-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RBq1KVay+ykOPhVeLLH1qO0CY1YvKCO862f7jbCMvJt8I6FV2OYNpUp4jWdLE3EY MUaZNo/HvR7xp3uQC9EjPw== 0000912057-97-032706.txt : 19971007 0000912057-97-032706.hdr.sgml : 19971007 ACCESSION NUMBER: 0000912057-97-032706 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19971006 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 4 CENTRAL INDEX KEY: 0001041357 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-31725 FILM NUMBER: 97691030 BUSINESS ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 8008603946 MAIL ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 S-6/A 1 FORM S-6 Registration No. 333-31725 --------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 PRE-EFFECTIVE AMENDMENT NO. 1 ----------------------------- TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 --------------- NATIONWIDE VLI SEPARATE ACCOUNT-4 (EXACT NAME OF TRUST) --------------- NATIONWIDE LIFE INSURANCE COMPANY ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 (EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT) GORDON E. McCUTCHAN SECRETARY ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 (NAME AND ADDRESS OF AGENT FOR SERVICE) --------------- Title and amount of securities being registered: Flexible premium variable universal life insurance policies. Such policies are not issued in predetermined amounts or units. The Registrant elects to register an indefinite number of securities by this registration statement in accordance with Rule 24f-2 under the Investment Company Act of 1940. Approximate date of proposed public offering: (As soon as practicable after the effective date of this Registration Statement). [ ] Check box if it is proposed that this filing will become effective on (date) at (time) pursuant to Rule 487. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall therefore become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2 N-8B-2 ITEM CAPTION IN PROSPECTUS 1 . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company The Variable Account 2 . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company 3 . . . . . . . . . . . . . . . . . . . . Custodian of Assets 4 . . . . . . . . . . . . . . . . . . . . Distribution of The Policies 5 . . . . . . . . . . . . . . . . . . . . The Variable Account 6 . . . . . . . . . . . . . . . . . . . . Not Applicable 7 . . . . . . . . . . . . . . . . . . . . Not Applicable 8 . . . . . . . . . . . . . . . . . . . . Not Applicable 9 . . . . . . . . . . . . . . . . . . . . Legal Proceedings 10 . . . . . . . . . . . . . . . . . . . . Information About The Policies; How The Cash Value Varies; Right to Exchange for a Fixed Benefit Policy; Reinstatement; Other Policy Provisions 11 . . . . . . . . . . . . . . . . . . . . Investments of The Variable Account 12 . . . . . . . . . . . . . . . . . . . . The Variable Account 13 . . . . . . . . . . . . . . . . . . . . Policy Charges Reinstatement 14 . . . . . . . . . . . . . . . . . . . . Underwriting and Issuance - Premium Payments Minimum Requirements for Issuance of a Policy 15 . . . . . . . . . . . . . . . . . . . . Investments of the Variable Account; Premium Payments 16 . . . . . . . . . . . . . . . . . . . . Underwriting and Issuance - Allocation of Cash Value 17 . . . . . . . . . . . . . . . . . . . . Surrendering The Policy for Cash 18 . . . . . . . . . . . . . . . . . . . . Reinvestment 19 . . . . . . . . . . . . . . . . . . . . Not Applicable 20 . . . . . . . . . . . . . . . . . . . . Not Applicable 21 . . . . . . . . . . . . . . . . . . . . Policy Loans 22 . . . . . . . . . . . . . . . . . . . . Not Applicable 23 . . . . . . . . . . . . . . . . . . . . Not Applicable 24 . . . . . . . . . . . . . . . . . . . . Not Applicable 25 . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company 26 . . . . . . . . . . . . . . . . . . . . Not Applicable 27 . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company 28 . . . . . . . . . . . . . . . . . . . . Company Management 29 . . . . . . . . . . . . . . . . . . . . Company Management 30 . . . . . . . . . . . . . . . . . . . . Not Applicable 31 . . . . . . . . . . . . . . . . . . . . Not Applicable 32 . . . . . . . . . . . . . . . . . . . . Not Applicable 33 . . . . . . . . . . . . . . . . . . . . Not Applicable 34 . . . . . . . . . . . . . . . . . . . . Not Applicable 35 . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company 36 . . . . . . . . . . . . . . . . . . . . Not Applicable 37 . . . . . . . . . . . . . . . . . . . . Not Applicable 38 . . . . . . . . . . . . . . . . . . . . Distribution of The Policies 39 . . . . . . . . . . . . . . . . . . . . Distribution of The Policies 40 . . . . . . . . . . . . . . . . . . . . Not Applicable 41(a). . . . . . . . . . . . . . . . . . . Distribution of The Policies 42 . . . . . . . . . . . . . . . . . . . . Not Applicable 43 . . . . . . . . . . . . . . . . . . . . Not Applicable 2 N-8B-2 ITEM CAPTION IN PROSPECTUS 44 . . . . . . . . . . . . . . . . . . . . How The Cash Value Varies 45 . . . . . . . . . . . . . . . . . . . . Not Applicable 46 . . . . . . . . . . . . . . . . . . . . How The Cash Value Varies 47 . . . . . . . . . . . . . . . . . . . . Not Applicable 48 . . . . . . . . . . . . . . . . . . . . Custodian of Assets 49 . . . . . . . . . . . . . . . . . . . . Not Applicable 50 . . . . . . . . . . . . . . . . . . . . Not Applicable 51 . . . . . . . . . . . . . . . . . . . . Summary of The Policies; Information About The Policies 52 . . . . . . . . . . . . . . . . . . . . Substitution of Securities 53 . . . . . . . . . . . . . . . . . . . . Taxation of The Company 54 . . . . . . . . . . . . . . . . . . . . Not Applicable 55 . . . . . . . . . . . . . . . . . . . . Not Applicable 56 . . . . . . . . . . . . . . . . . . . . Not Applicable 57 . . . . . . . . . . . . . . . . . . . . Not Applicable 58 . . . . . . . . . . . . . . . . . . . . Not Applicable 59 . . . . . . . . . . . . . . . . . . . . Financial Statements 3 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-4 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 Guaranteed Policy Continuation Period provided that minimum premium requirements have been met (See "Grace Period and Guaranteed Policy Continuation Provision"). The death benefit and Cash Value of the Policies may vary to reflect the experience of the Nationwide VLI Separate Account-4 (the "Variable Account") or the Fixed Account to which Cash Values are allocated. The Policies described in this prospectus meet the definition of "life insurance" under Section 7702 of the Internal Revenue Code (the "Code"). The Policy Owner may allocate Net Premiums and Cash Value to one or more of the Sub-Accounts of the Variable Account and the Fixed Account. The assets of each Sub-Account will be used to purchase, at net asset value, shares of a designated Underlying Mutual Fund in the following series of the Underlying Mutual Fund options: NATIONWIDE SEPARATE ACCOUNT TRUST: Capital Appreciation Fund Government Bond Fund Money Market Fund Small Company Fund Total Return 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 SUBJECT TO A GRACE PERIOD, UNLESS THE MINIMUM PREMIUM REQUIREMENTS HAVE BEEN MET (SEE "GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PROVISION"). THIS PROSPECTUS GENERALLY DESCRIBES ONLY THAT PORTION OF THE CASH VALUE ALLOCATED TO THE VARIABLE ACCOUNT. FOR A BRIEF SUMMARY OF THE FIXED ACCOUNT OPTION, SEE "THE FIXED ACCOUNT OPTION." INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH. THE DATE OF THIS PROSPECTUS IS NOVEMBER 3, 1997. 4 GLOSSARY OF TERMS ATTAINED AGE-The Insured's age on the Policy Date, plus the number of full years since the Policy Date. ACCUMULATION UNIT-An accounting unit of measure used to calculate the Cash Value of the Variable Account. BENEFICIARY-The person to whom the Death Proceeds are paid. CASH VALUE-The sum of the Policy values in the Variable Account, Fixed Account and any associated value in the Policy Loan Account. CASH SURRENDER VALUE-The Policy's Cash Value, less any Indebtedness under the Policy, less 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 prior to the Maturity Date. FIXED ACCOUNT-An investment option which is funded by the General Account of the Company. GENERAL ACCOUNT-All assets of the Company other than those of the Variable Account or in other separate accounts that have been or may be established by the Company. GUARANTEED POLICY CONTINUATION PERIOD-The guaranteed period during which a Policy will continue in force and not lapse, and is the lesser of 30 Policy Years or the number of Policy Years until the Insured reaches Attained Age 65; provided that for Policies issued to an Insured age 55 or older, the Guaranteed Period is 10 years. SEC GUIDELINE LEVEL PREMIUM-The amount of level annual premium calculated in accordance with the provisions of Rule 6(e)(3)(T) under Investment Company Act of 1940. It represents the level annual premiums required to mature the Policy under reasonable mortality and expense charges, and at an annual effective interest rate of 5%. 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 INVESTMENT DATE- The later of the Policy Date or the date on which the Company receives the initial Premium at the Home Office. 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 next following the Insured's 100th birthday. MINIMUM MONTHLY PREMIUM-It is used to measure the total amount of premiums that must be paid during the Guaranteed Policy Continuation Period to keep the Policy in force and is shown on the Policy data page. MINIMUM REQUIRED DEATH BENEFIT-Is the lowest death benefit which will qualify the Policy as life insurance under Section 7702 of the Code. MINIMUM SPECIFIED AMOUNT- It is shown in the Policy data pages. Changes to the Policy which result in Specified Amount below the Minimum Specified Amount will not be processed. MONTHLY ANNIVERSARY DAY-The same day as the Policy Date for each succeeding month. NET AMOUNT AT RISK-The Net Amount At Risk can be determined as of the Monthly Anniversary Day or any other day. The Net Amount At Risk on a Monthly Anniversary Day is the death benefit minus the Cash Value prior to deduction of the base policy cost of insurance charge. On any other day the Net Amount At Risk is the death benefit minus the Cash Value. 5 NET ASSET VALUE-The worth of one share at the end of a market day or at the close of the New York Stock Exchange. Net Asset Value is computed by adding the value of all portfolio holdings plus other assets, deducting liabilities and then dividing the result by the number of shares outstanding. NET PREMIUMS-Net Premiums are equal to the actual premiums minus the percent of premium charge. The percent of premium charges are shown on the Policy Data Page. POLICY ANNIVERSARY-The same day and month as the Policy Date for succeeding years. POLICY CHARGES-All deductions made from the premiums and the Policy Cash Value. POLICY DATE-The date the provisions of the Policy take effect, as shown on the Policy Owner's Policy Data Page. POLICY LOAN ACCOUNT-The Portion of the Cash Value which results from Policy Indebtedness. POLICY OWNER-The person designated in the Policy application as the Owner. POLICY YEAR-Each year commencing with the Policy Date and each Policy Anniversary thereafter. SCHEDULED PREMIUM-The Scheduled Premium is shown on the Policy Data Page. SPECIFIED AMOUNT-A dollar amount used to determine the death benefit under a Policy. It is shown on the Policy Data Page. SUB-ACCOUNT-A part of the Variable Account, the assets of which are invested exclusively in a corresponding Underlying Mutual Fund. SURRENDER CHARGE-An amount deducted from the Cash Value if the Policy is surrendered or if the Specified Amount is reduced as a result of a request from the Policy Owner. TARGET PREMIUM-The annual premium at which the sales load is reduced on a current basis. UNDERLYING MUTUAL FUNDS-The underlying mutual funds which correspond to the Sub- Accounts of the Variable Account. VALUATION DATE-Each day the New York Stock Exchange and the Company's Home Office are open for business or any other day during which there is sufficient degree of trading that the current net asset value of the Accumulation Units might be materially affected. VALUATION PERIOD-A period commencing with the close of business on the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. VARIABLE ACCOUNT-A separate investment account of Nationwide Life Insurance Company. Nationwide VLI Separate Account-4. 6 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 Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 NATIONWIDE LIFE INSURANCE COMPANY. . . . . . . . . . . . . . . . . . . . 9 THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Investments of the Variable Account. . . . . . . . . . . . . . . . . 9 -Nationwide Separate Account Trust . . . . . . . . . . . . . . . . .10 Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Dollar Cost Averaging. . . . . . . . . . . . . . . . . . . . . . . .12 Substitution of Securities . . . . . . . . . . . . . . . . . . . . .12 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . .12 INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . .13 Underwriting and Issuance. . . . . . . . . . . . . . . . . . . . . .13 -Minimum Requirements for Issuance of a Policy . . . . . . . . . . .13 -Premium Payments. . . . . . . . . . . . . . . . . . . . . . . . . .13 Allocation of Net Premium and Cash Value . . . . . . . . . . . . . .13 Short-Term Right to Cancel Policy. . . . . . . . . . . . . . . . . .14 POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . .14 Surrender Charges. . . . . . . . . . . . . . . . . . . . . . . . . .14 -Reductions to Surrender Charges . . . . . . . . . . . . . . . . . .16 Deductions from Cash Value . . . . . . . . . . . . . . . . . . . . .16 -Monthly Cost of Insurance . . . . . . . . . . . . . . . . . . . . .16 -Monthly Administrative Charge . . . . . . . . . . . . . . . . . . .17 -Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . .17 Reduction of Charges . . . . . . . . . . . . . . . . . . . . . . . .18 HOW THE CASH VALUE VARIES. . . . . . . . . . . . . . . . . . . . . . . .18 How the Investment Experience is Determined. . . . . . . . . . . . .18 Net Investment Factor. . . . . . . . . . . . . . . . . . . . . . . .18 Valuation of Assets. . . . . . . . . . . . . . . . . . . . . . . . .19 Determining the Cash Value . . . . . . . . . . . . . . . . . . . . .19 Valuation Periods and Valuation Dates. . . . . . . . . . . . . . . .19 SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . .19 Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . . .19 Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . .19 Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . . .19 -Preferred Partial Surrenders. . . . . . . . . . . . . . . . . . . .20 -Reduction of the Specified Amount . . . . . . . . . . . . . . . . .20 Maturity Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . .20 Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . .20 POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Taking a Policy Loan . . . . . . . . . . . . . . . . . . . . . . . .20 Effect on Investment Performance . . . . . . . . . . . . . . . . . .21 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Effect on Death Benefit and Cash Value . . . . . . . . . . . . . . .21 Repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . .22 Calculation of the Death Benefit . . . . . . . . . . . . . . . . . .22 Proceeds Payable on Death. . . . . . . . . . . . . . . . . . . . . .22 RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY . . . . . . . . . . . . . .22 CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . .23 7 GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PROVISION. . . . . . . .23 Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Guaranteed Policy Continuation Provision . . . . . . . . . . . . . .23 REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . .24 CHANGES IN EXISTING INSURANCE COVERAGE . . . . . . . . . . . . . . . . .24 Specified Amount Increases . . . . . . . . . . . . . . . . . . . . .24 Specified Amount Decreases . . . . . . . . . . . . . . . . . . . . .24 Changes in the Death Benefit Option. . . . . . . . . . . . . . . . .25 OTHER POLICY PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . .25 Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . .26 Error in Age or Sex. . . . . . . . . . . . . . . . . . . . . . . . .26 Suicide. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Nonparticipating Policies. . . . . . . . . . . . . . . . . . . . . .26 Riders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .26 DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . .26 CUSTODIAN OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .27 TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Policy Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .27 -Federal Estate and Generation-Skipping Transfer Taxes . . . . . . .28 -Non-Resident Aliens . . . . . . . . . . . . . . . . . . . . . . . .28 Taxation of the Company. . . . . . . . . . . . . . . . . . . . . . .29 Tax Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Directors of the Company . . . . . . . . . . . . . . . . . . . . . .30 Executive Officers of the Company. . . . . . . . . . . . . . . . . .31 OTHER CONTRACTS ISSUED BY THE COMPANY. . . . . . . . . . . . . . . . . .31 STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . .32 ADVERTISING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .32 EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . .33 LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 APPENDIX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 APPENDIX 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .56 THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. 8 SUMMARY OF THE POLICIES VARIABLE LIFE INSURANCE The variable life insurance Policies offered by Nationwide Life Insurance Company (the "Company") provide for life insurance coverage on the Insured. The Policies may provide for a Cash Surrender Value which is payable if the Policy is terminated during the Insured's lifetime. The death benefit and Cash Value of the Policies may increase or decrease to reflect the investment performance of the Variable Account Sub-Accounts or the Fixed Account to which Cash Values are allocated (see "How the Death Benefit Varies"). There is no guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the Cash Surrender Value is insufficient to pay the Policy Charges, the Policy will lapse without value. Nationwide Life Insurance Company guarantees to keep the Policy in force during the Guaranteed Policy Continuation Period provided the premium requirements have been 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 Internal Revenue Code ("Code"). Excess premiums paid may also cause the Policy to become a modified endowment contract. The Company will monitor premiums paid and other policy transactions and will notify the Policy Owner when the Policy's non-modified endowment contract status is in jeopardy (see "Tax Matters"). THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS The Company places the Policy's Net Premiums in the Variable Account or the Fixed Account at the time the Policy is issued. The Policy Owner selects the Sub-Accounts of the Variable Account or the Fixed Account into which the Cash Value will be allocated (see "Allocation of Cash Value"). In such states which require a return of premiums to those Policy Owners exercising their short term right to cancel (see "Short Term Right to Cancel Policy"), the Net Premiums will be allocated to the Nationwide Separate Account Trust Money Market Fund Sub-Account (for any Net Premiums allocated to a Sub-Account on the application) or the Fixed Account until the expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. Assets of each Sub-Account are invested at net asset value in shares of a corresponding Underlying Mutual Fund (see "Allocation of Net Premium and Cash Value"). For a description of the Underlying Mutual Fund options and their investment objectives, see "Investments of the Variable Account." THE FIXED ACCOUNT The Fixed Account is funded by the assets of the Company's General Account. Cash Values allocated to the Fixed Account are credited with interest daily at a rate declared by the Company. The interest rate declared is at the Company's sole discretion, but may never be less than an effective annual rate of 3%. DEDUCTIONS AND CHARGES The Company deducts certain charges from the premiums and the Cash Value of the Policy. These charges are made for administrative and sales expenses, tax expenses, providing life insurance protection and assuming the mortality and expense risks. For a discussion of any charges imposed by the Underlying Mutual Fund options, see the prospectuses of the respective Underlying Mutual Funds. The Company deducts a sales load from each premium payment received which is guaranteed never to exceed 2.5% of such premium payment. On a current basis, the sales load, in all years, is 2.5% of premiums paid up to the Target Premium plus 0.5% of premiums in excess of the Target 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. The Company also deducts a charge for tax expense equal to 3.5%, on both current and guaranteed basis, of all premium payments. This charge reimburses the Company for premium taxes imposed by various state and local jurisdictions and for federal taxes imposed under Section 848 of the Code. The 3.5% tax expense rate consists of the following components: (1) a state premium tax rate of 2.25%; and (2) a federal tax rate of 1.25%. 9 The Company also deducts the following charges from the Policy's Cash Value on the Policy Date and each subsequent Monthly Anniversary Day: - monthly cost of insurance; plus - monthly cost of any additional benefits provided by riders to the Policy; plus - an administrative expense charge. This charge is $10 per month in the first year and $5 per month in renewal years. The charge may be increased at the sole discretion of the Company but may not exceed $10 per month in the first year, $7.50 per month in renewal years; plus - mortality and expense risk charge. This charge is equal to an annual effective rate multiplied by the Cash Value attributable to the Variable Account. The annual effective rate is 0.60% for the first $25,000 of Cash Value attributable to the Variable Account, 0.30% for the next $225,000 of Cash Value attributable to the Variable Account and 0.10% for all Cash Value attributable to the Variable Account in excess of $250,000. 