,267 4,267 50,000 12,373 12,373 50,000 30,485 30,485 50,000
19 38,479 3,540 3,540 50,000 12,590 12,590 50,000 34,195 34,195 50,000
20 41,663 2,625 2,625 50,000 12,685 12,685 50,000 38,404 38,404 50,000
21 45,006 1,490 1,490 50,000 12,630 12,630 50,000 43,214 43,214 50,000
22 48,517 92 92 50,000 12,391 12,391 50,000 48,757 48,757 51,195
23 52,202 (*) (*) (*) 11,928 11,928 50,000 54,936 54,936 57,683
24 56,073 (*) (*) (*) 11,198 11,198 50,000 61,732 61,732 64,818
25 60,136 (*) (*) (*) 10,143 10,143 50,000 69,201 69,201 72,661
26 64,403 (*) (*) (*) 8,692 8,692 50,000 77,405 77,405 81,276
27 68,883 (*) (*) (*) 6,751 6,751 50,000 86,413 86,413 90,733
28 73,587 (*) (*) (*) 4,212 4,212 50,000 96,295 96,295 101,109
29 78,527 (*) (*) (*) 916 916 50,000 107,129 107,129 112,485
30 83,713 (*) (*) (*) (*) (*) (*) 118,997 118,997 124,946
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 42
DEATH BENEFIT OPTION 1
$1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 1,260 288 0 50,000 328 0 50,000 369 0 50,000
2 2,583 730 37 50,000 835 142 50,000 947 254 50,000
3 3,972 1,113 490 50,000 1,312 689 50,000 1,530 907 50,000
4 5,431 1,434 879 50,000 1,752 1,198 50,000 2,117 1,563 50,000
5 6,962 1,683 1,198 50,000 2,146 1,661 50,000 2,700 2,215 50,000
6 8,570 1,855 1,439 50,000 2,485 2,069 50,000 3,272 2,856 50,000
7 10,259 1,940 1,594 50,000 2,756 2,409 50,000 3,824 3,478 50,000
8 12,032 1,926 1,649 50,000 2,943 2,666 50,000 4,344 4,066 50,000
9 13,893 1,798 1,590 50,000 3,028 2,820 50,000 4,814 4,607 50,000
10 15,848 1,542 1,542 50,000 2,991 2,991 50,000 5,220 5,220 50,000
11 17,901 1,142 1,142 50,000 2,810 2,810 50,000 5,541 5,541 50,000
12 20,056 582 582 50,000 2,463 2,463 50,000 5,758 5,758 50,000
13 22,318 (*) (*) (*) 1,922 1,922 50,000 5,846 5,846 50,000
14 24,694 (*) (*) (*) 1,151 1,151 50,000 5,773 5,773 50,000
15 27,189 (*) (*) (*) 106 106 50,000 5,495 5,495 50,000
16 29,808 (*) (*) (*) (*) (*) (*) 4,953 4,953 50,000
17 32,559 (*) (*) (*) (*) (*) (*) 4,064 4,064 50,000
18 35,447 (*) (*) (*) (*) (*) (*) 2,722 2,722 50,000
19 38,479 (*) (*) (*) (*) (*) (*) 784 784 50,000
20 41,663 (*) (*) (*) (*) (*) (*) (*) (*) (*)
21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*)
22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*)
23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*)
24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*)
25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*)
26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*)
27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*)
28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*)
29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 43
DEATH BENEFIT OPTION 2
$1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 1,260 636 0 50,636 688 0 50,688 739 46 50,739
2 2,583 1,326 633 51,326 1,471 778 51,471 1,622 929 51,622
3 3,972 1,975 1,351 51,975 2,257 1,633 52,257 2,563 1,939 52,563
4 5,431 2,578 2,023 52,578 3,040 2,485 53,040 3,562 3,008 53,562
5 6,962 3,126 2,641 53,126 3,809 3,324 53,809 4,615 4,130 54,615
6 8,570 3,620 3,204 53,620 4,566 4,151 54,566 5,728 5,312 55,728
7 10,259 4,052 3,706 54,052 5,300 4,953 55,300 6,897 6,550 56,897
8 12,032 4,412 4,135 54,412 5,997 5,720 55,997 8,116 7,839 58,116
9 13,893 4,701 4,493 54,701 6,658 6,450 56,658 9,390 9,182 59,390
10 15,848 4,909 4,909 54,909 7,269 7,269 57,269 10,714 10,714 60,714
11 17,901 5,034 5,034 55,034 7,822 7,822 57,822 12,087 12,087 62,087
12 20,056 5,065 5,065 55,065 8,306 8,306 58,306 13,504 13,504 63,504
13 22,318 4,993 4,993 54,993 8,704 8,704 58,704 14,956 14,956 64,956
14 24,694 4,807 4,807 54,807 9,002 9,002 59,002 16,436 16,436 66,436
15 27,189 4,509 4,509 54,509 9,193 9,193 59,193 17,944 17,944 67,944
16 29,808 4,089 4,089 54,089 9,261 9,261 59,261 19,471 19,471 69,471
17 32,559 3,520 3,520 53,520 9,172 9,172 59,172 20,988 20,988 70,988
18 35,447 2,803 2,803 52,803 8,917 8,917 58,917 22,494 22,494 72,494
19 38,479 1,928 1,928 51,928 8,476 8,476 58,476 23,974 23,974 73,974
20 41,663 886 886 50,886 7,830 7,830 57,830 25,413 25,413 75,413
21 45,006 (*) (*) (*) 6,943 6,943 56,943 26,864 26,864 76,864
22 48,517 (*) (*) (*) 5,780 5,780 55,780 28,222 28,222 78,222
23 52,202 (*) (*) (*) 4,303 4,303 54,303 29,452 29,452 79,452
24 56,073 (*) (*) (*) 2,480 2,480 52,480 30,520 30,520 80,520
25 60,136 (*) (*) (*) 269 269 50,269 31,382 31,382 81,382
26 64,403 (*) (*) (*) (*) (*) (*) 31,989 31,989 81,989
27 68,883 (*) (*) (*) (*) (*) (*) 32,288 32,288 82,288
28 73,587 (*) (*) (*) (*) (*) (*) 32,225 32,225 82,225
29 78,527 (*) (*) (*) (*) (*) (*) 31,727 31,727 81,727
30 83,713 (*) (*) (*) (*) (*) (*) 30,709 30,709 80,709
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 44
DEATH BENEFIT OPTION 2
$1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: 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> <C>
1 1,260 280 0 50,280 320 0 50,320 361 0 50,361
2 2,583 710 17 50,710 813 120 50,813 921 228 50,921
3 3,972 1,074 450 51,074 1,266 643 51,266 1,478 854 51,478
4 5,431 1,368 814 51,368 1,674 1,119 51,674 2,023 1,468 52,023
5 6,962 1,585 1,100 51,585 2,023 1,538 52,023 2,546 2,061 52,546
6 8,570 1,718 1,302 51,718 2,304 1,888 52,304 3,036 2,620 53,036
7 10,259 1,758 1,411 51,758 2,504 2,157 52,504 3,481 3,134 53,481
8 12,032 1,693 1,415 51,693 2,605 2,327 52,605 3,860 3,582 53,860
9 13,893 1,510 1,302 51,510 2,588 2,380 52,588 4,151 3,943 54,151
10 15,848 1,199 1,199 51,199 2,434 2,434 52,434 4,332 4,332 54,332
11 17,901 747 747 50,747 2,123 2,123 52,123 4,378 4,378 54,378
12 20,056 146 146 50,146 1,638 1,638 51,638 4,261 4,261 54,261
13 22,318 (*) (*) (*) 957 957 50,957 3,953 3,953 53,953
14 24,694 (*) (*) (*) 56 56 50,056 3,417 3,417 53,417
15 27,189 (*) (*) (*) (*) (*) (*) 2,609 2,609 52,609
16 29,808 (*) (*) (*) (*) (*) (*) 1,471 1,471 51,471
17 32,559 (*) (*) (*) (*) (*) (*) (*) (*) (*)
18 35,447 (*) (*) (*) (*) (*) (*) (*) (*) (*)
19 38,479 (*) (*) (*) (*) (*) (*) (*) (*) (*)
20 41,663 (*) (*) (*) (*) (*) (*) (*) (*) (*)
21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*)
22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*)
23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*)
24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*)
25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*)
26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*)
27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*)
28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*)
29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 45
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 1,575 948 51 100,000 1,017 120 100,000 1,087 189 100,000
2 3,229 1,950 1,052 100,000 2,150 1,252 100,000 2,358 1,461 100,000
