-----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, ImqF6ehPQPW/ymssGaKzLNquWE43Li2F5UaF/r9Yug5WD0+W5r8w0y3MyZD7htsd e3KI++WjRcDSui8gzCUdXA== 0000950152-97-005251.txt : 19970722 0000950152-97-005251.hdr.sgml : 19970722 ACCESSION NUMBER: 0000950152-97-005251 CONFORMED SUBMISSION TYPE: S-6EL24 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970721 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 4 CENTRAL INDEX KEY: 0001041357 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6EL24 SEC ACT: 1933 Act SEC FILE NUMBER: 333-31725 FILM NUMBER: 97643297 BUSINESS ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 6142497111 MAIL ADDRESS: STREET 1: C/O NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 S-6EL24 1 NATIONWIDE VLI SEPARATE ACCT. 4 FORM S-6 1 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 REGISTRATION STATEMENT TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ---------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-4 (EXACT NAME OF TRUST) ---------------------------- NATIONWIDE LIFE INSURANCE COMPANY ONE NATIONWIDE PLAZA COLUMBUS, OHIO 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. ================================================================================ 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2 N-8B-2 ITEM CAPTION IN PROSPECTUS 1................................................................Nationwide Life Insurance Company The Variable Account 2................................................................Nationwide Life Insurance Company 3................................................................Custodian of Assets 4................................................................Distribution of The Policies 5................................................................The Variable Account 6................................................................Not Applicable 7................................................................Not Applicable 8................................................................Not Applicable 9................................................................Legal Proceedings 10...............................................................Information About The Policies; How The Cash Value Varies; Right to Exchange for a Fixed Benefit Policy; Reinstatement; Other Policy Provisions 11...............................................................Investments of The Variable Account 12...............................................................The Variable Account 13...............................................................Policy Charges Reinstatement 14...............................................................Underwriting and Issuance - Premium Payments Minimum Requirements for Issuance of a Policy 15...............................................................Investments of the Variable Account; Premium Payments 16...............................................................Underwriting and Issuance - Allocation of Cash Value 17...............................................................Surrendering The Policy for Cash 18...............................................................Reinvestment 19...............................................................Not Applicable 20...............................................................Not Applicable 21...............................................................Policy Loans 22...............................................................Not Applicable 23...............................................................Not Applicable 24...............................................................Not Applicable 25...............................................................Nationwide Life Insurance Company 26...............................................................Not Applicable 27...............................................................Nationwide Life Insurance Company 28...............................................................Company Management 29...............................................................Company Management 30...............................................................Not Applicable 31...............................................................Not Applicable 32...............................................................Not Applicable 33...............................................................Not Applicable 34...............................................................Not Applicable 35...............................................................Nationwide Life Insurance Company 36...............................................................Not Applicable 37...............................................................Not Applicable 38...............................................................Distribution of The Policies 39...............................................................Distribution of The Policies 40...............................................................Not Applicable 41(a)............................................................Distribution of The Policies 42...............................................................Not Applicable 43...............................................................Not Applicable
3
N-8B-2 ITEM CAPTION IN PROSPECTUS 44...............................................................How The Cash Value Varies 45...............................................................Not Applicable 46...............................................................How The Cash Value Varies 47...............................................................Not Applicable 48...............................................................Custodian of Assets 49...............................................................Not Applicable 50...............................................................Not Applicable 51...............................................................Summary of The Policies; Information About The Policies 52...............................................................Substitution of Securities 53...............................................................Taxation of The Company 54...............................................................Not Applicable 55...............................................................Not Applicable 56...............................................................Not Applicable 57...............................................................Not Applicable 58...............................................................Not Applicable 59...............................................................Financial Statements
4 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 ___________________ 1 5 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 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. 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. 2 6 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. 3 7
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
4 8 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...........................................................25 Changes in the Death Benefit Option..................................................25 OTHER POLICY PROVISIONS.......................................................................25 Policy Owner.........................................................................25 Beneficiary..........................................................................25 Assignment...........................................................................26 Incontestability.....................................................................26 Error in Age or Sex..................................................................26 Suicide..............................................................................26 Nonparticipating Policies............................................................26 Riders...............................................................................26 LEGAL CONSIDERATIONS..........................................................................27 DISTRIBUTION OF THE POLICIES..................................................................27 CUSTODIAN OF ASSETS...........................................................................27 TAX MATTERS...................................................................................27 Policy Proceeds......................................................................27 -Federal Estate and Generation-Skipping Transfer Taxes...............................28 -Non-Resident Aliens.................................................................29 Taxation of the Company..............................................................29 Tax Changes..........................................................................29 THE COMPANY...................................................................................30 COMPANY MANAGEMENT............................................................................30 Directors of the Company.............................................................31 Executive Officers of the Company....................................................31 OTHER CONTRACTS ISSUED BY THE COMPANY.........................................................32 STATE REGULATION..............................................................................32 REPORTS TO POLICY OWNERS......................................................................32 ADVERTISING...................................................................................32 LEGAL PROCEEDINGS.............................................................................33 EXPERTS.......................................................................................33 REGISTRATION STATEMENT........................................................................33 LEGAL OPINIONS................................................................................33 APPENDIX 1....................................................................................34 APPENDIX 2....................................................................................35 APPENDIX 3....................................................................................52 FINANCIAL STATEMENTS..........................................................................55
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. 5 9 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%. 6 10 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 an Option change that preserves 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. The following table illustrates the maximum initial Surrender Charge per $1,000 of Specified Amount increase for Policies increasing coverage on a standard basis. 7 11
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 0.50% 0.02% 0.52% - ---------------------------------------------------------------------------------------------- NSAT-Government Bond Fund 0.50% 0.01% 0.51% - ---------------------------------------------------------------------------------------------- NSAT-Money Market Fund 0.50% 0.03% 0.53% - ---------------------------------------------------------------------------------------------- NSAT Small Company Fund 1.00% 0.10% 1.10% - ---------------------------------------------------------------------------------------------- NSAT-Total Return Fund 0.50% 0.02% 0.52% - ----------------------------------------------------------------------------------------------
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. 8 12 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 9 13 as set forth in this prospectus (see "Transfers", "Allocation of Net Premium and Cash Value" and "Short-Term Right to Cancel Policy"). 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. 10 14 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 parties on behalf of more than one Policy Owner at the same time. The Company will not impose any such 11 15 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 also reserves the right to assess a processing fee for this service. SUBSTITUTION OF SECURITIES If shares of the Underlying Mutual Fund options should no longer be available for investment by the Variable Account or, if in the judgment of the Company's management further investment in such Underlying Mutual Funds should become inappropriate in view of the purposes of the Policy, the Company may substitute shares of another Underlying Mutual Fund for shares already purchased or to be purchased in the future by Net Premium payments under the Policy. No substitution of securities in the Variable Account may take place without prior approval of the Securities and Exchange Commission, and under such requirements as it and any state insurance department may impose. VOTING RIGHTS Voting rights under the Policies apply only with respect to Cash Value allocated to the Sub-Accounts of the Variable Account. In accordance with its view of present applicable law, the Company will vote the shares of the Underlying Mutual Funds held in the Variable Account at regular and special meetings of the shareholders of the Underlying Mutual Funds in accordance with instructions received from Policy Owners. However, if the Investment Company Act of 1940 or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote the shares of the Underlying Mutual Funds in its own right, the Company may elect to do so. The Policy Owner shall have the voting interest under a Policy. The number of shares in each Sub-Account for which the Policy Owner may give voting instructions is determined by dividing any portion of the Policy's Cash Value derived from participation in that Underlying Mutual Fund by the net asset value of one share of that Underlying Mutual Fund. The number of shares which a person has a right to vote will be determined as of a date chosen by the Company, but not more than 90 days prior to the meeting of the Underlying Mutual Fund. Voting instructions will be solicited by written communication prior to such meeting. The Company will vote Underlying Mutual Fund shares in accordance with instructions received from the Policy Owners. Underlying Mutual Fund shares held by the Company or by the Variable Account as to which no timely instructions are received will be voted by the Company in the same proportion as the voting instructions which are received. Each person having a voting interest in the Variable Account will receive periodic reports relating to investments of the Variable Account, the Underlying Mutual Funds' proxy material and a form with which to give such voting instructions. 12 16 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 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 13 17 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).
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
14 18
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. The following table illustrates the maximum initial Surrender Charge per $1,000 of Specified Amount increase for Policies increasing coverage on a standard basis. 15 19
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, that are not associated with a partial surrender or a death benefit option change that preserves the Net Amount At Risk, will incur a proportional Surrender Charge. This proportion is equal to the decrease in Specified Amount divided by the Specified Amount prior to the decrease. In the case of a Policy with prior increases, these fractional surrender charges will be calculated separately for the Initial Specified Amount and each increase in Specified Amount. For a Policy with prior increases in Specified Amounts, these decreases will be made on a LIFO (last in first out) basis and therefore decrease each segment in reverse order of its effective date. 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. 16 20 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. 17 21 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 "Charge For Tax Provisions"). 18 22 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: 19 23 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, 20 24 Philadelphia or Pacific Stock Exchanges; or by a commercial bank or a savings and loan which is a member of the Federal Deposit Insurance Corporation. Certain policy loans may result in currently taxable income and tax penalties (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 repayment may 21 25 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 and the accumulated premium account on the date of death. The accumulated premium account will accumulate to the date of death all premium payments less any partial surrenders. 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"). 22 26 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 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. 23 27 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. 24 28 SPECIFIED AMOUNT DECREASES After the first Policy Year, the Policy Owner may also request a decrease to the Specified Amount. Any approved decrease will be effective on the Monthly Anniversary Day on or next following the date the Company receives the request. Any such decrease shall reduce insurance in the following order: 1. against insurance provided by the most recent increase; 2. against the next most recent increases successively; and 3. against insurance provided under the original application. The Company reserves the right to limit the number of Specified Amount decreases to one each Policy Year. The Company will refuse a request for a decrease which would: 1. reduce the Specified Amount to less than 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. 25 29 ASSIGNMENT While the Insured is living, the Policy Owner may assign his or her rights in the Policy. The assignment must be in writing, signed by the Policy Owner and recorded by the Company at its Home Office. Any assignment will not affect any payments made or actions taken by the Company before it was recorded. The Company is not responsible for any assignment not submitted for recording, nor is the Company responsible for the sufficiency or validity of any assignment. The assignment will be subject to any Indebtedness owed to the Company before it was recorded. INCONTESTABILITY The Company will not contest payment of the Death Proceeds based on the initial Specified Amount after the Policy has been in force during the Insured's lifetime for 2 years from the Policy Date. For any increase in Specified Amount requiring evidence of insurability, the Company will not contest payment of the Death Proceeds based on such an increase after it has been in force during the Insured's lifetime for 2 years from its effective date. ERROR IN AGE OR SEX If the age or sex of the Insured has been misstated, the 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. 26 30 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 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. 27 31 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. 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 insured's federal gross estate if: (1) the proceeds were payable to or for the benefit of the Insured's estate; or (2) the Insured held any "incident of ownership" in the Policy at death or at any time within three years of death. An incident of ownership is, in general, any right that may be exercised by the 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, 28 32 - - 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, 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. 29 33 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 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. 30 34