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 component and a sales component. 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 Surrender Charge in renewal years is equal to a percentage of the initial Surrender Charge. 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 $7.773 $7.518 $8.369 $7.818 35 8.817 8.396 9.811 8.889 45 12.185 11.390 13.884 12.164 55 15.628 13.995 18.410 15.106 65 22.274 19.043 26.559 20.607 Initial Specified Amount $100,000 + Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard 25 $5.773 $5.518 $6.369 $5.818 35 6.817 6.396 7.811 6.889 45 9.685 8.890 11.384 9.664 55 13.128 11.495 15.910 12.606 65 21.274 18.043 25.559 19.607 Policies that are surrendered during the first nine Policy Years following an increase in the Specified Amount will incur a Surrender Charge associated with the increase. This Surrender Charge is comprised of an underwriting component and a sales component. The maximum initial Surrender Charge associated with the increase is based on the attained age at the time of the increase, the underwriting classification of the increase, sex, and the amount of the increase in Specified Amount. The actual initial Surrender Charge associated with the increase is based upon the maximum initial Surrender Charge associated with the increase and the premium received within one year of the increase in Specified Amount. Increases that are caused by a change in the death benefit option that preserves the Net Amount At Risk are not subject to a Surrender Charge (for a discussion on death benefit options see "Calculation of the Death Benefit"). The Surrender Charge associated with the increase for Policy Years following the increase is a percentage of the initial Surrender Charge. The following table illustrates the maximum initial Surrender Charge per $1,000 of Specified Amount increase for Policies increasing coverage on a standard basis. 10 ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD 25 $3.464 $3.311 $3.821 $3.491 35 4.090 3.837 4.686 4.133 45 5.811 5.334 6.830 5.798 55 7.877 6.897 9.546 7.563 65 12.764 10.826 15.335 11.764 The renewal surrender charge is reduced by any partial surrender charge actually paid on previous decreases in Specified Amount. Decreases in Specified Amount, that are not associated with a partial withdrawal or a death benefit option change that preserves the Net Amount At Risk, will incur a proportional Surrender Charge. For a Policy with prior increases in Specified Amounts, these decreases will be made on a LIFO (last in first out) basis and therefore decrease each segment in reverse order of its effective date. For each segment that is reduced by the decrease, a proportional surrender charge will be incurred. The total Surrender Charge for the decrease will be the sum of these proportional surrender charges for the decreases in various segments. Underlying Mutual Fund shares are purchased at net asset value, which reflects the deduction of investment management fees and certain other expenses. The management fees are charged by each Underlying Mutual Fund's investment adviser for managing the Underlying Mutual Fund and selecting its portfolio of securities. Other Underlying Mutual Fund expenses can include such items as interest expense on loans and contracts with transfer agents, custodians, and other companies that provide services to the Underlying Mutual Fund. The management fees and other expenses for each Underlying Mutual Fund for its most recently completed fiscal year, expressed as a percentage of the Underlying Mutual Fund's average assets, are as follows: UNDERLYING MUTUAL FUND ANNUAL EXPENSES (AFTER EXPENSE REIMBURSEMENT) ---------------------------------------- Management Other Total Fees Expenses Expenses - -------------------------------------------------------------------------------- NSAT-Capital Appreciation Fund 0.65% 0.03% 0.68% - -------------------------------------------------------------------------------- NSAT-Government Bond Fund 0.55% 0.02% 0.57% - -------------------------------------------------------------------------------- NSAT-Money Market Fund 0.45% 0.02% 0.47% - -------------------------------------------------------------------------------- NSAT Small Company Fund 1.00% 0.10% 1.10% - -------------------------------------------------------------------------------- NSAT-Total Return Fund 0.65% 0.03% 0.68% - -------------------------------------------------------------------------------- The Underlying Mutual Fund expenses shown above are assessed at the Underlying Mutual Fund level and are not direct charges against the Variable Account or reductions in Cash Value. These Underlying Mutual Fund expenses are taken into consideration in computing each Underlying Mutual Fund's net asset value, which is the share price used to calculate the Variable Account's unit value. The management fees and other expenses are more fully described in the prospectuses for each individual Underlying Mutual Fund. None of the above Underlying Mutual Funds are subject to 12b-1 fees or fee waiver or expense reimbursement arrangements. PREMIUMS The minimum Initial Premium for which a Policy may be issued is equal to three times the initial Minimum Monthly Premium. For a limited time, the Policy Owner has the right to cancel the Policy and receive an amount specified by the laws of the state in which the policy was issued (see "Short-Term Right to Cancel Policy"). The Initial Premium is due on the Policy Date. It will be credited on the Initial Investment Date. Any due and unpaid monthly deductions will be subtracted from the Cash Value at this time. Insurance will not be effective until the Initial Premium is paid. The Initial Premium is shown on the Policy data page. Premiums, other than the Initial Premium may be made at any time while the Policy is in force subject to the limits described below. During the Guaranteed Policy Continuation Period, the total premium payments less any Policy Indebtedness, less any partial surrenders, must be greater than or equal to the sum of the Minimum Monthly Premiums in order to guarantee the Policy remain in force. The Minimum Monthly Premiums are shown on the Policy data page. 11 The Company will send Scheduled Premium payment reminder notices to the Policy Owner according to the premium mode shown on the Policy data page. The Initial Premium may be paid to the Company 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 $50. The Company reserves the right to require satisfactory evidence of insurability before accepting any additional premium payment which results in 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 Indemnity Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, Scottsdale Indemnity Company and Nationwide General Insurance Company. The Company's Home Office is at One Nationwide Plaza, Columbus, Ohio 43216. The Company offers a complete line of life insurance and annuities. It is admitted to do business in all states, the District of Columbia, and Puerto Rico (for additional information, see "The Company"). THE VARIABLE ACCOUNT The Variable Account was established by a resolution of the Company's Board of Directors, on December 3, 1987, pursuant to Ohio law. The Company has caused the Variable Account to be registered with the Securities and Exchange Commission as a unit investment trust pursuant to the provisions of the Investment Company Act of 1940. Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216 serves as Trustee for the Trust. Nationwide Advisory Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216 serves as principal underwriter for the Trust. Such registration does not involve supervision of the management of the Variable Account or the Company by the Securities and Exchange Commission. The Variable Account is a separate investment account of the Company and as such, is not chargeable with the liabilities arising out of any other business the Company may conduct. The Company does not guarantee the investment performance of the Variable Account. The death benefit and Cash Value under the Policy may vary with the investment performance of the investments in the Variable Account (see "How the Death Benefit Varies" and "How the Cash Value Varies"). 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 Sub-Account are used to purchase shares of the Underlying Mutual Fund options designated by the Policy Owner. Thus, the investment performance of a Policy depends upon the investment performance of the Underlying Mutual Fund options designated by the Policy Owner. INVESTMENTS OF THE VARIABLE ACCOUNT At the time of application, the Policy Owner elects to have the Net Premiums allocated among one or more of the Variable Account Sub-Accounts and the Fixed Account (see "Allocation of Net Premium and Cash Value"). In such states which require a return of premiums to those Policy Owners exercising their short term right to cancel (see "Short Term Right to Cancel Policy"), Net Premiums will be allocated to the Nationwide Separate Account Trust Money Market Fund Sub-Account (for any Net Premiums allocated to a Sub-Account on the application) or the Fixed Account until the expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. 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 Fund allocation factors. Any subsequent Net Premiums received after this period will be allocated based on the Fund allocation factors. No less than 5% of Net Premiums may be allocated to any one Sub-Account or the Fixed Account. The Policy Owner may change the allocation of Net Premiums or may transfer Cash Value from one Sub-Account to another, subject to such terms and conditions as may be imposed by each Underlying Mutual Fund option and as set forth in this prospectus (see "Transfers", "Allocation of Net Premium and Cash Value" and "Short-Term Right to Cancel Policy"). 12 The Underlying Mutual Fund options are available only to serve as the underlying investment for variable annuity and variable life contracts issued through separate accounts of life insurance companies which may or may not be affiliated, also known as "mixed and shared funding." There are certain risks associated with mixed and shared funding, which is disclosed in the Underlying Mutual Funds' prospectuses. A full description of the Underlying Mutual Funds, their investment policies and restrictions, risks and charges are contained in the prospectuses of the respective Underlying Mutual Funds. Additional Premium payments, upon acceptance, will be allocated to the Nationwide Separate Account Money Market Fund unless the Policy Owner specifies otherwise (see "Premium Payments"). Nationwide Separate Account Trust is a registered investment company which receives investment advice from a registered investment adviser, and is managed by Nationwide Advisory Services, Inc. A summary of investment objectives is contained in the description of each Underlying Mutual Fund below. More detailed information may be found in the current prospectus for each Underlying Mutual Fund option. A prospectus for the Underlying Mutual Fund option(s) being considered must accompany this prospectus and should be read in conjunction herewith. - - NATIONWIDE SEPARATE ACCOUNT TRUST Nationwide Separate Account Trust (the "Trust") is a diversified open-end management investment company created under the laws of Massachusetts. The Trust offers shares in the five separate Mutual Funds listed below, each with its own investment objectives. Currently, shares of the Trust will be sold only to life insurance company separate accounts to fund the benefits under variable life insurance policies or variable annuity contracts issued by life insurance companies. The assets of the Trust are managed by Nationwide Advisory Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary of Nationwide Life Insurance Company. - - CAPITAL APPRECIATION FUND INVESTMENT OBJECTIVE: The Fund is designed for investors who are interested in long-term growth. The Fund seeks to meet its objective primarily through a diversified portfolio of the common stock of companies which the investment manager determines have a better-than-average potential for sustained capital growth over the long term. - - GOVERNMENT BOND FUND INVESTMENT OBJECTIVE: To provide as high a level of income as is consistent with capital preservation through investing primarily in bonds and securities issued or backed by the U.S. Government, its agencies or instrumentalities. - - MONEY MARKET FUND INVESTMENT OBJECTIVE: To seek as high a level of current income as is considered consistent with the preservation of capital and liquidity by investing primarily in money market instruments. - - SMALL COMPANY FUND INVESTMENT OBJECTIVE: The Fund seeks long-term growth of capital by investing primarily in equity securities of domestic and foreign companies with market capitalizations of less than $1 billion at the time of purchase. Nationwide Advisory Services, Inc. ("NAS"), the Fund's adviser, has contracted with a group of sub-advisers, each of which will manage a portion of the Fund's portfolio. These sub-advisers are the Dreyfus Corporation, Neuberger & Berman, L. P., Pictet International Management Limited, Van Eck Associates Corporation, Strong Capital Management, Inc. and Warburg Pincus Counsellors, Inc. The sub-advisers were chosen because they utilize a number of different investment styles when investing in small company stocks. By utilizing a number of investment styles, NAS hopes to increase prospects for investment return and to reduce market risk and volatility. - - TOTAL RETURN FUND INVESTMENT OBJECTIVE: To obtain a reasonable long-term total return (i.e., earnings growth plus potential dividend yield) on invested capital from a flexible combination of current return and capital gains through investments in common stocks, convertible issues, money market instruments and bonds with a primary emphasis on common stocks. 13 REINVESTMENT The Funds described above have as a policy the distribution of dividends in the form of additional shares (or fractions thereof) of the Underlying Mutual Funds. The distribution of additional shares will not affect the number of Accumulation Units attributable to a particular Policy (see "Allocation of Cash Value"). TRANSFERS The Policy Owner may transfer amounts between the Fixed Account and the Sub-accounts, without penalty or adjustment, subject to the following requirements. During any Policy Year, the Company reserves the right to restrict such transfers between the Fixed Account and the Sub-Accounts to one transfer per Policy Year. The Company reserves the right to restrict the amount transferred from the Fixed Account to 20% of that portion of the Cash Value attributable to the Fixed Account as of the end of the previous Policy Year. Transfers out of the Fixed Account effected by dollar cost averaging are not subject to this restriction (see "Dollar Cost Averaging"). Transfers made to the Fixed Account may not be made either: (a) prior to the first Policy Anniversary; or (b) within 12 months subsequent to a prior transfer. The Company reserves the right to restrict the amount transferred to the Fixed Account to 20% of that portion of Cash Value attributable to the Sub-Accounts as of the close of business of the prior Valuation Period. The Company further reserves the right to refuse a transfer to the Fixed Account, in the event the Cash Value attributable to the Fixed Account should be greater than or equal to 30% of the Cash Value. Transfers may be made either in writing or, in states allowing such transfers, by telephone. In states allowing telephone transfers, and if the Owner so elects, the Company will also permit the Policy Owner to utilize the Telephone Exchange Privilege for exchanging amounts among Sub-Account options. The Company will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures may include any or all of the following, or such other procedures as the Company may, from time to time, deem reasonable: requesting identifying information, such as name, contract number, Social Security number, and/or personal identification number; tape recording all telephone transactions; and providing written confirmation thereof to both the Policy Owner and any agent of record at the last address of record. Although failure to follow reasonable procedures may result in the Company's liability for any losses due to unauthorized or fraudulent telephone transfers, the Company will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine. Any losses incurred pursuant to actions taken by the Company in reliance on telephone instructions reasonably believed to be genuine shall be borne by the Contract Owner. The Company may determine to withdraw the Telephone Exchange Privilege, upon 30 days written notice to Policy Owners. Policy Owners who have entered into a Dollar Cost Averaging Agreement with the Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account to the Variable Account under the terms of that agreement. Policies described in this prospectus may in some cases be sold to individuals who independently utilize the services of a firm or individual engaged in market timing. Generally, such firms or individuals obtain authorization from multiple Policy Owners to make transfers and exchanges among the Sub-Accounts (the Underlying Mutual Funds) on the basis of perceived market trends. Because of the unusually large transfers of funds associated with some of these transactions, the ability of the Company or Underlying Mutual Funds to process such transactions may be compromised, and the execution of such transactions may possibly disadvantage or work to the detriment of other Policy Owners not utilizing market timing services. Accordingly, the right to exchange Cash Surrender Values among the Sub-Accounts may be subject to modification if such rights are exercised by a market timing firm or any other third party authorized to initiate transfer or exchange transactions on behalf of multiple Policy Owners. THE RIGHTS OF INDIVIDUAL POLICY OWNERS TO EXCHANGE CASH SURRENDER VALUES, WHEN INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE POLICY OWNER, OR BY THE POLICY OWNER'S REPRESENTATIVE OF RECORD AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company may, among other things, not accept (1) the transfer or exchange instructions of any agent acting under a power of attorney on behalf of more than one Policy Owner, or (2) the transfer or exchange instructions of individual policy owners who have executed pre-authorized transfer or exchange forms which are submitted by market timing firms or other third 14 parties on behalf of more than one Policy Owner at the same time. The Company will not impose any such restrictions or otherwise modify exchange rights unless such action is reasonably intended to prevent the use of such rights in a manner that will disadvantage or potentially impair the contract rights of other Policy Owners. DOLLAR COST AVERAGING The Policy Owner may direct the Company to automatically transfer from the Money Market Sub-Account 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 in a declining market. To qualify for dollar cost averaging, there must be a minimum total Cash Value, less Policy Indebtedness, of $15,000. Transfers for purposes of dollar cost averaging can only be made from the Money Market Sub-Account or the Fixed Account. The minimum monthly dollar cost averaging transfer is $100. In addition, dollar cost averaging monthly transfers from the Fixed Account must be equal to or less than 1/30th of the Fixed Account value when the dollar cost averaging program is requested. Transfers out of the Fixed Account, other than for dollar cost averaging, may be subject to certain additional restrictions (see "Transfers" above). A written election of this service, on a form provided by the Company, must be completed by the Policy Owner in order to begin transfers. Once elected, transfers from the Money Market Sub-Account or the Fixed Account will be processed monthly until either the value in the Money Market Sub-Account or the Fixed Account is completely depleted or the Policy Owner instructs the Company in writing to cancel the transfers. The Company reserves the right to discontinue offering dollar cost averaging upon 30 days' written notice to Policy Owners however, any such discontinuation would not affect dollar cost averaging programs already commenced. The Company currently does not assess a processing fee for this service, however, it reserves the right to do so in the future. SUBSTITUTION OF SECURITIES If shares of the Underlying Mutual Fund options should no longer be available for investment by the Variable Account or, if in the judgment of the Company's management further investment in such Underlying Mutual Funds should become inappropriate in view of the purposes of the Policy, the Company may substitute shares of another Underlying Mutual Fund for shares already purchased or to be purchased in the future by Net Premium payments under the Policy. No substitution of securities in the Variable Account may take place without prior approval of the Securities and Exchange Commission, and under such requirements as it and any state insurance department may impose. VOTING RIGHTS Voting rights under the Policies apply only with respect to Cash Value allocated to the Sub-Accounts of the Variable Account. In accordance with its view of present applicable law, the Company will vote the shares of the Underlying Mutual Funds held in the Variable Account at regular and special meetings of the shareholders of the Underlying Mutual Funds in accordance with instructions received from Policy Owners. However, if the Investment Company Act of 1940 or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote the shares of the Underlying Mutual Funds in its own right, the Company may elect to do so. The Policy Owner shall have the voting interest under a Policy. The number of shares in each Sub-Account for which the Policy Owner may give voting instructions is determined by dividing any portion of the Policy's Cash Value derived from participation in that Underlying Mutual Fund by the net asset value of one share of that Underlying Mutual Fund. The number of shares which a person has a right to vote will be determined as of a date chosen by the Company, but not more than 90 days prior to the meeting of the Underlying Mutual Fund. Voting instructions will be solicited by written communication prior to such meeting. The Company will vote Underlying Mutual Fund shares in accordance with instructions received from the Policy Owners. Underlying Mutual Fund shares held by the Company or by the Variable Account as to which no timely instructions are received will be voted by the Company in the same proportion as the voting instructions which are received. 