3 4,965 2,916 2,108 100,000 3,311 2,504 100,000 3,740 2,933 100,000
4 6,788 3,847 3,129 100,000 4,504 3,786 100,000 5,245 4,527 100,000
5 8,703 4,746 4,118 100,000 5,731 5,103 100,000 6,888 6,259 100,000
6 10,713 5,612 5,073 100,000 6,994 6,455 100,000 8,683 8,144 100,000
7 12,824 6,435 5,987 100,000 8,284 7,835 100,000 10,636 10,187 100,000
8 15,040 7,206 6,847 100,000 9,592 9,233 100,000 12,756 12,397 100,000
9 17,367 7,926 7,657 100,000 10,921 10,652 100,000 15,061 14,792 100,000
10 19,810 8,585 8,585 100,000 12,262 12,262 100,000 17,566 17,566 100,000
11 22,376 9,198 9,198 100,000 13,630 13,630 100,000 20,305 20,305 100,000
12 25,069 9,771 9,771 100,000 15,034 15,034 100,000 23,312 23,312 100,000
13 27,898 10,308 10,308 100,000 16,477 16,477 100,000 26,622 26,622 100,000
14 30,868 10,788 10,788 100,000 17,946 17,946 100,000 30,346 30,346 100,000
15 33,986 11,197 11,197 100,000 19,425 19,425 100,000 34,439 34,439 100,000
16 37,261 11,537 11,537 100,000 20,921 20,921 100,000 38,953 38,953 100,000
17 40,699 11,803 11,803 100,000 22,430 22,430 100,000 43,940 43,940 100,000
18 44,309 11,979 11,979 100,000 23,942 23,942 100,000 49,453 49,453 100,000
19 48,099 12,062 12,062 100,000 25,454 25,454 100,000 55,563 55,563 100,000
20 52,079 12,055 12,055 100,000 27,057 27,057 100,000 62,357 62,357 100,000
21 56,258 11,945 11,945 100,000 28,669 28,669 100,000 69,925 69,925 100,000
22 60,646 11,704 11,704 100,000 30,271 30,271 100,000 78,374 78,374 100,000
23 65,253 11,322 11,322 100,000 31,862 31,862 100,000 87,826 87,826 103,635
24 70,091 10,772 10,772 100,000 33,425 33,425 100,000 98,270 98,270 114,976
25 75,170 10,042 10,042 100,000 34,957 34,957 100,000 109,764 109,764 127,326
26 80,504 9,121 9,121 100,000 36,458 36,458 100,000 122,416 122,416 140,779
27 86,104 7,967 7,967 100,000 37,905 37,905 100,000 136,375 136,375 154,104
28 91,984 6,563 6,563 100,000 39,297 39,297 100,000 151,792 151,792 168,489
29 98,158 4,881 4,881 100,000 40,625 40,625 100,000 168,837 168,837 184,032
30 104,641 2,870 2,870 100,000 41,868 41,868 100,000 187,705 187,705 200,844
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 46
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 1,575 751 0 100,000 814 0 100,000 878 0 100,000
2 3,229 1,675 777 100,000 1,854 956 100,000 2,041 1,144 100,000
3 4,965 2,558 1,750 100,000 2,913 2,105 100,000 3,298 2,490 100,000
4 6,788 3,399 2,681 100,000 3,989 3,271 100,000 4,655 3,937 100,000
5 8,703 4,196 3,567 100,000 5,082 4,453 100,000 6,122 5,494 100,000
6 10,713 4,945 4,406 100,000 6,187 5,649 100,000 7,707 7,168 100,000
7 12,824 5,642 5,193 100,000 7,302 6,853 100,000 9,417 8,969 100,000
8 15,040 6,282 5,923 100,000 8,421 8,062 100,000 11,262 10,903 100,000
9 17,367 6,858 6,588 100,000 9,537 9,268 100,000 13,251 12,982 100,000
10 19,810 7,365 7,365 100,000 10,646 10,646 100,000 15,395 15,395 100,000
11 22,376 7,797 7,797 100,000 11,742 11,742 100,000 17,709 17,709 100,000
12 25,069 8,148 8,148 100,000 12,818 12,818 100,000 20,208 20,208 100,000
13 27,898 8,416 8,416 100,000 13,872 13,872 100,000 22,915 22,915 100,000
14 30,868 8,593 8,593 100,000 14,896 14,896 100,000 25,848 25,848 100,000
15 33,986 8,667 8,667 100,000 15,879 15,879 100,000 29,121 29,121 100,000
16 37,261 8,627 8,627 100,000 16,809 16,809 100,000 32,691 32,691 100,000
17 40,699 8,461 8,461 100,000 17,675 17,675 100,000 36,596 36,596 100,000
18 44,309 8,149 8,149 100,000 18,457 18,457 100,000 40,873 40,873 100,000
19 48,099 7,670 7,670 100,000 19,135 19,135 100,000 45,570 45,570 100,000
20 52,079 7,003 7,003 100,000 19,687 19,687 100,000 50,746 50,746 100,000
21 56,258 6,126 6,126 100,000 20,091 20,091 100,000 56,477 56,477 100,000
22 60,646 5,016 5,016 100,000 20,325 20,325 100,000 62,854 62,854 100,000
23 65,253 3,648 3,648 100,000 20,362 20,362 100,000 69,989 69,989 100,000
24 70,091 1,991 1,991 100,000 20,171 20,171 100,000 78,019 78,019 100,000
25 75,170 (*) (*) (*) 19,705 19,705 100,000 87,111 87,111 101,049
26 80,504 (*) (*) (*) 18,907 18,907 100,000 97,230 97,230 111,815
27 86,104 (*) (*) (*) 17,698 17,698 100,000 108,378 108,378 122,467
28 91,984 (*) (*) (*) 15,976 15,976 100,000 120,674 120,674 133,948
29 98,158 (*) (*) (*) 13,620 13,620 100,000 134,258 134,258 146,341
30 104,641 (*) (*) (*) 10,491 10,491 100,000 149,298 149,298 159,749
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 47
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 1,575 945 47 100,945 1,014 116 101,014 1,083 185 101,083
2 3,229 1,939 1,042 101,939 2,138 1,241 102,138 2,346 1,448 102,346
3 4,965 2,895 2,087 102,895 3,287 2,480 103,287 3,713 2,905 103,713
4 6,788 3,812 3,094 103,812 4,462 3,744 104,462 5,195 4,477 105,195
5 8,703 4,691 4,063 104,691 5,663 5,035 105,663 6,804 6,176 106,804
6 10,713 5,534 4,995 105,534 6,893 6,355 106,893 8,554 8,015 108,554
7 12,824 6,329 5,880 106,329 8,140 7,692 108,140 10,445 9,996 110,445
8 15,040 7,064 6,705 107,064 9,393 9,034 109,393 12,480 12,121 112,480
9 17,367 7,741 7,472 107,741 10,652 10,383 110,652 14,674 14,405 114,674
10 19,810 8,350 8,350 108,350 11,907 11,907 111,907 17,031 17,031 117,031
11 22,376 8,904 8,904 108,904 13,169 13,169 113,169 19,582 19,582 119,582
12 25,069 9,413 9,413 109,413 14,447 14,447 114,447 22,354 22,354 122,354
13 27,898 9,878 9,878 109,878 15,744 15,744 115,744 25,371 25,371 125,371
14 30,868 10,279 10,279 110,279 17,038 17,038 117,038 28,724 28,724 128,724
15 33,986 10,596 10,596 110,596 18,308 18,308 118,308 32,348 32,348 132,348
16 37,261 10,834 10,834 110,834 19,557 19,557 119,557 36,276 36,276 136,276
17 40,699 10,986 10,986 110,986 20,776 20,776 120,776 40,531 40,531 140,531
18 44,309 11,035 11,035 111,035 21,943 21,943 121,943 45,129 45,129 145,129
19 48,099 10,978 10,978 110,978 23,052 23,052 123,052 50,099 50,099 150,099
20 52,079 10,820 10,820 110,820 24,103 24,103 124,103 55,486 55,486 155,486
21 56,258 10,547 10,547 110,547 25,079 25,079 125,079 61,317 61,317 161,317
22 60,646 10,129 10,129 110,129 26,023 26,023 126,023 67,604 67,604 167,604
23 65,253 9,559 9,559 109,559 26,846 26,846 126,846 74,385 74,385 174,385
24 70,091 8,809 8,809 108,809 27,512 27,512 127,512 81,681 81,681 181,681
25 75,170 7,872 7,872 107,872 28,004 28,004 128,004 89,536 89,536 189,536
26 80,504 6,743 6,743 106,743 28,304 28,304 128,304 98,000 98,000 198,000
27 86,104 5,385 5,385 105,385 28,363 28,363 128,363 107,095 107,095 207,095
28 91,984 3,793 3,793 103,793 28,161 28,161 128,161 116,877 116,877 216,877
29 98,158 1,951 1,951 101,951 27,665 27,665 127,665 127,400 127,400 227,400
30 104,641 (*) (*) (*) 26,822 26,822 126,822 138,700 138,700 238,700
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 48
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 1,575 748 0 100,748 810 0 100,810 873 0 100,873