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) 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 Robert A. Oakley Executive Vice President-Chief Financial Officer Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
31 35 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. 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. 32 36 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. 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. 33 37 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 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 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:
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. 34 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. 35 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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 407 0 50,000 440 0 50,000 472 0 50,000 2 1,614 857 283 50,000 949 376 50,000 1,046 472 50,000 3 2,483 1,288 772 50,000 1,470 953 50,000 1,667 1,151 50,000 4 3,394 1,702 1,243 50,000 2,003 1,544 50,000 2,343 1,884 50,000 5 4,351 2,102 1,700 50,000 2,552 2,150 50,000 3,082 2,681 50,000 6 5,357 2,486 2,142 50,000 3,118 2,774 50,000 3,891 3,547 50,000 7 6,412 2,856 2,569 50,000 3,701 3,414 50,000 4,778 4,492 50,000 8 7,520 3,211 2,981 50,000 4,301 4,071 50,000 5,752 5,522 50,000 9 8,683 3,549 3,377 50,000 4,919 4,747 50,000 6,821 6,649 50,000 10 9,905 3,871 3,871 50,000 5,557 5,557 50,000 7,996 7,996 50,000 11 11,188 4,177 4,177 50,000 6,213 6,213 50,000 9,290 9,290 50,000 12 12,535 4,466 4,466 50,000 6,890 6,890 50,000 10,717 10,717 50,000 13 13,949 4,736 4,736 50,000 7,588 7,588 50,000 12,290 12,290 50,000 14 15,434 4,989 4,989 50,000 8,307 8,307 50,000 14,028 14,028 50,000 15 16,993 5,223 5,223 50,000 9,049 9,049 50,000 15,950 15,950 50,000 16 18,630 5,437 5,437 50,000 9,814 9,814 50,000 18,078 18,078 50,000 17 20,349 5,603 5,603 50,000 10,579 10,579 50,000 20,417 20,417 50,000 18 22,154 5,718 5,718 50,000 11,339 11,339 50,000 22,993 22,993 50,000 19 24,049 5,782 5,782 50,000 12,100 12,100 50,000 25,841 25,841 50,000 20 26,039 5,800 5,800 50,000 12,864 12,864 50,000 29,011 29,011 50,000 21 28,129 5,757 5,757 50,000 13,623 13,623 50,000 32,544 32,544 50,000 22 30,323 5,647 5,647 50,000 14,372 14,372 50,000 36,494 36,494 50,000 23 32,626 5,460 5,460 50,000 15,105 15,105 50,000 40,924 40,924 50,000 24 35,045 5,187 5,187 50,000 15,819 15,819 50,000 45,887 45,887 53,688 25 37,585 4,818 4,818 50,000 16,508 16,508 50,000 51,374 51,374 59,594 26 40,252 4,341 4,341 50,000 17,165 17,165 50,000 57,432 57,432 66,047 27 43,052 3,744 3,744 50,000 17,786 17,786 50,000 64,139 64,139 72,477 28 45,992 3,012 3,012 50,000 18,363 18,363 50,000 71,571 71,571 79,444 29 49,079 2,125 2,125 50,000 18,888 18,888 50,000 79,814 79,814 86,997 30 52,321 1,059 1,059 50,000 19,348 19,348 50,000 88,969 88,969 95,197 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 36 40
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 1,575 356 0 50,000 387 0 50,000 418 0 50,000 2 3,229 721 147 50,000 806 232 50,000 895 321 50,000 3 4,965 1,064 548 50,000 1,228 711 50,000 1,406 889 50,000 4 6,788 1,385 926 50,000 1,650 1,191 50,000 1,951 1,492 50,000 5 8,703 1,680 1,278 50,000 2,071 1,669 50,000 2,534 2,133 50,000 6 10,713 1,948 1,604 50,000 2,489 2,145 50,000 3,157 2,813 50,000 7 12,824 2,185 1,898 50,000 2,899 2,613 50,000 3,820 3,533 50,000 8 15,040 2,388 2,159 50,000 3,299 3,069 50,000 4,525 4,296 50,000 9 17,367 2,552 2,380 50,000 3,681 3,509 50,000 5,272 5,100 50,000 10 19,810 2,672 2,672 50,000 4,042 4,042 50,000 6,064 6,064 50,000 11 22,376 2,745 2,745 50,000 4,377 4,377 50,000 6,902 6,902 50,000 12 25,069 2,766 2,766 50,000 4,680 4,680 50,000 7,789 7,789 50,000 13 27,898 2,732 2,732 50,000 4,947 4,947 50,000 8,730 8,730 50,000 14 30,868 2,637 2,637 50,000 5,170 5,170 50,000 9,730 9,730 50,000 15 33,986 2,473 2,473 50,000 5,339 5,339 50,000 10,789 10,789 50,000 16 37,261 2,231 2,231 50,000 5,445 5,445 50,000 11,913 11,913 50,000 17 40,699 1,901 1,901 50,000 5,474 5,474 50,000 13,106 13,106 50,000 18 44,309 1,468 1,468 50,000 5,409 5,409 50,000 14,370 14,370 50,000 19 48,099 915 915 50,000 5,230 5,230 50,000 15,710 15,710 50,000 20 52,079 224 224 50,000 4,915 4,915 50,000 17,133 17,133 50,000 21 56,258 (*) (*) (*) 4,440 4,440 50,000 18,649 18,649 50,000 22 60,646 (*) (*) (*) 3,779 3,779 50,000 20,274 20,274 50,000 23 65,253 (*) (*) (*) 2,899 2,899 50,000 22,026 22,026 50,000 24 70,091 (*) (*) (*) 1,762 1,762 50,000 23,928 23,928 50,000 25 75,170 (*) (*) (*) 314 314 50,000 26,007 26,007 50,000 26 80,504 (*) (*) (*) (*) (*) (*) 28,301 28,301 50,000 27 86,104 (*) (*) (*) (*) (*) (*) 30,855 30,855 50,000 28 91,984 (*) (*) (*) (*) (*) (*) 33,726 33,726 50,000 29 98,158 (*) (*) (*) (*) (*) (*) 36,995 36,995 50,000 30 104,641 (*) (*) (*) (*) (*) (*) 40,779 40,779 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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 37 41
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 405 0 50,405 438 0 50,438 470 0 50,470 2 1,614 851 278 50,851 943 369 50,943 1,039 465 51,039 3 2,483 1,277 760 51,277 1,457 940 51,457 1,652 1,136 51,652 4 3,394 1,683 1,224 51,683 1,980 1,521 51,980 2,316 1,857 52,316 5 4,351 2,073 1,671 52,073 2,516 2,114 52,516 3,037 2,636 53,037 6 5,357 2,445 2,101 52,445 3,064 2,720 53,064 3,823 3,478 53,823 7 6,412 2,800 2,513 52,800 3,625 3,338 53,625 4,677 4,390 54,677 8 7,520 3,137 2,908 53,137 4,198 3,968 54,198 5,608 5,379 55,608 9 8,683 3,456 3,284 53,456 4,783 4,611 54,783 6,623 6,451 56,623 10 9,905 3,755 3,755 53,755 5,380 5,380 55,380 7,729 7,729 57,729 11 11,188 4,035 4,035 54,035 5,988 5,988 55,988 8,936 8,936 58,936 12 12,535 4,295 4,295 54,295 6,608 6,608 56,608 10,253 10,253 60,253 13 13,949 4,534 4,534 54,534 7,238 7,238 57,238 11,690 11,690 61,690 14 15,434 4,751 4,751 54,751 7,879 7,879 57,879 13,261 13,261 63,261 15 16,993 4,945 4,945 54,945 8,530 8,530 58,530 14,977 14,977 64,977 16 18,630 5,117 5,117 55,117 9,189 9,189 59,189 16,854 16,854 66,854 17 20,349 5,234 5,234 55,234 9,825 9,825 59,825 18,873 18,873 68,873 18 22,154 5,291 5,291 55,291 10,431 10,431 60,431 21,045 21,045 71,045 19 24,049 5,290 5,290 55,290 11,006 11,006 61,006 23,386 23,386 73,386 20 26,039 5,237 5,237 55,237 11,554 11,554 61,554 25,922 25,922 75,922 21 28,129 5,116 5,116 55,116 12,057 12,057 62,057 28,660 28,660 78,660 22 30,323 4,920 4,920 54,920 12,505 12,505 62,505 31,617 31,617 81,617 23 32,626 4,641 4,641 54,641 12,885 12,885 62,885 34,806 34,806 84,806 24 35,045 4,270 4,270 54,270 13,185 13,185 63,185 38,242 38,242 88,242 25 37,585 3,799 3,799 53,799 13,390 13,390 63,390 41,943 41,943 91,943 26 40,252 3,218 3,218 53,218 13,487 13,487 63,487 45,926 45,926 95,926 27 43,052 2,520 2,520 52,520 13,459 13,459 63,459 50,212 50,212 100,212 28 45,992 1,694 1,694 51,694 13,289 13,289 63,289 54,823 54,823 104,823 29 49,079 729 729 50,729 12,957 12,957 62,957 59,779 59,779 109,779 30 52,321 (*) (*) (*) 12,438 12,438 62,438 65,100 65,100 115,100 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 38 42
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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 353 0 50,353 384 0 50,384 415 0 50,415 2 1,614 714 141 50,714 799 225 50,799 887 313 50,887 3 2,483 1,051 535 51,051 1,212 696 51,212 1,388 872 51,388 4 3,394 1,363 904 51,363 1,623 1,164 51,623 1,920 1,461 51,920 5 4,351 1,647 1,245 51,647 2,029 1,628 52,029 2,483 2,081 52,483 6 5,357 1,901 1,556 51,901 2,427 2,083 52,427 3,077 2,733 53,077 7 6,412 2,121 1,834 52,121 2,812 2,525 52,812 3,702 3,415 53,702 8 7,520 2,304 2,074 52,304 3,179 2,949 53,179 4,357 4,127 54,357 9 8,683 2,443 2,271 52,443 3,521 3,349 53,521 5,037 4,865 55,037 10 9,905 2,536 2,536 52,536 3,832 3,832 53,832 5,742 5,742 55,742 11 11,188 2,578 2,578 52,578 4,107 4,107 54,107 6,468 6,468 56,468 12 12,535 2,564 2,564 52,564 4,338 4,338 54,338 7,213 7,213 57,213 13 13,949 2,492 2,492 52,492 4,519 4,519 54,519 7,975 7,975 57,975 14 15,434 2,357 2,357 52,357 4,642 4,642 54,642 8,750 8,750 58,750 15 16,993 2,150 2,150 52,150 4,696 4,696 54,696 9,529 9,529 59,529 16 18,630 1,865 1,865 51,865 4,669 4,669 54,669 10,304 10,304 60,304 17 20,349 1,493 1,493 51,493 4,547 4,547 54,547 11,065 11,065 61,065 18 22,154 1,020 1,020 51,020 4,311 4,311 54,311 11,796 11,796 61,796 19 24,049 435 435 50,435 3,941 3,941 53,941 12,478 12,478 62,478 20 26,039 (*) (*) (*) 3,418 3,418 53,418 13,092 13,092 63,092 21 28,129 (*) (*) (*) 2,720 2,720 52,720 13,616 13,616 63,616 22 30,323 (*) (*) (*) 1,827 1,827 51,827 14,028 14,028 64,028 23 32,626 (*) (*) (*) 717 717 50,717 14,304 14,304 64,304 24 35,045 (*) (*) (*) (*) (*) (*) 14,413 14,413 64,413 25 37,585 (*) (*) (*) (*) (*) (*) 14,316 14,316 64,316 26 40,252 (*) (*) (*) (*) (*) (*) 13,960 13,960 63,960 27 43,052 (*) (*) (*) (*) (*) (*) 13,282 13,282 63,282 28 45,992 (*) (*) (*) (*) (*) (*) 12,201 12,201 62,201 29 49,079 (*) (*) (*) (*) (*) (*) 10,631 10,631 60,631 30 52,321 (*) (*) (*) (*) (*) (*) 8,477 8,477 58,477 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 39 43
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 1,575 592 0 50,000 642 0 50,000 693 0 50,000 2 3,229 1,200 507 50,000 1,340 647 50,000 1,486 793 50,000 3 4,965 1,784 1,160 50,000 2,054 1,430 50,000 2,347 1,724 50,000 4 6,788 2,358 1,804 50,000 2,800 2,245 50,000 3,301 2,747 50,000 5 8,703 2,923 2,438 50,000 3,580 3,095 50,000 4,358 3,873 50,000 6 10,713 3,478 3,062 50,000 4,397 3,981 50,000 5,530 5,114 50,000 7 12,824 4,023 3,676 50,000 5,253 4,906 50,000 6,831 6,485 50,000 8 15,040 4,559 4,282 50,000 6,150 5,873 50,000 8,278 8,000 50,000 9 17,367 5,085 4,878 50,000 7,090 6,882 50,000 9,886 9,678 50,000 10 19,810 5,603 5,603 50,000 8,077 8,077 50,000 11,677 11,677 50,000 11 22,376 6,111 6,111 50,000 9,113 9,113 50,000 13,671 13,671 50,000 12 25,069 6,523 6,523 50,000 10,120 10,120 50,000 15,821 15,821 50,000 13 27,898 6,852 6,852 50,000 11,109 11,109 50,000 18,162 18,162 50,000 14 30,868 7,108 7,108 50,000 12,092 12,092 50,000 20,736 20,736 50,000 15 33,986 7,283 7,283 50,000 13,065 13,065 50,000 23,574 23,574 50,000 16 37,261 7,328 7,328 50,000 13,987 13,987 50,000 26,694 26,694 50,000 17 40,699 7,242 7,242 50,000 14,861 14,861 50,000 30,163 30,163 50,000 18 44,309 7,009 7,009 50,000 15,678 15,678 50,000 34,044 34,044 50,000 19 48,099 6,626 6,626 50,000 16,439 16,439 50,000 38,425 38,425 50,000 20 52,079 6,096 6,096 50,000 17,152 17,152 50,000 43,412 43,412 50,000 21 56,258 5,386 5,386 50,000 17,799 17,799 50,000 49,122 49,122 51,578 22 60,646 4,467 4,467 50,000 18,365 18,365 50,000 55,487 55,487 58,261 23 65,253 3,303 3,303 50,000 18,831 18,831 50,000 62,518 62,518 65,644 24 70,091 1,850 1,850 50,000 19,178 19,178 50,000 70,282 70,282 73,796 25 75,170 56 56 50,000 19,379 19,379 50,000 78,850 78,850 82,792 26 80,504 (*) (*) (*) 19,415 19,415 50,000 88,302 88,302 92,717 27 86,104 (*) (*) (*) 19,251 19,251 50,000 98,722 98,722 103,658 28 91,984 (*) (*) (*) 18,846 18,846 50,000 110,204 110,204 115,714 29 98,158 (*) (*) (*) 18,142 18,142 50,000 122,847 122,847 128,989 30 104,641 (*) (*) (*) 17,059 17,059 50,000 136,757 136,757 143,594 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 40 44
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 1,575 470 0 50,000 516 0 50,000 563 0 50,000 2 3,229 915 222 50,000 1,038 345 50,000 1,167 474 50,000 3 4,965 1,303 680 50,000 1,533 909 50,000 1,784 1,160 50,000 4 6,788 1,630 1,075 50,000 1,993 1,439 50,000 2,410 1,856 50,000 5 8,703 1,887 1,402 50,000 2,411 1,926 50,000 3,039 2,554 50,000 6 10,713 2,067 1,651 50,000 2,776 2,360 50,000 3,666 3,250 50,000 7 12,824 2,162 1,815 50,000 3,078 2,731 50,000 4,284 3,937 50,000 8 15,040 2,157 1,880 50,000 3,299 3,021 50,000 4,879 4,602 50,000 9 17,367 2,040 1,832 50,000 3,421 3,213 50,000 5,439 5,231 50,000 10 19,810 1,794 1,794 50,000 3,425 3,425 50,000 5,949 5,949 50,000 11 22,376 1,404 1,404 50,000 3,290 3,290 50,000 6,393 6,393 50,000 12 25,069 853 853 50,000 2,993 2,993 50,000 6,753 6,753 50,000 13 27,898 124 124 50,000 2,505 2,505 50,000 7,009 7,009 50,000 14 30,868 (*) (*) (*) 1,793 1,793 50,000 7,134 7,134 50,000 15 33,986 (*) (*) (*) 811 811 50,000 7,089 7,089 50,000 16 37,261 (*) (*) (*) (*) (*) (*) 6,823 6,823 50,000 17 40,699 (*) (*) (*) (*) (*) (*) 6,265 6,265 50,000 18 44,309 (*) (*) (*) (*) (*) (*) 5,319 5,319 50,000 19 48,099 (*) (*) (*) (*) (*) (*) 3,863 3,863 50,000 20 52,079 (*) (*) (*) (*) (*) (*) 1,742 1,742 50,000 21 56,258 (*) (*) (*) (*) (*) (*) (*) (*) (*) 22 60,646 (*) (*) (*) (*) (*) (*) (*) (*) (*) 23 65,253 (*) (*) (*) (*) (*) (*) (*) (*) (*) 24 70,091 (*) (*) (*) (*) (*) (*) (*) (*) (*) 25 75,170 (*) (*) (*) (*) (*) (*) (*) (*) (*) 26 80,504 (*) (*) (*) (*) (*) (*) (*) (*) (*) 27 86,104 (*) (*) (*) (*) (*) (*) (*) (*) (*) 28 91,984 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 98,158 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 104,641 (*) (*) (*) (*) (*) (*) (*) (*) (*) (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 41 45
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 1,575 585 0 50,585 635 0 50,635 685 0 50,685 2 3,229 1,180 487 51,180 1,317 624 51,317 1,461 768 51,461 3 4,965 1,744 1,121 51,744 2,008 1,384 52,008 2,294 1,671 52,294 4 6,788 2,293 1,739 52,293 2,722 2,167 52,722 3,208 2,653 53,208 5 8,703 2,827 2,342 52,827 3,460 2,975 53,460 4,208 3,723 54,208 6 10,713 3,345 2,929 53,345 4,224 3,809 54,224 5,306 4,890 55,306 7 12,824 3,848 3,501 53,848 5,015 4,669 55,015 6,511 6,164 56,511 8 15,040 4,335 4,058 54,335 5,834 5,556 55,834 7,834 7,557 57,834 9 17,367 4,807 4,600 54,807 6,681 6,473 56,681 9,287 9,079 59,287 10 19,810 5,264 5,264 55,264 7,558 7,558 57,558 10,885 10,885 60,885 11 22,376 5,706 5,706 55,706 8,466 8,466 58,466 12,642 12,642 62,642 12 25,069 6,033 6,033 56,033 9,305 9,305 59,305 14,470 14,470 64,470 13 27,898 6,259 6,259 56,259 10,082 10,082 60,082 16,387 16,387 66,387 14 30,868 6,394 6,394 56,394 10,805 10,805 60,805 18,416 18,416 68,416 15 33,986 6,432 6,432 56,432 11,464 11,464 61,464 20,558 20,558 70,558 16 37,261 6,314 6,314 56,314 11,993 11,993 61,993 22,762 22,762 72,762 17 40,699 6,045 6,045 56,045 12,389 12,389 62,389 25,036 25,036 75,036 18 44,309 5,607 5,607 55,607 12,626 12,626 62,626 27,376 27,376 77,376 19 48,099 5,006 5,006 55,006 12,700 12,700 62,700 29,790 29,790 79,790 20 52,079 4,251 4,251 54,251 12,611 12,611 62,611 32,299 32,299 82,299 21 56,258 3,318 3,318 53,318 12,324 12,324 62,324 34,881 34,881 84,881 22 60,646 2,186 2,186 52,186 11,807 11,807 61,807 37,522 37,522 87,522 23 65,253 834 834 50,834 11,024 11,024 61,024 40,203 40,203 90,203 24 70,091 (*) (*) (*) 9,937 9,937 59,937 42,901 42,901 92,901 25 75,170 (*) (*) (*) 8,506 8,506 58,506 45,593 45,593 95,593 26 80,504 (*) (*) (*) 6,703 6,703 56,703 48,264 48,264 98,264 27 86,104 (*) (*) (*) 4,487 4,487 54,487 50,888 50,888 100,888 28 91,984 (*) (*) (*) 1,816 1,816 51,816 53,437 53,437 103,437 29 98,158 (*) (*) (*) (*) (*) (*) 55,867 55,867 105,867 30 104,641 (*) (*) (*) (*) (*) (*) 58,124 58,124 108,124 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 42 46