15 Each person having a voting interest in the Variable Account will receive periodic reports relating to investments of the Variable Account, the Underlying Mutual Funds' proxy material and a form with which to give such voting instructions. Notwithstanding contrary Policy Owner voting instructions, the Company may vote Underlying Mutual Fund shares in any manner necessary to enable the Underlying Mutual Fund to: (1) make or refrain from making any change in the investments or investment policies for any of the Underlying Mutual Funds, if required by an insurance regulatory authority; (2) refrain from making any change in the investment policies or any investment adviser or principal underwriter of any portfolio which may be initiated by Policy Owners or the Underlying Mutual Fund's Board of Directors, provided the Company's disapproval of the change is reasonable and, in the case of a change in the investment policies or investment adviser, based on a good faith determination that such change would be contrary to state law or otherwise inappropriate in light of the portfolio's objective and purposes; or (3) enter into or refrain from entering into any advisory agreement or underwriting contract, if required by any insurance regulatory authority. INFORMATION ABOUT THE POLICIES UNDERWRITING AND ISSUANCE - -Minimum Requirements for Issuance of a Policy The Policies are designed to provide life insurance coverage and the flexibility to vary the amount and frequency of premium payments. At issue, the Policy Owner selects the initial Specified Amount and premium. The minimum Specified Amount is $50,000 ($100,000 in Pennsylvania and New Jersey) for non-preferred policies and $100,000 for preferred policies. Policies may be issued to Insureds who are 80 or younger at the time of issue. Before issuing any Policy, the Company requires satisfactory evidence of insurability which may include a medical examination. - -Premium Payments The Initial Premium for a Policy is payable in full at the Company's Home Office or to an authorized agent. Upon payment of an initial premium, temporary insurance may be provided, subject to a maximum amount. The effective date of permanent insurance coverage is dependent upon completion of all underwriting requirements, payment of Initial Premium, and delivery of the policy while the Insured is still living. Premiums, other than the Initial Premium, may be made at any time while the Policy is in force subject to the limits described below. During the Guaranteed Policy Continuation Period, the total premium payments less any Policy Indebtedness and less any partial surrenders must be greater than or equal to the sum of the Minimum Monthly Premiums in order to guarantee the Policy remain in force. The Minimum Monthly Premium is shown in the Policy data page. Each premium payment must be at least $50. Additional premium payments may be made at any time while the Policy is in force. 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 status. The Company will monitor premiums paid and other policy transactions and will notify the Policy Owner when non-modified endowment contract status is in jeopardy (see "Tax Matters"). ALLOCATION OF NET PREMIUM AND CASH VALUE The designation of investment allocations will be made by the prospective Policy Owner at the time of application for a Policy. The Policy Owner may change the way in which future Net Premiums are allocated by giving written notice to the Company. All percentage allocations must be in whole numbers, and must be at least 5%. The sum of allocations must equal 100%. At the time a Policy is issued, its Cash Value will be determined as if the Policy had been issued and the Initial Net Premium is invested on the date such premium was received in good order by the Company. In such states which require a return of premiums to those Policy Owners exercising their short term right to cancel (see "Short Term Right to Cancel Policy"), the Net Premiums will be allocated to the Nationwide Separate Account Trust Money Market Fund Sub-Account (for any Net Premiums allocated to a Sub-Account 16 on the application) or the Fixed Account until the expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. Net Premiums not designated for the Fixed Account will be placed in the Nationwide Separate Account Trust Money Market Sub-Account. At the expiration of the period in which the Policy Owner may exercise his or her short term right to cancel the Policy, shares of the Underlying Mutual Funds specified by the Policy Owner are purchased at net asset value for the respective Sub-Account(s). The Policy Owner may change the allocation of Net Premiums or may transfer Cash Value from one Sub-Account to another, subject to such terms and conditions as may be imposed by each Underlying Mutual Fund and as set forth in 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"). SHORT-TERM RIGHT TO CANCEL POLICY A Policy may be returned for cancellation within 10 days after the Policy is received, within 45 days after the application for insurance is signed, or within 10 days after the Company mails or delivers a Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or delivered to the registered representative who sold it, or to the Company. Immediately after such mailing or delivery, the Policy will be deemed void from the beginning. The Company will refund the amount prescribed by the state in which the Policy was issued within seven days after it receives the Policy. The amount of the refund will be either the Premiums paid or the Cash Value less Indebtedness. The scope of this right varies by state. POLICY CHARGES DEDUCTIONS FROM PREMIUMS The Company deducts a sales load from each premium payment received which is guaranteed never to exceed 2.5% of such premium payment. On a current basis, the sales load in all Policy Years is 2.5% of premium paid up to the Target Premium plus 0.5% of premiums in excess of the Target 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. The Company also deducts from premium payments a tax expense charge of 3.5%, on both current and guaranteed basis, of all premium payments. This charge reimburses the Company for premium taxes imposed by various state and local jurisdictions and for federal taxes imposed under Section 848 of the Code. The 3.5% tax expense rate consists of the following components: (1) a state premium tax rate of 2.25%; and (2) a federal tax rate of 1.25%. The Company expects to pay an average state premium tax rate of approximately 2.25% of premiums for all states, although such tax rates range by state from 0% to 4%. To reimburse the Company for the payment of state premium taxes associated with the Policies, the Company deducts a charge for state premium taxes equal to 2.25% of all premium payments received. This charge may be more or less than the amount actually assessed by the state in which a particular Policy Owner lives. The 1.25% federal tax component is designed to reimburse the Company for expenses incurred from federal taxes imposed under Section 848 of the Code. 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). 17 Initial Specified Amount $50,000-$99,999 Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard 25 $7.773 $7.518 $8.369 $7.818 35 8.817 8.396 9.811 8.889 45 12.185 11.390 13.884 12.164 55 15.628 13.995 18.410 15.106 65 22.274 19.043 26.559 20.607 Initial Specified Amount $100,000+ Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard 25 $5.773 $5.518 $6.369 $5.818 35 6.817 6.396 7.811 6.889 45 9.685 8.890 11.384 9.664 55 13.128 11.495 15.910 12.606 65 21.274 18.043 25.559 19.607 The Surrender Charge is comprised of two components: an underwriting component and sales component. The underwriting component varies by issue age in the following manner: 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 component 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 component. 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 Cash Value"). 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 the underwriting component represents the sales component. In no event will this component exceed 26 1/2% of the lesser of the SEC Guideline Level Premium required in the first year or the premiums actually paid in the first year. The purpose of the sales component is to reimburse 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"). Policies that are surrendered during the first nine Policy Years following an increase in the Specified Amount will incur a Surrender Charge associated with the increase. This Surrender Charge is comprised of an underwriting component and sales component. The maximum initial Surrender Charge associated with the increase is based on the attained age at the time of the increase, the underwriting classification of the increase, sex, and the amount of the increase in Specified Amount. The actual initial Surrender Charge associated with the increase is based upon the maximum initial Surrender Charge and the premium received within one year of the increase in Specified Amount. Increases that are caused by a change in death benefit option (See "Changes in the Death Benefit Option") that preserve the Net Amount At Risk are not subject to a Surrender Charge. The Surrender Charge associated with the increase for Policy Years following the increase is a percentage of the initial Surrender Charge. 18 The following table illustrates the maximum initial Surrender Charge per $1,000 of Specified Amount increase for Policies increasing coverage on a standard basis. Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard 25 $3.464 $3.311 $3.821 $3.491 35 4.090 3.837 4.686 4.133 45 5.811 5.334 6.830 5.798 55 7.877 6.897 9.546 7.563 65 12.764 10.826 15.335 11.764 - -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% The renewal surrender charge is reduced by any partial surrender charge actually paid on previous decreases in Specified Amount. For the Initial Specified Amount, a completed Policy Year (in the chart above) is measured from the Issue Date. For any increase in Specified Amount, a completed Policy Year (in the chart above) is measured from the effective date of the increase. Special guaranteed maximum Surrender Charges apply in Pennsylvania (see Appendix 1). Decreases in Specified Amount requested by a Policy Owner will incur Surrender Charge. This proportion is equal to the decrease in Specified Amount divided by the Specified Amount prior to the decrease. In the case of a Policy with prior increases, these fractional surrender charges will be calculated separately for the Initial Specified Amount and each increase in Specified Amount. For a Policy with prior increases in Specified Amounts, these decreases will be made on a LIFO (last in first out) basis and therefore decrease each segment in reverse order of its effective date. Decreases in Specified Amount resulting from a partial surrender or a death benefit option change that preserves the Net Amount Risk will not incur a proportional Surrender Charge. DEDUCTIONS FROM CASH VALUE The Company also deducts the following charges from the Policy's Cash Value on the Policy Date and each subsequent Monthly Anniversary Day: - monthly cost of insurance charges; plus - monthly cost of any additional benefits provided by riders; plus - monthly administrative expense charge; plus - mortality and expense risk charge. 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. 19 If death benefit Option 1 or Option 3 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 guaranteed cost of insurance rate on a standard basis. These mortality tables are sex distinct. In addition, separate mortality tables will be used for tobacco and non-tobacco. For group or sponsored arrangements (including employees of the Company and their family members) and for special exchange programs which the Company may make available from time to time, the mortality tables are unisex. 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). For Policies issued in the state of Montana, the mortality tables are unisex. 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 certain categories of individuals. Due to the underwriting criteria established for Policies issued on a Non Medical basis, actual rates will be higher than the current cost of insurance rates being charged under Policies that are medically underwritten. - -Monthly Administrative Charge The Company deducts a monthly Administrative Expense Charge to reimburse it for certain expenses related to maintenance of the Policies, accounting and record keeping and periodic reporting to Policy Owners. This charge is designed only to reimburse the Company for certain actual administrative expenses. The Company does not expect to recover from this charge any amount in excess of aggregate maintenance expenses. Currently, this charge is $10 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 $10 per month in the first year and $7.50 per month in renewal years. - -Mortality and Expense Risk Charge The Company assumes certain risks for guaranteeing the mortality and expense charges. The mortality risks assumed under the Policies is that the Insured may not live as long as expected. The expense risk assumed is that the actual expenses incurred in issuing and administering the Policies may be greater than expected. In addition, the Company assumes risks associated with the non-recovery of policy issue, underwriting and other administrative expenses due to Policies which lapse or are surrendered in the early Policy Years. To compensate the Company for assuming these risks associated with the Policies, the Company deducts on a monthly basis from the Cash Value attributable to the Variable Account a charge to provide for mortality and expense risks. This charge is equivalent to an annual effective rate of 0.60% of the first $25,000 of Cash Value attributable to the Variable Account, 0.30% of the next $225,000 of Cash Value attributable to the Variable Account, and 0.10% of Cash Value attributable to the Variable Account in excess of $250,000. 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 born 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. 20 REDUCTION OF CHARGES The Policy is available for purchase by individuals, corporations and other groups. For group or sponsored arrangements (including employees of the Company and their family members) and for special exchange programs which the Company may make available from time to time, the Company reserves the right to reduce or eliminate the sales load, mortality and expense risk charges, surrender charge, monthly administrative charge, monthly cost of insurance charges or other charges normally assessed on certain multiple life cases where it is expected that the size or nature of such cases will result in savings of sales, underwriting, administrative or other costs. Eligibility for and the amount of these reductions will be determined by a number of factors, including the number of Insureds, the total premium expected to be paid, total assets under management for the Policy Owner, the nature of the relationship among individual Insureds, the purpose for which the Policies are being purchased, the expected persistency of individual Policies, and any other circumstances which, in the opinion of the Company is rationally related to the expected reduction in expenses. The extent and nature of reductions may change from time to time. Any variations in the charge structure will be determined in a uniform manner reflecting differences in costs of services and not unfairly discriminatory to Policy Owners. 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, minus any surrender charge for decreases in Specified Amount, and less any Policy Charges. There is no guaranteed Cash Value. The Cash Value will vary with the investment experience of the Variable Account and/or the daily crediting of interest in the Fixed Account and Policy Loan Account depending on the allocation of Cash Value by the Policy Owner. HOW THE INVESTMENT EXPERIENCE IS DETERMINED The Cash Value in each Sub-Account is converted to Accumulation Units of that Sub-Account. The conversion is accomplished by dividing the amount of Cash Value allocated to a Sub-Account by the value of an Accumulation Unit for the Sub-Account of the Valuation Period during which the allocation occurs. The value of an Accumulation Unit for each Sub-Account was arbitrarily set initially at $10 when the Underlying Mutual Fund shares in that Sub-Account were available for purchase. The value for any subsequent Valuation Period is determined by multiplying the Accumulation Unit value for each Sub-Account for the immediately preceding Valuation Period by the Net Investment Factor for the Sub-Account during the subsequent Valuation Period. The value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. The number of Accumulation Units will not change as a result of investment experience. NET INVESTMENT FACTOR The Net Investment Factor for any Valuation Period is determined by dividing (a) by (b) where: (a) is the net of: (1) the net asset value per share of the Underlying Mutual Fund held in the Sub-Account determined at the end of the current Valuation Period, plus (2) the per share amount of any dividend or capital gain distributions made by the Underlying Mutual Fund held in the Sub-Account if the "ex-dividend" date occurs during the current Valuation Period, plus or minus. (3) the per share charge or credit for taxes reserved for, if any, which is determined by the Company to have resulted from the investment operations of the Sub-Account. (b) is the net of: (1) the net asset value per share of the Underlying Mutual Fund held in the Sub-Account determined at the end of the 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 (see "Taxation of the Company"). 21 For Underlying Mutual Fund options that credit dividends on a daily basis and pay such dividends once a month, the Net Investment Factor allows for the monthly reinvestment of these daily dividends. The Net Investment Factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease. 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 any charge or credit for tax reserves. VALUATION OF ASSETS Underlying Mutual Fund shares in the Variable Account will be valued at their net asset value. DETERMINING THE CASH VALUE The sum of the value of all Variable Account Accumulation Units attributable to the Policy and amounts credited to the Fixed Account and the Policy Loan Account is the Cash Value. The number of Accumulation Units credited per each Sub-Account are determined by dividing the net amount allocated to the Sub-Account by the Accumulation Unit Value for the Sub-Account for the Valuation Period during which the premium is received by the Company. In the event part or all of the Cash Value is surrendered or charges or deductions are made against the Cash Value, an appropriate number of Accumulation Units from the Variable Account and an appropriate amount from the Fixed Account will be deducted in the same proportion that the Policy Owner's interest in the Variable Account and the Fixed Account bears to the total Cash Value. The Cash Value in the Fixed Account and the Policy Loan Account is credited with interest daily at an effective annual rate which the Company periodically declares. (For a description of the annual effective credited rates, see "The Fixed Account Option" and "Policy Loans.") Upon request, the Company will inform the Policy Owner of the then applicable rates for each account. VALUATION PERIODS AND VALUATION DATES A Valuation Period is the period commencing at the close of business on the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. A Valuation Date is each day that the New York Stock Exchange and the Company's Home Office are open for business or any other day during which there is sufficient degree of trading that the current net asset value of the Accumulation Units might be materially affected. SURRENDERING THE POLICY FOR CASH RIGHT TO SURRENDER The Policy Owner may surrender the Policy in full at any time while the Insured is living and receive its Cash Surrender Value. The cancellation will be effective as of the date the Company receives a proper written request for cancellation and the Policy. Such written request must be signed and, the Company may require the signature to be guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchanges, or by a commercial bank or a savings and loan, which is a member of the Federal Deposit Insurance Corporation. In some cases, 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. When a partial surrender is made, the Cash Value will be reduced by the amount of the partial surrender. Further, the Specified Amount will be reduced by the amount necessary to prevent any increase to the Net Amount At Risk, unless the partial surrender is treated as a preferred partial surrender. Partial surrenders will be permitted only if they satisfy the following requirements: 22 1. The minimum partial surrender is $200; 2. The partial surrender may not reduce the Specified Amount below the Minimum Specified Amount; 3. During the first ten Policy Years, the maximum amount of a partial surrender cannot exceed 10% of Cash Surrender Value as of the beginning of the Policy Year; 4. After the completion of ten Policy Years, the maximum amount of a partial surrender is the Cash Surrender Value less the greater of $500 or three monthly deductions; and 5. After the partial surrender, the Policy continues to qualify as life insurance. - -Preferred Partial Surrenders A partial surrender is considered a preferred partial surrender if the following conditions are met: (1) such surrender occurs before the 15th Policy Anniversary; and (2) the surrender amount plus the amount of any previous preferred policy surrenders in that same Policy Year does not exceed 10% of the Cash Surrender Value as of the beginning of the Policy Year. - -Reduction of the Specified Amount When a partial surrender is made, in addition to the Cash Value being reduced by the amount of the partial surrender, the Specified Amount may also be reduced, except for a preferred partial surrender. The reduction to the Specified Amount will be made in the following order: (1) against the most recent increase in the Specified Amount; (2) against the next most recent increases in the Specified Amount in succession; and (3) against the Specified Amount under the original application. The Company reserves the right to deduct a fee from the partial surrender amount. The maximum fee is shown on the Policy data page. 