2 3,229 1,664 766 101,664 1,842 944 101,842 2,028 1,131 102,028
3 4,965 2,536 1,728 102,536 2,887 2,080 102,887 3,269 2,461 103,269
4 6,788 3,361 2,643 103,361 3,944 3,226 103,944 4,602 3,884 104,602
5 8,703 4,137 3,509 104,137 5,009 4,381 105,009 6,033 5,405 106,033
6 10,713 4,861 4,322 104,861 6,079 5,540 106,079 7,567 7,029 107,567
7 12,824 5,525 5,077 105,525 7,146 6,697 107,146 9,209 8,760 109,209
8 15,040 6,126 5,767 106,126 8,204 7,845 108,204 10,961 10,602 110,961
9 17,367 6,655 6,386 106,655 9,243 8,974 109,243 12,826 12,557 112,826
10 19,810 7,108 7,108 107,108 10,257 10,257 110,257 14,809 14,809 114,809
11 22,376 7,476 7,476 107,476 11,235 11,235 111,235 16,913 16,913 116,913
12 25,069 7,754 7,754 107,754 12,169 12,169 112,169 19,143 19,143 119,143
13 27,898 7,939 7,939 107,939 13,051 13,051 113,051 21,507 21,507 121,507
14 30,868 8,022 8,022 108,022 13,869 13,869 113,869 24,007 24,007 124,007
15 33,986 7,992 7,992 107,992 14,608 14,608 114,608 26,644 26,644 126,644
16 37,261 7,838 7,838 107,838 15,250 15,250 115,250 29,508 29,508 129,508
17 40,699 7,549 7,549 107,549 15,777 15,777 115,777 32,528 32,528 132,528
18 44,309 7,104 7,104 107,104 16,162 16,162 116,162 35,696 35,696 135,696
19 48,099 6,484 6,484 106,484 16,376 16,376 116,376 39,005 39,005 139,005
20 52,079 5,673 5,673 105,673 16,391 16,391 116,391 42,448 42,448 142,448
21 56,258 4,653 4,653 104,653 16,178 16,178 116,178 46,019 46,019 146,019
22 60,646 3,409 3,409 103,409 15,709 15,709 115,709 49,712 49,712 149,712
23 65,253 1,927 1,927 101,927 14,952 14,952 114,952 53,519 53,519 153,519
24 70,091 187 187 100,187 13,874 13,874 113,874 57,429 57,429 157,429
25 75,170 (*) (*) (*) 12,425 12,425 112,425 61,419 61,419 161,419
26 80,504 (*) (*) (*) 10,549 10,549 110,549 65,453 65,453 165,453
27 86,104 (*) (*) (*) 8,173 8,173 108,173 69,480 69,480 169,480
28 91,984 (*) (*) (*) 5,208 5,208 105,208 73,431 73,431 173,431
29 98,158 (*) (*) (*) 1,562 1,562 101,562 77,230 77,230 177,230
30 104,641 (*) (*) (*) (*) (*) (*) 80,800 80,800 180,800
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 49
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 2,625 1,535 372 100,000 1,649 487 100,000 1,764 601 100,000
2 5,381 3,109 1,947 100,000 3,436 2,274 100,000 3,778 2,615 100,000
3 8,275 4,635 3,589 100,000 5,279 4,232 100,000 5,977 4,931 100,000
4 11,314 6,094 5,164 100,000 7,160 6,230 100,000 8,364 7,434 100,000
5 14,505 7,471 6,657 100,000 9,065 8,252 100,000 10,941 10,128 100,000
6 17,855 8,769 8,072 100,000 11,002 10,304 100,000 13,739 13,041 100,000
7 21,373 9,986 9,404 100,000 12,968 12,386 100,000 16,777 16,196 100,000
8 25,066 11,106 10,641 100,000 14,951 14,486 100,000 20,075 19,610 100,000
9 28,945 12,128 11,780 100,000 16,952 16,603 100,000 23,664 23,315 100,000
10 33,017 13,059 13,059 100,000 18,980 18,980 100,000 27,588 27,588 100,000
11 37,293 13,886 13,886 100,000 21,028 21,028 100,000 31,982 31,982 100,000
12 41,782 14,585 14,585 100,000 23,076 23,076 100,000 36,807 36,807 100,000
13 46,497 15,149 15,149 100,000 25,123 25,123 100,000 42,125 42,125 100,000
14 51,446 15,556 15,556 100,000 27,238 27,238 100,000 48,000 48,000 100,000
15 56,644 15,797 15,797 100,000 29,349 29,349 100,000 54,519 54,519 100,000
16 62,101 15,867 15,867 100,000 31,457 31,457 100,000 61,792 61,792 100,000
17 67,831 15,730 15,730 100,000 33,544 33,544 100,000 69,936 69,936 100,000
18 73,848 15,377 15,377 100,000 35,613 35,613 100,000 79,108 79,108 100,000
19 80,165 14,786 14,786 100,000 37,663 37,663 100,000 89,498 89,498 100,000
20 86,798 13,919 13,919 100,000 39,677 39,677 100,000 101,229 101,229 108,315
21 93,763 12,738 12,738 100,000 41,651 41,651 100,000 114,235 114,235 119,947
22 101,076 11,162 11,162 100,000 43,548 43,548 100,000 128,560 128,560 134,988
23 108,755 9,123 9,123 100,000 45,351 45,351 100,000 144,330 144,330 151,546
24 116,818 6,546 6,546 100,000 47,044 47,044 100,000 161,682 161,682 169,767
25 125,284 3,326 3,326 100,000 48,601 48,601 100,000 180,765 180,765 189,803
26 134,173 (*) (*) (*) 50,001 50,001 100,000 201,739 201,739 211,826
27 143,506 (*) (*) (*) 51,225 51,225 100,000 224,778 224,778 236,017
28 153,307 (*) (*) (*) 52,236 52,236 100,000 250,068 250,068 262,572
29 163,597 (*) (*) (*) 52,993 52,993 100,000 277,811 277,811 291,701
30 174,402 (*) (*) (*) 53,425 53,425 100,000 308,214 308,214 323,625
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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> 50
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 2,625 1,212 50 100,000 1,316 154 100,000 1,421 258 100,000
2 5,381 2,542 1,380 100,000 2,832 1,670 100,000 3,135 1,973 100,000
3 8,275 3,778 2,732 100,000 4,340 3,294 100,000 4,953 3,906 100,000
4 11,314 4,913 3,983 100,000 5,833 4,903 100,000 6,878 5,948 100,000
5 14,505 5,937 5,123 100,000 7,301 6,488 100,000 8,915 8,101 100,000
6 17,855 6,842 6,145 100,000 8,735 8,037 100,000 11,070 10,372 100,000
7 21,373 7,617 7,036 100,000 10,121 9,540 100,000 13,348 12,767 100,000
8 25,066 8,245 7,780 100,000 11,443 10,978 100,000 15,753 15,288 100,000
9 28,945 8,708 8,359 100,000 12,682 12,333 100,000 18,289 17,940 100,000
10 33,017 8,989 8,989 100,000 13,818 13,818 100,000 20,963 20,963 100,000
11 37,293 9,072 9,072 100,000 14,833 14,833 100,000 23,790 23,790 100,000
12 41,782 8,937 8,937 100,000 15,706 15,706 100,000 26,787 26,787 100,000
13 46,497 8,566 8,566 100,000 16,418 16,418 100,000 30,071 30,071 100,000
14 51,446 7,933 7,933 100,000 16,940 16,940 100,000 33,600 33,600 100,000
15 56,644 7,002 7,002 100,000 17,234 17,234 100,000 37,407 37,407 100,000
16 62,101 5,723 5,723 100,000 17,249 17,249 100,000 41,532 41,532 100,000
17 67,831 4,029 4,029 100,000 16,917 16,917 100,000 46,021 46,021 100,000
18 73,848 1,834 1,834 100,000 16,150 16,150 100,000 50,934 50,934 100,000
19 80,165 (*) (*) (*) 14,844 14,844 100,000 56,355 56,355 100,000
20 86,798 (*) (*) (*) 12,880 12,880 100,000 62,409 62,409 100,000
21 93,763 (*) (*) (*) 10,125 10,125 100,000 69,263 69,263 100,000
22 101,076 (*) (*) (*) 6,416 6,416 100,000 77,145 77,145 100,000
23 108,755 (*) (*) (*) 1,550 1,550 100,000 86,357 86,357 100,000
24 116,818 (*) (*) (*) (*) (*) (*) 97,284 97,284 102,148
25 125,284 (*) (*) (*) (*) (*) (*) 109,545 109,545 115,023
26 134,173 (*) (*) (*) (*) (*) (*) 122,982 122,982 129,132
27 143,506 (*) (*) (*) (*) (*) (*) 137,691 137,691 144,575
28 153,307 (*) (*) (*) (*) (*) (*) 153,770 153,770 161,459
29 163,597 (*) (*) (*) (*) (*) (*) 171,323 171,323 179,889
30 174,402 (*) (*) (*) (*) (*) (*) 190,458 190,458 199,981
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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.