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 1,575 461 0 50,461 507 0 50,507 553 0 50,553 2 3,229 891 198 50,891 1,012 319 51,012 1,138 445 51,138 3 4,965 1,258 634 51,258 1,480 856 51,480 1,724 1,100 51,724 4 6,788 1,556 1,001 51,556 1,904 1,349 51,904 2,302 1,748 52,302 5 8,703 1,777 1,292 51,777 2,272 1,787 52,272 2,865 2,380 52,865 6 10,713 1,914 1,498 51,914 2,574 2,158 52,574 3,401 2,985 53,401 7 12,824 1,959 1,612 51,959 2,796 2,450 52,796 3,898 3,551 53,898 8 15,040 1,898 1,621 51,898 2,921 2,644 52,921 4,335 4,058 54,335 9 17,367 1,720 1,512 51,720 2,929 2,721 52,929 4,694 4,486 54,694 10 19,810 1,412 1,412 51,412 2,801 2,801 52,801 4,949 4,949 54,949 11 22,376 962 962 50,962 2,517 2,517 52,517 5,077 5,077 55,077 12 25,069 360 360 50,360 2,058 2,058 52,058 5,051 5,051 55,051 13 27,898 (*) (*) (*) 1,402 1,402 51,402 4,842 4,842 54,842 14 30,868 (*) (*) (*) 524 524 50,524 4,415 4,415 54,415 15 33,986 (*) (*) (*) (*) (*) (*) 3,725 3,725 53,725 16 37,261 (*) (*) (*) (*) (*) (*) 2,713 2,713 52,713 17 40,699 (*) (*) (*) (*) (*) (*) 1,308 1,308 51,308 18 44,309 (*) (*) (*) (*) (*) (*) (*) (*) (*) 19 48,099 (*) (*) (*) (*) (*) (*) (*) (*) (*) 20 52,079 (*) (*) (*) (*) (*) (*) (*) (*) (*) 21 56,258 (*) (*) (*) (*) (*) (*) (*) (*) (*) 22 60,646 (*) (*) (*) (*) (*) (*) (*) (*) (*) 23 65,253 (*) (*) (*) (*) (*) (*) (*) (*) (*) 24 70,091 (*) (*) (*) (*) (*) (*) (*) (*) (*) 25 75,170 (*) (*) (*) (*) (*) (*) (*) (*) (*) 26 80,504 (*) (*) (*) (*) (*) (*) (*) (*) (*) 27 86,104 (*) (*) (*) (*) (*) (*) (*) (*) (*) 28 91,984 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 98,158 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 104,641 (*) (*) (*) (*) (*) (*) (*) (*) (*) (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 43 47
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 1,575 934 37 100,000 1,003 106 100,000 1,072 175 100,000 2 3,229 1,904 1,006 100,000 2,102 1,205 100,000 2,309 1,412 100,000 3 4,965 2,848 2,040 100,000 3,239 2,431 100,000 3,664 2,856 100,000 4 6,788 3,766 3,048 100,000 4,416 3,698 100,000 5,150 4,432 100,000 5 8,703 4,658 4,030 100,000 5,634 5,006 100,000 6,781 6,153 100,000 6 10,713 5,524 4,986 100,000 6,896 6,357 100,000 8,574 8,035 100,000 7 12,824 6,364 5,915 100,000 8,202 7,754 100,000 10,545 10,096 100,000 8 15,040 7,176 6,817 100,000 9,556 9,197 100,000 12,715 12,356 100,000 9 17,367 7,961 7,692 100,000 10,958 10,689 100,000 15,105 14,836 100,000 10 19,810 8,718 8,718 100,000 12,412 12,412 100,000 17,742 17,742 100,000 11 22,376 9,447 9,447 100,000 13,919 13,919 100,000 20,652 20,652 100,000 12 25,069 10,147 10,147 100,000 15,482 15,482 100,000 23,866 23,866 100,000 13 27,898 10,817 10,817 100,000 17,104 17,104 100,000 27,424 27,424 100,000 14 30,868 11,457 11,457 100,000 18,788 18,788 100,000 31,374 31,374 100,000 15 33,986 12,026 12,026 100,000 20,499 20,499 100,000 35,731 35,731 100,000 16 37,261 12,508 12,508 100,000 22,224 22,224 100,000 40,535 40,535 100,000 17 40,699 12,895 12,895 100,000 23,962 23,962 100,000 45,845 45,845 100,000 18 44,309 13,180 13,180 100,000 25,709 25,709 100,000 51,726 51,726 100,000 19 48,099 13,367 13,367 100,000 27,477 27,477 100,000 58,265 58,265 100,000 20 52,079 13,474 13,474 100,000 29,288 29,288 100,000 65,566 65,566 100,000 21 56,258 13,455 13,455 100,000 31,108 31,108 100,000 73,721 73,721 100,000 22 60,646 13,309 13,309 100,000 32,942 32,942 100,000 82,861 82,861 100,000 23 65,253 13,019 13,019 100,000 34,785 34,785 100,000 93,064 93,064 109,815 24 70,091 12,570 12,570 100,000 36,633 36,633 100,000 104,335 104,335 122,072 25 75,170 11,941 11,941 100,000 38,481 38,481 100,000 116,784 116,784 135,469 26 80,504 11,112 11,112 100,000 40,325 40,325 100,000 130,533 130,533 150,113 27 86,104 10,063 10,063 100,000 42,162 42,162 100,000 145,756 145,756 164,704 28 91,984 8,765 8,765 100,000 43,990 43,990 100,000 162,626 162,626 180,514 29 98,158 7,187 7,187 100,000 45,802 45,802 100,000 181,339 181,339 197,660 30 104,641 5,284 5,284 100,000 47,593 47,593 100,000 202,124 202,124 216,273 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 44 48
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 1,575 934 36 100,000 1,003 105 100,000 1,072 174 100,000 2 3,229 1,862 964 100,000 2,059 1,161 100,000 2,265 1,367 100,000 3 4,965 2,753 1,945 100,000 3,139 2,331 100,000 3,558 2,750 100,000 4 6,788 3,605 2,887 100,000 4,241 3,523 100,000 4,961 4,243 100,000 5 8,703 4,415 3,787 100,000 5,365 4,737 100,000 6,484 5,856 100,000 6 10,713 5,181 4,642 100,000 6,508 5,970 100,000 8,137 7,598 100,000 7 12,824 5,897 5,448 100,000 7,666 7,217 100,000 9,929 9,480 100,000 8 15,040 6,557 6,198 100,000 8,834 8,475 100,000 11,871 11,512 100,000 9 17,367 7,156 6,887 100,000 10,007 9,737 100,000 13,976 13,707 100,000 10 19,810 7,688 7,688 100,000 11,179 11,179 100,000 16,258 16,258 100,000 11 22,376 8,147 8,147 100,000 12,346 12,346 100,000 18,734 18,734 100,000 12 25,069 8,527 8,527 100,000 13,503 13,503 100,000 21,424 21,424 100,000 13 27,898 8,825 8,825 100,000 14,645 14,645 100,000 24,353 24,353 100,000 14 30,868 9,032 9,032 100,000 15,767 15,767 100,000 27,554 27,554 100,000 15 33,986 9,137 9,137 100,000 16,859 16,859 100,000 31,059 31,059 100,000 16 37,261 9,129 9,129 100,000 17,909 17,909 100,000 34,907 34,907 100,000 17 40,699 8,996 8,996 100,000 18,907 18,907 100,000 39,141 39,141 100,000 18 44,309 8,716 8,716 100,000 19,834 19,834 100,000 43,808 43,808 100,000 19 48,099 8,269 8,269 100,000 20,671 20,671 100,000 48,967 48,967 100,000 20 52,079 7,633 7,633 100,000 21,399 21,399 100,000 54,693 54,693 100,000 21 56,258 6,786 6,786 100,000 21,997 21,997 100,000 61,075 61,075 100,000 22 60,646 5,705 5,705 100,000 22,444 22,444 100,000 68,226 68,226 100,000 23 65,253 4,364 4,364 100,000 22,716 22,716 100,000 76,282 76,282 100,000 24 70,091 2,729 2,729 100,000 22,784 22,784 100,000 85,412 85,412 100,000 25 75,170 757 757 100,000 22,607 22,607 100,000 95,635 95,635 110,936 26 80,504 (*) (*) (*) 22,129 22,129 100,000 106,895 106,895 122,929 27 86,104 (*) (*) (*) 21,278 21,278 100,000 119,342 119,342 134,857 28 91,984 (*) (*) (*) 19,961 19,961 100,000 133,119 133,119 147,762 29 98,158 (*) (*) (*) 18,065 18,065 100,000 148,390 148,390 161,745 30 104,641 (*) (*) (*) 15,459 15,459 100,000 165,355 165,355 176,930 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 45 49
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 1,575 930 33 100,930 999 101 100,999 1,068 170 101,068 2 3,229 1,892 994 101,892 2,089 1,192 102,089 2,295 1,397 102,295 3 4,965 2,824 2,017 102,824 3,212 2,405 103,212 3,634 2,826 103,634 4 6,788 3,727 3,009 103,727 4,370 3,652 104,370 5,095 4,377 105,095 5 8,703 4,599 3,971 104,599 5,561 4,933 105,561 6,691 6,063 106,691 6 10,713 5,441 4,902 105,441 6,788 6,249 106,788 8,435 7,897 108,435 7 12,824 6,251 5,802 106,251 8,051 7,602 108,051 10,342 9,893 110,342 8 15,040 7,029 6,670 107,029 9,350 8,991 109,350 12,428 12,069 112,428 9 17,367 7,774 7,505 107,774 10,686 10,417 110,686 14,711 14,442 114,711 10 19,810 8,486 8,486 108,486 12,060 12,060 112,060 17,210 17,210 117,210 11 22,376 9,164 9,164 109,164 13,472 13,472 113,472 19,948 19,948 119,948 12 25,069 9,807 9,807 109,807 14,922 14,922 114,922 22,947 22,947 122,947 13 27,898 10,413 10,413 110,413 16,412 16,412 116,412 26,237 26,237 126,237 14 30,868 10,983 10,983 110,983 17,942 17,942 117,942 29,855 29,855 129,855 15 33,986 11,470 11,470 111,470 19,464 19,464 119,464 33,787 33,787 133,787 16 37,261 11,853 11,853 111,853 20,958 20,958 120,958 38,046 38,046 138,046 17 40,699 12,126 12,126 112,126 22,412 22,412 122,412 42,659 42,659 142,659 18 44,309 12,279 12,279 112,279 23,814 23,814 123,814 47,652 47,652 147,652 19 48,099 12,316 12,316 112,316 25,165 25,165 125,165 53,071 53,071 153,071 20 52,079 12,261 12,261 112,261 26,489 26,489 126,489 58,985 58,985 158,985 21 56,258 12,061 12,061 112,061 27,728 27,728 127,728 65,391 65,391 165,391 22 60,646 11,716 11,716 111,716 28,876 28,876 128,876 72,340 72,340 172,340 23 65,253 11,210 11,210 111,210 29,912 29,912 129,912 79,875 79,875 179,875 24 70,091 10,529 10,529 110,529 30,811 30,811 130,811 88,040 88,040 188,040 25 75,170 9,655 9,655 109,655 31,548 31,548 131,548 96,885 96,885 196,885 26 80,504 8,572 8,572 108,572 32,094 32,094 132,094 106,464 106,464 206,464 27 86,104 7,265 7,265 107,265 32,423 32,423 132,423 116,838 116,838 216,838 28 91,984 5,717 5,717 105,717 32,502 32,502 132,502 128,074 128,074 228,074 29 98,158 3,906 3,906 103,906 32,293 32,293 132,293 140,238 140,238 240,238 30 104,641 1,804 1,804 101,804 31,750 31,750 131,750 153,401 153,401 253,401 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 46 50
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 1,575 930 32 100,930 998 101 100,998 1,067 170 101,067 2 3,229 1,850 953 101,850 2,046 1,148 102,046 2,250 1,353 102,250 3 4,965 2,729 1,921 102,729 3,111 2,304 103,111 3,527 2,719 103,527 4 6,788 3,564 2,846 103,564 4,193 3,475 104,193 4,904 4,186 104,904 5 8,703 4,353 3,725 104,353 5,288 4,660 105,288 6,388 5,760 106,388 6 10,713 5,091 4,553 105,091 6,392 5,853 106,392 7,987 7,449 107,987 7 12,824 5,773 5,324 105,773 7,499 7,051 107,499 9,706 9,257 109,706 8 15,040 6,393 6,034 106,393 8,603 8,244 108,603 11,550 11,191 111,550 9 17,367 6,943 6,674 106,943 9,695 9,425 109,695 13,523 13,254 113,523 10 19,810 7,417 7,417 107,417 10,766 10,766 110,766 15,632 15,632 115,632 11 22,376 7,808 7,808 107,808 11,808 11,808 111,808 17,884 17,884 117,884 12 25,069 8,110 8,110 108,110 12,812 12,812 112,812 20,284 20,284 120,284 13 27,898 8,320 8,320 108,320 13,771 13,771 113,771 22,845 22,845 122,845 14 30,868 8,427 8,427 108,427 14,672 14,672 114,672 25,572 25,572 125,572 15 33,986 8,421 8,421 108,421 15,501 15,501 115,501 28,478 28,478 128,478 16 37,261 8,292 8,292 108,292 16,240 16,240 116,240 31,569 31,569 131,569 17 40,699 8,024 8,024 108,024 16,870 16,870 116,870 34,850 34,850 134,850 18 44,309 7,600 7,600 107,600 17,364 17,364 117,364 38,320 38,320 138,320 19 48,099 6,999 6,999 106,999 17,693 17,693 117,693 41,975 41,975 141,975 20 52,079 6,203 6,203 106,203 17,830 17,830 117,830 45,816 45,816 145,816 21 56,258 5,195 5,195 105,195 17,743 17,743 117,743 49,840 49,840 149,840 22 60,646 3,959 3,959 103,959 17,404 17,404 117,404 54,048 54,048 154,048 23 65,253 2,480 2,480 102,480 16,783 16,783 116,783 58,442 58,442 158,442 24 70,091 737 737 100,737 15,841 15,841 115,841 63,016 63,016 163,016 25 75,170 (*) (*) (*) 14,532 14,532 114,532 67,757 67,757 167,757 26 80,504 (*) (*) (*) 12,796 12,796 112,796 72,639 72,639 172,639 27 86,104 (*) (*) (*) 10,557 10,557 110,557 77,621 77,621 177,621 28 91,984 (*) (*) (*) 7,728 7,728 107,728 82,647 82,647 182,647 29 98,158 (*) (*) (*) 4,212 4,212 104,212 87,651 87,651 187,651 30 104,641 (*) (*) (*) (*) (*) (*) 92,572 92,572 192,572 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 47 51
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 1,409 246 100,000 1,519 357 100,000 1,630 467 100,000 2 5,381 2,852 1,690 100,000 3,165 2,002 100,000 3,492 2,329 100,000 3 8,275 4,271 3,225 100,000 4,883 3,837 100,000 5,548 4,502 100,000 4 11,314 5,666 4,736 100,000 6,678 5,748 100,000 7,823 6,893 100,000 5 14,505 7,036 6,222 100,000 8,553 7,740 100,000 10,341 9,527 100,000 6 17,855 8,382 7,685 100,000 10,515 9,818 100,000 13,132 12,435 100,000 7 21,373 9,704 9,123 100,000 12,568 11,987 100,000 16,228 15,647 100,000 8 25,066 11,003 10,538 100,000 14,718 14,253 100,000 19,666 19,201 100,000 9 28,945 12,278 11,929 100,000 16,971 16,622 100,000 23,487 23,138 100,000 10 33,017 13,529 13,529 100,000 19,334 19,334 100,000 27,741 27,741 100,000 11 37,293 14,758 14,758 100,000 21,813 21,813 100,000 32,492 32,492 100,000 12 41,782 15,810 15,810 100,000 24,272 24,272 100,000 37,675 37,675 100,000 13 46,497 16,706 16,706 100,000 26,740 26,740 100,000 43,380 43,380 100,000 14 51,446 17,465 17,465 100,000 29,246 29,246 100,000 49,705 49,705 100,000 15 56,644 18,075 18,075 100,000 31,786 31,786 100,000 56,743 56,743 100,000 16 62,101 18,441 18,441 100,000 34,292 34,292 100,000 64,565 64,565 100,000 17 67,831 18,562 18,562 100,000 36,777 36,777 100,000 73,327 73,327 100,000 18 73,848 18,409 18,409 100,000 39,234 39,234 100,000 83,206 83,206 100,000 19 80,165 17,976 17,976 100,000 41,676 41,676 100,000 94,422 94,422 102,920 20 86,798 17,269 17,269 100,000 44,131 44,131 100,000 106,964 106,964 114,452 21 93,763 16,232 16,232 100,000 46,586 46,586 100,000 120,906 120,906 126,951 22 101,076 14,811 14,811 100,000 49,036 49,036 100,000 136,314 136,314 143,130 23 108,755 12,939 12,939 100,000 51,477 51,477 100,000 153,337 153,337 161,004 24 116,818 10,538 10,538 100,000 53,908 53,908 100,000 172,134 172,134 180,740 25 125,284 7,512 7,512 100,000 56,331 56,331 100,000 192,877 192,877 202,521 26 134,173 3,781 3,781 100,000 58,766 58,766 100,000 215,759 215,759 226,547 27 143,506 (*) (*) (*) 61,227 61,227 100,000 240,987 240,987 253,037 28 153,307 (*) (*) (*) 63,732 63,732 100,000 268,798 268,798 282,238 29 163,597 (*) (*) (*) 66,301 66,301 100,000 299,478 299,478 314,452 30 174,402 (*) (*) (*) 68,958 68,958 100,000 333,301 333,301 349,966 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 48 52
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 1,397 235 100,000 1,507 345 100,000 1,618 455 100,000 2 5,381 2,737 1,574 100,000 3,045 1,883 100,000 3,368 2,205 100,000 3 8,275 3,986 2,940 100,000 4,582 3,535 100,000 5,231 4,184 100,000 4 11,314 5,139 4,209 100,000 6,110 5,180 100,000 7,214 6,284 100,000 5 14,505 6,185 5,372 100,000 7,622 6,808 100,000 9,324 8,510 100,000 6 17,855 7,116 6,419 100,000 9,107 8,409 100,000 11,568 10,870 100,000 7 21,373 7,920 7,339 100,000 10,554 9,973 100,000 13,956 13,375 100,000 8 25,066 8,579 8,114 100,000 11,945 11,480 100,000 16,493 16,028 100,000 9 28,945 9,077 8,728 100,000 13,263 12,914 100,000 19,188 18,839 100,000 10 33,017 9,395 9,395 100,000 14,489 14,489 100,000 22,053 22,053 100,000 11 37,293 9,515 9,515 100,000 15,605 15,605 100,000 25,109 25,109 100,000 12 41,782 9,420 9,420 100,000 16,593 16,593 100,000 28,387 28,387 100,000 13 46,497 9,089 9,089 100,000 17,432 17,432 100,000 31,925 31,925 100,000 14 51,446 8,497 8,497 100,000 18,097 18,097 100,000 35,761 35,761 100,000 15 56,644 7,606 7,606 100,000 18,550 18,550 100,000 39,941 39,941 100,000 16 62,101 6,366 6,366 100,000 18,743 18,743 100,000 44,518 44,518 100,000 17 67,831 4,709 4,709 100,000 18,611 18,611 100,000 49,558 49,558 100,000 18 73,848 2,548 2,548 100,000 18,068 18,068 100,000 55,145 55,145 100,000 19 80,165 (*) (*) (*) 17,014 17,014 100,000 61,395 61,395 100,000 20 86,798 (*) (*) (*) 15,337 15,337 100,000 68,473 68,473 100,000 21 93,763 (*) (*) (*) 12,908 12,908 100,000 76,601 76,601 100,000 22 101,076 (*) (*) (*) 9,572 9,572 100,000 86,075 86,075 100,000 23 108,755 (*) (*) (*) 5,133 5,133 100,000 97,279 97,279 102,143 24 116,818 (*) (*) (*) (*) (*) (*) 109,889 109,889 115,383 25 125,284 (*) (*) (*) (*) (*) (*) 123,768 123,768 129,957 26 134,173 (*) (*) (*) (*) (*) (*) 139,031 139,031 145,982 27 143,506 (*) (*) (*) (*) (*) (*) 155,796 155,796 163,586 28 153,307 (*) (*) (*) (*) (*) (*) 174,189 174,189 182,899 29 163,597 (*) (*) (*) (*) (*) (*) 194,340 194,340 204,057 30 174,402 (*) (*) (*) (*) (*) (*) 216,385 216,385 227,204 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY $10 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 49 53
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 1,393 231 101,393 1,503 340 101,503 1,613 450 101,613 2 5,381 2,810 1,647 102,810 3,117 1,955 103,117 3,439 2,277 103,439 3 8,275 4,189 3,143 104,189 4,788 3,741 104,788 5,439 4,393 105,439 4 11,314 5,531 4,601 105,531 6,515 5,585 106,515 7,630 6,700 107,630 5 14,505 6,836 6,022 106,836 8,303 7,489 108,303 10,031 9,217 110,031 6 17,855 8,103 7,406 108,103 10,152 9,455 110,152 12,664 11,967 112,664 7 21,373 9,333 8,752 109,333 12,066 11,485 112,066 15,554 14,973 115,554 8 25,066 10,526 10,061 110,526 14,047 13,582 114,047 18,727 18,262 118,727 9 28,945 11,682 11,333 111,682 16,097 15,748 116,097 22,213 21,864 122,213 10 33,017 12,800 12,800 112,800 18,220 18,220 118,220 26,045 26,045 126,045 11 37,293 13,880 13,880 113,880 20,417 20,417 120,417 30,272 30,272 130,272 12 41,782 14,740 14,740 114,740 22,504 22,504 122,504 34,740 34,740 134,740 13 46,497 15,402 15,402 115,402 24,495 24,495 124,495 39,497 39,497 139,497 14 51,446 15,887 15,887 115,887 26,410 26,410 126,410 44,595 44,595 144,595 15 56,644 16,180 16,180 116,180 28,229 28,229 128,229 50,053 50,053 150,053 16 62,101 16,164 16,164 116,164 29,823 29,823 129,823 55,783 55,783 155,783 17 67,831 15,844 15,844 115,844 31,182 31,182 131,182 61,816 61,816 161,816 18 73,848 15,186 15,186 115,186 32,257 32,257 132,257 68,146 68,146 168,146 19 80,165 14,197 14,197 114,197 33,034 33,034 133,034 74,806 74,806 174,806 20 86,798 12,896 12,896 112,896 33,515 33,515 133,515 81,850 81,850 181,850 21 93,763 11,233 11,233 111,233 33,629 33,629 133,629 89,262 89,262 189,262 22 101,076 9,169 9,169 109,169 33,313 33,313 133,313 97,036 97,036 197,036 23 108,755 6,658 6,658 106,658 32,493 32,493 132,493 105,158 105,158 205,158 24 116,818 3,656 3,656 103,656 31,092 31,092 131,092 113,612 113,612 213,612 25 125,284 115 115 100,115 29,026 29,026 129,026 122,378 122,378 222,378 26 134,173 (*) (*) (*) 26,244 26,244 126,244 131,472 131,472 231,472 27 143,506 (*) (*) (*) 22,664 22,664 122,664 140,881 140,881 240,881 28 153,307 (*) (*) (*) 18,204 18,204 118,204 150,590 150,590 250,590 29 163,597 (*) (*) (*) 12,762 12,762 112,762 160,562 160,562 260,562 30 174,402 (*) (*) (*) 6,207 6,207 106,207 170,740 170,740 270,740 (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE FOR THE FIRST POLICY YEAR AND $5 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE TARGET PREMIUM AND 4% ON PREMIUMS IN EXCESS OF TARGET FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL LAPSE WITHOUT VALUE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 50 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 1,382 219 101,382 1,491 328 101,491 1,600 438 101,600 2 5,381 2,692 1,529 102,692 2,995 1,833 102,995 3,313 2,150 103,313 3 8,275 3,897 2,850 103,897 4,478 3,432 104,478 5,112 4,065 105,112 4 11,314 4,987 4,057 104,987 5,928 4,998 105,928 6,996 6,066 106,996 5 14,505 5,953 5,139 105,953 7,331 6,517 107,331 8,962 8,148 108,962 6 17,855 6,781 6,084 106,781 8,671 7,973 108,671 11,004 10,306 111,004 7 21,373 7,461 6,880 107,461 9,930 9,349 109,930 13,114 12,533 113,114 8 25,066 7,972 7,507 107,972 11,083 10,618 111,083 15,279 14,814 115,279 9 28,945 8,295 7,946 108,295 12,102 11,753 112,102 17,479 17,131 117,479 10 33,017 8,411 8,411 108,411 12,960 12,960 112,960 19,698 19,698 119,698 11 37,293 8,305 8,305 108,305 13,630 13,630 113,630 21,916 21,916 121,916 12 41,782 7,959 7,959 107,959 14,082 14,082 114,082 24,114 24,114 124,114 13 46,497 7,358 7,358 107,358 14,289 14,289 114,289 26,274 26,274 126,274 14 51,446 6,483 6,483 106,483 14,214 14,214 114,214 28,371 28,371 128,371 15 56,644 5,306 5,306 105,306 13,813 13,813 113,813 30,364 30,364 130,364 16 62,101 3,789 3,789 103,789 13,027 13,027 113,027 32,196 32,196 132,196 17 67,831 1,883 1,883 101,883 11,784 11,784 111,784 33,796 33,796 133,796 18 73,848 (*) (*) (*) 9,996 9,996 109,996 35,068 35,068 135,068 19 80,165 (*) (*) (*) 7,570 7,570 107,570 35,908 35,908 135,908 20 86,798 (*) (*) (*) 4,420 4,420 104,420 36,209 36,209 136,209 21 93,763 (*) (*) (*) 464 464 100,464 35,865 35,865 135,865 22 101,076 (*) (*) (*) (*) (*) (*) 34,762 34,762 134,762 23 108,755 (*) (*) (*) (*) (*) (*) 32,781 32,781 132,781 24 116,818 (*) (*) (*) (*) (*) (*) 29,782 29,782 129,782 25 125,284 (*) (*) (*) (*) (*) (*) 25,585 25,585 125,585 26 134,173 (*) (*) (*) (*) (*) (*) 19,965 19,965 119,965 27 143,506 (*) (*) (*) (*) (*) (*) 12,651 12,651 112,651 28 153,307 (*) (*) (*) (*) (*) (*) 3,315 3,315 103,315 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 THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 51 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. 52 56