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 100th birthday. The maturity proceeds will be payable to the Policy Owner on the Maturity Date provided the Policy is still in force. The Maturity Proceeds will be equal to the amount of the Policy's Cash Value, less any Indebtedness. INCOME TAX WITHHOLDING Federal law requires the Company to withhold income tax from any portion of surrender proceeds that is subject to tax, unless the Policy Owner advises the Company, in writing, of his or her request not to withhold. If the Policy Owner requests that the Company not withhold taxes, or if the taxes withheld are insufficient, the Policy Owner may be liable for payment of an estimated tax. The Policy Owner should consult his or her tax advisor. In certain employer-sponsored life insurance arrangements, including equity split dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (1) the value each year of the life insurance protection provided, (2) an amount equal to any employer-paid premiums; or (3) some or all of the amount by which the current value exceeds the employer's interest in the Contract. Participants should consult with the sponsor or the administrator of the Plan, and/or with their personal tax or legal advisor, to determine the tax consequences, if any, of their employer-sponsored life insurance arrangements. POLICY LOANS TAKING A POLICY LOAN The Policy Owner may take a Policy loan at any time using the Policy as security. Maximum Policy Indebtedness is limited to Cash Value attributable to both Fixed and Policy Loan Accounts, and 90% of the Cash Value of the Variable Account, less any Surrender Charges 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 proceeds, 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 Exchanges; or by a commercial bank or a savings and loan which is a 23 member of the Federal Deposit Insurance Corporation. Certain policy loans may result in currently taxable income and tax penalties (see "Tax Matters"). A Policy Owner considering the use of policy loans in connection with his or her retirement income plan should consult his or her personal tax adviser regarding potential tax consequences that may arise if necessary payments are not made to keep the Policy from lapsing. The amount of such payments necessary to prevent the Policy from lapsing would increase with age (see "Tax Matters"). EFFECT ON INVESTMENT PERFORMANCE When a loan is made, an amount equal to the amount of the loan is transferred from the Variable Account to the Policy Loan Account. If the assets relating to a Policy are held in more than one Sub-Account, withdrawals from Sub-Accounts will be made in proportion to the assets in each Variable Sub-Account at the time of the loan. Policy loans will be transferred from the Fixed Account only when insufficient amounts are available in the Variable Sub-Accounts. The amount taken out of the Variable Account will not be affected by the Variable Account's investment experience while the loan is outstanding. INTEREST The annual effective loan interest rate charged on Policy Loans is 3.9%. On a current basis, the Cash Value in the Policy Loan Account is credited with an annual effective rate of 3% during Policy Years 1 through 10 and an annual effective rate of 3.9% during the 11th and subsequent Policy Years. The Company may change the current interest crediting rate on the policy loans at any time at its sole discretion. However, the crediting rate is guaranteed never to be lower than 3% during Policy Years 1 through 10 and 3.65% during the 11th and subsequent Policy Years. In the event that it is determined that such loans will be treated, as a result of the differential between the interest crediting rate and the loan interest rate, as taxable distributions under any applicable ruling, regulation, or court decision, the Company retains the right to increase the net cost (by decreasing the interest crediting rate) on all subsequent policy loans to an amount that would result in the transaction being treated as a loan under Federal tax law. If this amount is not prescribed by such ruling, regulation, or court decision, the amount will be that which the Company considers to be more likely to result in the transaction being treated as a loan under Federal tax law. Amounts transferred to the Policy Loan Account will earn interest daily from the date of transfer. The earned interest is transferred from the Policy Loan Account to a Variable Account or the Fixed Account on each Policy Anniversary, at the time a new loan is requested, or at the time of loan repayment. It will be allocated according to the Fund allocation factors in effect at the time of the transfer. Interest is charged daily and is payable at the end of each Policy Year or at the time of loan repayment. Unpaid interest will be added to the existing Policy Indebtedness as of the due date and will be charged interest at the same rate as the rest of the Indebtedness. Whenever the total Policy Indebtedness exceeds the Cash Value less any Surrender Charges, and if the Guaranteed Policy Continuation Period is not in effect, 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. EFFECT ON DEATH BENEFIT AND CASH VALUE A Policy loan, whether or not repaid, will have a permanent effect on the Death Benefit and Cash Value because the investment results of the Variable Account or the Fixed Account will apply only to the non-loaned portion of the Cash Value. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the Variable Account or the Fixed Account while the loan is outstanding, the effect could be favorable or unfavorable. REPAYMENT All or part of the Indebtedness may be repaid at any time while the Policy is in force during the Insured's lifetime. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Loan repayments will be credited to the Variable Sub-Accounts and the Fixed Account in proportion to the Policy Owner's Underlying Mutual Fund allocation factors in effect at the time of the repayment. Each 24 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 and the death benefit option. At issue, the Policy Owner also irrevocably elects either of the following tests qualifying the Policy as life insurance under Section 7702 of the Code: 1.) Guideline Premium/Cash Value Corridor Test or 2.) the Cash Value Accumulation Test. While the Policy is in force, the death benefit will never be less than the Specified Amount. The death benefit may vary with the Cash Value of the Policy, which depends on investment performance. The Policy Owner may choose one of three death benefit options. Under OPTION 1, the death benefit will be the greater of the Specified Amount or Minimum Required Death Benefit. Under OPTION 1, the amount of the death benefit will ordinarily not change for several years to reflect the investment performance and may not change at all. If investment performance is favorable, the amount of death benefit may increase. To see how and when investment performance will begin to affect death benefits, please see the illustrations. Under OPTION 2, the death benefit will be the greater of the Specified Amount plus the Cash Value as of the date of death, or Minimum Required Death Benefit and will vary directly with the investment performance. Under OPTION 3, the death benefit is the greater of: the Minimum Required Death Benefit or the sum of the Specified Amount on the date of death and accumulated premium account which consists of all premium payments accumulated to date of death less partial surrenders accumulated to date of death. The accumulations will be calculated based on the OPTION 3 interest rate shown on the Policy data page. In no event will the accumulated premium account be less than zero or greater than the maximum accumulated premium account shown on the Policy data page. Once elected, OPTION 3 is irrevocable. For any death benefit option, the calculation of the Minimum Required Death Benefit is shown on the Policy Data Page. The Minimum Required Death Benefit is the lowest death benefit which will qualify the Policy as life insurance under Section 7702 of the Code. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the then current maximum premium limitations under Section 7702 of the Code where the Policy Owner has selected Guideline Premium/Cash Value Corridor Test. PROCEEDS PAYABLE ON DEATH The actual Death Proceeds payable on the Insured's death will be the death benefit as described above, less any Policy Indebtedness and less any unpaid Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted (see "Incontestability", "Error in Age or Sex", and "Suicide"). 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"). 25 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 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 AND GUARANTEED POLICY CONTINUATION PROVISION GRACE PERIOD If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to cover the current monthly deduction, and the Guaranteed Policy Continuation Provision is not in effect, a grace period will be allowed for the payment of a premium of at least four times the current monthly deduction. The Company will send the Policy Owner a notice at the start of the grace period, at the address in the application or another address specified by the Policy Owner, stating the amount of premium required. The grace period will end 61 days after the day the notice is mailed. If sufficient premium is not received by the Company by the end of the grace period, the Policy will lapse without value. If Death Proceeds become payable during the grace period, the Company will pay the Death Proceeds. GUARANTEED POLICY CONTINUATION PROVISION This Policy will not lapse during the Guaranteed Policy Continuation Period provided that on each Monthly Anniversary Day (1) is greater than or equal to (2) where: (1) Is the sum of all premiums paid to date minus any Indebtedness, and minus any partial surrenders; and (2) Is the sum of Minimum Monthly Premiums required since the Policy Date including the Minimum Monthly Premium for the current Monthly Anniversary Day. The Guaranteed Policy Continuation Period is the lesser of 30 Policy Years or the number of Policy Years until the Insured reaches Attained Age 65. For Policies issued to ages greater than 55, the Guaranteed Policy Continuation Period is 10 Policy Years. REINSTATEMENT If the grace period ends and the Policy Owner has neither paid the required premium nor surrendered the Policy for its Cash Surrender Value, the Policy Owner may reinstate the Policy by: 1. submitting a written request at any time within 3 years after the end of the grace period and prior to the Maturity Date; 2. providing evidence of insurability satisfactory to the Company; 3. paying sufficient premium to cover all policy charges that were due and unpaid during the grace period; 4. paying sufficient premium to keep the Policy in force for 3 months from the date of reinstatement; and 5. paying or reinstating any Indebtedness against the Policy which existed at the end of the grace period. 26 The effective date of a reinstated Policy will be the Monthly Anniversary Day on or next following the date the application for reinstatement is approved by the Company. If your Policy is reinstated, the Cash Value on the date of reinstatement, but prior to applying any premiums or loan repayments received, will be set equal to the 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 Under exemptive and exclusionary provisions, interests in the Company's General Account have not been registered under the Securities Act of 1933 and the General Account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the General Account nor any interests therein is subject to the provisions of these Acts, and the Company has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this prospectus relating to the Fixed Account option. Disclosures regarding the General Account may, however, be subject to certain generally applicable provisions of the federal securities laws concerning the accuracy and completeness of statements made in prospectuses. As explained earlier, a Policy Owner may elect to allocate or transfer all or part of the Cash Value to the Fixed Account and the amount allocated or transferred becomes part of the Company's General Account. The Company's General Account consists of all assets of the Company other than those in the Variable Account and in other separate accounts that have been or may be established by the Company. Subject to applicable law, the Company has sole discretion over the investment of the assets of the General Account, and Policy Owners do not share in the investment experience of those assets. The Company guarantees that the part of the Cash Value invested under the Fixed Account option will accrue interest daily at an effective annual rate that the Company declares periodically. The Fixed Account crediting rate will not be less than an effective annual rate of 3%. Upon request the Company will inform the Policy Owner of the then applicable rate. The Company is not obligated to credit interest at a higher rate. CHANGES IN EXISTING INSURANCE COVERAGE The Policy Owner may request certain changes in the insurance coverage under the Policy. Any request must be in writing and received at the Company's Home Office. No change will take effect unless the Cash Surrender Value, after the change, is sufficient to keep the Policy in force for at least 3 months. SPECIFIED AMOUNT INCREASES After the first Policy Year, the Policy Owner may request an increase to the Specified Amount. Any increase will be subject to the following conditions: 1. the request must be applied for in writing; 2. satisfactory evidence of insurability must be provided; 3. the increase must be for a minimum of $10,000; 4. the Cash Surrender Value is sufficient to continue the Policy in force for at least 3 months; and 5. age limits are the same as for a new issue. Any approved increase will have an effective date of the Monthly Anniversary Day on or next following the date the Company approves the supplemental application. 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; 27 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 the Minimum Specified Amount; or 2. disqualify the Policy as a contract for life insurance. CHANGES IN THE DEATH BENEFIT OPTION After the first Policy Year, the Policy Owner may elect to change the death benefit option under the Policy from either Option 1 to Option 2, or from Option 2 to Option 1. Initial elections to Option 3 are irrevocable. Accordingly, such changes to or from Option 3 are not permitted. Only one change of death benefit option is permitted per Policy Year. The effective date of such change will be the Monthly Anniversary Day following the date such change is approved by the Company. In order for any such change in the death benefit option to become effective, the Cash Surrender Value, after such change, must be sufficient to keep the Policy in force for at least three months subsequent to said change. The Company will adjust the Specified Amount such that the Net Amount At Risk remains constant before and after the death benefit option change. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the then current maximum premium limitations under Section 7702 of the Code where the Policy Owner has selected Guideline Premium/Cash Value Corridor Test. OTHER POLICY PROVISIONS POLICY OWNER While the Insured is living, all rights in this Policy are vested in the Policy Owner named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a contingent Policy Owner or a new Policy Owner while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's Home Office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. The Company may require that the Policy be submitted for endorsement before making a change. If the Policy Owner is other than the Insured and names no contingent Policy Owner, and dies before the Insured, the Policy Owner's rights in this Policy belong to the Policy Owner's estate. BENEFICIARY The Beneficiary(ies) shall be as named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a new Beneficiary while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's Home Office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. If any Beneficiary predeceases the Insured, that Beneficiary's interest passes to any surviving Beneficiary(ies), unless otherwise provided. Multiple Beneficiaries will be paid in equal shares, unless otherwise provided. If no named Beneficiary survives the 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. 28 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 death benefit and Cash Value will be adjusted. The amount of the death benefit will be (1) multiplied by (2) and then the result added to (3), where: (1) is the Net Amount At Risk 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. The Cash Value will be adjusted to reflect the cost of insurance charges on the correct age and sex from the Policy Date. 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 and less any partial surrenders. If the Insured dies by suicide, while sane or insane, within two years from the date an application is accepted for an increase in the Specified Amount, 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. RIDERS A rider may be added as an addition to the Policy. Riders currently include: 1. Maturity Extension Endorsement; 2. Spouse Rider; 3. Child Rider; 4. Waiver of Monthly Deductions Rider; 5. Accidental Death Benefit Rider; 6. Additional Protection Rider; 7. Accelerated Death Benefit Rider; 8. Change of Insured Rider; and Rider availability varies by state. LEGAL CONSIDERATIONS On July 6, 1983, the U.S. Supreme Court held in ARIZONA GOVERNING COMMITTEE V. NORRIS that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. This decision applies only to benefits derived from premiums made on or after August 1, 1983. The Policies offered by this prospectus are based upon actuarial tables which distinguish between men and women and thus the Policies provide different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of Norris on any employment related insurance or benefit program before purchasing this Policy. DISTRIBUTION OF THE POLICIES The Policies will be sold by licensed insurance agents in those states where the Policies may lawfully be sold. Such agents will be registered representatives of broker dealers registered under the Securities Exchange Act of 1934 who are member firms of the National Association of Securities Dealers, Inc. ("NASD"). The Policies 29 will be distributed by the General Distributor, Nationwide Advisory Services, Inc. NAS acts as general distributor for the Nationwide Multi-Flex Variable Account, Nationwide DC Variable Account, Nationwide DCVA-II, Nationwide Variable Account-II, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Variable Account-8, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate Account-C, Nationwide VL Separate Account-A, Nationwide VL Separate Account-B, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4, NACo Variable Account and the Nationwide Variable Account, all of which are separate investment accounts of the Company or its affiliates. NAS is a wholly owned subsidiary of the Company. NAS also acts as principal underwriter for the Nationwide Investing Foundation, Nationwide Separate Account Trust, Financial Horizons Investment Trust, Nationwide Investing Foundation II and Nationwide Asset Allocation Trust, which are open-end management investment companies. Gross first year commissions plus any expense allowance payments paid by the Company on the sale of these Policies provided by the General Distributor will not exceed 90% of the Target Premium plus 4% of any excess premium payments. Gross renewal commissions in years 2 through 10 paid by the Company will not exceed 4% of actual premium payment, and will not exceed 2% in Policy Years 11 and thereafter. 