47
<PAGE> 51
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 2,625 1,522 360 101,522 1,636 473 101,636 1,749 587 101,749
2 5,381 3,073 1,910 103,073 3,396 2,234 103,396 3,734 2,571 103,734
3 8,275 4,563 3,517 104,563 5,196 4,149 105,196 5,883 4,836 105,883
4 11,314 5,973 5,043 105,973 7,014 6,084 107,014 8,191 7,261 108,191
5 14,505 7,283 6,469 107,283 8,832 8,018 108,832 10,653 9,839 110,653
6 17,855 8,499 7,801 108,499 10,652 9,954 110,652 13,289 12,591 113,289
7 21,373 9,613 9,032 109,613 12,465 11,884 112,465 16,106 15,525 116,106
8 25,066 10,609 10,144 110,609 14,254 13,789 114,254 19,106 18,641 119,106
9 28,945 11,484 11,135 111,484 16,011 15,662 116,011 22,299 21,951 122,299
10 33,017 12,243 12,243 112,243 17,739 17,739 117,739 25,711 25,711 125,711
11 37,293 12,873 12,873 112,873 19,421 19,421 119,421 29,437 29,437 129,437
12 41,782 13,343 13,343 113,343 21,020 21,020 121,020 33,398 33,398 133,398
13 46,497 13,647 13,647 113,647 22,525 22,525 122,525 37,606 37,606 137,606
14 51,446 13,758 13,758 113,758 23,900 23,900 123,900 42,058 42,058 142,058
15 56,644 13,668 13,668 113,668 25,130 25,130 125,130 46,769 46,769 146,769
16 62,101 13,372 13,372 113,372 26,281 26,281 126,281 51,756 51,756 151,756
17 67,831 12,835 12,835 112,835 27,230 27,230 127,230 57,008 57,008 157,008
18 73,848 12,050 12,050 112,050 27,958 27,958 127,958 62,541 62,541 162,541
19 80,165 11,003 11,003 111,003 28,437 28,437 128,437 68,365 68,365 168,365
20 86,798 9,659 9,659 109,659 28,613 28,613 128,613 74,471 74,471 174,471
21 93,763 7,994 7,994 107,994 28,445 28,445 128,445 80,858 80,858 180,858
22 101,076 5,937 5,937 105,937 27,835 27,835 127,835 87,471 87,471 187,471
23 108,755 3,446 3,446 103,446 26,715 26,715 126,715 94,288 94,288 194,288
24 116,818 482 482 100,482 25,014 25,014 125,014 101,277 101,277 201,277
25 125,284 (*) (*) (*) 22,643 22,643 122,643 108,396 108,396 208,396
26 134,173 (*) (*) (*) 19,454 19,454 119,454 115,606 115,606 215,606
27 143,506 (*) (*) (*) 15,447 15,447 115,447 122,875 122,875 222,875
28 153,307 (*) (*) (*) 10,521 10,521 110,521 130,142 130,142 230,142
29 163,597 (*) (*) (*) 4,573 4,573 104,573 137,341 137,341 237,341
30 174,402 (*) (*) (*) (*) (*) (*) 144,363 144,363 244,363
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$12.50 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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.
48
<PAGE> 52
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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> <C>
1 2,625 1,197 35 101,197 1,300 138 101,300 1,404 241 101,404
2 5,381 2,500 1,338 102,500 2,785 1,623 102,785 3,083 1,921 103,083
3 8,275 3,693 2,647 103,693 4,242 3,196 104,242 4,840 3,794 104,840
4 11,314 4,768 3,838 104,768 5,660 4,730 105,660 6,671 5,741 106,671
5 14,505 5,715 4,901 105,715 7,024 6,211 107,024 8,571 7,758 108,571
6 17,855 6,523 5,825 106,523 8,319 7,622 108,319 10,534 9,836 110,534
7 21,373 7,179 6,598 107,179 9,527 8,946 109,527 12,549 11,968 112,549
8 25,066 7,665 7,200 107,665 10,622 10,157 110,622 14,600 14,135 114,600
9 28,945 7,962 7,613 107,962 11,578 11,229 111,578 16,669 16,320 116,669
10 33,017 8,052 8,052 108,052 12,366 12,366 112,366 18,734 18,734 118,734
11 37,293 7,920 7,920 107,920 12,960 12,960 112,960 20,776 20,776 120,776
12 41,782 7,549 7,549 107,549 13,332 13,332 113,332 22,770 22,770 122,770
13 46,497 6,927 6,927 106,927 13,453 13,453 113,453 24,694 24,694 124,694
14 51,446 6,033 6,033 106,033 13,290 13,290 113,290 26,517 26,517 126,517
15 56,644 4,841 4,841 104,841 12,798 12,798 112,798 28,282 28,282 128,282
16 62,101 3,314 3,314 103,314 11,918 11,918 111,918 29,856 29,856 129,856
17 67,831 1,404 1,404 101,404 10,581 10,581 110,581 31,164 31,164 131,164
18 73,848 (*) (*) (*) 8,701 8,701 108,701 32,109 32,109 132,109
19 80,165 (*) (*) (*) 6,188 6,188 106,188 32,583 32,583 132,583
20 86,798 (*) (*) (*) 2,956 2,956 102,956 32,479 32,479 132,479
21 93,763 (*) (*) (*) (*) (*) (*) 31,686 31,686 131,686
22 101,076 (*) (*) (*) (*) (*) (*) 30,090 30,090 130,090
23 108,755 (*) (*) (*) (*) (*) (*) 27,570 27,570 127,570
24 116,818 (*) (*) (*) (*) (*) (*) 23,984 23,984 123,984
25 125,284 (*) (*) (*) (*) (*) (*) 19,082 19,082 119,082
26 134,173 (*) (*) (*) (*) (*) (*) 12,713 12,713 112,713
27 143,506 (*) (*) (*) (*) (*) (*) 4,601 4,601 104,601
28 153,307 (*) (*) (*) (*) (*) (*) (*) (*) (*)
29 163,597 (*) (*) (*) (*) (*) (*) (*) (*) (*)
30 174,402 (*) (*) (*) (*) (*) (*) (*) (*) (*)
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $25 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND
$7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL
PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL 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 REPRESENTATION 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.
49
<PAGE> 53
<PAGE> 1
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,
1996, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the
three year period then ended. These financial statements and schedules of
changes in unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value 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 and schedules of
changes in unit value 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, 1996, by correspondence with the transfer agents of
the underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VLI Separate Account as of December 31, 1996, and the
results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in Van Kampen American Capital Life
Investment Trust, at market value:
Asset Allocation Fund
2,155,022 shares (cost $24,422,269) $ 24,459,498
Domestic Income Fund
333,174 shares (cost $2,688,144) 2,668,722
Emerging Growth Fund
119,694 shares (cost $1,613,469) 1,635,017
Enterprise Fund
1,816,594 shares (cost $25,629,353) 29,537,819
Global Equity Fund
86,385 shares (cost $962,884) 1,007,252
Government Fund
5,762,429 shares (cost $50,750,069) 49,902,635
Money Market Fund
9,135,631 shares (cost $9,135,631) 9,135,631
Real Estate Securities Fund
13,353 shares (cost $168,204) 197,360
-------------
Total assets 118,543,934
ACCOUNTS PAYABLE 43,083
-------------
CONTRACT OWNER'S EQUITY $ 118,500,851
=============
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Contract owners' equity represented by: UNITS UNIT VALUE
----- ----------
<S> <C> <C> <C>
Single Premium contracts issued prior to April 16, 1990
(policy years 1 through 10):
Asset Allocation Fund (formerly Multiple Strategy) 744,990 $ 24.272482 $ 18,082,756
Domestic Income Fund 86,684 18.211426 1,578,639
Emerging Growth Fund 69,012 13.467256 929,402
Enterprise Fund (formerly Common Stock) 700,997 27.810473 19,495,058
Global Equity Fund 33,541 11.864328 397,941
Government Fund 1,655,527 19.185493 31,762,102
Money Market Fund 400,870 16.307639 6,537,243
Real Estate Securities Fund 10,042 15.011508 150,746
Single Premium contracts issued prior to April 16, 1990
(policy year 11 and thereafter):
Asset Allocation Fund (formerly Multiple Strategy) 251,360 24.345677 6,119,529
Domestic Income Fund 51,343 18.266338 937,849
Emerging Growth Fund 32,856 13.507925 443,816
Enterprise Fund (formerly Common Stock) 351,513 27.894373 9,805,235
Global Equity Fund 50,767 11.900110 604,133
Government Fund 939,781 19.243796 18,084,954
Money Market Fund 158,361 16.356824 2,590,283
Real Estate Securities Fund 3,093 15.056707 46,570
Single Premium contracts issued on or after April 16, 1990:
Asset Allocation Fund (formerly Multiple Strategy) 5,452 20.858239 113,719
Domestic Income Fund 8,374 18.004549 150,770
Emerging Growth Fund 19,492 13.396950 261,133
Enterprise Fund (formerly Common Stock) 2,431 26.183349 63,652
Global Equity Fund 342 11.802380 4,036
Government Fund 2,775 14.546815 40,367
Money Market Fund 122 12.061110 1,471
Multiple Premium Contracts and Flexible Premium Contracts:
Asset Allocation Fund (formerly Multiple Strategy) 7,384 18.790954 138,752
Enterprise Fund (formerly Common Stock) 7,157 22.452797 160,695
========= ========= -------------
$ 118,500,851
=============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends $ 11,026,808 11,096,149 9,791,294
Mortality and expense charges (note 3) (1,030,085) (1,124,778) (1,135,456)
------------ ----------- -----------
Net investment activity 9,996,723 9,971,371 8,655,838
------------ ----------- -----------
Proceeds from mutual fund shares sold 24,568,211 23,835,749 22,040,399
Cost of mutual fund shares sold (22,544,406) (21,777,460) (20,667,556)
------------ ----------- -----------
Realized gain (loss) on investments 2,023,805 2,058,289 1,372,843
Change in unrealized gain (loss) on investments (1,839,618) 11,069,519 (15,672,902)
------------ ----------- -----------
Net gain (loss) on investments 184,187 13,127,808 (14,300,059)
------------ ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations 10,180,910 23,099,179 (5,644,221)
------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners 54,433 39,639 25,229
Surrenders (note 2d) (13,731,809) (11,745,567) (9,547,706)
Death Benefits (note 4) (1,201,226) (1,552,445) (1,196,526)
Policy loans (net of repayments) (note 5) 3,043,009 833,405 1,817,775
Deductions for surrender charges (note 2d) (16,455) (193,286) (377,936)
Redemptions to pay cost of insurance charges
and administrative charges (notes 2b and 2c) (1,530,522) (1,770,626) (2,043,874)
------------ ----------- -----------
Net equity transactions (13,382,570) (14,388,880) (11,323,038)
------------ ----------- -----------
Net change in contract owners' equity (3,201,660) 8,710,299 (16,967,259)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 121,702,511 112,992,212 129,959,471
------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD $ 118,500,851 121,702,511 112,992,212
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life
Insurance Company (the Company) on August 8, 1984. The Account has
been registered as a unit investment trust under the Investment
Company Act of 1940.