FUND PERFORMANCE TABLE =========================================================================================== Annual Percentage Change Non annualized Percentage Change ========================================================================================================================== Fund Unit 1 mo 1/1/97 1 Yrs 3 Yrs. 5 yrs. Inception UNDERLYING MUTUAL FUND Inception Values 1994 1995 1996 to to to to to to Date** 3/31/97 3/31/97 3/31/97 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 71.54 N/A 91.34 - -------------------------------------------------------------------------------------------------------------------------- NSAT Government Bond Fund 11/08/82 10.62 -3.23 18.74 3.49 -0.99 -0.54 5.24 21.62 42.51 262.20 - -------------------------------------------------------------------------------------------------------------------------- NSAT Money Market Fund 11/10/81 10.47 3.88 5.64 5.13 0.43 1.24 5.10 15.98 22.92 188.45 - -------------------------------------------------------------------------------------------------------------------------- NSAT Small Company Fund 10/23/95 9.99 N/A N/A 22.83 -3.94 -5.11 7.97 N/A N/A 33.30 - -------------------------------------------------------------------------------------------------------------------------- NSAT Total Return Fund 11/08/82 11.70 1.07 29.09 21.84 -3.31 2.22 17.67 66.13 92.66 670.93 ==========================================================================================================================
============================= Annualized Percentage Change ============================================================ 3 Yrs. 5 yrs. Inception UNDERLYING MUTUAL FUND to to to 3/31/97 3/31/97 3/31/97 ============================================================ NSAT Capital Appreciation Fund 19.71 N/A 13.98 - ------------------------------------------------------------ NSAT Government Bond Fund 6.74 7.34 9.35 - ------------------------------------------------------------ NSAT Money Market Fund 5.07 4.21 7.13 - ------------------------------------------------------------ NSAT Small Company Fund N/A N/A 22.13 - ------------------------------------------------------------ NSAT Total Return Fund 18.44 14.01 15.24 ============================================================
The above table displays three types of total return. Simply stated, 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 Annualized Percentage Change columns represent annualized figures, i.e., they show the rate of growth that would have produced the corresponding cumulative return had performance been constant over the entire period quoted. The 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. 53 57
CASH VALUE PERFORMANCE TABLE ================================================================================================= 1 Year to 2 Years to 3 Years to 5 Years to 10 Years to 3/31/97 3/31/97 3/31/97 3/31/97 3/31/97 ================================================================================================================================ FUND CASH CASH CASH CASH CASH UNDERLYING MUTUAL FUND INCEPTION ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. DATE** VALUE VALUE 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 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 $120,376 $120,376 - -------------------------------------------------------------------------------------------------------------------------------- NSAT Money Market Fund 11/10/81 $8,040 $3,207 N/A N/A $25,346 $20,997 $43,634 $40,250 $100,689 $100,689 - -------------------------------------------------------------------------------------------------------------------------------- NSAT Small Company Fund 10/23/95 $8.375 $3,542 N/A N/A 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 $164,535 $164,535 ================================================================================================================================
==================== Inception to 3/31/97 =================================================== Cash UNDERLYING MUTUAL FUND ACCUM Surr. VALUE Value =================================================== NSAT Capital Appreciation Fund $62,850 $59,467 - --------------------------------------------------- NSAT Government Bond Fund $228,753 $228,753 - --------------------------------------------------- NSAT Money Market Fund $198,866 $198,866 - --------------------------------------------------- NSAT Small Company Fund $18,857 $14,023 - --------------------------------------------------- NSAT Total Return Fund $378,940 $378,940 ===================================================
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. 54 58 1 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Nationwide Life Insurance Company: We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance Company and subsidiaries (collectively the Company) as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. In 1994, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. KPMG Peat Marwick LLP Columbus, Ohio January 31, 1997 2
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. 3 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. 4 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. 5 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. 6 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 ($000's omitted) (1) Organization and Description of Business ---------------------------------------- Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC), Employers Life Insurance Company of Wausau and subsidiaries (ELICW), National Casualty Company (NCC), West Coast Life Insurance Company (WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide Financial Services, Inc.), Nationwide Investment Services Corporation (formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and its subsidiaries are collectively referred to as "the Company." Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in November 1996 as a holding company for NLIC and the other companies of the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. On January 27, 1997, Nationwide Corp. contributed to NFS the common stock of NLIC and three marketing and distribution companies. NFS is planning an initial public offering of its Class A common stock during the first quarter of 1997. In anticipation of the restructuring described above, on September 24, 1996, NLIC's Board of Directors declared a dividend payable January 1, 1997 to Nationwide Corp. consisting of the outstanding shares of common stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer or distribute long-term savings and retirement products. In addition, during 1996, NLIC entered into two reinsurance agreements whereby all of NLIC's accident and health and group life insurance business was ceded to ELICW and another affiliate effective January 1, 1996. These subsidiaries and all accident and health and group life insurance business have been accounted for as discontinued operations for all periods presented. See notes 2 and 13. In addition, as part of the restructuring described above, NLIC intends to make an $850,000 distribution to NFS which will then make an equivalent distribution to Nationwide Corp. The Company is a leading provider of long-term savings and retirement products to retail and institutional customers and is subject to competition from other financial services providers throughout the United States. The Company is subject to regulation by the Insurance Departments of states in which it is licensed, and undergoes periodic examinations by those departments. The following is a description of the most significant risks facing life insurers and how the Company mitigates those risks: LEGAL/REGULATORY RISK is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the insurer in pricing its products. That is, regulatory initiatives, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those currently recorded in the consolidated financial statements. The Company mitigates this risk by offering a wide range of products and by operating throughout the United States, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of this risk. CREDIT RISK is the risk that issuers of securities owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued INTEREST RATE RISK is the risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. (2) Discontinued Operations ----------------------- As discussed in note 1, NFS is a holding company for NLIC and certain other companies that offer or distribute long-term savings and retirement products. Prior to the contribution by Nationwide Corp. to NFS of the outstanding common stock of NLIC and other companies, NLIC effected certain transactions with respect to certain subsidiaries and lines of business that were unrelated to long-term savings and retirement products. On September 24, 1996, NLIC's Board of Directors declared a dividend to Nationwide Corp. consisting of the outstanding shares of common stock of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group accident and health and group life insurance business and maintains it offices in Wausau, Wisconsin. NCC is a property and casualty company that serves as a fronting company for a property and casualty subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate. NCC maintains its offices in Scottsdale, Arizona. WCLIC writes high dollar term life insurance policies and is located in San Francisco, California. ELICW, NCC and WCLIC have been accounted for as discontinued operations for all periods presented. NLIC did not recognize any gain or loss on the disposal of these subsidiaries. A summary of the combined results of operations, including the results of the accident and health and group life insurance business ELICW assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is as follows:
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. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued A summary of the results of operations, net of amounts ceded to ELICW and NMIC in 1996, and assets and liabilities of NLIC's accident and health and group life insurance business as of and for the years ended December 31, 1996, 1995 and 1994 is as follows:
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. 9 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. The measurement of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered to be impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate are included in interest income in the period received. Real estate is carried at cost less accumulated depreciation and valuation allowances. Other long-term investments are carried on the equity basis, adjusted for valuation allowances. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. (c) Revenues and Benefits --------------------- INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS: Investment products consist primarily of individual and group variable and fixed annuities, annuities without life contingencies and guaranteed investment contracts. Universal life insurance products include universal life insurance, variable universal life insurance and other interest-sensitive life insurance policies. Revenues for investment products and universal life insurance products consist of net investment income, asset fees, cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. Policy benefits and claims that are charged to expense include interest credited to policy account balances and benefits and claims incurred in the period in excess of related policy account balances. TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future policy benefits and the deferral and amortization of policy acquisition costs. ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health insurance premiums are recognized as revenue over the terms of the policies. Policy claims are charged to expense in the period that the claims are incurred. All accident and health insurance business is accounted for as discontinued operations. See note 2. (d) Deferred Policy Acquisition Costs --------------------------------- The costs of acquiring new business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable agency expenses have been deferred. For investment products and universal life insurance products, deferred policy acquisition costs are being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset fees, cost of insurance, policy administration and surrender charges. For years in which gross profits are negative, deferred policy acquisition costs are amortized based on the present value of gross revenues. For traditional life products, these deferred policy acquisition costs are predominantly being amortized with interest over the premium paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue was estimated using the same assumptions as were used for computing liabilities for future policy benefits. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 3(b). 10 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (e) Separate Accounts ----------------- Separate Account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. The investment income and gains or losses of these accounts accrue directly to the contractholders. The activity of the Separate Accounts is not reflected in the consolidated statements of income and cash flows except for the fees the Company receives. (f) Future Policy Benefits ---------------------- Future policy benefits for investment products in the accumulation phase, universal life insurance and variable universal life insurance policies have been calculated based on participants' contributions plus interest credited less applicable contract charges. Future policy benefits for traditional life insurance policies have been calculated using a net level premium method based on estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the time the policies were issued, rather than the assumptions prescribed by state regulatory authorities. See note 6. Future policy benefits and claims for collectively renewable long-term disability policies and group long-term disability policies are the present value of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. The impact of reserve discounting is not material. Future policy benefits and claims on other group health insurance policies are not discounted. All health insurance business is accounted for as discontinued operations. See note 2. (g) Participating Business ---------------------- Participating business represents approximately 52% in 1996 (54% in 1995 and 55% in 1994) of the Company's life insurance in force, 78% in 1996 (79% in 1995 and 79% in 1994) of the number of life insurance policies in force, and 40% in 1996 (47% in 1995 and 51% in 1994) of life insurance premiums. The provision for policyholder dividends is based on current dividend scales. Future dividends are provided for ratably in future policy benefits based on dividend scales in effect at the time the policies were issued. (h) Federal Income Tax ------------------ The Company, with the exception of ELICW, files a consolidated federal income tax return with NMIC, the majority shareholder of Nationwide Corp. The members of the consolidated tax return group have a tax sharing arrangement which provides, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. Through 1994, ELICW filed a consolidated federal income tax return with Employers Insurance of Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW files a separate federal income tax return. The Company utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. 11 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (i) Reinsurance Ceded ----------------- Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. All of the Company's accident and health and group life insurance business is ceded to affiliates and is accounted for as discontinued operations. See notes 2 and 13. (j) Reclassification ---------------- Certain items in the 1995 and 1994 consolidated financial statements have been reclassified to conform to the 1996 presentation. (4) Change in Accounting Principle ------------------------------ Effective January 1, 1994, the Company changed its method of accounting for certain investments in debt and equity securities in connection with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. As of January 1, 1994, the Company classified fixed maturity securities with amortized cost and fair value of $6,299,665 and $6,721,714, respectively, as available-for-sale and recorded the securities at fair value. Previously, these securities were recorded at amortized cost. The effect as of January 1, 1994 has been recorded as a direct credit to shareholder's equity as follows:
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 ============ ========== ============ ============
12 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The amortized cost and estimated fair value of securities available-for-sale were as follows as of December 31, 1995:
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 =============== ==============
13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued An analysis of the change in gross unrealized gains (losses) on securities available-for-sale and fixed maturity securities held-to-maturity follows for the years ended December 31:
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 ============= ==============
14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued An analysis of investment income by investment type follows for the years ended December 31:
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
15 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued WITHDRAWALS: Rates, which vary by issue age, type of coverage and policy duration, are based on Company experience. MORTALITY: Mortality and morbidity rates are based on published tables, modified for the Company's actual experience. The Company has entered into a reinsurance contract to cede a portion of its general account individual annuity business to The Franklin Life Insurance Company (Franklin). Total recoveries due from Franklin were $240,451 and $245,255 as of December 31, 1996 and 1995, respectively. The contract is immaterial to the Company's results of operations. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. Under the terms of the contract, Franklin has established a trust as collateral for the recoveries. The trust assets are invested in investment grade securities, the market value of which must at all times be greater than or equal to 102% of the reinsured reserves. The Company has reinsurance agreements with certain affiliates as described in note 13. All other reinsurance agreements are not material to either premiums or reinsurance recoverables. (7) Federal Income Tax ------------------- The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 1996 and 1995 are as follows:
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. 16 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Total federal income tax expense for the years ended December 31, 1996, 1995 and 1994 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
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. 17 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair value for mortgages in default is the estimated fair value of the underlying collateral. INVESTMENT CONTRACTS: Fair value for the Company's liabilities under investment type contracts is disclosed using two methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analyses. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures for individual life insurance, universal life insurance and supplementary contracts with life contingencies for which the estimated fair value is the amount payable on demand. Also included are disclosures for the Company's limited payment policies, which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 9. Carrying amount and estimated fair value of financial instruments subject to SFAS 107 and policy reserves on life insurance contracts were as follows as of December 31, 1996 and 1995:
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. 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Commitments to fund fixed rate mortgage loans on real estate are agreements to lend to a borrower, and are subject to conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a deposit. Commitments extended by the Company are based on management's case-by-case credit evaluation of the borrower and the borrower's loan collateral. The underlying mortgage property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to lend no more than 75% of collateral value. Should the commitment be funded, the Company's exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for all unfunded commitments. Commitments on mortgage loans on real estate of $327,456 extending into 1997 were outstanding as of December 31, 1996. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly commercial mortgage loans on real estate to customers throughout the United States. The Company has a diversified portfolio with no more than 21% (20% in 1995) in any geographic area and no more than 2% (2% in 1995) with any one borrower as of December 31, 1996. The Company had a significant reinsurance recoverable balance from one reinsurer as of December 31, 1996 and 1995. See note 6. The summary below depicts loans by remaining principal balance as of December 31, 1996 and 1995:
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 ==============
19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (10) Pension Plan ------------ The Company is a participant, together with other affiliated companies, in a pension plan covering all employees who have completed at least one thousand hours of service within a twelve-month period and who have met certain age requirements. Benefits are based upon the highest average annual salary of a specified number of consecutive years of the last ten years of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Effective January 1, 1995, the plan was amended to provide enhanced benefits for participants who met certain eligibility requirements and elected early retirement no later than March 15, 1995. The entire cost of the enhanced benefit was borne by NMIC and certain of its property and casualty insurance company affiliates. Effective December 31, 1995, the Nationwide Insurance Companies and Affiliates Retirement Plan was merged with the Farmland Mutual Insurance Company Employees' Retirement Plan and the Wausau Insurance Companies Pension Plan to form the Nationwide Insurance Enterprise Retirement Plan. Immediately prior to the merger, the plans were amended to provide consistent benefits for service after January 1, 1996. These amendments had no significant impact on the accumulated benefit obligation or projected benefit obligation as of December 31, 1995. Pension costs charged to operations by the Company during the years ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and $10,063, respectively. The Company's net accrued pension expense as of December 31, 1996 and 1995 was $1,075 and $1,392, respectively. The net periodic pension cost for the Nationwide Insurance Enterprise Retirement Plan as a whole for the year ended December 31, 1996 and for the Nationwide Insurance Companies and Affiliates Retirement Plan as a whole for the years ended December 31, 1995 and 1994 follows:
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%
20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Information regarding the funded status of the Nationwide Insurance Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995 follows:
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. 21 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The amount of NPPBC for the plan as a whole for the years ended December 31, 1996, 1995 and 1994 was as follows:
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. 22 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The statutory capital shares and surplus of NLIC as of December 31, 1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861, respectively. The statutory net income of NLIC for the years ended December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532, respectively. NLIC is limited in the amount of shareholder dividends it may pay without prior approval by the Department of Insurance of the State of Ohio (the Department). NLIC's dividend of the outstanding shares of common stock of certain companies which was declared on September 24, 1996 and the anticipated $850,000 dividend (as discussed in note 1) are deemed extraordinary under Ohio insurance laws. As a result of such dividends, any dividend paid by NLIC during the 12-month period immediately following the $850,000 dividend would also be an extraordinary dividend under Ohio insurance laws. Accordingly, no such dividend could be paid without prior regulatory approval. In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of New York that limit the amount of statutory profits on NLIC's participating policies (measured before dividends to policyholders) that can inure to the benefit of the Company and its stockholder. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and stockholder dividends in the future. (13) Transactions With Affiliates ---------------------------- The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the Company made lease payments to NMIC and its subsidiaries of $9,065, $8,986 and $8,133, respectively. Pursuant to a cost sharing agreement among NMIC and certain of its direct and indirect subsidiaries, including the Company, NMIC provides certain operational and administrative services, such as sales support, advertising, personnel and general management services, to those subsidiaries. Expenses covered by this agreement are subject to allocation among NMIC, the Company and other affiliates. Amounts allocated to the Company were $101,584, $107,112, and $100,601 in 1996, 1995 and 1994, respectively. The allocations are based on techniques and procedures in accordance with insurance regulatory guidelines. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commissions expense and other methods agreed to by the participating companies that are within industry guidelines and practices. The Company believes these allocation methods are reasonable. In addition, the Company does not believe that expenses recognized under the intercompany agreements are materially different than expenses that would have been recognized had the Company operated on a stand alone basis. Amounts payable to NMIC from the Company under the cost sharing agreement were $15,111 and $1,186 as of December 31, 1996 and 1995, respectively. The Company also participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or a stated period, the securities will be repurchased by the seller at the original sales price plus a price differential. Transactions under the agreements during 1996 and 1995 were not material. The Company believes that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties. 23 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Intercompany reinsurance contracts exist between NLIC and, respectively NMIC and ELICW whereby all of NLIC's accident and health and group life insurance business is ceded on a modified coinsurance basis. NLIC entered into the reinsurance agreements during 1996 because the accident and health and group life insurance business was unrelated to NLIC's long-term savings and retirement products. Accordingly, the accident and health and group life insurance business has been accounted for as discontinued operations for all periods presented. Under modified coinsurance agreements, invested assets are retained by the ceding company and investment earnings are paid to the reinsurer. Under the terms of NLIC's agreements, the investment risk associated with changes in interest rates is borne by NMIC or ELICW, as the case may be. Risk of asset default is retained by NLIC, although a fee is paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC's retention of such risk. The agreements will remain in force until all policy obligations are settled. However, with respect to the agreement between NLIC and NMIC, either party may terminate the contract on January 1 of any year with prior notice. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. NLIC believes that the terms of the modified coinsurance agreements are consistent in all material respects with what NLIC could have obtained with unaffiliated parties. Amounts ceded to ELICW in 1996 are included in ELICW's results of operations for 1996 which, combined with the results of WCLIC and NCC, are summarized in note 2. Amounts ceded to ELICW in 1996 include premiums of $224,224, net investment income and other revenue of $14,833, and benefits, claims and other expenses of $246,641. Amounts ceded to NMIC in 1996 include premiums of $97,331, net investment income of $10,890, and benefits, claims and other expenses of $100,476. The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC) and California Cash Management Company (CCMC), both affiliates, under which NCMC and CCMC act as common agents in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31, 1996 and 1995, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. On April, 5 1996, Nationwide Corp. contributed all of the outstanding shares, with shareholder equity value of $30, of NISC to NLIC. NLIC contributed an additional $500 to NISC on August 30, 1996. On March 1, 1995, Nationwide Corp. contributed all of the outstanding shares of common stock of Farmland Life Insurance Company (Farmland) to NLIC. Farmland merged into WCLIC effective June 30, 1995. The contribution resulted in a direct increase to consolidated shareholder's equity of $46,918. As discussed in note 2, WCLIC is accounted for as discontinued operations. Effective December 31, 1994, NLIC purchased all of the outstanding shares of common stock of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC transferred fixed maturity securities and cash with a fair value of $155,000 to WSC on December 28, 1994, which resulted in a realized loss of $19,239 on the disposition of the securities. The purchase price approximated both the historical cost basis and fair value of net assets of ELICW. ELICW has and will continue to share home office, other facilities, equipment and common management and administrative services with WSC. As discussed in note 2, ELICW is accounted for as discontinued operations. Certain annuity products are sold through three affiliated companies which are also subsidiaries of Nationwide Corp. Total commissions and fees paid to these affiliates for the years ended December 31, 1996, 1995 and 1994 were $76,922, $57,280 and $50,168, respectively. (14) Bank Lines of Credit -------------------- In August 1996, NLIC, along with NMIC, established a $600,000 revolving credit facility which provides for a $600,000 loan over a five year term on a fully revolving basis with a group of national financial institutions. The credit facility provides for several and not joint liability with respect to any amount drawn by either NLIC or NMIC. NLIC and NMIC pay facility and usage fees to the financial institutions to maintain the revolving credit facility. All previously existing line of credit agreements were canceled. 24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (15) Contingencies ------------- The Company is a defendant in various lawsuits. In the opinion of management, the effects, if any, of such lawsuits are not expected to be material to the Company's financial position or results of operations. (16) Segment Information ------------------- The Company has three primary segments: Variable Annuities, Fixed Annuities and Life Insurance. The Variable Annuities segment consists of annuity contracts that provide the customer with the opportunity to invest in mutual funds managed by the Company and independent investment managers, with the investment returns accumulating on a tax-deferred basis. The Fixed Annuities segment consists of annuity contracts that generate a return for the customer at a specified interest rate, fixed for a prescribed period, with returns accumulating on a tax-deferred basis. The Life Insurance segment consists of insurance products that provide a death benefit and may also allow the customer to build cash value on a tax-deferred basis. In addition, the Company reports corporate expenses and investments, and the related investment income supporting capital not specifically allocated to its product segments in a Corporate and Other segment. In addition, all realized gains and losses, investment management fees and other revenue earned from mutual funds, other than the portion allocated to the variable annuities and life insurance segments, are reported in the Corporate and Other segment. During 1996, the Company changed its reporting segments to better reflect the way the businesses are managed. Prior periods have been restated to reflect these changes. The following table summarizes the revenues and income from continuing operations before federal income tax expense for the years ended December 31, 1996, 1995 and 1994 and assets as of December 31, 1996, 1995 and 1994, by business segment.
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 ================= =============== ===============
59 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 78 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 Board of Directors Attached hereto. authorizing the establishment of the 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 Attached hereto. 5. Articles of Incorporation of Depositor Filed previously in connection with 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 Attached hereto.