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 (other than certain distributions to terminally ill or chronically ill individuals) are subject to federal income taxes in a manner similar to the way annuities are taxed. Modified endowment contract distributions are defined by the Code as amounts not received as an annuity and are taxable to the extent the Cash Value of the policy exceeds, at the time of distribution, the premiums paid into the policy. A 10% tax penalty generally applies to the taxable portion of such distributions unless the Policy Owner is over age 59 1/2 or disabled or the distribution is part of an annuity to the Policy Owner as defined in the Code. Under certain circumstances, certain distributions made under a Policy on the life of a "terminally ill individual" or a "chronically ill individual," as those terms are defined in the Code, are excludable from gross income. The Policies offered by this prospectus may or may not be issued as modified endowment contracts. The Company will monitor premiums paid and will notify the Policy Owner when the policy's non-modified endowment status is in jeopardy. If a Policy is not a modified endowment contract, a cash distribution during the first 15 years after a Policy is issued which causes a reduction in death benefits may still become fully or partially taxable to the Owner pursuant to Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this potential effect and seek further information before initiating any changes in the terms of the policy. Under certain conditions, a Policy may become a modified endowment as a result of a material change or a reduction in benefits as defined by Section 7702A(c) of the Code. In addition to meeting the tests required under Sections 7702, Section 817(h) of the Code requires that the investments of separate accounts such as the Variable Account be adequately diversified. Regulations under 817(h) provide that a variable life policy that fails to satisfy the diversification standards will not be treated as life insurance unless such failure was inadvertent, is corrected, and the Policy Owner or the Company pays an amount to the Internal Revenue Service. The amount will be based on the tax that would have been paid by the Policy Owner if the income, for the period the policy was not diversified, had been received by the Policy Owner. If the failure to diversify is not corrected in this manner, the Policy Owner will be deemed the owner of the underlying securities and taxed on the earnings of his or her account. 30 Representatives of the Internal Revenue Service have suggested, from time to time, that the number of Underlying Mutual Funds available or the number of transfer opportunities available under a variable product may be relevant in determining whether the product qualifies for the desired tax treatment. No formal guidance has been issued in this area. Should the Secretary of the Treasury issue additional rules or regulations limiting the number of Underlying Mutual Funds, transfers between Underlying Mutual Funds, exchanges of Underlying Mutual Funds or changes in investment objectives of Underlying Mutual Funds such that the Policy would no longer qualify as life insurance under Section 7702 of the Code, the Company will take whatever steps are available to remain in compliance. The Company will monitor compliance with these regulations and, to the extent necessary, will change the objectives or assets of the Sub-Account investments to remain in compliance. A total surrender or cancellation of the Policy by lapse or the maturity of the Policy on its Maturity Date may have adverse tax consequences. If the amount received by the Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the Policy, the excess generally will be treated as taxable income, regardless of whether or not the Policy is a modified endowment contract. - - 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 predeath gifts) will not incur a federal estate tax liability. In addition, an unlimited marital deduction may be available for federal estate tax purposes, for certain amounts that pass to the surviving spouse. When the Insured dies, the death benefit will generally be included in the lnsured's federal gross estate if: (1) the proceeds were payable to or for the benefit of the Insured's estate; or (2) the Insured held any "incident of ownership" in the Policy at death or at any time within three years of death. An incident of ownership is, in general, any right that may be exercised by the Policy Owner, such as the right to borrow on the Policy, or the right to name a new Beneficiary. If the Policy Owner (whether or not he or she is the Insured) transfers ownership of the Policy to another person, such transfer may be subject to a federal gift tax. In addition, if such Policy Owner transfers the Policy to someone two or more generations younger than the Policy Owner, the transfer may be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable amount being the value of the Policy. Similarly, if the Beneficiary is two or more generations younger than the Insured, the payment of the Death Proceeds at the death of the Insured may be subject to the GSTT. Pursuant to regulations recently promulgated by the U.S. Treasury Department, 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 counsel and 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 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, 31 Any such distributions may be subject to back-up withholding at the statutory rate (currently 31%) if not taxpayer identification number, or an incorrect taxpayer identification number, is provided. State and local estate, inheritance, income and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each Policy Owner or Beneficiary. TAXATION OF THE COMPANY The Company is taxed as a life insurance company under the Code. 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. The Company may also incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If they increase, however, charges for such taxes may be made. TAX CHANGES The foregoing discussion, which is based on the Company's understanding of federal tax laws as they are currently interpreted by the Internal Revenue Service, is general and is not intended as tax advice. In the recent past, the Code has been subjected to numerous amendments and changes, and it is reasonable to believe that it will continue to be revised. The United States Congress has, in the past, considered numerous legislative proposals that, if enacted, could change the tax treatment of the Policies. It is reasonable to believe that such proposals, and other proposals will be considered in the future, and some may be enacted into law. In addition, the U.S. Treasury Department may amend existing regulations, issue new regulations, or adopt new interpretations of existing law that may be at variance with its current positions on these matters. In addition, current state law (which is not discussed herein), and future amendments to state law, may affect the tax consequences of the Policy. If the Policy Owner, Insured, or Beneficiary or other person receiving any benefit or interest in or from the Policy is not both a resident and citizen of the United States, there may be a tax imposed by a foreign country, in addition to any tax imposed by the United States. The foreign law (including regulations, rulings, and case law) may change and impose additional taxes on the Policy, the Death Benefit, or other Distributions and/or ownership of the Policy, or a treaty may be amended and all or part of the favorable treatment may be eliminated. Any or all of the foregoing may change from time to time without any notice, and the tax consequences arising out of a Policy may be changed retroactively. There is no way of predicting if, when, and to what extent any such change may take place. No representation is made as to the likelihood of the continuation of these current laws, interpretations, and policies. THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO INSURANCE POLICIES. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR. THE COMPANY The life insurance business, including annuities, is the only business in which the Company is engaged. The Company markets its Policies through independent insurance brokers, general agents, and registered representatives of registered NASD broker/dealer firms. The Company serves as depositor for the Nationwide Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3, Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8, MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI Separate Account, Nationwide VLI 32 Separate Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4, NACo Variable Account, Nationwide DC Variable Account and the Nationwide DCVA-II, each of which is a registered investment company, and each of which is a separate investment account of the Company. The Company, in common with other insurance companies, is subject to regulation and supervision by the regulatory authorities of the states in which it is licensed to do business. A license from the state insurance department is a prerequisite to the transaction of insurance business in that state. In general, all states have statutory administrative powers. Such regulation relates, among other things, to licensing of insurers and their agents, the approval of policy forms, the methods of computing reserves, the form and content of statutory financial statements, the amount of policyholders' and stockholders' dividends, and the type of distribution of investments permitted. The Company operates in the highly competitive field of life insurance. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States, and a large number of them compete with the registrant in the sale of insurance policies. As is customary in insurance company groups, employees are shared with the other insurance companies in the group. In addition to its direct salaried employees, the Company shares employees with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. The Company does not presently own or lease any materially important physical properties when its property holdings are viewed in relation to its total assets. The Company shares Home Office, other facilities and equipment with Nationwide Mutual Insurance Company. COMPANY MANAGEMENT Nationwide Life Insurance Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, Scottsdale Indemnity Company and Nationwide General Insurance Company and their affiliated companies comprise the Nationwide Insurance Enterprise. The companies comprising the Nationwide Insurance Enterprise have substantially common boards of directors and officers. Nationwide Financial Services, Inc. is the sole shareholder of Nationwide Life. DIRECTORS OF THE COMPANY Director Name Since Principal Occupation Lewis J. Alphin 1993 Farm Owner and Operator (1) Keith W. Eckel 1996 Partner, Fred W. Eckel Sons; President, Eckel Farms, Inc. (1) Willard J. Engel 1994 General Manager Lyon County Co-Operative Oil Company (1) Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm; Operator, Melrose Orchard (1) Charles L. Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf Electric Company. (1) Joseph J. Gasper *+ 1996 President and Chief Operating Officer, Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. (2) Henry S. Holloway *+ 1986 Farm Owner and Operator (1) Dimon Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide Insurance Enterprise (2) David O. Miller *+ 1985 President, Owen Potato Farm, Inc.; Partner, M&M Enterprises (1) C. Ray Noecker 1994 Owner and Operator, Noecker Farms (1) James F. Patterson + 1989 Vice President, Pattersons, Inc.; President, Patterson Farms, Inc. (1) 33 Arden L. Shisler *+ 1984 President and Chief Executive Officer, K&B Transport, Inc. (1) Robert L. Stewart 1989 Owner and Operator, Sunnydale Farms and Mining (1) Nancy C. Thomas * 1986 Farm Owner and Operator. (1) Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farms (1) *Member, Executive Committee +Member, Investment Committee 1) Principal occupation for last five years. 2) Prior to assuming this current position, Messrs. McFerson and Gasper held other executive management positions with the companies. Each of the directors is a director of the other major insurance affiliates of the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of the Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson and Gasper are directors of Nationwide Advisory Services, Inc., a registered broker-dealer. Messrs. Holloway, McFerson, Miller, Patterson, Shisler and Fuellgraf are directors of Nationwide Financial Services, Inc. Messrs. Fuellgraf, McFerson, Ms. Thomas and Mr. Weihl are trustees of Nationwide Investing Foundation, a registered investment company. Mr. McFerson is trustee of Nationwide Separate Account Trust, Financial Horizons Investment Trust, Nationwide Investing Foundation II and Nationwide Asset Allocation Trust, registered investment companies. Mr. Engel is a director of Western Cooperative Transport. EXECUTIVE OFFICERS OF THE COMPANY NAME OFFICE HELD Dimon Richard McFerson Chairman and Chief Executive Officer- Nationwide Insurance Enterprise Joseph J. Gasper President and Chief Operating Officer Gordon E. McCutchan Executive Vice President, Law and Corporate Services and Secretary Officer Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer Susan A. Wolken 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 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. 34 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, Cash Surrender Value, premiums paid, monthly charges deducted since the last report, and the amounts invested in the Fixed Account, each Sub-Account, and any Policy Indebtedness. Policy Owners will also be sent annual and semi-annual reports containing financial statements for the Variable Account as required by the 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 Sub-Accounts, premium payments, loans, loan repayments, reinstatement and termination. ADVERTISING The Company is also ranked and rated by independent financial rating services, including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these ratings is to reflect the financial strength or claims-paying ability of the Company. The ratings are not intended to reflect the investment experience or financial strength of the Variable Account. The Company may advertise these ratings from time to time. In addition, the Company may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend the Company or the Contracts. Furthermore, the Company may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. LEGAL PROCEEDINGS From time to time the Company is a party to litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on the Company. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits, relating to life insurance pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. In February 1997, Nationwide Life was named as a defendant in a lawsuit filed in New York Supreme Court also related to the sale of whole life policies on a "vanishing premium" basis (JOHN H. SNYDER v. NATIONWIDE MUTUAL INSURANCE COMPANY, NATIONWIDE MUTUAL INSURANCE CO. AND NATIONWIDE LIFE INSURANCE CO.). The plaintiff in such lawsuit seeks to represent a national class of Nationwide Life policyholders and claims unspecified compensatory and punitive damages. This lawsuit is in an early stage and has not been certified as a class action. Nationwide Life intends to defend 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, Nationwide Advisory Services, Inc., is not engaged in any material litigation of any nature. 35 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, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus, Ohio 43216. All the members of such firm are employed by the Nationwide Mutual Insurance Company. 36 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 $569.50 ($11.390 x 50=569.50). Example 2: A male non-tobacco, age 35, purchases a Policy with a Specified Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender the Policy in the sixth Policy Year. The total initial surrender charge is calculated using the method illustrated above. (surrender charge per 1000 6.817 x 100=681.70 maximum initial surrender charge). Because the fifth Policy Year has been completed, the maximum initial surrender charge is reduced by multiplying it by the applicable percentage factor from the "Reductions to Surrender Charges" table below. (Also see "Reductions to Surrender Charges"). In this case, $681.70 x 60%=$409.02. Maximum Surrender Charge per $1,000 of initial Specified Amount for policies which are issued on a standard basis. Initial Specified Amount $50,000-$99,999 - -------------------------------------------------------------------------------- ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD - -------------------------------------------------------------------------------- 25 $7.773 $7.518 $8.369 $7.818 - -------------------------------------------------------------------------------- 35 8.817 8.396 9.811 8.889 - -------------------------------------------------------------------------------- 45 12.185 11.390 13.884 12.164 - -------------------------------------------------------------------------------- 55 15.628 13.995 18.410 15.106 - -------------------------------------------------------------------------------- 65 22.274 19.043 26.559 20.607 - -------------------------------------------------------------------------------- Initial Specified Amount $100,000+ - -------------------------------------------------------------------------------- ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD - -------------------------------------------------------------------------------- 25 $5.773 $5.518 $6.369 $5.818 - -------------------------------------------------------------------------------- 35 6.817 6.396 7.811 6.889 - -------------------------------------------------------------------------------- 45 9.685 8.890 11.384 9.664 - -------------------------------------------------------------------------------- 55 13.128 11.495 15.910 12.606 - -------------------------------------------------------------------------------- 65 21.274 18.043 25.559 19.607 - -------------------------------------------------------------------------------- Reductions to Surrender Charges. - -------------------------------------------------------------------------------- SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETE AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEAR SURRENDER CHARGES - -------------------------------------------------------------------------------- 0 100% 5 60% - -------------------------------------------------------------------------------- 1 100% 6 50% - -------------------------------------------------------------------------------- 2 90% 7 40% - -------------------------------------------------------------------------------- 3 80% 8 30% - -------------------------------------------------------------------------------- 4 70% 9+ 0% - -------------------------------------------------------------------------------- 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: 37
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES 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%
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. 38 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 deduction of Underlying Mutual Fund investment advisory fees and other expenses which are equivalent to an annual effective rate of 0.65%. This effective rate is based on the average of the fund expenses for the preceding year for all mutual fund options available under the policy as of March 31, 1997. Taking into account the Underlying Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -0.65%, 5.35% and 11.35%. The illustrations also reflect the fact that the Company makes monthly charges for providing insurance protection, recovering taxes, providing for administrative expenses, and assuming mortality and expense risks. Current values reflect current cost of insurance charges and guaranteed values reflect the maximum cost of insurance charges guaranteed in the Policy. The values shown are for Policies which are issued as standard. Policies issued on a substandard basis would result in lower Cash Values and Death benefits than those illustrated. The Cash Surrender Values shown in the illustrations reflect the fact that the Company will deduct a Surrender Charge from the Policy's Cash Value for any Policy surrendered in full during the first nine Policy Years. The illustrations also reflect the fact that no charges for federal or state income taxes are currently made against the Variable Account. If such a charge is made in the future, it will require a higher gross investment return than illustrated in order to produce the net after-tax returns shown in the illustrations. Upon request, the Company will furnish a comparable illustration based on the proposed Insured's age, sex, smoking classification, rating classification and premium payment requested. 39 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 406 0 50,000 438 0 50,000 471 0 50,000 2 1,614 853 279 50,000 945 371 50,000 1,041 468 50,000 3 2,483 1,281 764 50,000 1,461 945 50,000 1,658 1,141 50,000 4 3,394 1,690 1,231 50,000 1,989 1,530 50,000 2,326 1,867 50,000 5 4,351 2,085 1,683 50,000 2,531 2,129 50,000 3,056 2,654 50,000 6 5,357 2,463 2,119 50,000 3,087 2,743 50,000 3,852 3,508 50,000 7 6,412 2,826 2,539 50,000 3,659 3,372 50,000 4,723 4,436 50,000 8 7,520 3,172 2,942 50,000 4,246 4,017 50,000 5,675 5,446 50,000 9 8,683 3,502 3,330 50,000 4,849 4,677 50,000 6,719 6,546 50,000 10 9,905 3,814 3,814 50,000 5,469 5,469 50,000 7,863 7,863 50,000 11 11,188 4,110 4,110 50,000 6,105 6,105 50,000 9,119 9,119 50,000 12 12,535 4,387 4,387 50,000 6,759 6,759 50,000 10,499 10,499 50,000 13 13,949 4,647 4,647 50,000 7,431 7,431 50,000 12,017 12,017 50,000 14 15,434 4,887 4,887 50,000 8,121 8,121 50,000 13,690 13,690 50,000 15 16,993 5,108 5,108 50,000 8,830 8,830 50,000 15,534 15,534 50,000 16 18,630 5,309 5,309 50,000 9,559 9,559 50,000 17,570 17,570 50,000 17 20,349 5,462 5,462 50,000 10,283 10,283 50,000 19,799 19,799 50,000 18 22,154 5,562 5,562 50,000 10,998 10,998 50,000 22,246 22,246 50,000 19 24,049 5,611 5,611 50,000 11,709 11,709 50,000 24,943 24,943 50,000 20 26,039 5,615 5,615 50,000 12,419 12,419 50,000 27,932 27,932 50,000 21 28,129 5,557 5,557 50,000 13,116 13,116 50,000 31,252 31,252 50,000 22 30,323 5,432 5,432 50,000 13,798 13,798 50,000 34,950 34,950 50,000 23 32,626 5,230 5,230 50,000 14,457 14,457 50,000 39,082 39,082 50,000 24 35,045 4,942 4,942 50,000 15,089 15,089 50,000 43,716 43,716 51,148 25 37,585 4,559 4,559 50,000 15,686 15,686 50,000 48,852 48,852 56,668 26 40,252 4,067 4,067 50,000 16,243 16,243 50,000 54,509 54,509 62,685 27 43,052 3,456 3,456 50,000 16,752 16,752 50,000 60,756 60,756 68,654 28 45,992 2,711 2,711 50,000 17,204 17,204 50,000 67,661 67,661 75,103 29 49,079 1,811 1,811 50,000 17,590 17,590 50,000 75,301 75,301 82,078 30 52,321 734 34 50,000 17,895 17,895 50,000 83,767 83,767 89,630