The Company offers modified single premium, multiple payment and
flexible premium variable life insurance contracts through the
Account. The primary distribution for the contracts is through the
brokerage community; however, other distributors may be utilized.
(b) The Contracts
Prior to December 31, 1990, only 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,
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 and note 3 for asset charges.
Contract owners may invest in the following funds:
Funds of the Van Kampen American Capital Life Investment Trust (Van
Kampen American Capital LIT);
Van Kampen American Capital LIT-Asset Allocation Fund
(formerly Multiple Strategy)
Van Kampen American Capital LIT-Domestic Income Fund
(formerly Corporate Bond)
Van Kampen American Capital LIT-Emerging Growth Fund
Van Kampen American Capital LIT-Enterprise Fund
(formerly Common Stock Fund)
Van Kampen American Capital LIT-Global Equity Fund
Van Kampen American Capital LIT-Government Fund
Van Kampen American Capital LIT-Money Market Fund
Van Kampen American Capital LIT-Real Estate Securities Fund
At December 31, 1996, contract owners have invested in all of the
above funds.
The contract owners' equity is affected by the investment results of
each fund, equity transactions by contract owners and certain policy
charges (see notes 2 and 3). 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 the underlying mutual funds is based on the
closing net asset value per share at December 31, 1996. 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.
<PAGE> 6
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities,
if any, at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with
the current year presentation.
(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) Surrender Charges
Policy surrenders result in a redemption of the contract value from
the 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.
<PAGE> 7
(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
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 the unit values, which
are the basis for determining contract owners' equity. This schedule is
presented in the following format:
o Beginning unit value - Jan. 1
o 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.)
o Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
o Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
o Ending unit value - Dec. 31
o Percentage increase (decrease) in unit value.
<PAGE> 8
SCHEDULE I
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
(POLICY YEARS 1 THROUGH 10)
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING
ALLOCATION INCOME GROWTH ENTERPRISE
FUND FUND FUND FUND
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $21.519909 17.235188 11.655608 22.498859
- ----------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 3.456144 1.551321 .000000 3.050863
- ----------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.488445) (.410339) 1.935098 2.501932
- ----------------------------------------------------------------------------------------------------
Asset charges (.215126) (.164744) (.123450) (.241181)
- ----------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $24.272482 18.211426 13.467256 27.810473
- ----------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 13% 6% 16% 24%
====================================================================================================
1995
Beginning unit value - Jan. 1 $16.538427 14.336077 10.000000 16.580891
- ----------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.418600 1.359225 .000000 3.004553
- ----------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.744315 1.690878 1.707069 3.100329
- ----------------------------------------------------------------------------------------------------
Asset charges (.181433) (.150992) (.051461) (.186914)
- ----------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $21.519909 17.235188 11.655608 22.498859
- ----------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 30% 20% 17%(b) 36%
====================================================================================================
1994
Beginning unit value - Jan. 1 $17.329774 15.127964 ** 17.325425
- ----------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.995739 1.490981 1.976086
- ----------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.627910) (2.144766) (2.559308)
- ----------------------------------------------------------------------------------------------------
Asset charges (.159176) (.138102) (.161312)
- ----------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $16.538427 14.336077 16.580891
- ----------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (5)% (5)% (4)%
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL MONEY REAL ESTATE
EQUITY GOVERNMENT MARKET SECURITIES
FUND FUND FUND FUND
------- ---------- ------- ---------
<S> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 10.262083 18.968390 15.695093 10.784280
- --------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .358540 1.225305 .764922 .288822
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.350014 (.828963) .000000 4.051625
- --------------------------------------------------------------------------------------------------------
Asset charges (.106309) (.179239) (.152376) (.113219)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.864328 19.185493 16.307639 15.011508
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 16% 1% 4% 39%
========================================================================================================
1995
Beginning unit value - Jan. 1 10.000000 16.344365 15.022875 10.000000
- --------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 1.217414 .817690 .092106
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .309271 1.576618 .000000 .740132
- --------------------------------------------------------------------------------------------------------
Asset charges (.047188) (.170007) (.145472) (.047958)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 10.262083 18.968390 15.695093 10.784280
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 3%(b) 16% 4% 8%(b)
========================================================================================================
1994
Beginning unit value - Jan. 1 ** 17.301801 14.623465 **
- --------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.062855 .539516
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.862740) .000000
- --------------------------------------------------------------------------------------------------------
Asset charges (.157551) (.140106)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 16.344365 15.022875
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (6)% 3%
========================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in
note 2; and
(b) This investment option was not utilized for the entire year
indicated.
**This investment option was not being utilized or was not available.
<PAGE> 9
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
(POLICY YEARS 11 AND THEREAFTER)
SCHEDULES OF CHANGES IN UNIT VALUE
YEAR ENDED DECEMBER 31, 1996
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING
ALLOCATION INCOME GROWTH ENTERPRISE
FUND FUND FUND FUND
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 $21.519909 17.235188 11.655608 22.498859
- ----------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 3.464578 1.555582 .000000 3.057101
- ----------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.492537) (.411984) 1.935344 2.501147
- ----------------------------------------------------------------------------------------------------
Asset charges (.146273) (.112448) (.083027) (.162734)
- ----------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $24.345677 18.266338 13.507925 27.894373
- ----------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 13% 6% 16% 24%
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL MONEY REAL ESTATE
EQUITY GOVERNMENT MARKET SECURITIES
FUND FUND FUND FUND
------- ---------- ------- ---------
<S> <C> <C> <C> <C>
1996
Beginning unit value - Jan. 1 10.262083 18.968390 15.695093 10.784280
- --------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .359541 1.226436 .765692 .289605
- --------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.350463 (.828621) .000000 4.058907
- --------------------------------------------------------------------------------------------------
Asset charges (.071977) (.122409) (.103961) (.076085)
- --------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.900110 19.243796 16.356824 15.056707
- --------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 1% 4% 40%
==================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
<PAGE> 10
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING GLOBAL MONEY
ALLOCATION INCOME GROWTH ENTERPRISE EQUITY GOVERNMENT MARKET
FUND FUND FUND FUND FUND FUND FUND
--------- --------- --------- --------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996***
Beginning unit value - Jan. 1 $18.558022 17.099466 11.635640 21.257132 10.244489 14.433482 11.648994
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.971435 1.534027 .000000 2.874772 .356729 .930855 .566598
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.417798) (.405672) 1.929643 2.362697 1.346140 (.630892) .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.253420) (.223272) (.168333) (.311252) (.144978) (.186630) (.154482)
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $20.858239 18.004549 13.396950 26.183349 11.802380 14.546815 12.061110
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 12% 5% 15% 23% 15% 1% 4%
===================================================================================================================================
1995***
Beginning unit value - Jan. 1 $14.311997 14.272889 ** 15.720497 ** 12.480782 11.189053
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.086061 1.348751 2.839638 .928076 .607952
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.374431 1.683177 2.939071 1.202259 .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.214467) (.205351) (.242074) (.177635) (.148011)
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.558022 17.099466 21.257132 14.433482 11.648994
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 30% 20% 35% 16% 4%
===================================================================================================================================
1994***
Beginning unit value - Jan. 1 $15.049256 15.113958 ** 16.483852 ** 13.258615 10.929642
- -----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.727365 1.484668 1.874048 .813111 .402452
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.275800) (2.137258) (2.427739) (1.425714) .000000
- -----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.188824) (.188479) (.209664) (.165230) (.143041)
- -----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.311997 14.272889 15.720497 12.480782 11.189053
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (5)% (6)% (5)% (6)% 2%
===================================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