79 60 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. 80 61 ACCOUNTANTS' CONSENT The Board of Directors of Nationwide Life Insurance Company: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the Prospectus. KPMG Peat Marwick LLP Columbus, Ohio July 21, 1997 81 62 SIGNATURES As required by the Securities Act of 1933, the Registrant, Nationwide VLI Separate Account-4, has caused this Registration Statement to be signed on its behalf in the City of Columbus, and the State of Ohio, on this 21st day of July, 1997. NATIONWIDE VLI SEPARATE ACCOUNT-4 (Registrant) (Seal) NATIONWIDE LIFE INSURANCE COMPANY Attest: (Depositor) W. SIDNEY DRUEN By: Harvey S. Galloway, Jr. - W. Sidney Druen Senior President - Chief Actuary Assistant Secretary Life, Health and Annuities
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 21st day of July, 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 Harvey S. Galloway, Jr. ARDEN L. SHISLER Director Attorney-in-Fact - ----------------------------- Arden L. Shisler ROBERT L. STEWART Director - ----------------------------- Robert L. Stewart NANCY C. THOMAS Director - ----------------------------- Nancy C. Thomas HAROLD W. WEIHL Director - ----------------------------- Harold W. Weihl
82 EX-2 2 EXHIBIT 2 1 NATIONWIDE LIFE INSURANCE COMPANY --------------------------------- I, Dennis W. Click, Assistant Secretary of NATIONWIDE LIFE INSURANCE COMPANY, hereby certify that the attached is a true and correct copy of a resolution duly adopted by the BOARD OF DIRECTORS of NATIONWIDE LIFE INSURANCE COMPANY, at a meeting duly convened and held on the 4th day of December, 1987, at which a quorum was present and acting throughout: I further certify that the attached resolution has not been amended, altered, or repealed and is now in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and caused the corporate seal of NATIONWIDE LIFE INSURANCE COMPANY to be hereunto affixed this 11th day of July, 1997. /s/ Dennis W. Click ----------------------------------- Dennis W. Click Assistant Secretary (seal) 2 RESOLVED, that the Company, pursuant to the provisions of Ohio Revised Code Section 3907.15, hereby establishes a separate account, designated Nationwide VLI Separate Account-4 (hereinafter the Variable Account) for the following use and purposes, and subject to such conditions as hereafter set forth: RESOLVED, that the Variable Account shall be established for the purpose of providing for the issuance of variable life insurance policies (hereinafter the Policies) which Policies provide that part or all of the life insurance benefits and cash value will reflect the investment experience of one or more designated underlying securities; and RESOLVED FURTHER, that the fundamental investment policy of the Variable Account shall be to invest or reinvest the assets of the Variable Account in securities issued by investment companies registered under the Investment Company Act of 1940, as may be specified in the respective Policies; and RESOLVED FURTHER, that the proper officers of the Company be, and they hereby are, authorized and directed to take all action necessary to: (a) register the Variable Account as a unit investment trust under the Investment Company Act of 1940, as amended; (b) register the Policies in such amounts as the officers of the Company shall from time to time deem appropriate under the Securities Act of 1933 and to prepare and file amendments to such registration as they may deem necessary or desirable; and (c) take all other action necessary to comply with: the Investment Company Act of 1940, including the filing of applications for such exemptions from the Investment Company Act of 1940 as the officers of the Company shall deem necessary of desirable; the Securities Exchange Act of 1934; the Securities Act of 1933; and all other applicable state and federal laws in connection with offering said Policies for sale and the operation of the Variable Account; and RESOLVED FURTHER, that John E. Fisher, John L. Marakas, Peter F. Frenzer, Harvey S. Galloway, Thomas E. Kryshak, Gordon E. McCutchan, and Raymond L. Wilson and each of them, with full power to act without the others, hereby are severally authorized and empowered to execute and cause to be filed with the Securities and Exchange Commission on behalf of the Variable Account and by the Company as sponsor and depositor any required Registration Statement and Notice thereof registering the Variable Account as an investment company under the Investment Company Act of 1940; and one or more Registration Statements under the Securities Act of 1933, registering the Policies and any and all amendments to the foregoing on behalf of and as attorneys for the Variable Account and the Company and on behalf of and as attorneys for the principal executive officer and/or the principal financial officer and/or the principal accounting officer and/or any other officer of the Variable Account and the Company; and 3 RESOLVED FURTHER, that the proper officers of the Company be, and they hereby are, authorized on behalf of the Variable Account and on behalf of the Company to take any and all action which they may deem necessary or advisable in order to sell the Policies and, if necessary, to register or qualify Policies for offer and sale under the insurance and securities laws of any of the states of the United States of America and in connection therewith to execute, deliver and file all such applications, reports, covenants, resolutions and other papers and instruments as may be required under such laws, and to take any and all further action which said officers or counsel of the Company may deem necessary or desirable in order to maintain such registration or qualification for as long as said officers or counsel deem it to be in the best interests of the Variable Account and the Company; and RESOLVED FURTHER, that the proper officers of the Company be, and they hereby are, authorized in the names and on behalf of the Variable Account and the Company to execute and file irrevocable written consents on the part of the Variable Account and of the Company to be used in such states wherein such consents to service of process may be requisite under the insurance or securities laws thereof in connection with said registration or qualification of Policies and appoint the appropriate state official, or such other persons as may be allowed by said insurance or securities laws, agent of the Variable Account and of the Company for the purpose of receiving and accepting process; and RESOLVED FURTHER, that the appropriate officers of the Company be, and they hereby are, authorized to establish procedures under which the Company will provide sales and administrative functions with respect to the Policies issued in connection therewith, including, but not limited to procedures for providing any voting rights required by the federal securities laws for owners of such Policies with respect to securities owned by the Variable Account, adding additional underlying investment series to the Variable Account, and permitting conversion or exchange of Policies values or benefits among the various series. EX-4 3 EXHIBIT 4 1 ------------------------------------------------------------ LOGO NATIONWIDE LIFE INSURANCE COMPANY Home Office: One Nationwide Plaza Columbus, Ohio 43216 ------------------------------------------------------------ PLEASE READ YOUR POLICY CAREFULLY This Policy is a legal contract between the Owner (you, your) and Nationwide Life Insurance Company (we, our, us, the Company). INSURING AGREEMENT: We issue this Policy in consideration of your application and the payment of the Initial Premium. We agree to pay the Death Proceeds to the Beneficiary upon receiving proof that the Insured has died while this Policy is in force and before the Maturity Date. We agree to pay the Maturity Proceeds to you if the Insured is living on the Maturity Date. You and we are bound by the conditions and provisions of this Policy. - ------------------------------------------------------------------------------- THE SURRENDER VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY. IT MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE POLICY. REFER TO THE NONFORFEITURE PROVISIONS ON PAGE 11 FOR DETAILS. THERE IS NO GUARANTEED SURRENDER VALUE. THE AMOUNT OR DURATION OF THE DEATH BENEFIT WILL BE VARIABLE AND DEPEND ON THE INVESTMENT EXPERIENCE OF THE POLICY. THE DEATH BENEFIT WILL NEVER BE LESS THAN THE SPECIFIED AMOUNT AS LONG AS YOUR POLICY IS IN FORCE. REFER TO THE DEATH BENEFIT PROVISIONS ON PAGE 9 FOR DETAILS. - ------------------------------------------------------------------------------- RIGHT TO EXAMINE POLICY You may return this Policy to us within (1) 10 days after you get it, or (2) 45 days after you sign the application, or (3) 10 days after we mail or deliver the Notice of Withdrawal Right, whichever is latest. The Policy, with a written request for cancellation, must be mailed or delivered to our Home Office or to the agent who sold it to you. The returned Policy will be treated as if we never issued it, and we will pay you the amount specified by the laws of the state in which the Policy was issued. - ------------------------------------------------------------------------------- If you have any questions about your Policy or need additional insurance service, contact your agent or write to our Home Office. Signed at our Home Office on the Policy Date. /s/ GORDON E. MCC?????????? /s/ JOSEPH L. GASPER ---------------------------- ---------------------- Secretary President FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY o Adjustable Death Benefit o Flexible premiums payable during Insured's lifetime until the Maturity Date o Death Proceeds payable at Insured's death prior to the Maturity Date o Maturity Proceeds payable on the Maturity Date o Not eligible for dividends o Investment experience reflected in benefits 2 CONTENTS
Page Annual Report................................................................7 Assignment...................................................................8 Beneficiary..................................................................8 Cash Surrender Value.........................................................4 Cash Value..................................................................11 Death Benefit...............................................................10 Definitions..................................................................4 Error in Age or Sex..........................................................7 Fixed Account...............................................................18 Grace Period.................................................................9 Guaranteed Policy Continuation...............................................9 Incontestability.............................................................6 Insured......................................................................5 Insuring Agreement...........................................................1 Loan........................................................................14 Monthly Cost of Insurance...................................................13 Nonforfeiture...............................................................11 Optional Modes of Settlement................................................18 Ownership....................................................................8 Partial Surrender...........................................................14 Policy Data Page.............................................................3 Premium Payments.............................................................9 Reinstatement................................................................9 Suicide......................................................................6 Termination..................................................................7 Transfers...................................................................18 Valuation of Assets.........................................................16 Variable Account............................................................17
2 3 DEFINITIONS ATTAINED AGE: Attained Age is the Issue Age plus the number of full years since the Policy Date. BENEFICIARY: The Beneficiary is the person to whom the Death Proceeds are paid. The Beneficiary is named in the application, unless changed. CASH SURRENDER VALUE: The Cash Surrender Value of your Policy on any date is the Cash Value minus any Indebtedness minus any Surrender Charge. CASH VALUE: Your Policy's Cash Value is the sum of the Cash Value in each Subaccount, the Fixed Account, and the Policy Loan Account. Refer to the Nonforfeiture Provision for details. COMPANY: The Company is the Nationwide Life Insurance Company. "We," "our", and "us" refer to the Company. CONTINGENT BENEFICIARY: The Contingent Beneficiary will become the Beneficiary if the named Beneficiary dies prior to the date of the death of the Insured. The Contingent Beneficiary is named in the application, unless changed. CONTINGENT OWNER: The Contingent Owner will become the Owner if the named Owner dies prior to the date of the death of the Insured. The Contingent Owner is named in the application, unless changed. DEATH PROCEEDS: The Death Proceeds is the amount of money payable to the Beneficiary if the Insured dies while your Policy is in force prior to the Maturity Date. Refer to the Death Benefit Provisions for details. FIXED ACCOUNT: A Fixed Account is an investment option which is funded by the General Account of the Company. FUND: A Fund is the underlying mutual fund in which Subaccount assets are invested. There is a Fund that corresponds to each Subaccount in a Variable Account. The Funds are listed on the Policy Data Page with the corresponding Subaccounts. GENERAL ACCOUNT: The General Account is made up of all of our assets other than those held in any separate investment account. HOME OFFICE: The Home Office of the Company is at One Nationwide Plaza, Columbus, Ohio. INDEBTEDNESS: Indebtedness is any amount you owe us as a result of a policy loan. Indebtedness consists of principal amount plus accrued interest. INITIAL INVESTMENT DATE: The Initial Investment Date is the later of the Policy Date or the date we receive the Initial Premium at our 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. 4 4 INSURED: The Insured is the person whose life is covered by this insurance Policy and is named in the application. ISSUE AGE: Issue Age is the Insured's age on the last birthday on or before the Policy Date. It is shown on the Policy Data Page. MATURITY DATE: The Maturity Date is the Policy Anniversary on or next following the Insured's 100th birthday. MATURITY PROCEEDS: Maturity Proceeds is the amount of money payable to you on the Maturity Date if your Policy is still in force. The Maturity Proceeds will be equal to the amount of the Cash Value, less any Indebtedness. MINIMUM MONTHLY PREMIUMS: The Minimum Monthly Premiums are shown on the Policy Data Page. The Minimum Monthly Premiums are used to measure the total premium amount that must be paid during the Guaranteed Policy Continuation Period to keep the Guaranteed Policy Continuation Provision in effect. MINIMUM REQUIRED DEATH BENEFIT: The minimum required death benefit is the lowest death benefit which will qualify the Policy as life insurance under Section 7702 of the Internal Revenue Code. MINIMUM SPECIFIED AMOUNT: The Minimum Specified Amount is shown on the Policy Data Page. Changes to the policy which result in Specified Amount below the Minimum Specified Amount will not be processed. Refer to Specified Amount Decreases and Partial Surrender Provisions for details. MONTHLY ANNIVERSARY DAY: The Monthly Anniversary Day is the same day as the Policy Date for each succeeding month. NET AMOUNT AT RISK: The Net Amount At Risk on a Monthly Anniversary Day is the death benefit minus the Cash Value, calculated 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. NET PREMIUM: The Net Premium is equal to the actual premium minus the percent of premium charge. The percent of premium charge is shown on the Policy Data Page. The Company may at its sole discretion apply a lower percent of premium charge. OWNER: The Owner has all rights under this Policy and is named in the application unless later changed and endorsed on this Policy. "You" or "your" refer to the Owner of this Policy. PARTIAL SURRENDER AMOUNT: This is the amount requested by you as a partial surrender. We reserve the right to deduct a fee from this amount. The maximum fee is shown on the Policy Data Page. POLICY ANNIVERSARY: The Policy Anniversary is the same day and month as the Policy Date for each succeeding year. POLICY DATE: The Policy Date is the date the provisions of this Policy take effect. It is shown on the Policy Data Page. Policy years and policy months are measured from the Policy Date. 5 5 POLICY LOAN ACCOUNT: The Policy Loan Account is that portion of the Cash Value which results from policy loans. PROCEEDS: The Proceeds is the amount payable on the Maturity Date, on the surrender of this Policy prior to the Maturity Date, or on the death of the Insured while this Policy is in force. SEC: Securities and Exchange Commission. SPECIFIED AMOUNT: The Specified Amount is a dollar amount used to determine the death benefit of your Policy. It is shown on the Policy Data Page. SUBACCOUNT: A Subaccount is a part of a Variable Account. The assets in each Subaccount are invested exclusively in a specified Fund. The Subaccounts are listed on the Policy Data Page. VALUATION DAY: A Valuation Day is each day that the New York Stock Exchange is open for trading except for customary holidays observed by us. VALUATION PERIOD: A Valuation Period is the interval of time between a Valuation Day and the next Valuation Day. VARIABLE ACCOUNT: One or more Variable Accounts are named on the Policy Data Page. Each is a separate investment account of the Company. GENERAL POLICY PROVISIONS ENTIRE CONTRACT: The entire contract consists of this Policy, any attached riders or endorsements, and the attached copy of any written application, including any written supplemental applications. No agent, registered representative, or other person may change this Policy or waive any of its provisions. Any agreement to alter this Policy must be in writing, signed by our President or Secretary and attached to or endorsed on your Policy. We will not be bound by any promise or representations made by any agent or other persons. APPLICATION: All statements made in an application are considered representations and not warranties. In issuing this Policy, we have relied on the statements made in any application to be true and complete. No such statement will be used to void the Policy or to deny a claim unless that statement is a material misrepresentation. INCONTESTABILITY: We will not contest payment of the Death Proceeds based on the initial Specified Amount after this 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, we will not contest payment of the Death Proceeds based on such an increase after it has been in force during the Insured's lifetime for 2 years from its effective date. SUICIDE: If the Insured commits suicide, while sane or insane, within 2 years from the Policy Date, we will not pay the Death Proceeds normally payable on the Insured's death. Instead, we will pay the Beneficiary an amount equal to all premiums paid prior to the Insured's death, less any Indebtedness, and less any partial surrenders. For any increase in Specified Amount requiring evidence of insurability, if the Insured commits suicide, while sane or insane, within 2 years from the effective date of any such increase, we will not pay the 6 6 Death Proceeds associated with such an increase. Instead, our liability with respect to such an increase will be limited to its cost of insurance charges. 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 adjusted 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 based on the correct age and sex from the Policy Date.. PAYMENT OF PROCEEDS: Unless an optional mode of settlement is elected, the Death Proceeds will be paid in one lump sum to the Beneficiary. Unless an optional mode of settlement is elected, any Proceeds payable on the Maturity Date or upon surrender of this Policy will be paid in one lump sum to you. POSTPONEMENT OF PAYMENTS: We will normally pay any amount payable on maturity, surrender, any partial surrender or policy loan within seven days after we receive your written request. We will normally pay any Death Proceeds within seven days after we receive proof of death and any other information we may reasonably require to pay a claim. However, such payments may be postponed if: 1. the New York Stock Exchange is closed (except for customary holiday closings); or 2. the SEC requires trading be restricted or declares an emergency; or 3. the SEC lets us defer payments for the protection of our Policy Owners; or 4. policy values are being withdrawn from the Fixed Account. EFFECTIVE DATE OF COVERAGE: The effective date of coverage of any person insured under your Policy is as follows: 1. the Policy Date is the effective date for all coverage provided in the original application; 2. for any increase or addition to coverage, the effective date will be the Monthly Anniversary Day on or next following the date we approve the supplemental application; and 3. for any insurance that has been reinstated, the effective date is the Monthly Anniversary Day on or next following the date we approve the application for reinstatement. TERMINATION: All coverage under your Policy will terminate when any one of the following events occurs: 1. you request in writing that the coverage terminate; 2. the Insured dies; 3. the Policy matures; 4. the Grace Period ends; or 5. you surrender the Policy for its Cash Surrender Value. ANNUAL REPORT: We will send you a report at least once a year which shows the current Cash Value, Cash Surrender Value, amount of insurance, premiums paid, Minimum Monthly Premiums, all charges since the last report and outstanding policy Indebtedness. The report will also include any other information required by laws and regulations, both federal and state. We will mail this report to you at your address in the application or another address you specify. 