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 404 0 50,404 436 0 50,436 469 0 50,469 2 1,614 848 274 50,848 939 365 50,939 1,035 461 51,035 3 2,483 1,270 753 51,270 1,449 932 51,449 1,643 1,127 51,643 4 3,394 1,672 1,213 51,672 1,966 1,507 51,966 2,299 1,840 52,299 5 4,351 2,056 1,654 52,056 2,495 2,093 52,495 3,011 2,610 53,011 6 5,357 2,422 2,078 52,422 3,034 2,690 53,034 3,784 3,440 53,784 7 6,412 2,770 2,483 52,770 3,584 3,298 53,584 4,623 4,336 54,623 8 7,520 3,100 2,870 53,100 4,145 3,915 54,145 5,534 5,304 55,534 9 8,683 3,410 3,238 53,410 4,715 4,543 54,715 6,524 6,352 56,524 10 9,905 3,700 3,700 53,700 5,295 5,295 55,295 7,600 7,600 57,600 11 11,188 3,971 3,971 53,971 5,885 5,885 55,885 8,771 8,771 58,771 12 12,535 4,220 4,220 54,220 6,483 6,483 56,483 10,045 10,045 60,045 13 13,949 4,448 4,448 54,448 7,090 7,090 57,090 11,432 11,432 61,432 14 15,434 4,654 4,654 54,654 7,704 7,704 57,704 12,943 12,943 62,943 15 16,993 4,838 4,838 54,838 8,325 8,325 58,325 14,589 14,589 64,589 16 18,630 4,998 4,998 54,998 8,952 8,952 58,952 16,383 16,383 66,383 17 20,349 5,103 5,103 55,103 9,553 9,553 59,553 18,306 18,306 68,306 18 22,154 5,148 5,148 55,148 10,119 10,119 60,119 20,366 20,366 70,366 19 24,049 5,135 5,135 55,135 10,653 10,653 60,653 22,579 22,579 72,579 20 26,039 5,071 5,071 55,071 11,156 11,156 61,156 24,965 24,965 74,965 21 28,129 4,939 4,939 54,939 11,611 11,611 61,611 27,529 27,529 77,529 22 30,323 4,732 4,732 54,732 12,007 12,007 62,007 30,286 30,286 80,286 23 32,626 4,443 4,443 54,443 12,332 12,332 62,332 33,245 33,245 83,245 24 35,045 4,064 4,064 54,064 12,574 12,574 62,574 36,419 36,419 86,419 25 37,585 3,585 3,585 53,585 12,718 12,718 62,718 39,821 39,821 89,821 26 40,252 2,998 2,998 52,998 12,749 12,749 62,749 43,462 43,462 93,462 27 43,052 2,295 2,295 52,295 12,653 12,653 62,653 47,359 47,359 97,359 28 45,992 1,467 1,467 51,467 12,413 12,413 62,413 51,527 51,527 101,527 29 49,079 502 502 50,502 12,009 12,009 62,009 55,981 55,981 105,981 30 52,321 (*) (*) (*) 11,414 11,414 61,414 60,734 60,734 110,734
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE 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 LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 1 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
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 - ------ ------- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1260 590 0 50,000 640 0 50,000 690 0 50,000 2 2,583 1,195 502 50,000 1,333 640 50,000 1,479 786 50,000 3 3,972 1,774 1,150 50,000 2,041 1,418 50,000 2,333 1,709 50,000 4 5,431 2,341 1,787 50,000 2,779 2,225 50,000 3,276 2,722 50,000 5 6,962 2,898 2,413 50,000 3,549 3,064 50,000 4,319 3,834 50,000 6 8,570 3,444 3,028 50,000 4,353 3,937 50,000 5,472 5,056 50,000 7 10,259 3,979 3,632 50,000 5,192 4,846 50,000 6,750 6,403 50,000 8 12,032 4,503 4,226 50,000 6,070 5,793 50,000 8,165 7,888 50,000 9 13,893 5,016 4,808 50,000 6,988 6,780 50,000 9,736 9,528 50,000 10 15,848 5,519 5,519 50,000 7,948 7,948 50,000 11,479 11,479 50,000 11 17,901 6,012 6,012 50,000 8,954 8,954 50,000 13,416 13,416 50,000 12 20,056 6,408 6,408 50,000 9,926 9,926 50,000 15,496 15,496 50,000 13 22,318 6,719 6,719 50,000 10,874 10,874 50,000 17,752 17,752 50,000 14 24,694 6,955 6,955 50,000 11,812 11,812 50,000 20,223 20,223 50,000 15 27,189 7,111 7,111 50,000 12,733 12,733 50,000 22,938 22,938 50,000 16 29,808 7,135 7,135 50,000 13,597 13,597 50,000 25,908 25,908 50,000 17 32,559 7,028 7,028 50,000 14,405 14,405 50,000 29,194 29,194 50,000 18 35,447 6,773 6,773 50,000 15,147 15,147 50,000 32,855 32,855 50,000 19 38,479 6,367 6,367 50,000 15,824 15,824 50,000 36,969 36,969 50,000 20 41,663 5,814 5,814 50,000 16,443 16,443 50,000 41,633 41,633 50,000 21 45,006 5,082 5,082 50,000 16,982 16,982 50,000 46,958 46,958 50,000 22 48,517 4,141 4,141 50,000 17,426 17,426 50,000 52,960 52,960 55,607 23 52,202 2,955 2,955 50,000 17,754 17,754 50,000 59,573 59,573 62,551 24 56,073 1,481 1,481 50,000 17,940 17,940 50,000 66,857 66,857 70,200 25 60,136 (*) (*) (*) 17,957 17,957 50,000 74,875 74,875 78,619 26 64,403 (*) (*) (*) 17,779 17,779 50,000 83,698 83,698 87,883 27 68,883 (*) (*) (*) 17,365 17,365 50,000 93,401 93,401 98,071 28 73,587 (*) (*) (*) 16,666 16,666 50,000 104,065 104,065 109,268 29 78,527 (*) (*) (*) 15,614 15,614 50,000 115,777 115,777 121,566 30 83,713 (*) (*) (*) 14,112 14,112 50,000 128,630 128,630 135,062
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE 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 LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 2 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
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 - ------ ------ ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1260 583 0 50,583 632 0 50,632 682 0 50,682 2 2,583 1,174 481 51,174 1,311 618 51,311 1,454 761 51,454 3 3,972 1,734 1,110 51,734 1,996 1,372 51,996 2,281 1,657 52,281 4 5,431 2,277 1,722 52,277 2,702 2,147 52,702 3,184 2,629 53,184 5 6,962 2,803 2,318 52,803 3,430 2,945 53,430 4,171 3,686 54,171 6 8,570 3,313 2,897 53,313 4,182 3,766 54,182 5,251 4,835 55,251 7 10,259 3,806 3,459 53,806 4,958 4,611 54,958 6,433 6,087 56,433 8 12,032 4,282 4,005 54,282 5,758 5,481 55,758 7,728 7,451 57,728 9 13,893 4,743 4,535 54,743 6,585 6,377 56,585 9,147 8,939 59,147 10 15,848 5,187 5,187 55,187 7,439 7,439 57,439 10,703 10,703 60,703 11 17,901 5,615 5,615 55,615 8,320 8,320 58,320 12,409 12,409 62,409 12 20,056 5,928 5,928 55,928 9,128 9,128 59,128 14,176 14,176 64,176 13 22,318 6,138 6,138 56,138 9,872 9,872 59,872 16,021 16,021 66,021 14 24,694 6,259 6,259 56,259 10,558 10,558 60,558 17,965 17,965 67,965 15 27,189 6,282 6,282 56,282 11,176 11,176 61,176 20,008 20,008 70,008 16 29,808 6,149 6,149 56,149 11,661 11,661 61,661 22,098 22,098 72,098 17 32,559 5,865 5,865 55,865 12,010 12,010 62,010 24,240 24,240 74,240 18 35,447 5,415 5,415 55,415 12,198 12,198 62,198 26,425 26,425 76,425 19 38,479 4,802 4,802 54,802 12,219 12,219 62,219 28,663 28,663 78,663 20 41,663 4,038 4,038 54,038 12,076 12,076 62,076 30,968 30,968 80,968 21 45,006 3,097 3,097 53,097 11,732 11,732 61,732 33,320 33,320 83,320 22 48,517 1,960 1,960 51,960 11,157 11,157 61,157 35,698 35,698 85,698 23 52,202 607 607 50,607 10,315 10,315 60,315 38,082 38,082 88,082 24 56,073 (*) (*) (*) 9,169 9,169 59,169 40,445 40,445 90,445 25 60,136 (*) (*) (*) 7,680 7,680 57,680 42,758 42,758 92,758 26 64,403 (*) (*) (*) 5,820 5,820 55,820 45,003 45,003 95,003 27 68,883 (*) (*) (*) 3,549 3,549 53,549 47,149 47,149 97,149 28 73,587 (*) (*) (*) 827 827 50,827 49,161 49,161 99,161 29 78,527 (*) (*) (*) (*) (*) (*) 50,992 50,992 100,992 30 83,713 (*) (*) (*) (*) (*) (*) 52,579 52,579 102,579
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE 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 LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1,575 931 34 100,000 1,000 103 100,000 1,069 172 100,000 2 3,229 1,896 998 100,000 2,093 1,196 100,000 2,299 1,402 100,000 3 4,965 2,832 2,024 100,000 3,221 2,414 100,000 3,644 2,836 100,000 4 6,788 3,741 3,023 100,000 4,386 3,668 100,000 5,114 4,396 100,000 5 8,703 4,621 3,993 100,000 5,588 4,960 100,000 6,724 6,096 100,000 6 10,713 5,473 4,935 100,000 6,830 6,291 100,000 8,489 7,950 100,000 7 12,824 6,297 5,848 100,000 8,112 7,663 100,000 10,424 9,975 100,000 8 15,040 7,092 6,733 100,000 9,437 9,078 100,000 12,548 12,189 100,000 9 17,367 7,857 7,588 100,000 10,805 10,536 100,000 14,883 14,614 100,000 10 19,810 8,593 8,593 100,000 12,220 12,220 100,000 17,450 17,450 100,000 11 22,376 9,299 9,299 100,000 13,682 13,682 100,000 20,276 20,276 100,000 12 25,069 9,974 9,974 100,000 15,195 15,195 100,000 23,390 23,390 100,000 13 27,898 10,618 10,618 100,000 16,759 16,759 100,000 26,825 26,825 100,000 14 30,868 11,231 11,231 100,000 18,378 18,378 100,000 30,628 30,628 100,000 15 33,986 11,771 11,771 100,000 20,016 20,016 100,000 34,810 34,810 100,000 16 37,261 12,223 12,223 100,000 21,660 21,660 100,000 39,406 39,406 100,000 17 40,699 12,579 12,579 100,000 23,307 23,307 100,000 44,468 44,468 100,000 18 44,309 12,831 12,831 100,000 24,951 24,951 100,000 50,058 50,058 100,000 19 48,099 12,984 12,984 100,000 26,604 26,604 100,000 56,251 56,251 100,000 20 52,079 13,058 13,058 100,000 28,288 28,288 100,000 63,146 63,146 100,000 21 56,258 13,004 13,004 100,000 29,967 29,967 100,000 70,821 70,821 100,000 22 60,646 12,823 12,823 100,000 31,645 31,645 100,000 79,394 79,394 100,000 23 65,253 12,498 12,498 100,000 33,315 33,315 100,000 88,984 88,984 105,001 24 70,091 12,013 12,013 100,000 34,971 34,971 100,000 99,575 99,575 116,503 25 75,170 11,349 11,349 100,000 36,605 36,605 100,000 111,244 111,244 129,044 26 80,504 10,485 10,485 100,000 38,212 38,212 100,000 124,100 124,100 142,715 27 86,104 9,401 9,401 100,000 39,784 39,784 100,000 138,299 138,299 156,278 28 91,984 8,070 8,070 100,000 41,316 41,316 100,000 153,996 153,996 170,936 29 98,158 6,459 6,459 100,000 42,797 42,797 100,000 171,366 171,366 186,789 30 104,641 4,525 4,525 100,000 44,213 44,213 100,000 190,612 190,612 203,955
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE 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 LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1,575 927 30 100,927 996 98 100,996 1,065 167 101,065 2 3,229 1,884 987 101,884 2,080 1,183 102,080 2,285 1,388 102,285 3 4,965 2,809 2,001 102,809 3,195 2,387 103,195 3,613 2,806 103,613 4 6,788 3,702 2,984 103,702 4,340 3,622 104,340 5,059 4,341 105,059 5 8,703 4,563 3,935 104,563 5,516 4,887 105,516 6,635 6,006 106,635 6 10,713 5,391 4,853 105,391 6,723 6,185 106,723 8,352 7,813 108,352 7 12,824 6,186 5,737 106,186 7,962 7,514 107,962 10,224 9,775 110,224 8 15,040 6,947 6,588 106,947 9,234 8,875 109,234 12,266 11,907 112,266 9 17,367 7,673 7,404 107,673 10,538 10,268 110,538 14,495 14,226 114,495 10 19,810 8,365 8,365 108,365 11,874 11,874 111,874 16,929 16,929 116,929 11 22,376 9,021 9,021 109,021 13,244 13,244 113,244 19,587 19,587 119,587 12 25,069 9,641 9,641 109,641 14,647 14,647 114,647 22,492 22,492 122,492 13 27,898 10,224 10,224 110,224 16,083 16,083 116,083 25,667 25,667 125,667 14 30,868 10,768 10,768 110,768 17,553 17,553 117,553 29,150 29,150 129,150 15 33,986 11,229 11,229 111,229 19,009 19,009 119,009 32,922 32,922 132,922 16 37,261 11,585 11,585 111,585 20,429 20,429 120,429 36,994 36,994 136,994 17 40,699 11,831 11,831 111,831 21,804 21,804 121,804 41,387 41,387 141,387 18 44,309 11,956 11,956 111,956 23,118 23,118 123,118 46,125 46,125 146,125 19 48,099 11,967 11,967 111,967 24,374 24,374 124,374 51,248 51,248 151,248 20 52,079 11,885 11,885 111,885 25,593 25,593 125,593 56,820 56,820 156,820 21 56,258 11,659 11,659 111,659 26,720 26,720 126,720 62,831 62,831 162,831 22 60,646 11,289 11,289 111,289 27,747 27,747 127,747 69,326 69,326 169,326 23 65,253 10,760 10,760 110,760 28,653 28,653 128,653 76,339 76,339 176,339 24 70,091 10,057 10,057 110,057 29,414 29,414 129,414 83,907 83,907 183,907 25 75,170 9,163 9,163 109,163 30,003 30,003 130,003 92,068 92,068 192,068 26 80,504 8,064 8,064 108,064 30,394 30,394 130,394 100,866 100,866 200,866 27 86,104 6,744 6,744 106,744 30,559 30,559 130,559 110,351 110,351 210,351 28 91,984 5,186 5,186 105,186 30,465 30,465 130,465 120,574 120,574 220,574 29 98,158 3,370 3,370 103,370 30,076 30,076 130,076 131,587 131,587 231,587 30 104,641 1,267 1,267 101,267 29,345 29,345 129,345 143,442 143,442 243,442
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE 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 LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 2,625 1,404 242 100,000 1,514 352 100,000 1,625 462 100,000 2 5,381 2,840 1,677 100,000 3,151 1,988 100,000 3,476 2,314 100,000 3 8,275 4,247 3,201 100,000 4,855 3,809 100,000 5,516 4,470 100,000 4 11,314 5,627 4,697 100,000 6,631 5,701 100,000 7,767 6,837 100,000 5 14,505 6,979 6,165 100,000 8,482 7,668 100,000 10,252 9,438 100,000 6 17,855 8,303 7,606 100,000 10,412 9,715 100,000 12,999 12,302 100,000 7 21,373 9,601 9,020 100,000 12,428 11,846 100,000 16,039 15,457 100,000 8 25,066 10,871 10,406 100,000 14,532 14,067 100,000 19,405 18,940 100,000 9 28,945 12,115 11,767 100,000 16,732 16,383 100,000 23,136 22,788 100,000 10 33,017 13,333 13,333 100,000 19,032 19,032 100,000 27,280 27,280 100,000 11 37,293 14,524 14,524 100,000 21,439 21,439 100,000 31,894 31,894 100,000 12 41,782 15,536 15,536 100,000 23,815 23,815 100,000 36,910 36,910 100,000 13 46,497 16,390 16,390 100,000 26,187 26,187 100,000 42,412 42,412 100,000 14 51,446 17,104 17,104 100,000 28,583 28,583 100,000 48,491 48,491 100,000 15 56,644 17,666 17,666 100,000 30,998 30,998 100,000 55,232 55,232 100,000 16 62,101 17,981 17,981 100,000 33,362 33,362 100,000 62,696 62,696 100,000 17 67,831 18,049 18,049 100,000 35,685 35,685 100,000 71,023 71,023 100,000 18 73,848 17,841 17,841 100,000 37,957 37,957 100,000 80,376 80,376 100,000 19 80,165 17,351 17,351 100,000 40,191 40,191 100,000 90,964 90,964 100,000 20 86,798 16,585 16,585 100,000 42,408 42,408 100,000 102,881 102,881 110,083 21 93,763 15,487 15,487 100,000 44,591 44,591 100,000 116,096 116,096 121,901 22 101,076 14,004 14,004 100,000 46,730 46,730 100,000 130,665 130,665 137,198 23 108,755 12,069 12,069 100,000 48,814 48,814 100,000 146,720 146,720 154,056 24 116,818 9,602 9,602 100,000 50,830 50,830 100,000 164,403 164,403 172,623 25 125,284 6,511 6,511 100,000 52,768 52,768 100,000 183,868 183,868 193,061 26 134,173 2,713 2,713 100,000 54,636 54,636 100,000 205,286 205,286 215,551 27 143,506 (*) (*) (*) 56,426 56,426 100,000 228,841 228,841 240,283 28 153,307 (*) (*) (*) 58,135 58,135 100,000 254,729 254,729 267,466 29 163,597 (*) (*) (*) 59,748 59,748 100,000 283,201 283,201 297,362 30 174,402 (*) (*) (*) 61,244 61,244 100,000 314,509 314,509 330,234
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE 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 LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 2,625 1,389 226 101,389 1,498 335 101,498 1,607 445 101,607 2 5,381 2,797 1,635 102,797 3,104 1,941 103,104 3,424 2,262 103,424 3 8,275 4,165 3,119 104,165 4,760 3,714 104,760 5,408 4,361 105,408 4 11,314 5,493 4,563 105,493 6,470 5,540 106,470 7,575 6,645 107,575 5 14,505 6,780 5,966 106,780 8,233 7,420 108,233 9,944 9,131 109,944 6 17,855 8,027 7,330 108,027 10,054 9,356 110,054 12,537 11,839 112,537 7 21,373 9,234 8,653 109,234 11,932 11,351 111,932 15,374 14,792 115,374 8 25,066 10,401 9,936 110,401 13,871 13,406 113,871 18,481 18,016 118,481 9 28,945 11,529 11,180 111,529 15,872 15,523 115,872 21,885 21,536 121,885 10 33,017 12,616 12,616 112,616 17,938 17,938 117,938 25,617 25,617 125,617 11 37,293 13,664 13,664 113,664 20,071 20,071 120,071 29,721 29,721 129,721 12 41,782 14,489 14,489 114,489 22,086 22,086 122,086 34,042 34,042 134,042 13 46,497 15,114 15,114 115,114 23,996 23,996 123,996 38,625 38,625 138,625 14 51,446 15,563 15,563 115,563 25,820 25,820 125,820 43,518 43,518 143,518 15 56,644 15,818 15,818 115,818 27,539 27,539 127,539 48,735 48,735 148,735 16 62,101 15,765 15,765 115,765 29,024 29,024 129,024 54,184 54,184 154,184 17 67,831 15,409 15,409 115,409 30,265 30,265 130,265 59,889 59,889 159,889 18 73,848 14,717 14,717 114,717 31,213 31,213 131,213 65,842 65,842 165,842 19 80,165 13,696 13,696 113,696 31,855 31,855 131,855 72,067 72,067 172,067 20 86,798 12,367 12,367 112,367 32,193 32,193 132,193 78,612 78,612 178,612 21 93,763 10,680 10,680 110,680 32,156 32,156 132,156 85,453 85,453 185,453 22 101,076 8,596 8,596 108,596 31,683 31,683 131,683 92,575 92,575 192,575 23 108,755 6,071 6,071 106,071 30,699 30,699 130,699 99,955 99,955 199,955 24 116,818 3,063 3,063 103,063 29,130 29,130 129,130 107,566 107,566 207,566 25 125,284 (*) (*) (*) 26,892 26,892 126,892 115,376 115,376 215,376 26 134,173 (*) (*) (*) 23,937 23,937 123,937 123,390 123,390 223,390 27 143,506 (*) (*) (*) 20,187 20,187 120,187 131,580 131,580 231,580 28 153,307 (*) (*) (*) 15,564 15,564 115,564 139,914 139,914 239,914 29 163,597 (*) (*) (*) 9,963 9,963 109,963 148,339 148,339 248,339 30 174,402 (*) (*) (*) 3,258 3,258 103,258 156,779 156,779 256,779
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE 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 LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 355 0 50,000 385 0 50,000 416 0 50,000 2 1,614 718 144 50,000 802 229 50,000 891 317 50,000 3 2,483 1,058 542 50,000 1,220 704 50,000 1,397 881 50,000 4 3,394 1,374 915 50,000 1,637 1,178 50,000 1,936 1,477 50,000 5 4,351 1,665 1,264 50,000 2,052 1,651 50,000 2,511 2,110 50,000 6 5,357 1,928 1,584 50,000 2,463 2,118 50,000 3,123 2,779 50,000 7 6,412 2,160 1,873 50,000 2,864 2,577 50,000 3,772 3,485 50,000 8 7,520 2,356 2,127 50,000 3,253 3,023 50,000 4,460 4,231 50,000 9 8,683 2,513 2,341 50,000 3,623 3,451 50,000 5,186 5,014 50,000 10 9,905 2,626 2,626 50,000 3,971 3,971 50,000 5,952 5,952 50,000 11 11,188 2,692 2,692 50,000 4,290 4,290 50,000 6,760 6,760 50,000 12 12,535 2,705 2,705 50,000 4,575 4,575 50,000 7,610 7,610 50,000 13 13,949 2,664 2,664 50,000 4,823 4,823 50,000 8,508 8,508 50,000 14 15,434 2,562 2,562 50,000 5,025 5,025 50,000 9,455 9,455 50,000 15 16,993 2,391 2,391 50,000 5,171 5,171 50,000 10,454 10,454 50,000 16 18,630 2,142 2,142 50,000 5,252 5,252 50,000 11,506 11,506 50,000 17 20,349 1,806 1,806 50,000 5,254 5,254 50,000 12,614 12,614 50,000 18 22,154 1,367 1,367 50,000 5,159 5,159 50,000 13,779 13,779 50,000 19 24,049 809 809 50,000 4,948 4,948 50,000 15,002 15,002 50,000 20 26,039 115 115 50,000 4,599 4,599 50,000 16,287 16,287 50,000 21 28,129 (*) (*) (*) 4,088 4,088 50,000 17,640 17,640 50,000 22 30,323 (*) (*) (*) 3,387 3,387 50,000 19,071 19,071 50,000 23 32,626 (*) (*) (*) 2,466 2,466 50,000 20,594 20,594 50,000 24 35,045 (*) (*) (*) 1,284 1,284 50,000 22,222 22,222 50,000 25 37,585 (*) (*) (*) (*) (*) (*) 23,972 23,972 50,000 26 40,252 (*) (*) (*) (*) (*) (*) 25,865 25,865 50,000 27 43,052 (*) (*) (*) (*) (*) (*) 27,931 27,931 50,000 28 45,992 (*) (*) (*) (*) (*) (*) 30,202 30,202 50,000 29 49,079 (*) (*) (*) (*) (*) (*) 32,730 32,730 50,000 30 52,321 (*) (*) (*) (*) (*) (*) 35,587 35,587 50,000
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 352 0 50,352 383 0 50,383 414 0 50,414 2 1,614 711 137 50,711 795 221 50,795 883 309 50,883 3 2,483 1,045 529 51,045 1,205 689 51,205 1,380 863 51,380 4 3,394 1,353 894 51,353 1,611 1,152 51,611 1,905 1,446 51,905 5 4,351 1,632 1,231 51,632 2,011 1,610 52,011 2,460 2,058 52,460 6 5,357 1,881 1,537 51,881 2,402 2,057 52,402 3,044 2,700 53,044 7 6,412 2,096 1,809 52,096 2,778 2,491 52,778 3,656 3,369 53,656 8 7,520 2,273 2,043 52,273 3,135 2,905 53,135 4,294 4,065 54,294 9 8,683 2,406 2,234 52,406 3,466 3,293 53,466 4,955 4,783 54,955 10 9,905 2,493 2,493 52,493 3,764 3,764 53,764 5,636 5,636 55,636 11 11,188 2,528 2,528 52,528 4,025 4,025 54,025 6,335 6,335 56,335 12 12,535 2,508 2,508 52,508 4,241 4,241 54,241 7,048 7,048 57,048 13 13,949 2,430 2,430 52,430 4,406 4,406 54,406 7,772 7,772 57,772 14 15,434 2,289 2,289 52,289 4,512 4,512 54,512 8,503 8,503 58,503 15 16,993 2,077 2,077 52,077 4,547 4,547 54,547 9,232 9,232 59,232 16 18,630 1,787 1,787 51,787 4,500 4,500 54,500 9,950 9,950 59,950 17 20,349 1,411 1,411 51,411 4,358 4,358 54,358 10,646 10,646 60,646 18 22,154 936 936 50,936 4,102 4,102 54,102 11,302 11,302 61,302 19 24,049 349 349 50,349 3,712 3,712 53,712 11,901 11,901 61,901 20 26,039 (*) (*) (*) 3,168 3,168 53,168 12,421 12,421 62,421 21 28,129 (*) (*) (*) 2,451 2,451 52,451 12,840 12,840 62,840 22 30,323 (*) (*) (*) 1,539 1,539 51,539 13,136 13,136 63,136 23 32,626 (*) (*) (*) 413 413 50,413 13,282 13,282 63,282 24 35,045 (*) (*) (*) (*) (*) (*) 13,247 13,247 63,247 25 37,585 (*) (*) (*) (*) (*) (*) 12,991 12,991 62,991 26 40,252 (*) (*) (*) (*) (*) (*) 12,461 12,461 62,461 27 43,052 (*) (*) (*) (*) (*) (*) 11,591 11,591 61,591 28 45,992 (*) (*) (*) (*) (*) (*) 10,302 10,302 60,302 29 49,079 (*) (*) (*) (*) (*) (*) 8,505 8,505 58,505 30 52,321 (*) (*) (*) (*) (*) (*) 6,106 6,106 56,106