** This investment option was not being utilized or was not available.
*** No other investment options were being utilized.
<PAGE> 11
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
<TABLE>
<CAPTION>
ASSET
ALLOCATION ENTERPRISE
FUND FUND
--------- ---------
<S> <C> <C>
1996**
Beginning unit value - Jan. 1 $16.634918 18.137100
- ----------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.675077 2.462233
- ----------------------------------------------------------------------------
Unrealized gain (loss) (.378897) 2.017312
- ----------------------------------------------------------------------------
Asset charges (.140144) (.163848)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.790954 22.452797
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 13% 24%
============================================================================
1995**
Beginning unit value - Jan. 1 $12.765144 13.346462
- ----------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.869449 2.421740
- ----------------------------------------------------------------------------
Unrealized gain (loss) 2.118344 2.495698
- ----------------------------------------------------------------------------
Asset charges (.118019) (.126800)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 $16.634918 18.137100
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 30% 36%
============================================================================
1994**
Beginning unit value - Jan. 1 $13.355954 13.924920
- ----------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.540293 1.590429
- ----------------------------------------------------------------------------
Unrealized gain (loss) (2.027726) (2.059623)
- ----------------------------------------------------------------------------
Asset charges (.103377) (.109264)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.765144 13.346462
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% (4)%
============================================================================
</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 being utilized.
See note 6.
<PAGE> 54
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company) as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
Assets 1996 1995
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------------- ----------------
18,306,921 17,778,860
----------------- ----------------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
$47,766,246 38,507,633
================= ================
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------------- ----------------
192,382 281,928
----------------- ----------------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
45,628,372 35,879,121
----------------- ----------------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------------- ----------------
2,137,874 2,628,512
----------------- ----------------
$47,766,246 38,507,633
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
--------------- -------------- -------------
1,992,838 1,798,651 1,599,499
--------------- -------------- -------------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
--------------- -------------- -------------
1,677,341 1,511,079 1,357,641
--------------- -------------- -------------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
--------------- -------------- -------------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
--------------- -------------- -------------
110,889 99,808 78,589
--------------- -------------- -------------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
--------------- -------------- -------------
Net income $ 215,932 212,478 183,728
=============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
=========== ============= =============== ================= ===============
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
=========== ============= =============== ================= ===============
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
=========== ============= =============== ================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
--------------- --------------- ---------------
Net cash provided by operating activities 346,159 187,633 39,880
---------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------------- --------------- ---------------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------------- --------------- --------------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------------- --------------- --------------
Net increase (decrease) in cash 34,329 5,832 (16,315)
---------------- --------------- ---------------
Cash, beginning of year 9,455 3,623 19,938
---------------- --------------- ---------------
Cash, end of year $ 43,784 9,455 3,623
================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary
of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries
of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC),
Employers Life Insurance Company of Wausau and subsidiaries (ELICW),
National Casualty Company (NCC), West Coast Life Insurance Company
(WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide
Financial Services, Inc.), Nationwide Investment Services Corporation
(formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and
its subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in
November 1996 as a holding company for NLIC and the other companies of
the Nationwide Insurance Enterprise that offer or distribute long-term
savings and retirement products. On January 27, 1997, Nationwide Corp.
contributed to NFS the common stock of NLIC and three marketing and
distribution companies. NFS is planning an initial public offering of
its Class A common stock during the first quarter of 1997.
In anticipation of the restructuring described above, on September 24,
1996, NLIC's Board of Directors declared a dividend payable January 1,
1997 to Nationwide Corp. consisting of the outstanding shares of common
stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer
or distribute long-term savings and retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and another affiliate effective January 1, 1996. These
subsidiaries and all accident and health and group life insurance
business have been accounted for as discontinued operations for all
periods presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC intends
to make an $850,000 distribution to NFS which will then make an
equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to
competition from other financial services providers throughout the
United States. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed, and undergoes periodic
examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments
may create costs for the insurer beyond those currently recorded
in the consolidated financial statements. The Company mitigates
this risk by offering a wide range of products and by operating
throughout the United States, thus reducing its exposure to any
single product or jurisdiction, and also by employing underwriting
practices which identify and minimize the adverse impact of this
risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by
the Company will default or that other parties, including
reinsurers, which owe the Company money, will not pay. The Company
minimizes this risk by adhering to a conservative investment
strategy, by maintaining reinsurance and credit and collection
policies and by providing for any amounts deemed uncollectible.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(2) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies that offer or distribute long-term savings and
retirement products. Prior to the contribution by Nationwide Corp. to
NFS of the outstanding common stock of NLIC and other companies, NLIC
effected certain transactions with respect to certain subsidiaries and
lines of business that were unrelated to long-term savings and
retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the outstanding shares of common stock
of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group
accident and health and group life insurance business and maintains it
offices in Wausau, Wisconsin. NCC is a property and casualty company
that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate.
NCC maintains its offices in Scottsdale, Arizona. WCLIC writes high
dollar term life insurance policies and is located in San Francisco,
California. ELICW, NCC and WCLIC have been accounted for as
discontinued operations for all periods presented. NLIC did not
recognize any gain or loss on the disposal of these subsidiaries.
A summary of the combined results of operations, including the results
of the accident and health and group life insurance business ELICW
assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and
WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 13 for a
complete discussion of the reinsurance agreements. NLIC has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated companies
and will cease writing any new business prior to December 31, 1997.
NLIC's accident and health and group life insurance business is
accounted for as discontinued operations for all periods presented.
NLIC did not recognize any gain or loss on the disposal of the accident
and health and group life insurance business. The assets, liabilities,
results of operations and activities of discontinued operations are
distinguished physically, operationally and for financial reporting
purposes from the remaining assets, liabilities, results of operations
and activities of NLIC.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A summary of the results of operations, net of amounts ceded to ELICW
and NMIC in 1996, and assets and liabilities of NLIC's accident and
health and group life insurance business as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which
differ from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and its insurance
subsidiaries, filed with the department of insurance of each insurance
company's state of domicile, are prepared on the basis of accounting
practices prescribed or permitted by each department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as
state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not
so prescribed. The Company has no material permitted statutory
accounting practices.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ significantly from those
estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for mortgage
loans on real estate and real estate investments and the liability for
future policy benefits and claims. Although some variability is
inherent in these estimates, management believes the amounts provided
are adequate.
(a) Consolidation Policy
--------------------
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
Subsidiaries Classified as Discontinued Operations" in the
accompanying consolidated balance sheets and "Income for
Discontinued Operations" in the accompanying consolidated
statements of income. All significant intercompany balances and
transactions have been eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1996 or 1995.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a
practical expedient, at the fair value of the collateral, if the
loan is collateral dependent. Loans in foreclosure and loans
considered to be impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real
estate are included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
(c) Revenues and Benefits
---------------------
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of
insurance, policy administration and surrender charges that have
been earned and assessed against policy account balances during
the period. Policy benefits and claims that are charged to expense
include interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
insurance premiums are recognized as revenue over the terms of the
policies. Policy claims are charged to expense in the period that
the claims are incurred. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(d) Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable agency expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life products,
these deferred policy acquisition costs are predominantly being
amortized with interest over the premium paying period of the
related policies in proportion to the ratio of actual annual
premium revenue to the anticipated total premium revenue. Such
anticipated premium revenue was estimated using the same
assumptions as were used for computing liabilities for future
policy benefits. Deferred policy acquisition costs are adjusted to
reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 3(b).
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(e) Separate Accounts
-----------------
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or losses
of these accounts accrue directly to the contractholders. The
activity of the Separate Accounts is not reflected in the
consolidated statements of income and cash flows except for the
fees the Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life insurance policies
have been calculated using a net level premium method based on
estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the
time the policies were issued, rather than the assumptions
prescribed by state regulatory authorities. See note 6.