7 7 ILLUSTRATION OF BENEFITS AND VALUES: We will provide a projection of illustrative future benefits and values under this Policy at any time. Your written request and payment of a service fee set by us at the time of the request will be required. NONPARTICIPATION: This is a nonparticipating Policy on which no dividends are payable. Your Policy will not share in our profits or surplus earnings. CURRENCY: Any money we pay, or that is paid to us, must be in United States currency. SIGNATURE GUARANTEE: For your protection, a written request for a surrender, a partial surrender, policy loan, or a change in ownership must be signed. 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 loans, which is a member of the Federal Deposit Insurance Corporation. In some cases, the Company may require additional documentation of a customary nature. OWNER, BENEFICIARY AND ASSIGNMENT PROVISIONS OWNER: While the Insured is living, all rights in your Policy belong to you. Your rights in your Policy belong to your estate if you die before the Insured dies and there is no Contingent Owner. You may name a Contingent Owner or a new Owner at any time while the Insured is living. If a new Owner is named, any earlier designation is automatically revoked. Any change must be in a written form satisfactory to us and recorded at our Home Office. Once recorded, the change will take effect as of the date you signed it. It will not affect any payment made or any action taken by us before it was recorded. We may require that you send us your Policy for endorsement before making a change. BENEFICIARY: The Beneficiary and Contingent Beneficiary on the Policy Date are named in the application. More than one Beneficiary or Contingent Beneficiary may be named. If more than one Beneficiary is alive when the Insured dies, we will pay them in equal shares, unless you have specified otherwise. If any Beneficiary dies before the Insured, that Beneficiary's interest will be paid to any surviving Beneficiaries or Contingent Beneficiaries according to their respective interests, unless you have specified otherwise. If no Beneficiary is living at the Insured's death, we will consider you or your estate to be the Beneficiary. While the Insured is living, you may change any Beneficiary or Contingent Beneficiary. Any change must be in a written form satisfactory to us and recorded at our Home Office. Once recorded, the change will take effect as of the date you signed it. It will not affect any payment made or action taken by us before it was recorded. We may require that you send us your Policy for endorsement before making a change. ASSIGNMENT: While the Insured is living, you may assign any or all rights under your Policy. We will not be bound by any assignment unless it is in a written form acceptable to us and is recorded at our Home Office. An assignment will not affect any payments made or actions taken by us before we record it. We will not be responsible for the sufficiency or validity of any assignment. The assignment will be subject to any Indebtedness owed to us before it was recorded. The interest of any Beneficiary will be subject to the rights of any assignee of record at our Home Office. 8 8 PREMIUM PROVISIONS PREMIUM PAYMENTS: 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 paid at any time while your Policy is in force subject to the limits described below. Planned Premium payment reminder notices will be furnished upon request. We will send them according to the premium mode shown on the Policy Data Page. You may pay the Initial Premium to us at our Home Office or to an authorized agent. All premiums after the first are payable at our Home Office. Premium receipts will be furnished upon request. LIMITS: Each premium payment must be at least $50. Additional premium payments may be made at any time while your Policy is in force. However, we reserve 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. We may also require that any existing Policy Indebtedness is repaid prior to accepting any additional premium payments. GRACE PERIOD AND GUARANTEED POLICY CONTINUATION PROVISIONS 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 4 times the current monthly deduction. We will send you a notice at the start of the Grace Period, at your address in the application or another address you specify, stating the amount of premium required. The Grace Period will end 61 days after the day we mail you the notice. If you do not pay the required amount by the end of the Grace Period, this Policy will terminate without value. If Death Proceeds become payable during the Grace Period, we will pay the Death Proceeds. GUARANTEED POLICY CONTINUATION PROVISION: During the Guaranteed Policy Continuation Provision Period, we will not lapse this policy if on each Monthly Anniversary Day (1) is greater than or equal to (2) where: 1. is the sum of all premiums paid to date, including the Initial Premium, minus any Indebtedness, and minus any partial surrenders; and 2. is the sum of the Minimum Monthly Premiums due since the Policy Date including such premium for the current Monthly Anniversary Day. The Minimum Monthly Premiums and the Guaranteed Policy Continuation Period are shown on the Policy Data Page. The Minimum Monthly Premiums may vary by policy duration and may be affected by changes to the Policy. REINSTATEMENT: If the Grace Period has ended and you have not paid the required premium and have not surrendered your Policy for its Cash Surrender Value, you may reinstate your Policy if you: 1. submit a written request at any time within 3 years after the end of the Grace Period and prior to the Maturity Date; 2. provide evidence of insurability satisfactory to us; 9 9 3. pay sufficient premium to cover all policy charges that were due and unpaid during the Grace Period; 4. pay sufficient premium to keep the Policy in force for 3 months from the date of reinstatement; and 5. pay or reinstate any Indebtedness against the Policy which existed at the end of the Grace Period. The effective date of a reinstated Policy will be the Monthly Anniversary Day on or next following the date the application for reinstatement is approved by us. If your Policy is reinstated, the Cash Value on the date of reinstatement, but prior to applying any premiums or loan repayments, 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 this Policy is reinstated. Unless you have specified otherwise, all amounts will be allocated based on the Fund allocation factors in effect at the start of the Grace Period. DEATH BENEFIT PROVISIONS DEATH BENEFIT: If the Insured dies while the Policy is in force prior to the Maturity Date, your Policy will provide a death benefit. The death benefit will be determined in accordance with one of the following options, whichever is in effect on the date of the Insured's death, subject to the Minimum Required Death Benefit. The current option in effect is shown on the Policy Data Page. Option 1: The death benefit will be the Specified Amount on the date of death. Option 2: The death benefit will be the Specified Amount plus the Cash Value on the date of death; Option 3: The death benefit will be the Specified Amount plus the Accumulated Premium Account on the date of death. The Accumulated Premium Account is all premium payments accumulated to the date of death less any partial surrenders accumulated to the date of death. The accumulations will be calculated based on the Option 3 interest rate shown on the Policy Data Page. In no event will the Accumulated Premium Account be less than zero or greater than the Maximum Accumulated Premium Account shown on the Policy Data Page. For any death benefit option, the calculation of the Minimum Required Death Benefit is shown on the Policy Data Page. DEATH PROCEEDS: The actual amount of money payable to the Beneficiary if the Insured dies while your Policy is in force prior to the Maturity Date is called the Death Proceeds. The Death Proceeds equals: 1. the death benefit provided by your Policy; plus 2. any insurance on the Insured's life that may be provided by riders to your Policy; minus 3. any Indebtedness; and minus 4. any due and unpaid monthly deductions accruing during the Grace Period. We will pay the Death Proceeds to the Beneficiary after we receive at our Home Office proof of death satisfactory to us and such other information as we may reasonably require. The Death Proceeds will be adjusted under certain conditions. Refer to the Incontestability, Suicide, and Error in Age or Sex Provisions. DEATH BENEFIT OPTION CHANGES: After the first policy year, you may change the death benefit option under your Policy from Option 1 to Option 2 or from Option 2 to Option 1. You may not make a change from or to Option 3. We will adjust the Specified Amount such that the Net Amount At Risk remains 10 10 constant before and after the death benefit option change. The effective date of change will be the Monthly Anniversary Day on or next following the date we approve the request for change. Only one change of option is permitted in a policy year. We will refuse a death benefit option change which would reduce the Specified Amount to a level where the total premiums already paid exceeds the premium limit, if any, established by law to qualify your Policy as a contract for life insurance. In order for a death benefit option change to become effective, the Cash Surrender Value, after the change, must be sufficient to keep the Policy in force for at least 3 months. SPECIFIED AMOUNT INCREASES: At any time after the first policy year, you may request an increase in Specified Amount. Your request must be in writing to our Home Office on our official forms. Any increase shall be subject to the following conditions: 1. you must provide evidence of insurability satisfactory to us; 2. the increase must be for a minimum of $10,000; and 3. the Cash Surrender Value is sufficient to keep this Policy in force for at least 3 months. 4. age limits are the same as for a new issue. An approved increase will have an effective date of the Monthly Anniversary Day on or next following the date we approve the supplemental application unless you request a different date. We reserve the right to limit the number of increases in Specified Amount to one each policy year. SPECIFIED AMOUNT DECREASES: At any time after the first policy year, you may request a decrease in the Specified Amount. Any decrease will be effective on the Monthly Anniversary Day on or next following our receipt of your request unless you request a different date. Any such decrease shall reduce insurance in the following order: 1. against insurance provided by the most recent increase; 2. against the next most recent increases successively; and 3. against insurance provided under the original application. We reserve the right to limit the number of decreases in the Specified Amount to one each policy year. We will refuse a request for a decrease which would: 1. reduce the Specified Amount below the Minimum Specified Amount; or 2. disqualify this Policy as a contract for life insurance. A surrender charge is deducted from the Cash Value for any decrease in the Specified Amount requested by you. Please refer to Surrender Charge Provisions for details. NONFORFEITURE PROVISIONS CASH VALUE: The Cash Value of your Policy is the sum of the Cash Value in each Subaccount, the Fixed Account, and the Policy Loan Account. The Cash Value in each Subaccount on the Initial Investment Date is equal to the portion of the Net Premium allocated to the Subaccount minus a pro-rata monthly deduction for the month following the Policy Date. The Cash Value in each Subaccount on each subsequent Valuation Day is equal to (1) plus (2) plus (3) minus (4) minus (5) minus (6) minus (7), where: 1. is the Cash Value in the Subaccount on the preceding Valuation Day multiplied by its net investment factor for the current Valuation Period; 2. is any Net Premiums or other amounts allocated to the Subaccount during the current Valuation Period; 3. is any amounts transferred to the Subaccount during the current Valuation Period; 4. is any amounts transferred from the Subaccount during the current Valuation Period; 11 11 5. is the portion of any monthly deductions which are due and charged to the Subaccount during the current Valuation Period; and 6. is any Partial Surrender Amounts allocated to the Subaccount during the current Valuation Period. 7. is any surrender charge for decreases in Specified Amount allocated to the Subaccount during the current Valuation Period. The Cash Value in the Policy Loan Account is zero, unless you take a policy loan. If you take a policy loan, then the Cash Value in the Policy Loan Account on the loan date is equal to the amount of the loan. The loan amount is transferred from a Variable Account in proportion to the Cash Value in each Subaccount on the date of the loan. Loan amounts will be transferred from the Fixed Account only when insufficient amounts are available in the Variable Subaccounts. The Cash Value in the Policy Loan Account on each subsequent Valuation Day is equal to (1) plus (2) plus (3) minus (4) minus (5) where: 1. is the Cash Value in the Policy Loan Account on the preceding Valuation Day; 2. is any interest credited during the current Valuation Period; 3. is any amounts transferred to the Policy Loan Account because of additional policy loans and any due and unpaid loan interest during the current Valuation Period; 4. is the amount of any loan repayments you make during the current Valuation Period; and 5. is any amount of interest transferred from the Policy Loan Account to a Variable Account or the Fixed Account during the current Valuation Period. The Cash Value in the Fixed Account is zero unless some or all of the Cash Value is allocated to the Fixed Account. The Cash Value in the Fixed Account on the Initial Investment Date is equal to the portion of the Net Premium allocated to the Fixed Account minus a pro-rata monthly deduction for the month following the Policy Date. The Cash Value in the Fixed Account on each subsequent Valuation Day is equal to (1) plus (2) plus (3) minus (4) minus (5) minus (6) minus (7) where: 1. is the Cash Value in the Fixed Account on the preceding Valuation Day; 2. is any interest credited during the current Valuation Period; 3. is any Net Premiums or other amounts allocated to the Fixed Account during the current Valuation Period; 4. is any amounts transferred from the Fixed Account during the current Valuation Period; 5. is the portion of any monthly deductions which are due and charged to the Fixed Account during the current Valuation Period; and 6. is any Partial Surrender Amounts allocated to the Fixed Account during the current Valuation Period. 7. is any surrender charges for decreases in Specified Amount allocated to the Fixed Account during the current Valuation Period. MONTHLY DEDUCTION: The monthly deduction for each policy month shall be calculated as: 1. the monthly cost of insurance; plus 2. the monthly cost of any additional benefits provided by Riders; plus 3. the monthly expense charges. These charges will not exceed the maximum monthly policy expense charges shown on the Policy Data Page; plus 4. the mortality and expense risk charges. The mortality and expense charges are shown on the Policy Data Page. The monthly deduction will be charged proportionately to the Cash Values in each Subaccount and the Fixed Account. 12 12 MONTHLY COST OF INSURANCE: A deduction will be made on the Policy Date and each Monthly Anniversary Day for the monthly cost of insurance. This monthly deduction will be charged proportionately to the Cash Values in each Subaccount and the Fixed Account. The monthly cost of insurance for each policy month is determined by multiplying the monthly cost of insurance rate by the Net Amount At Risk. The monthly cost of insurance rate is described under the Cost of Insurance Rates Provision. If there have been increases in the Specified Amount, then the Cash Value shall be first 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 increases in Specified Amount in the order of the increases. COST OF INSURANCE RATES: A separate monthly cost of insurance rate is used to obtain the monthly cost of insurance for the Insured's initial Specified Amount and each increase in Specified Amount. Each rate is based on the Insured's Issue Age, sex, underwriting class, and any substandard rating at the time the initial Specified Amount was issued, or increase took effect, and on the duration since that time. Monthly cost of insurance rates will be determined, by us from time to time, based on our expectations as to future experience. Any change in cost of insurance rates will be on a uniform basis for Insureds of the same Issue Age, sex, underwriting class, and any substandard rating whose policies have been in force for the same length of time. These rates will never be greater than the guaranteed maximum monthly cost of insurance rates shown on the Policy Data Page. The basis for these guaranteed maximum cost of insurance rates is shown in the Basis of Computation on the Policy Data Page. INTEREST CREDITING: Any Cash Value allocated to the Policy Loan Account will be credited interest daily. The guaranteed minimum annual effective rate is shown on the Policy Data Page. Interest in excess of the minimum guaranteed rate may be credited. Any Cash Value allocated to the Fixed Account will be credited interest daily. The guaranteed minimum annual effective rate is shown on the Policy Data Page. Interest in excess of the minimum guaranteed rate may be credited. Where required, we have filed our method for determining current interest rates with the Insurance Department of the state in which this Policy was delivered. MINIMUM LEGAL VALUES: The cash surrender, loan and other values in your Policy are at least as large as those set by law in the state where it is delivered. Where required, we have given the insurance regulator a detailed statement of how we compute values and benefits. CONTINUATION OF INSURANCE: If the premium payments are not made, insurance coverage under this Policy and any benefits provided by any Rider will be continued in force. Such coverage will be continued as provided in the Grace Period Provision. This provision will not continue the Policy beyond the Maturity Date nor continue any Rider beyond the date for its termination, as provided in the Rider. SURRENDER CHARGE: When this Policy lapses or is surrendered, a surrender charge is deducted from the Cash Value. Surrender charges are calculated separately for the Initial Specified Amount and each increase in Specified Amount. The amount and duration of the surrender charges for each segment of coverage are shown in the Table of Surrender Charges on the Policy Data Page. If the Specified Amount is decreased at the request of the Owner, a fractional surrender charge is deducted from the Cash Value. This fraction 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. The surrender charge for decreases in Specified Amount will be deducted proportionately from the Cash Value in each Subaccount and the Fixed Account. Surrender charges will not be deducted for decreases in Specified Amount caused by death benefit option changes and partial withdrawals. 