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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 DEATH BENEFIT OPTION 1 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1260 468 0 50,000 514 0 50,000 561 0 50,000 2 2,583 910 217 50,000 1,032 339 50,000 1,161 468 50,000 3 3,972 1,294 671 50,000 1,522 898 50,000 1,772 1,148 50,000 4 5,431 1,616 1,061 50,000 1,976 1,422 50,000 2,389 1,835 50,000 5 6,962 1,867 1,382 50,000 2,386 1,901 50,000 3,008 2,523 50,000 6 8,570 2,041 1,625 50,000 2,742 2,326 50,000 3,621 3,205 50,000 7 10,259 2,129 1,783 50,000 3,032 2,686 50,000 4,220 3,874 50,000 8 12,032 2,118 1,841 50,000 3,240 2,963 50,000 4,794 4,517 50,000 9 13,893 1,993 1,785 50,000 3,349 3,141 50,000 5,328 5,120 50,000 10 15,848 1,741 1,741 50,000 3,338 3,338 50,000 5,807 5,807 50,000 11 17,901 1,345 1,345 50,000 3,186 3,186 50,000 6,214 6,214 50,000 12 20,056 789 789 50,000 2,871 2,871 50,000 6,530 6,530 50,000 13 22,318 56 56 50,000 2,365 2,365 50,000 6,735 6,735 50,000 14 24,694 (*) (*) (*) 1,634 1,634 50,000 6,799 6,799 50,000 15 27,189 (*) (*) (*) 633 633 50,000 6,683 6,683 50,000 16 29,808 (*) (*) (*) (*) (*) (*) 6,333 6,333 50,000 17 32,559 (*) (*) (*) (*) (*) (*) 5,675 5,675 50,000 18 35,447 (*) (*) (*) (*) (*) (*) 4,611 4,611 50,000 19 38,479 (*) (*) (*) (*) (*) (*) 3,014 3,014 50,000 20 41,663 (*) (*) (*) (*) (*) (*) 724 724 50,000 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 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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. 50 DEATH BENEFIT OPTION 2 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1260 459 0 50,459 505 0 50,505 551 0 50,551 2 2,583 886 193 50,886 1,006 313 51,006 1,132 439 51,132 3 3,972 1,249 626 51,249 1,470 846 51,470 1,712 1,088 51,712 4 5,431 1,542 988 51,542 1,888 1,333 51,888 2,283 1,728 52,283 5 6,962 1,758 1,273 51,758 2,248 1,763 52,248 2,835 2,350 52,835 6 8,570 1,890 1,474 51,890 2,542 2,126 52,542 3,359 2,943 53,359 7 10,259 1,929 1,582 51,929 2,755 2,408 52,755 3,840 3,493 53,840 8 12,032 1,863 1,586 51,863 2,869 2,592 52,869 4,260 3,982 54,260 9 13,893 1,679 1,472 51,679 2,866 2,658 52,866 4,597 4,389 54,597 10 15,848 1,367 1,367 51,367 2,727 2,727 52,727 4,828 4,828 54,828 11 17,901 913 913 50,913 2,431 2,431 52,431 4,929 4,929 54,929 12 20,056 310 310 50,310 1,961 1,961 51,961 4,874 4,874 54,874 13 22,318 (*) (*) (*) 1,295 1,295 51,295 4,633 4,633 54,633 14 24,694 (*) (*) (*) 409 409 50,409 4,170 4,170 54,170 15 27,189 (*) (*) (*) (*) (*) (*) 3,442 3,442 53,442 16 29,808 (*) (*) (*) (*) (*) (*) 2,392 2,392 52,392 17 32,559 (*) (*) (*) (*) (*) (*) 948 948 50,948 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 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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. 51 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1,575 931 34 100,000 1,000 102 100,000 1,069 171 100,000 2 3,229 1,854 956 100,000 2,050 1,153 100,000 2,255 1,357 100,000 3 4,965 2,738 1,930 100,000 3,121 2,313 100,000 3,538 2,730 100,000 4 6,788 3,580 2,862 100,000 4,212 3,494 100,000 4,926 4,208 100,000 5 8,703 4,379 3,751 100,000 5,320 4,692 100,000 6,428 5,800 100,000 6 10,713 5,132 4,593 100,000 6,444 5,906 100,000 8,054 7,515 100,000 7 12,824 5,833 5,384 100,000 7,579 7,130 100,000 9,812 9,363 100,000 8 15,040 6,477 6,118 100,000 8,720 8,361 100,000 11,711 11,352 100,000 9 17,367 7,058 6,789 100,000 9,861 9,592 100,000 13,763 13,493 100,000 10 19,810 7,571 7,571 100,000 10,997 10,997 100,000 15,979 15,979 100,000 11 22,376 8,009 8,009 100,000 12,123 12,123 100,000 18,376 18,376 100,000 12 25,069 8,368 8,368 100,000 13,233 13,233 100,000 20,971 20,971 100,000 13 27,898 8,643 8,643 100,000 14,323 14,323 100,000 23,788 23,788 100,000 14 30,868 8,827 8,827 100,000 15,387 15,387 100,000 26,851 26,851 100,000 15 33,986 8,908 8,908 100,000 16,413 16,413 100,000 30,193 30,193 100,000 16 37,261 8,877 8,877 100,000 17,392 17,392 100,000 33,848 33,848 100,000 17 40,699 8,719 8,719 100,000 18,310 18,310 100,000 37,852 37,852 100,000 18 44,309 8,416 8,416 100,000 19,149 19,149 100,000 42,247 42,247 100,000 19 48,099 7,945 7,945 100,000 19,889 19,889 100,000 47,085 47,085 100,000 20 52,079 7,286 7,286 100,000 20,510 20,510 100,000 52,429 52,429 100,000 21 56,258 6,417 6,417 100,000 20,991 20,991 100,000 58,359 58,359 100,000 22 60,646 5,315 5,315 100,000 21,308 21,308 100,000 64,972 64,972 100,000 23 65,253 3,955 3,955 100,000 21,437 21,437 100,000 72,388 72,388 100,000 24 70,091 2,304 2,304 100,000 21,348 21,348 100,000 80,754 80,754 100,000 25 75,170 317 317 100,000 20,996 20,996 100,000 90,218 90,218 104,653 26 80,504 (*) (*) (*) 20,324 20,324 100,000 100,668 100,668 115,769 27 86,104 (*) (*) (*) 19,257 19,257 100,000 112,193 112,193 126,778 28 91,984 (*) (*) (*) 17,696 17,696 100,000 124,916 124,916 138,657 29 98,158 (*) (*) (*) 15,524 15,524 100,000 138,987 138,987 151,495 30 104,641 (*) (*) (*) 12,605 12,605 100,000 154,580 154,580 165,401
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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. 52 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 1,575 927 29 100,927 995 98 100,995 1,064 167 101,064 2 3,229 1,842 945 101,842 2,037 1,140 102,037 2,241 1,343 102,241 3 4,965 2,714 1,906 102,714 3,094 2,286 103,094 3,507 2,699 103,507 4 6,788 3,540 2,822 103,540 4,164 3,446 104,164 4,869 4,151 104,869 5 8,703 4,318 3,689 104,318 5,244 4,615 105,244 6,334 5,705 106,334 6 10,713 5,043 4,504 105,043 6,329 5,791 106,329 7,906 7,368 107,906 7 12,824 5,711 5,262 105,711 7,415 6,966 107,415 9,592 9,143 109,592 8 15,040 6,315 5,956 106,315 8,492 8,133 108,492 11,394 11,035 111,394 9 17,367 6,848 6,578 106,848 9,554 9,285 109,554 13,317 13,048 113,317 10 19,810 7,304 7,304 107,304 10,592 10,592 110,592 15,365 15,365 115,365 11 22,376 7,676 7,676 107,676 11,596 11,596 111,596 17,544 17,544 117,544 12 25,069 7,959 7,959 107,959 12,557 12,557 112,557 19,858 19,858 119,858 13 27,898 8,149 8,149 108,149 13,470 13,470 113,470 22,316 22,316 122,316 14 30,868 8,237 8,237 108,237 14,320 14,320 114,320 24,924 24,924 124,924 15 33,986 8,212 8,212 108,212 15,093 15,093 115,093 27,688 27,688 127,688 16 37,261 8,063 8,063 108,063 15,772 15,772 115,772 30,615 30,615 130,615 17 40,699 7,777 7,777 107,777 16,337 16,337 116,337 33,706 33,706 133,706 18 44,309 7,335 7,335 107,335 16,763 16,763 116,763 36,957 36,957 136,957 19 48,099 6,719 6,719 106,719 17,020 17,020 117,020 40,361 40,361 140,361 20 52,079 5,910 5,910 105,910 17,080 17,080 117,080 43,913 43,913 143,913 21 56,258 4,891 4,891 104,891 16,913 16,913 116,913 47,608 47,608 147,608 22 60,646 3,647 3,647 103,647 16,492 16,492 116,492 51,441 51,441 151,441 23 65,253 2,163 2,163 102,163 15,785 15,785 115,785 55,408 55,408 155,408 24 70,091 419 419 100,419 14,756 14,756 114,756 59,499 59,499 159,499 25 75,170 (*) (*) (*) 13,359 13,359 113,359 63,693 63,693 163,693 26 80,504 (*) (*) (*) 11,535 11,535 111,535 67,956 67,956 167,956 27 86,104 (*) (*) (*) 9,210 9,210 109,210 72,242 72,242 172,242 28 91,984 (*) (*) (*) 6,296 6,296 106,296 76,483 76,483 176,483 29 98,158 (*) (*) (*) 2,700 2,700 102,700 80,607 80,607 180,607 30 104,641 (*) (*) (*) (*) (*) (*) 84,540 84,540 184,540
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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. 53 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 2,625 1,393 230 100,000 1,502 340 100,000 1,613 450 100,000 2 5,381 2,724 1,562 100,000 3,031 1,869 100,000 3,352 2,190 100,000 3 8,275 3,963 2,917 100,000 4,555 3,508 100,000 5,199 4,153 100,000 4 11,314 5,101 4,171 100,000 6,065 5,135 100,000 7,160 6,230 100,000 5 14,505 6,131 5,317 100,000 7,554 6,740 100,000 9,239 8,425 100,000 6 17,855 7,043 6,345 100,000 9,011 8,313 100,000 11,443 10,745 100,000 7 21,373 7,825 7,244 100,000 10,424 9,843 100,000 13,779 13,198 100,000 8 25,066 8,461 7,996 100,000 11,776 11,311 100,000 16,252 15,787 100,000 9 28,945 8,934 8,585 100,000 13,048 12,699 100,000 18,867 18,518 100,000 10 33,017 9,225 9,225 100,000 14,221 14,221 100,000 21,635 21,635 100,000 11 37,293 9,318 9,318 100,000 15,278 15,278 100,000 24,571 24,571 100,000 12 41,782 9,194 9,194 100,000 16,198 16,198 100,000 27,704 27,704 100,000 13 46,497 8,835 8,835 100,000 16,962 16,962 100,000 31,065 31,065 100,000 14 51,446 8,214 8,214 100,000 17,542 17,542 100,000 34,688 34,688 100,000 15 56,644 7,295 7,295 100,000 17,901 17,901 100,000 38,610 38,610 100,000 16 62,101 6,028 6,028 100,000 17,989 17,989 100,000 42,875 42,875 100,000 17 67,831 4,346 4,346 100,000 17,739 17,739 100,000 47,535 47,535 100,000 18 73,848 2,162 2,162 100,000 17,065 17,065 100,000 52,659 52,659 100,000 19 80,165 (*) (*) (*) 15,863 15,863 100,000 58,342 58,342 100,000 20 86,798 (*) (*) (*) 14,020 14,020 100,000 64,718 64,718 100,000 21 93,763 (*) (*) (*) 11,403 11,403 100,000 71,975 71,975 100,000 22 101,076 (*) (*) (*) 7,853 7,853 100,000 80,362 80,362 100,000 23 108,755 (*) (*) (*) 3,173 3,173 100,000 90,209 90,209 100,000 24 116,818 (*) (*) (*) (*) (*) (*) 101,771 101,771 106,860 25 125,284 (*) (*) (*) (*) (*) (*) 114,520 114,520 120,246 26 134,173 (*) (*) (*) (*) (*) (*) 128,503 128,503 134,928 27 143,506 (*) (*) (*) (*) (*) (*) 143,825 143,825 151,016 28 153,307 (*) (*) (*) (*) (*) (*) 160,592 160,592 168,621 29 163,597 (*) (*) (*) (*) (*) (*) 178,913 178,913 187,859 30 174,402 (*) (*) (*) (*) (*) (*) 198,906 198,906 208,851
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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. 54 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 2,625 1,377 215 101,377 1,486 323 101,486 1,595 433 101,595 2 5,381 2,680 1,517 102,680 2,982 1,819 102,982 3,298 2,135 103,298 3 8,275 3,874 2,827 103,874 4,452 3,405 104,452 5,081 4,035 105,081 4 11,314 4,951 4,021 104,951 5,884 4,954 105,884 6,944 6,014 106,944 5 14,505 5,901 5,087 105,901 7,265 6,452 107,265 8,880 8,067 108,880 6 17,855 6,712 6,014 106,712 8,579 7,882 108,579 10,885 10,187 110,885 7 21,373 7,372 6,791 107,372 9,808 9,227 109,808 12,949 12,368 112,949 8 25,066 7,863 7,398 107,863 10,926 10,461 110,926 15,056 14,591 115,056 9 28,945 8,165 7,816 108,165 11,906 11,557 111,906 17,188 16,839 117,188 10 33,017 8,260 8,260 108,260 12,721 12,721 112,721 19,326 19,326 119,326 11 37,293 8,132 8,132 108,132 13,344 13,344 113,344 21,449 21,449 121,449 12 41,782 7,766 7,766 107,766 13,745 13,745 113,745 23,535 23,535 123,535 13 46,497 7,147 7,147 107,147 13,899 13,899 113,899 25,565 25,565 125,565 14 51,446 6,256 6,256 106,256 13,768 13,768 113,768 27,512 27,512 127,512 15 56,644 5,065 5,065 105,065 13,309 13,309 113,309 29,334 29,334 129,334 16 62,101 3,538 3,538 103,538 12,464 12,464 112,464 30,972 30,972 130,972 17 67,831 1,626 1,626 101,626 11,162 11,162 111,162 32,352 32,352 132,352 18 73,848 (*) (*) (*) 9,316 9,316 109,316 33,377 33,377 133,377 19 80,165 (*) (*) (*) 6,835 6,835 106,835 33,942 33,942 133,942 20 86,798 (*) (*) (*) 3,634 3,634 103,634 33,937 33,937 133,937 21 93,763 (*) (*) (*) (*) (*) (*) 33,254 33,254 133,254 22 101,076 (*) (*) (*) (*) (*) (*) 31,778 31,778 131,778 23 108,755 (*) (*) (*) (*) (*) (*) 29,388 29,388 129,388 24 116,818 (*) (*) (*) (*) (*) (*) 25,943 25,943 125,943 25 125,284 (*) (*) (*) (*) (*) (*) 21,264 21,264 121,264 26 134,173 (*) (*) (*) (*) (*) (*) 15,133 15,133 115,133 27 143,506 (*) (*) (*) (*) (*) (*) 7,275 7,275 107,275 28 153,307 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 163,597 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 174,402 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.. NO REPRESENTATION CAN BE MADE BY 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. 55 APPENDIX 3 The following performance tables display historical investment results of the Underlying Mutual Fund Sub-Accounts of the Variable Account. This information may be useful in helping potential investors in deciding which Underlying Mutual Fund Sub-Accounts to choose and in assessing the competence of the Underlying Mutual Funds' investment advisers. The performance figures shown should be considered in light of the investment objectives and policies, characteristics and quality of the underlying portfolios of the Underlying Mutual Funds, and the market conditions during the periods of time quoted. The performance figures should not be considered as estimates or predictions of future performance. Investment return and the principal value of the Underlying Mutual Fund Sub-Accounts are not guaranteed and will fluctuate so that a Policy Owner's units, when redeemed, may be worth more or less than their original cost. 56 FUND PERFORMANCE TABLE*
--------------------------------------------------------------------------------------------------- Annual Percentage Change Cumulative Non annualized Percentage Change - ----------------------------------------------------------------------------------------------------------------------------------- Fund Unit 1 mo 1/1/97 1 Yrs Underlying Mutual Fund Inception Values 1994 1995 1996 to to to Date** 3/31/97 3/31/97 3/31/97 3/31/97 - ----------------------------------------------------------------------------------------------------------------------------------- NSAT Capital Appreciation Fund 04/15/92 11.85 -0.90 29.35 26.14 -3.23 2.06 19.06 - ----------------------------------------------------------------------------------------------------------------------------------- NSAT Government Bond Fund 11/08/82 10.62 -3.23 18.74 3.49 -0.99 -0.54 5.24 - ----------------------------------------------------------------------------------------------------------------------------------- NSAT Money Market Fund 11/10/81 10.47 3.88 5.64 5.13 0.43 1.24 5.10 - ----------------------------------------------------------------------------------------------------------------------------------- NSAT Small Company Fund 10/23/95 9.99 N/A N/A 22.83 -3.94 -5.11 7.97 - ----------------------------------------------------------------------------------------------------------------------------------- NSAT Total Return Fund 11/08/82 11.70 1.07 29.09 21.84 -3.31 2.22 17.67 - ----------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Average Annualized Percentage Change - ---------------------------------------------------------------------------------------------------- 3 Yrs. 5 yrs. Inception 3 Yrs. 5 yrs. Inception to to to to to to 3/31/97 3/31/97 3/31/97 3/31/97 3/31/97 3/31/97 - ---------------------------------------------------------------------------------------------------- NSAT Capital Appreciation Fund 71.54 N/A 91.34 19.71 N/A 13.98 - ---------------------------------------------------------------------------------------------------- NSAT Government Bond Fund 21.62 42.51 262.20 6.74 7.34 9.35 - ---------------------------------------------------------------------------------------------------- NSAT Money Market Fund 15.98 22.92 188.45 5.07 4.21 7.13 - ---------------------------------------------------------------------------------------------------- NSAT Small Company Fund N/A N/A 33.30 N/A N/A 22.13 - ---------------------------------------------------------------------------------------------------- NSAT Total Return Fund 66.13 92.66 670.93 18.44 14.01 15.24 - ----------------------------------------------------------------------------------------------------
* TOTAL RETURN SHOWS THE PERCENT CHANGE IN UNIT VALUES, WITH DIVIDENDS AND CAPITAL GAINS REINVESTED, AFTER THE DEDUCTION OF A GUARANTEED MORTALITY AND EXPENSE RISK CHARGE AT THE RATE OF 0.75% PER ANNUM OF DAILY NET ASSET VALUE OF THE VARIABLE ACCOUNT AND THE DEDUCTION OF APPLICABLE INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE UNDERLYING MUTUAL FUNDS. THE TOTAL RETURN FIGURES DO NOT TAKE INTO ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY CHARGES" SECTION. THESE OTHER CHARGES INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF INSURANCE CHARGES, SURRENDER CHARGES AND A MONTHLY ADMINISTRATIVE CHARGE. NOTES TO FUND PERFORMANCE TABLE The above table displays three types of total return. (1) Annual Percentage Change; (2) Cumulative Non-Annualized Percentage Change; and (3) Average Annualized Percentage Change. Total return shows the percent change in unit values, with dividends and capital gains reinvested, after the deduction of applicable investment advisory fees and other expenses of the Underlying Mutual Funds. The total return figures shown in the Annual Percentage Change and Average Annualized Percentage Change columns represent annualized figures, i.e., that is the rate of growth that would have produced the corresponding cumulative return had performance been constant over the entire period quoted. The annual Percentage Change reflects the rate of return on an annual percentage basis during the 1994, 1995 and 1996 calendar years. The Average Annualized Percentage Change reflects the annual percentage rate of return over 3 and 5 year periods, or from Underlying Mutual Fund inception. The Cumulative Non-Annualized Percentage Change total return figures are not annual return figures but instead represent the total percentage change in unit value over the stated periods without annualization. THE TOTAL RETURN FIGURES DO NOT TAKE INTO ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY CHARGES" SECTION. THESE OTHER CHARGES INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF INSURANCE CHARGES, MORTALITY AND EXPENSE RISK CHARGES, SURRENDER CHARGES AND A MONTHLY ADMINISTRATIVE CHARGE. The Underlying Mutual Fund Inception Date is the date the Underlying Mutual Fund first became effective, which is not necessarily the same date the Underlying Mutual Fund was first made available through the Variable Account. For those Underlying Mutual Funds which have not been offered as Sub-Accounts through the Variable Account for one of the quoted periods, the total return figures will show the investment performance such Underlying Mutual Funds would have achieved (reduced by Fund investment advisory fees and expenses) had they been offered as Sub-Accounts through the Variable Account for the period quoted. Certain Underlying Mutual Funds are not as old as some of the periods quoted, therefore, total return figures may not be available for all of the periods shown. THE PRECEDING FUND PERFORMANCE TABLE DISPLAYS HISTORICAL INVESTMENT RESULTS OF THE UNDERLYING MUTUAL FUNDS OF THE VARIABLE ACCOUNT. THIS INFORMATION MAY BE USEFUL IN HELPING POTENTIAL INVESTORS IN DECIDING WHICH UNDERLYING MUTUAL FUNDS TO CHOOSE AND IN ASSESSING THE COMPETENCE OF THE UNDERLYING MUTUAL FUNDS' INVESTMENT ADVISERS. THE PERFORMANCE FIGURES SHOWN SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE UNDERLYING PORTFOLIOS OF THE UNDERLYING MUTUAL FUNDS, AND THE MARKET CONDITIONS DURING THE PERIODS OF TIME QUOTED. THE PERFORMANCE FIGURES SHOULD NOT BE CONSIDERED AS ESTIMATES OR PREDICTIONS OF FUTURE PERFORMANCE. INVESTMENT RETURN AND THE PRINCIPAL VALUE OF THE UNDERLYING MUTUAL FUNDS ARE NOT GUARANTEED AND WILL FLUCTUATE SO THAT A POLICY OWNER'S UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 57 CASH VALUE PERFORMANCE TABLE* HYPOTHETICAL ANNUAL PREMIUM: $10,000 $499,021 SPECIFIED AMOUNT MALE AGE 45/NON-TOBACCO PREFERRED
----------------------------------------------------------------------------------------------- 1 Year to 3/31/97 2 Years to 3/31/97 3 Years to 3/31/97 5 Years to 3/31/97 - ------------------------------------------------------------------------------------------------------------------------------- FUND CASH CASH CASH CASH UNDERLYING MUTUAL FUND INCEPTION ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. DATE** VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE - ------------------------------------------------------------------------------------------------------------------------------- NSAT Capital Appreciation Fund 04/15/92 $9,210 $4,377 N/A N/A $34,619 $30,269 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------- NSAT Government Bond Fund 11/08/82 $8,056 $3,223 N/A N/A $26,286 $21,936 $46,624 $43,241 - ------------------------------------------------------------------------------------------------------------------------------- NSAT Money Market Fund 11/10/81 $8,040 $3,207 N/A N/A $25,346 $20,997 $43,634 $40,250 - ------------------------------------------------------------------------------------------------------------------------------- NSAT Small Company Fund 10/23/95 $8.375 $3,542 N/A N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------- NSAT Total Return Fund 11/08/82 $9,093 $4,260 N/A N/A $33,445 $29,095 $61,480 $58,097 - ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------- 10 Years to 3/31/97 Inception to 3/31/97 - --------------------------------------------------------------------------- CASH Cash UNDERLYING MUTUAL FUND ACCUM SURR. ACCUM Surr. VALUE VALUE VALUE Value - --------------------------------------------------------------------------- NSAT Capital Appreciation Fund N/A N/A $62,850 $59,467 - --------------------------------------------------------------------------- NSAT Government Bond Fund $120,376 $120,376 $228,753 $228,753 - --------------------------------------------------------------------------- NSAT Money Market Fund $100,689 $100,689 $198,866 $198,866 - --------------------------------------------------------------------------- NSAT Small Company Fund N/A N/A $18,857 $14,023 - --------------------------------------------------------------------------- NSAT Total Return Fund $164,535 $164,535 $378,940 $378,940 - ---------------------------------------------------------------------------
* THE CASH SURRENDER VALUE FIGURES REFLECT THE DEDUCTION OF ALL APPLICABLE POLICY CHARGES, INCLUDING DEDUCTION FROM EACH PREMIUM PAYMENT, AN 0.75% ASSET CHARGE, APPLICABLE COST OF INSURANCE CHARGES, AND A MONTHLY ADMINISTRATIVE CHARGE (AND THE DEDUCTION OF APPLICABLE INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE UNDERLYING MUTUAL FUNDS). NOTES TO CASH VALUE PERFORMANCE TABLE The above Cash-Value performance table shows the effect of the performance quoted on Cash Values and Cash Surrender Values, based on a hypothetical annual premium of $10,000 for a 45 year-old male, non-tobacco preferred, with death benefit option 1 and an initial specified amount of $499,021 (based on a guideline-level premium of $10,000 issued on a preferred basis). The Cash Surrender Value figures reflect the deduction of all applicable Policy Charges, including a deduction from each premium payment, a mortality and expense risk charge, applicable cost of insurance charges, surrender charges, and a monthly administrative charge (and the deduction of applicable investment advisory fees and other expenses of the Underlying Mutual Funds). See the "Policy Charges" section for more information about these charges. The cost of insurance charges may be higher or lower for purchasers who do not meet the profile of the hypothetical purchaser. Illustrations reflecting a potential purchaser's specific characteristics are available from the Company upon request. **The Underlying Mutual Fund Inception Date is the date the Underlying Mutual Fund first became effective, which is not necessarily the same date the Underlying Mutual Fund was first made available through the Variable Account. For those Underlying Mutual Funds which have not been offered as Sub-Accounts through the Variable Account for one of the quoted periods, the Cash Values will show the investment performance such Underlying Mutual Funds would have achieved (reduced by Underlying Mutual Fund investment advisory fees and expenses) had they been offered as Sub-Accounts through the Variable Account for the period quoted. Certain Underlying Mutual Funds are not as old as some of the periods quoted, therefore, the Cash Values may not be available for all of the periods shown. THE PRECEDING CASH-VALUE PERFORMANCE TABLE DISPLAYS HISTORICAL INVESTMENT RESULTS OF THE UNDERLYING MUTUAL FUNDS OF THE VARIABLE ACCOUNT. THIS INFORMATION MAY BE USEFUL IN HELPING POTENTIAL INVESTORS IN DECIDING WHICH UNDERLYING MUTUAL FUNDS TO CHOOSE AND IN ASSESSING THE COMPETENCE OF THE UNDERLYING MUTUAL FUNDS' INVESTMENT ADVISERS. THE PERFORMANCE FIGURES SHOWN SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE UNDERLYING PORTFOLIOS OF THE UNDERLYING MUTUAL FUNDS, AND THE MARKET CONDITIONS DURING THE PERIODS OF TIME QUOTED. THE PERFORMANCE FIGURES SHOULD NOT BE CONSIDERED AS ESTIMATES OR PREDICTIONS OF FUTURE PERFORMANCE. INVESTMENT RETURN AND THE PRINCIPAL VALUE OF THE UNDERLYING MUTUAL FUNDS ARE NOT GUARANTEED AND WILL FLUCTUATE SO THAT A POLICY OWNER'S UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 58 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 59 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1996 and 1995 ($000's omitted)