Future policy benefits and claims for collectively renewable
long-term disability policies and group long-term disability
policies are the present value of amounts not yet due on reported
claims and an estimate of amounts to be paid on incurred but
unreported claims. The impact of reserve discounting is not
material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance
business is accounted for as discontinued operations. See note 2.
(g) Participating Business
----------------------
Participating business represents approximately 52% in 1996 (54%
in 1995 and 55% in 1994) of the Company's life insurance in force,
78% in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) of life insurance premiums. The provision for
policyholder dividends is based on current dividend scales. Future
dividends are provided for ratably in future policy benefits based
on dividend scales in effect at the time the policies were issued.
(h) Federal Income Tax
------------------
The Company, with the exception of ELICW, files a consolidated
federal income tax return with NMIC, the majority shareholder of
Nationwide Corp. The members of the consolidated tax return group
have a tax sharing arrangement which provides, in effect, for each
member to bear essentially the same federal income tax liability
as if separate tax returns were filed. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(i) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 2 and 13.
(j) Reclassification
----------------
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) Change in Accounting Principle
------------------------------
Effective January 1, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities in connection
with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,299,665
and $6,721,714, respectively, as available-for-sale and recorded the
securities at fair value. Previously, these securities were recorded at
amortized cost. The effect as of January 1, 1994 has been recorded as a
direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
--------------
$ 212,553
==============
</TABLE>
(5) Investments
-----------
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ------------ ------------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ------------ ------------
$12,014,768 400,341 (51,339) 12,363,770
============ ========== ============ ============
</TABLE>
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
------------ ---------- ----------- ---------------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
------------ ---------- ----------- ---------------
$11,886,173 663,588 (34,244) 12,515,517
============ ========== =========== ===============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1996, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
--------------- --------------
<S> <C> <C>
Fixed maturity securities available-for-sale:
Due in one year or less $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
--------------- --------------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
--------------- --------------
$11,970,878 12,304,639
=============== ==============
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
--------------- --------------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
--------------- --------------
$173,592 384,304
=============== ==============
</TABLE>
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------------- ------------- --------------
$(280,342) 951,932 (1,075,483)
=============== ============= ==============
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996,
1995 and 1994 were $299,558, $107,345 and $228,308, respectively.
During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994,
respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995
and 1994, respectively) were realized on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of those
fixed maturity securities resulted in a gross unrealized loss of
$3,535.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
1995 the Company transferred all of its fixed maturity securities
previously classified as held-to-maturity to available-for-sale. As of
December 14, 1995, the date of transfer, the fixed maturity securities
had amortized cost of $3,320,093, resulting in a gross unrealized gain
of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities,
$20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in
other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and
valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of
December 31, 1995).
The recorded investment of mortgage loans on real estate considered to
be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE)
as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995),
which includes $41,663 ($23,975 as of December 31, 1995) of impaired
mortgage loans on real estate for which the related valuation allowance
was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of
December 31, 1995) of impaired mortgage loans on real estate for which
there was no valuation allowance. During 1996, the average recorded
investment in impaired mortgage loans on real estate was approximately
$39,674 ($22,181 in 1995) and interest income recognized on those loans
was $2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------------- -------------
Allowance, end of year $51,038 49,128
============= ==============
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
--------------- ------------- --------------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
--------------- ------------- ---------------
Net investment income $1,357,759 1,294,033 1,210,811
=============== ============= ==============
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------------ ------------ ------------
$ (326) (1,724) (16,527)
============ ============ ============
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592
as of December 31, 1996 and 1995, respectively, were on deposit with
various regulatory agencies as required by law.
(6) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for investment contracts
represents approximately 87% and 87% of the total liability for future
policy benefits as of December 31, 1996 and 1995, respectively. The
average interest rate credited on investment product policies was
approximately 6.3%, 6.6% and 6.5% for the years ended December 31,
1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
Interest rates: Interest rates vary as follows:
--------------
<TABLE>
<CAPTION>
Year of issue Interest rates
----------------- ----------------------------------------
<S> <C>
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
WITHDRAWALS: Rates, which vary by issue age, type of coverage
and policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on
published tables, modified for the Company's actual
experience.
The Company has entered into a reinsurance contract to cede a portion
of its general account individual annuity business to The Franklin Life
Insurance Company (Franklin). Total recoveries due from Franklin were
$240,451 and $245,255 as of December 31, 1996 and 1995, respectively.
The contract is immaterial to the Company's results of operations. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. Under the terms of the contract,
Franklin has established a trust as collateral for the recoveries. The
trust assets are invested in investment grade securities, the market
value of which must at all times be greater than or equal to 102% of
the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 13. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(7) Federal Income Tax
-------------------
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
----------------- ---------------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
----------------- ---------------
Net deferred tax assets 441,527 345,748
================= ===============
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
----------------- ---------------
Total gross deferred tax liabilities 603,739 592,375
----------------- ---------------
$162,212 246,627
================= ===============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1996, 1995 and 1994.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
------------ -------- ------------- -------- ------------- --------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
============ ======== ============= ======== ============= ========
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239
during the years ended December 31, 1996, 1995 and 1994,
respectively.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(SFAS 107) requires disclosure of fair value information about existing
on and off-balance sheet financial instruments. SFAS 107 defines the
fair value of a financial instrument as the amount at which the
financial instrument could be exchanged in a current transaction
between willing parties. In cases where quoted market prices are not
available, fair value is based on estimates using present value or
other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in the immediate
settlement of the instruments. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts is provided to make the fair value disclosures
more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender
charges.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is the estimated fair value of
the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analyses. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
FUNDS: The carrying amount reported in the consolidated balance
sheets for these instruments approximates their fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
-----------
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(9) Additional Financial Instruments Disclosures
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to extend
credit in the form of loans. These instruments involve, to varying
degrees, elements of credit risk in excess of amounts recognized on the
consolidated balance sheets.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and the
borrower's loan collateral. The underlying mortgage property represents
the collateral if the commitment is funded. The Company's policy for
new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $327,456 extending into
1997 were outstanding as of December 31, 1996.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 21% (20% in 1995) in any geographic area and no more than 2% (2%
in 1995) with any one borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
------------- ------------- ------------- -------------- ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
============ ============= ============= =============
Less valuation allowances and unamortized discount 58,369
--------------
Total mortgage loans on real estate, net $5,272,119
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
------------ ------------ ------------- ------------- --------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
============ ============= ============= =============
Less valuation allowances and unamortized discount 57,948
--------------
Total mortgage loans on real estate, net $4,602,764
==============
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Pension Plan
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one thousand hours of service within a twelve-month period and who have
met certain age requirements. Benefits are based upon the highest
average annual salary of a specified number of consecutive years of the
last ten years of service. The Company funds pension costs accrued for
direct employees plus an allocation of pension costs accrued for
employees of affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost
of the enhanced benefit was borne by NMIC and certain of its property
and casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau Insurance
Companies Pension Plan to form the Nationwide Insurance Enterprise
Retirement Plan. Immediately prior to the merger, the plans were
amended to provide consistent benefits for service after January 1,
1996. These amendments had no significant impact on the accumulated
benefit obligation or projected benefit obligation as of December 31,
1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996 and
1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------------- --------------- ---------------
$ 72,189 53,866 55,046
=============== =============== ===============
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
--------------- ---------------
$1,349,703 1,263,233
=============== ===============
Net accrued pension expense:
Projected benefit obligation for services rendered to
date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
--------------- ---------------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
--------------- ---------------
$ (26,819) (21,592)
=============== ===============
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation; however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1996 and 1995 was $34,884 and $33,537, respectively, and the net
periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994
was $3,286, $3,132 and $4,284, respectively.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
----------- ----------- -----------
$17,875 19,076 23,165
=========== =========== ===========
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------------- ---------------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------------- ---------------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------------- ---------------
$(159,216) (152,734)
=============== ===============
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1996 by $701 and the NPPBC for the year ended December 31,
1996 by $83.
(12) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
and Dividend Restrictions
---------------------------------------------------------------------
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance
is determined by a ratio of the company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level
risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. NLIC and each of its
insurance company subsidiaries exceed the minimum risk-based capital
requirements.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State of
Ohio (the Department). NLIC's dividend of the outstanding shares of
common stock of certain companies which was declared on September 24,
1996 and the anticipated $850,000 dividend (as discussed in note 1) are
deemed extraordinary under Ohio insurance laws. As a result of such
dividends, any dividend paid by NLIC during the 12-month period
immediately following the $850,000 dividend would also be an
extraordinary dividend under Ohio insurance laws. Accordingly, no such
dividend could be paid without prior regulatory approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its stockholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
(13) Transactions With Affiliates
----------------------------
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the
Company made lease payments to NMIC and its subsidiaries of $9,065,
$8,986 and $8,133, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $101,584, $107,112, and $100,601 in 1996,
1995 and 1994, respectively. The allocations are based on techniques
and procedures in accordance with insurance regulatory guidelines.
Measures used to allocate expenses among companies include individual
employee estimates of time spent, special cost studies, salary expense,
commissions expense and other methods agreed to by the participating
companies that are within industry guidelines and practices. The
Company believes these allocation methods are reasonable. In addition,
the Company does not believe that expenses recognized under the
intercompany agreements are materially different than expenses that
would have been recognized had the Company operated on a stand alone
basis. Amounts payable to NMIC from the Company under the cost sharing
agreement were $15,111 and $1,186 as of December 31, 1996 and 1995,
respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1996 and
1995 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance contracts exist between NLIC and, respectively
NMIC and ELICW whereby all of NLIC's accident and health and group life
insurance business is ceded on a modified coinsurance basis. NLIC
entered into the reinsurance agreements during 1996 because the
accident and health and group life insurance business was unrelated to
NLIC's long-term savings and retirement products. Accordingly, the
accident and health and group life insurance business has been
accounted for as discontinued operations for all periods presented.
Under modified coinsurance agreements, invested assets are retained by
the ceding company and investment earnings are paid to the reinsurer.
Under the terms of NLIC's agreements, the investment risk associated
with changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee is
paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC's
retention of such risk. The agreements will remain in force until all
policy obligations are settled. However, with respect to the agreement
between NLIC and NMIC, either party may terminate the contract on
January 1 of any year with prior notice. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. NLIC believes that the terms of the modified coinsurance
agreements are consistent in all material respects with what NLIC could
have obtained with unaffiliated parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and NCC,
are summarized in note 2. Amounts ceded to ELICW in 1996 include
premiums of $224,224, net investment income and other revenue of
$14,833, and benefits, claims and other expenses of $246,641. Amounts
ceded to NMIC in 1996 include premiums of $97,331, net investment
income of $10,890, and benefits, claims and other expenses of $100,476.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31,
1996 and 1995, respectively, and are included in short-term investments
on the accompanying consolidated balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the outstanding
shares, with shareholder equity value of $30, of NISC to NLIC. NLIC
contributed an additional $500 to NISC on August 30, 1996.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46,918. As discussed in note 2, WCLIC is
accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock of ELICW from Wausau Service Corporation (WSC)
for $155,000. NLIC transferred fixed maturity securities and cash with
a fair value of $155,000 to WSC on December 28, 1994, which resulted in
a realized loss of $19,239 on the disposition of the securities. The
purchase price approximated both the historical cost basis and fair
value of net assets of ELICW. ELICW has and will continue to share home
office, other facilities, equipment and common management and
administrative services with WSC. As discussed in note 2, ELICW is
accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Nationwide Corp. Total commissions and
fees paid to these affiliates for the years ended December 31, 1996,
1995 and 1994 were $76,922, $57,280 and $50,168, respectively.
(14) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, established a $600,000 revolving
credit facility which provides for a $600,000 loan over a five year
term on a fully revolving basis with a group of national financial
institutions. The credit facility provides for several and not joint
liability with respect to any amount drawn by either NLIC or NMIC. NLIC
and NMIC pay facility and usage fees to the financial institutions to
maintain the revolving credit facility. All previously existing line of
credit agreements were canceled.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Contingencies
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to
be material to the Company's financial position or results of
operations.
(16) Segment Information
-------------------
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified
interest rate, fixed for a prescribed period, with returns accumulating
on a tax-deferred basis. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the
Company reports corporate expenses and investments, and the related
investment income supporting capital not specifically allocated to its
product segments in a Corporate and Other segment. In addition, all
realized gains and losses, investment management fees and other revenue
earned from mutual funds, other than the portion allocated to the
variable annuities and life insurance segments, are reported in the
Corporate and Other segment.
During 1996, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have been
restated to reflect these changes.
The following table summarizes the revenues and income from continuing
operations before federal income tax expense for the years ended
December 31, 1996, 1995 and 1994 and assets as of December 31, 1996,
1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
----------------- --------------- ---------------
$ 1,992,838 1,798,651 1,599,499
================= =============== ===============
Income from continuing operations before federal income tax
expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
----------------- --------------- ---------------
$ 315,497 287,572 241,858
================= =============== ===============
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
----------------- --------------- ---------------
$47,766,246 38,507,633 29,246,024
================= =============== ===============
</TABLE>
<PAGE> 55
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 7 to Form S-6 Registration Statement comprises
the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 84 pages.
Representations and Undertakings.
Accountants' Consent.
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<CAPTION>
<S> <C> <C>
1. Power of Attorney dated April 2, 1997 Attached hereto.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for
authorizing the establishment of the Registrant, the Nationwide VLI Separate Account (File No. 811-4399), and
adopted hereby incorporated herein by reference.
3. Distribution Contracts Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account (File No. 811-4399), and
hereby incorporated herein by reference.
4. Form of Security Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account (File No. 811-4399), and
hereby incorporated herein by reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account (File No. 811-4399), and
hereby incorporated herein by reference.
6. Application form of Security Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account (File No. 811-4399), and
hereby incorporated herein by reference.
7. Opinion of Counsel Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account (File No. 811-4399), and
hereby incorporated herein by reference.
</TABLE>
<PAGE> 56
Representations and Undertakings
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940 (the "Act"). The Registrant and the Company elect to be
governed by Rule 6e-3(T)(I)(13)(i)(A) under the Act with respect to the Policies
described in the prospectus. The Policies have been designed in such a way as to
qualify for the exemptive relief from various provisions of the Act afforded by
Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
the Company under the Policies. The Company represents that the risk charges are
within the range of industry practice for comparable policies and reasonable in
relation to all of the risks assumed by the issuer under the Policies. Actuarial
memoranda demonstrating the reasonableness of these charges are maintained by
the Company, and will be made available to the Securities and Exchange
Commission (the "Commission") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to the
Commission on request a memorandum setting forth the basis for this
representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(f) The fees and charges deducted under the Policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the Company.
<PAGE> 57
Accountants' Consent
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide VLI Separate Account:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 22, 1997
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NATIONWIDE VLI SEPARATE ACCOUNT, certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment No. 7 and has duly caused this Post-Effective Amendment
No. 7 to be signed on its behalf by the undersigned thereunto duly authorized,
and its seal to be hereunto affixed and attested, all in the City of Columbus,
and State of Ohio, on this 22nd day of April 1997.
NATIONWIDE VLI SEPARATE ACCOUNT
---------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
(Seal) ---------------------------------
Attest: (Sponsor)
/s/ W. SIDNEY DRUEN By: /s/ JOSEPH P. RATH
- --------------------------------- ------------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7 has been signed below by the following persons in the capacities
indicated on the 22nd day of April, 1997.
Signature Title
LEWIS J. ALPHIN Director
- -----------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- -----------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -----------------------------
Willard J. Engel
FRED C. FINNEY Director
- -----------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- -----------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief
- ----------------------------- Operating Office and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board
- ----------------------------- and Director
Henry S. Holloway
DIMON RICHARD McFERSON Chairman and Chief Executive Officer-
- ----------------------------- Nationwide Insurance Enterprise and Director
Dimon Richard McFerson
DAVID O. MILLER Director
- -----------------------------
David O. Miller
C. RAY NOECKER Director
- -----------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ----------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By/s/JOSEPH P. RATH
- ----------------------------- -------------------
James F. Patterson Joseph P. Rath
Attorney-in-Fact
ARDEN L. SHISLER Director
- -----------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -----------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -----------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -----------------------------
Harold W. Weihl
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C and Nationwide VA Separate Account-Q; and the registration of fixed
interest rate options subject to a market value adjustment offered under some or
all of the aforementioned individual Variable Annuity Contracts in connection
with Nationwide Multiple Maturity Separate Account and Nationwide Multiple
Maturity Separate Account-A, and the registration of Group Flexible Fund
Retirement Contracts in connection with Nationwide DC Variable Account,
Nationwide DCVA-II, and NACo Variable Account; and the registration of Group
Common Stock Variable Annuity Contracts in connection with Separate Account No.
1; and the registration of variable life insurance policies in connection with
Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide
VLI Separate Account-3, Nationwide VL Separate Account-A and Nationwide VL
Separate Account-B, hereby constitutes and appoints Dimon Richard McFerson,
Joseph J. Gasper, W. Sidney Druen, and Joseph P. Rath, and each of them with
power to act without the others, his/her attorney, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument may
be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 2nd day of April, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------------------- --------------------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------------------- -------------------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard J. Engel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice President and Chief
Financial Officer
/s/ Fred C. Finney /s/ James F. Patterson
- ------------------------------------------------- --------------------------------------------------
Fred C. Finney, Director James F. Patterson, Director
/s/ Charles L. Fuellgraf /s/ Arden L. Shisler
- ------------------------------------------------- --------------------------------------------------
Charles L. Fuellgraf, Jr., Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Robert L. Stewart, Director
and Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ Dimon Richard McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon Richard McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
</TABLE>