Assets 1996 1995 ------ ----------- ----------- 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 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 60 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1996, 1995 and 1994 ($000's omitted)
1996 1995 1994 ---------- ---------- --------- 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 ---------- ---------- --------- ---------- ---------- ---------
See accompanying notes to consolidated financial statements. 61 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Shareholder's Equity Years ended December 31, 1996, 1995 and 1994 ($000's omitted)
Unrealized gains (losses) Additional on securities Total Capital paid-in Retained available-for- shareholder's shares capital earnings sale, net equity ------- ---------- --------- -------------- ------------- 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 ------ ------- --------- --------- ---------- ------ ------- --------- --------- ----------
See accompanying notes to consolidated financial statements. 62 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 ($000's omitted)
1996 1995 1994 ---------- --------- --------- 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 ---------- --------- --------- ---------- --------- ---------
See accompanying notes to consolidated financial statements. 63 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. 64 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:
1996 1995 1994 ---------- --------- --------- 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
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. 65 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:
1996 1995 1994 -------- ------- ------- 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
(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. 66 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). 67 (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. 68 (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: 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 --------- --------- (5) INVESTMENTS The amortized cost and estimated fair value of securities available-for-sale were as follows as of December 31, 1996:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ------------ ---------- ---------- ----------- 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 ------------ ---------- ---------- ----------- ------------ ---------- ---------- -----------
69 The amortized cost and estimated fair value of securities available-for-sale were as follows as of December 31, 1995:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value 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 ----------- -------- ------- ---------- ----------- -------- ------- ----------
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. Amortized Estimated cost fair value 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 ----------- ---------- ----------- ---------- The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:
1996 1995 -------- -------- 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 -------- -------- -------- --------
70 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:
1996 1995 1994 --------- --------- ---------- 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) --------- --------- ---------- --------- --------- ----------
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: 1996 1995 ------- ------ 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 ------- ------ ------- ------ 71 An analysis of investment income by investment type follows for the years ended December 31:
1996 1995 1994 ---------- --------- --------- 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 ---------- --------- --------- ---------- --------- ---------
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
1996 1995 1994 ------- ------ ------- 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) ------- ------ ------- ------- ------ -------
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: Year of issue Interest rates ------------- -------------------------------------------------- 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 72 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:
1996 1995 -------- -------- 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 -------- -------- -------- --------
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. 73 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:
1996 1995 1994 -------------- -------------- --------------- Amount % Amount % Amount % -------------- -------------- --------------- 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 -------------- -------------- --------------- -------------- -------------- ---------------
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. 74 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:
1996 1995 -------------------------------- -------------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ------------- ----------------- --------------- --------------- 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
(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. 75 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:
Apartment Office Warehouse Retail & other Total -------- ----------- -------- ------------ ---------- 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 ------------ ------------ 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 ------------ ------------
76 (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:
1996 1995 1994 -------- -------- -------- 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 -------- -------- -------- -------- -------- -------- Basis for measurements, net periodic pension cost: 1996 1995 1994 -------- -------- -------- 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%
77 Information regarding the funded status of the Nationwide Insurance Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995 follows:
1996 1995 ------------ ----------- 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) ------------ ----------- ------------ ----------- Basis for measurements, funded status of plan: 1996 1995 ------------ ----------- Weighted average discount rate 6.50% 6.00% Rate of increase in future compensation levels 4.75% 4.25%
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. 78 The amount of NPPBC for the plan as a whole for the years ended December 31, 1996, 1995 and 1994 was as follows:
1996 1995 1994 -------- -------- -------- 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 -------- -------- -------- -------- -------- --------
Information regarding the funded status of the plan as a whole as of December 31, 1996 and 1995 follows:
1996 1995 -------- -------- 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) -------- -------- -------- --------
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:
1996 1996 1995 1995 1994 APBO NPPBC APBO NPPBC NPPBC -------- --------- -------- --------- --------- 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
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. 79 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 inter- company agreements are materially different than expenses that would have been recognized had the Company operated on a stand alone basis. Amounts payable to NMIC from the Company under the cost sharing agreement were $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. 80 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. 81 (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.
1996 1995 1994 ---------- ---------- ----------- 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 ---------- ---------- ----------- ---------- ---------- -----------
82 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in thousands of dollars)
(Unaudited) June 30, December 31, Assets 1997 1996 ------ ------------ ------------ Investments: Securities available-for-sale, at fair value: Fixed maturity securities (cost $12,049,864 in 1997; $11,970,878 in 1996) $ 12,319,848 12,304,639 Equity securities (cost $55,813 in 1997; $43,890 in 1996) 66,497 59,131 Mortgage loans on real estate, net 5,141,839 5,272,119 Real estate, net 292,935 265,759 Policy loans 391,432 371,816 Other long-term investments 23,336 28,668 Short-term investments 286,354 4,789 ------------ ------------ 18,522,241 18,306,921 ------------ ------------ Cash 86,387 43,784 Accrued investment income 209,037 210,182 Deferred policy acquisition costs 1,537,814 1,366,509 Investment in subsidiaries classified as discontinued operations - 485,707 Other assets 404,319 426,441 Assets held in Separate Accounts 32,866,145 26,926,702 ------------ ------------ $ 53,625,943 47,766,246 ------------ ------------ ------------ ------------ Liabilities and Shareholder's Equity ------------------------------------ Future policy benefits and claims $ 17,536,264 17,179,060 Policyholders' dividend accumulations 366,681 361,401 Other policyholder funds 59,153 60,073 Accrued federal income tax: Current 44,323 30,170 Deferred 158,769 162,212 ------------ ------------ 203,092 192,382 ------------ ------------ Dividend payable - 485,707 Other liabilities 375,206 423,047 Liabilities related to Separate Accounts 32,866,145 26,926,702 ------------ ------------ 51,406,541 45,628,372 ------------ ------------ Shareholder's equity: Capital shares, $1 par value. Authorized 5,000,000 shares, issued and outstanding 3,814,779 shares 3,815 3,815 Additional paid-in capital 914,654 527,874 Retained earnings 1,159,696 1,432,593 Unrealized gains on securities available-for-sale, net 141,237 173,592 ------------ ------------ 2,219,402 2,137,874 ------------ ------------ $ 53,625,943 47,766,246 ------------ ------------ ------------ ------------
See accompanying notes to unaudited consolidated financial statements. 83 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Income (Unaudited) (in thousands of dollars)
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Revenues: Investment product and universal life insurance product policy charges $ 129,658 97,955 250,107 186,558 Traditional life insurance premiums 50,295 49,224 105,741 103,012 Net investment income 351,346 340,266 692,296 669,797 Realized gains (losses) on investments (11,929) 5,806 9,113 9,374 Other income 15,908 6,010 25,742 12,219 ---------- ---------- ---------- ---------- 535,278 499,261 1,082,999 980,960 ---------- ---------- ---------- ---------- Benefits and expenses: Benefits and claims 297,049 285,276 593,419 575,272 Provision for policyholders' dividends on participating policies 11,542 11,907 22,188 22,687 Amortization of deferred policy acquisition costs 39,594 34,865 82,988 70,994 Other operating expenses 94,231 76,108 188,092 141,788 ---------- ---------- ---------- ---------- 442,416 408,156 886,687 810,741 ---------- ---------- ---------- ---------- Income from continuing operations before federal income tax expense 92,862 91,105 196,312 170,219 ---------- ---------- ---------- ---------- Federal income tax expense: Current 32,477 32,592 55,231 58,617 Deferred 10 15 13,978 640 ---------- ---------- ---------- ---------- 32,487 32,746 69,209 59,257 ---------- ---------- ---------- ---------- Income from continuing operations 60,375 58,359 127,103 110,962 Income from discontinued operations (less federal income tax expense of $1,470 and $3,986 in 1996) - 3,100 - 7,295 ---------- ---------- ---------- ---------- Net income $ 60,375 61,459 127,103 118,257 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to unaudited consolidated financial statements. 84 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Shareholder's Equity (Unaudited) Six Months Ended June 30, 1997 and 1996 (in thousands of dollars)
Unrealized gains (losses) Additional on securities Total Capital paid-in Retained available-for- shareholder's shares capital earnings sale, net equity ---------------- ---------------- ---------------- ---------------- ---------------- 1996: Balance, January 1, 1996 $ 3,815 657,118 1,583,275 384,304 2,628,512 Capital of contributed subsidiary - 30 - - 30 Net income - - 118,257 - 118,257 Unrealized losses on securities available-for-sale, net - - - (275,185) (275,185) ---------------- ---------------- ---------------- ---------------- ---------------- Balance, June 30, 1996 $ 3,815 657,148 1,701,532 109,119 2,471,614 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 1997: Balance, January 1, 1997 3,815 527,874 1,432,593 173,592 2,137,874 Capital contributions - 836,780 - - 836,780 Dividends to shareholder - (450,000) (400,000) - (850,000) Net income - - 127,103 - 127,103 Unrealized losses on securities available-for-sale, net - - - (32,355) (32,355) ---------------- ---------------- ---------------- ---------------- ---------------- Balance, June 30, 1997 $ 3,815 914,654 1,159,696 141,237 2,219,402 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
See accompanying notes to unaudited consolidated financial statements. 85 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 1997 and 1996 (in thousands of dollars)
1997 1996 ------------ ------------ Cash flows from operating activities: Net income $ 127,103 118,257 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Capitalization of deferred policy acquisition costs (235,735) (214,486) Amortization of deferred policy acquisition costs 82,988 70,994 Amortization and depreciation 1,964 8,613 Realized gains on investments, net (9,113) (9,374) Deferred federal income tax 13,978 23,864 Decrease (increase) in accrued investment income 1,145 (814) Decrease (increase) in other assets 21,708 (81,888) Increase (decrease) in policyholder account balances 55,237 (63,997) Increase in policyholders' dividend accumulations 5,280 7,113 Increase in accrued federal income tax payable 14,153 8,579 (Decrease) increase in other liabilities (47,841) 63,206 Other, net (2,317) (2,344) ------------ ------------ Net cash provided by (used in) operating activities 28,550 (72,277) ------------ ------------ Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 437,694 685,247 Proceeds from sale of securities available-for-sale 225,855 194,207 Proceeds from repayments of mortgage loans on real estate 164,699 123,064 Proceeds from sale of real estate 23,214 8,163 Proceeds from repayments of policy loans and sale of other invested assets 21,908 27,108 Cost of securities available-for-sale acquired (1,236,560) (769,786) Cost of mortgage loans on real estate acquired (418,593) (486,706) Cost of real estate acquired (21,506) (2,893) Policy loans issued and other invested assets acquired (37,785) (42,936) Short-term investments, net (282,700) 26,109 ------------ ------------ Net cash used in investing activities (1,123,774) (238,423) ------------ ------------ Cash flows from financing activities: Proceeds from capital contributions 836,780 - Increase in investment product and universal life insurance product account balances 1,511,167 1,284,221 Decrease in investment product and universal life insurance product account balances (1,210,120) (918,291) ------------ ------------ Net cash provided by financing activities 1,137,827 365,930 ------------ ------------ Net increase in cash 42,603 55,230 Cash, beginning of period 43,784 9,455 ------------ ------------ Cash, end of period $ 86,387 64,685 ------------ ------------ ------------ ------------
See accompanying notes to unaudited consolidated financial statements. 86 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Unaudited Consolidated Financial Statements Six Months Ended June 30, 1997 (1) ORGANIZATION AND BASIS OF PRESENTATION Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was a wholly owned subsidiary of Nationwide Corporation (Nationwide Corp.). On January 27, 1997, Nationwide Corp. contributed the common stock of NLIC to Nationwide Financial Services, Inc. (NFS). NFS was formed by Nationwide Corp. in November 1996 as a holding company for members of the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. NLIC and its subsidiaries are collectively referred to as "the Company." The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles, which differ from statutory accounting practices prescribed or permitted by regulatory authorities, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included herein reflects all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations. Operating results for all periods presented are not necessarily indicative of the results that may be expected for the full year. All significant intercompany balances and transactions have been eliminated. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 1996 included in the Company's annual report on Form 10-K. (2) DIVIDENDS AND CAPITAL CONTRIBUTIONS On September 24, 1996, NLIC's Board of Directors declared a dividend to Nationwide Corp. consisting of the common stock of certain subsidiaries classified as discontinued operations. As of and during the year ended December 31, 1996, these previously wholly owned subsidiaries of NLIC were classified as discontinued operations since they do not offer or distribute long-term savings and retirement products. The dividend was paid by NLIC on January 1, 1997. On February 24, 1997, NLIC paid a dividend to NFS, which made an equivalent dividend to Nationwide Corp., consisting of securities having an aggregate market value of $850.0 million. NLIC recognized a gain of $14.4 million on the transfer of securities. On March 10, 1997 and March 11, 1997, NFS made cash capital contributions to NLIC totaling $836.8 million. 87 PART II - OTHER INFORMATION CONTENTS OF REGISTRATION STATEMENT This Registration Statement 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. The Signatures. Accountants' Consent The following exhibits required by Forms N-8B-2 and S-6: 1. Power of Attorney Incorporated within the Resolution of the Depositor's Board of Directors. See Exhibit 2. 2. Resolution of the Depositor's Filed previously in connection with Board of Directors authorizing SEC File No. 333-31725 and is hereby the establishment of the incorporated by reference. Registrant, adopted 3. Distribution Contracts Filed previously in connection with SEC File No. 333-27133 and is hereby incorporated herein by reference. 4. Form of Security Filed previously in connection with SEC File No. 333-31725 and is hereby incorporated by reference. 5. Articles of Incorporation of Filed previously in connection with Depositor SEC File No. 333-27133 and is hereby incorporated herein by reference. 6. Application form of Security To be filed via Pre-Effective Amendment. 7. Opinion of Counsel Filed previously in connection with SEC File No. 333-31725 and is hereby incorporated by reference. 88 REPRESENTATIONS AND UNDERTAKINGS The Registrant and the Company hereby make the following representations and undertakings: (a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment Company Act of 1940 (the "Act"). The Registrant and the Company elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with respect to the Policies described in the prospectus. The Policies have been designed in such a way as to qualify for the exemptive relief from various provisions of the Act afforded by Rule 6e-3(T). (b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the deduction of the mortality and expense risk charges ("risk charges") assumed by the Company under the Policies. The Company represents that the risk charges are within the range of industry practice for comparable policies and reasonable in relation to all of the risks assumed by the issuer under the Policies. Actuarial memoranda demonstrating the reasonableness of these charges are maintained by the Company, and will be made available to the Securities and Exchange Commission (the "Commission") on request. (c) The Company has concluded that there is a reasonable likelihood that the distribution financing arrangement of the separate account will benefit the separate account and the contractholders and will keep and make available to the Commission on request a memorandum setting forth the basis for this representation. (d) The Company represents that the separate account will invest only in management investment companies which have undertaken to have a board of directors, a majority of whom are not interested persons of the company, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the Registrant hereby undertakes to file with the Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. (f) The fees and charges deducted under the Policy in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. 89 SIGNATURES As required by the Securities Act of 1933, the Registrant, Nationwide VLI Separate Account-4, has caused this Pre-Effective Amendment No. 1 to be signed on its behalf in the City of Columbus, and the State of Ohio, on this 3rd day of October, 1997. NATIONWIDE VLI SEPARATE ACCOUNT-4 --------------------------------- (Registrant) (Seal) NATIONWIDE LIFE INSURANCE COMPANY --------------------------------- Attest: (Depositor) by/s/ W. SIDNEY DRUEN By: by/s/ JOSEPH P. RATH - --------------------- ------------------------------ W. Sidney Druen Joseph P. Rath - Assistant Secretary Vice President - Product and Market Compliance Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 3rd day of October, 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 Officer and Director - ------------------------- Joseph J. Gasper HENRY S. HOLLOWAY Chairman of the Board and Director - ------------------------- Henry S. Holloway DIMON R. MCFERSON Chairman and Chief Executive Officer - Nationwide - ------------------------- Insurance Enterprise and Director Dimon R. 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 90 -----END PRIVACY-ENHANCED MESSAGE-----