13 13 COMPLETE SURRENDER: Your Policy may be surrendered for its Cash Surrender Value at any time while it is in force. You must submit a written request on a form acceptable to us. We may also require the return of your Policy. The date of surrender will be the date we receive your written request at our Home Office. The Cash Surrender Value will be determined as of the end of the Valuation Period during which your request is received. All coverage will end on the date of surrender. PARTIAL SURRENDER: A partial surrender may be made at any time after the first policy year while this Policy is in force. You must submit a written request. We may also require that this Policy be sent to us. We reserve the right to limit the number of partial surrenders in a policy year to one. In addition, a partial surrender will be allowed only if after the partial surrender, this Policy continues to qualify as a contract for life insurance. We reserve the right to deduct a fee from the Partial Surrender Amount you requested. The maximum fee is shown on the Policy Data Page. When a partial surrender is made we will reduce the Cash Value by the Partial Surrender Amount. We will also reduce the Specified Amount by the amount necessary to prevent an increase in the Net Amount At Risk. However, the reduction to the Specified Amount will not be greater than the Partial Surrender Amount less preferred partial surrender, which must meet the conditions below. Also, We will not reduce the Specified Amount below the Minimum Specified Amount. Any such decrease will reduce insurance in the following order: 1. against the insurance provided by the most recent increase; 2. against the next most recent increase successively; and 3. against the insurance under the original application. A preferred partial surrender is a partial surrender that meets these conditions: 1. it occurs before the 15th Policy Anniversary; and 2. its amount does not exceed 10% of the Cash Surrender Value as of the beginning of the policy year. We will allocate partial surrenders among the Subaccounts in proportion to the Cash Value in each Subaccount as of the partial surrender date. Partial surrenders will be transferred from the Fixed Account only when insufficient amounts are available in the Variable Subaccounts. The amount of any partial surrender is subject to the following conditions: 1. the minimum partial surrender is $200; 2. during the first ten policy years, the amount of a partial surrender cannot exceed 10% of Cash Surrender Value as of the beginning of the Policy year. 3. 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 4. a partial surrender may not reduce the Specified Amount below the Minimum Specified Amount. LOAN PROVISIONS POLICY LOAN: You may request a loan at any time while your Policy is in force. The loan must be requested in writing on a form acceptable to us. The amount of the loan and all existing Indebtedness may not be more than the maximum loan value as of the loan date. The loan date is the date we process the loan. The minimum loan amount is $200. The loan will be made upon the sole security of the Policy and proper assignment of your Policy to us. 14 14 MAXIMUM LOAN VALUE: The maximum loan value is (1) plus (2) plus (3) minus (4) on the loan date, where: 1. is 90% of the Cash Value in any Subaccount of the Variable Account 2. is 100% of the Cash Value in the Fixed Account; 3. is 100% of the Cash Value in the Policy Loan Account; and 4. is 100% of the surrender charge. LOAN INTEREST: The loan interest rate is shown on the Policy Data Page. Interest is charged daily and payable at the end of each policy year. Unpaid interest will be added to the existing Indebtedness as of the due date and will be charged interest at the same rate as the rest of the loan. LOAN REPAYMENT: All or part of a loan may be repaid to us at any time while your Policy is in force during the Insured's lifetime. The minimum repayment is $50. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Any Indebtedness that exists at the end of the Grace Period may not be repaid unless this Policy is reinstated. EFFECT OF LOAN: When you take a loan, we will transfer an amount equal to the policy loan from a Variable Subaccount or the Fixed Account to the Policy Loan Account. Any loan interest that becomes due and unpaid will also be so transferred. Amounts transferred to the Policy Loan Account will earn interest daily from the date of transfer. When you repay part or all of a loan, we will transfer an amount equal to the amount you repay from the Policy Loan Account to a Subaccount or the Fixed Account. We reserve the right to require that any loan repayments resulting from loans transferred from the Fixed Account must be allocated to the Fixed Account. Unless you specify otherwise, we will allocate loans among the Subaccounts in proportion to the Cash Value in each Subaccount as of the loan date. Loan Amounts will be transferred from the Fixed Account only when insufficient amounts are available in the Variable Subaccounts. Any loan interest which becomes due and is unpaid will be transferred to the Policy Loan Account in proportion to the Cash Values in each Subaccount and the Fixed Account. Unless specified, loan repayments will be allocated among the Subaccounts using the Fund allocation factors in effect on the date of the repayment subject to any other restrictions the Company may impose. Since the amount you borrow is removed from a Variable Subaccount or the Fixed Account, a loan will have a permanent effect on any death benefit and Cash Surrender Value of this Policy. The effect may be favorable or unfavorable. This is true whether you repay the loan or not. If not repaid, Indebtedness will reduce the amount of any Death Proceeds or Maturity Proceeds. TERMINATION OF POLICY: If the total Indebtedness ever equals or exceeds the Cash Value, your Policy will terminate without value, as described in the Grace Period Provision. EXCHANGE OF POLICY PROVISIONS RIGHT OF EXCHANGE: Within 24 months from the Policy Date, you may exchange this Policy for a new policy on the life of the Insured. We will not require evidence of insurability for this exchange. New policy means the policy for which this Policy may be exchanged. The new policy will not be affected by the investment experience of any separate investment account. 15 15 CONDITIONS: Your right to make this exchange is subject to the following conditions: 1. You must ask for the exchange in writing to our Home Office on our official forms. 2. You must surrender this Policy to us. 3. We must have your written request and this Policy at our Home Office while this Policy is in force and not in its Grace Period. 4. You must pay us any money due on the exchange. EXCHANGE DATE: The exchange date will be the later of: 1. the date we receive this Policy and your written request at our Home Office; or 2. the date we receive at our Home Office any sum due to be paid for such an exchange. This new policy will take effect on the exchange date only if the Insured is then living. This Policy will terminate when the new policy takes effect. NEW POLICY: The new policy may be a Flexible Premium Adjustable Life Insurance Policy offered by us on the Policy Date. The new policy will have a death benefit on the exchange date not more than the death benefit of this Policy immediately prior to the exchange date. The new policy will have the same Policy Date and Issue Age as this Policy. The initial Specified Amount and any increase in Specified Amount will have the same rate class as the one in this Policy. Any Indebtedness may be transferred to the new policy. EXCHANGE AT OTHER TIMES: After 24 months from the Policy Date, you may exchange this Policy for a new policy, subject to our approval. You must furnish any evidence of insurability we require and pay all costs associated with the exchange. VALUATION OF ASSETS IN A VARIABLE ACCOUNT DETERMINING INVESTMENT RESULTS: The Cash Value will change with a change in the investment results of the Subaccounts. An index called an accumulation unit value measures changes in a Subaccount's investment experience. Each Subaccount has its own accumulation unit value. For each Subaccount, the accumulation unit value was initially set at $10.00. The accumulation unit value for a Subaccount in each subsequent Valuation Period is equal to (1), multiplied by (2), where: 1. is the Subaccount's accumulation unit value for the preceding Valuation Period; and 2. is the Subaccount's net investment factor for the subsequent Valuation Period. A net investment factor is defined below. Because the net investment factor may be greater than or less than one, the accumulation unit value may increase or decrease from one Valuation Period to the next; however, the accumulation unit value remains constant throughout a Valuation Period. NET INVESTMENT FACTOR: The net investment factor for a Subaccount for a Valuation Period is obtained by dividing (1) by (2), where: 1. is the net of: (a) the net asset value per share of the Fund held in the Subaccount at the end of the current Valuation Period; plus (b) the per share amount of any dividend and capital gains distributions made by the Fund held in the Subaccount if the "ex-dividend" date occurs during the current Valuation Period; plus or minus 16 16 (c) a 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 Subaccount. 2. is the net of: (a) the net asset value per share of the Fund held in the Subaccount determined as of the end of the immediately preceding Valuation Period; plus or minus (b) the per share charge or credit for taxes reserved for in the immediately preceding Valuation Period. VARIABLE ACCOUNT PROVISIONS VARIABLE ACCOUNT: A Variable Account is a separate investment account of the Company. One or more are named on the Policy Data Page. A Variable Account is also subject to the laws of Ohio. We own the assets of any Variable Account; we keep them separate from the assets of our General Account. We maintain assets which are at least equal to the reserves and other liabilities of a Variable Account. Such assets will not be charged with liabilities that arise from any other business we conduct. We may transfer to our General Account assets which exceed the reserves and other liabilities of a Variable Account. We will determine the value of the assets in a Variable Account at the end of each Valuation Day. SUBACCOUNTS: A Variable Account may have several Subaccounts. We list them on the Policy Data Page. You determine, using Fund allocation factors, how Net Premiums will be allocated among the Subaccounts. You may choose to allocate nothing to a particular Subaccount. Any allocation you make must be at least 5%; you may not choose a fractional percent. The sum of the Fund allocation factors must equal 100%. In states that require a full refund of premiums during the "Right to Examine Policy" period, Net Premiums will be allocated to a Subaccount that invests in a money market Fund or to the Fixed Account. The day following the end of this period, the Cash Value in that Subaccount will be transferred to the Variable Subaccounts according to your chosen Fund allocation factors. Also, any subsequent Net Premiums will be allocated according to your chosen factors. Fund allocation factors during and immediately after the "Right to Examine Policy" period, are shown on the Policy Data Page. After the "Right to Examine Policy" period has expired, you may transfer amounts among the Subaccounts. Transfers will take effect on the date your written request is received at our Home Office, subject to any restrictions imposed by a Fund. You may change the allocation for future Net Premiums at any time while your Policy is in force. To do so, you must notify us in writing in a form that meets our approval. The change will take effect on the date we receive your written request at our Home Office. Income and realized and unrealized gains and losses from assets in each Subaccount are credited to, or charged against, the Subaccount. This is without regard to income, gains, or losses in our other Subaccounts, separate investment accounts, or our General Account. CHANGES OF FUND: A Fund might, in our judgment, become unsuitable for investment by a Subaccount. This might happen because of a change in investment policy, a change in the laws or regulations, the shares are no longer available for investment, or for some other reason. If that occurs, we have the right to substitute another Fund. But we would first notify you and seek approval from the SEC and the Superintendent of Insurance of the State of Ohio. We would also get any other required approvals. 17 17 OTHER CHANGES: To the extent permitted by applicable laws and regulations (including any order of the SEC), we may make changes as follows: 1. A Variable Account may be operated as a management company under the Investment Company Act of 1940, or in any other form permitted by law, if we deem it to be in the best interest of the Policy Owners. 2. A Variable Account may be deregistered under the Investment Company Act of 1940 in the event registration is no longer required. 3. A Variable Account may be combined with other separate investment accounts. 4. The provisions of this and other policies may be modified to comply with any other applicable federal or state laws. In the event of such changes, we may make appropriate endorsement on this and other policies having an interest in a Variable Account and take other actions as may be necessary to effect such a change. FIXED ACCOUNT PROVISIONS FIXED ACCOUNT: The Fixed Account is funded by the General Account of the Company. The Fixed Account is credited with interest as described under the Nonforfeiture Provisions. In addition to allocating your Net Premiums to one or more of the Subaccounts described above, you may direct all or part of your Net Premiums into the Fixed Account. RIGHT TO TRANSFER: You may transfer amounts between the Fixed Account and the Subaccounts, subject to the limits below, without penalty or adjustment. We reserve the right to limit the number of transfers between the Fixed Account and the Subaccounts during any policy year to one. We reserve the right to limit the amount transferred from the Fixed Account during a policy year to 20% of that portion of the Cash Value attributable to the Fixed Account at the end of the prior policy year. Transfers to the Fixed Account may not be made prior to the first Policy Anniversary or within 12 months or any prior transfer. We reserve the right to restrict the amount transferred to the Fixed Account to 20% of that portion of the Cash Value attributable to the Subaccounts at the end of the prior Valuation Period. We reserve the right to refuse transfers to the Fixed Account if the Fixed Account is greater than or equal to 30% of the Cash Value. OPTIONAL MODES OF SETTLEMENT PROVISIONS Proceeds may be paid in a lump sum. Optional modes of settlement are also available. After the Proceeds are applied under such optional modes, any amounts payable are paid from our General Account and will not be affected by the investment experience of any separate investment account. One or a combination of settlement options may be chosen. A settlement option may be chosen only if the total amount placed under the option is at least $2,000.00 and each payment is at least $20.00. A settlement option election may be changed at any time by proper written request to our Home Office. Once recorded, it will become effective on the date it was requested. We may require proof of the age of any person to be paid under a settlement option. While this Policy is in force, you may choose or change settlement options at any time. If no settlement option has been chosen prior to the Insured's death, the Beneficiary may choose one. A change of Beneficiary automatically revokes any option in effect. When Proceeds become payable under any option, a Settlement Contract is issued in exchange for this Policy. The new contract's effective date is the date of the Insured's death or the date this Policy is surrendered. Settlement option payments are not assignable. To the extent allowed by law, settlement option payments are not subject to the claims of creditors or to legal process. Under Options 2, 3, 4, and 5, payments will be made at the beginning of each 12, 6, 3, or 1 month interval beginning on the effective date of the Settlement Contract. Under Option 1 and 6, payments will be made at the end of every 12, 6, 3, or 1 month interval from the Settlement Contract's effective date. 18 18 Under Options 1, 2, and 4, withdrawal of any outstanding balance may be made by written request to our Home Office. No amount left with us under Options 3, 5, or 6 may be withdrawn. Options 1, 2, 4, and the guaranteed period of Option 3, provide for payment of interest at a guaranteed minimum interest rate of 2-1/2% per year, compounded annually. Any interest to be paid in excess of this rate will be determined once a year. 1. OPTION 1 - INTEREST INCOME: The Proceeds remain with us to earn interest. This interest may be left to accumulate or be paid periodically as stated above. 2. OPTION 2 - INCOME FOR A FIXED PERIOD: Proceeds remaining with us will be paid over a specified number of years (not exceeding 30 years). Each payment consists of a portion of the Proceeds plus a portion of the interest credited on the outstanding balance. The amount payable monthly for each $1,000 left with us will be at least the amount shown in the Option 2 Table. 3. OPTION 3 - LIFE INCOME WITH PAYMENTS GUARANTEED: Payments are made for a guaranteed period of 10, 15, or 20 years, and thereafter for the remainder of a payee's lifetime. The amount payable monthly for each $1,000 left with us is shown in the Option 3 Table, according to the payee's age on the effective date of the option. 4. OPTION 4 - FIXED INCOME FOR VARYING PERIODS: The Proceeds may be left on deposit with us at interest with payments of a fixed amount being paid at specified intervals until principal and interest have been exhausted. The last payment will be for the balance only. The total amount payable each year may not be less than 5% of the original proceeds. (i.e., not less than $50 per annum of each $1,000 of original proceeds.) 5. OPTION 5 - JOINT AND SURVIVOR LIFE INCOME: Equal payments will be made for the longer of the lives of two named payees. In other words, when one payee dies, the same payment continues to be paid for the remainder of the surviving payee's life. We will furnish values for other age combinations (than those shown in Option 5 Table) upon request. 6. OPTION 6 - ALTERNATE LIFE INCOME: We will use the Proceeds to purchase an annuity. The amount payable will be 102% of our current individual immediate annuity purchase rate on the effective date of the Settlement Contract. We reserve the right to change our current annuity rates at any time. However, once this option has been selected and the Settlement Contract issued, any revision in rates will not affect payment to a payee or payees. Upon request, we will quote the amount currently payable under this settlement option. 19 19 TABLES FOR SETTLEMENT OPTIONS Monthly Installments for each $1,000 of Proceeds Option 2 - Income for a Fixed Period OPTION 2
- ----------------------------------------------------------------------------------------------------------------- Number of Years Specified Amount of Each Installment Number of Years Specified Amount of Each Installment - ------------------------- -------------------------- ------------------------- -------------------------- 1 $84.28 16 $6.30 2 42.66 17 6.00 3 28.79 18 5.73 4 21.86 19 5.49 5 17.70 20 5.27 6 14.93 21 5.08 7 12.95 22 4.90 8 11.47 23 4.74 9 10.32 24 4.60 10 9.39 25 4.46 11 8.64 26 4.34 12 8.02 27 4.22 13 7.49 28 4.12 14 7.03 29 4.02 15 6.64 30 3.93 - ----------------------------------------------------------------------------------------------------------------- Annual, semi-annual or quarterly payments are 11.865, 5.969 and 2.994 respectively times the monthly installments. - -----------------------------------------------------------------------------------------------------------------
Monthly Installments for each $1,000 of Proceeds Option 3 - Life Income with Payments Guaranteed OPTION 3
- ----------------------------------------------------------------------------------------------------------------- GUARANTEED PERIOD GUARANTEED PERIOD GUARANTEED PERIOD AGE OF PAYEE ----------------- AGE OF PAYEE ----------------- AGE OF PAYEE ----------------- LAST BIRTHDAY YEARS LAST BIRTHDAY YEARS LAST BIRTHDAY YEARS - ----------------------------------------------------------------------------------------------------------------- MALE FEMALE 10 15 20 MALE FEMALE 10 15 20 MALE FEMALE 10 15 20 - ----------------------------------------------------------------------------------------------------------------- ------- 5 & 10 & Under Under 2.54 2.54 2.53 30 35 3.11 3.10 3.09 55 60 4.78 4.62 4.39 6 11 2.55 2.55 2.55 31 36 3.15 3.14 3.12 56 61 4.90 4.71 4.45 7 12 2.57 2.56 2.56 32 37 3.18 3.18 3.16 57 62 5.01 4.80 4.52 8 13 2.58 2.58 2.58 33 38 3.23 3.22 3.20 58 63 5.14 4.90 4.59 9 14 2.60 2.59 2.59 34 39 3.27 3.26 3.24 59 64 5.26 5.00 4.65 10 15 2.61 2.61 2.61 35 40 3.31 3.30 3.28 60 65 5.40 5.10 4.71 11 16 2.63 2.63 2.62 36 41 3.36 3.35 3.32 61 66 5.54 5.20 4.77 12 17 2.65 2.64 2.64 37 42 3.41 3.39 3.36 62 67 5.68 5.30 4.83 13 18 2.66 2.66 2.66 38 43 3.46 3.44 3.41 63 68 5.83 5.40 4.89 14 19 2.68 2.68 2.68 39 44 3.51 3.49 3.46 64 69 5.99 5.50 4.94 15 20 2.70 2.70 2.70 40 45 3.57 3.54 3.50 65 70 6.16 5.61 4.99 16 21 2.72 2.72 2.72 41 46 3.63 3.60 3.55 66 71 6.33 5.71 5.03 17 22 2.74 2.74 2.74 42 47 3.69 3.66 3.60 67 72 6.50 5.81 5.07 18 23 2.77 2.76 2.76 43 48 3.76 3.72 3.66 68 73 6.68 5.90 5.11 19 24 2.79 2.79 2.78 44 49 3.82 3.78 3.71 69 74 6.86 5.99 5.14 20 25 2.81 2.81 2.80 45 50 3.89 3.84 3.77 70 75 7.05 6.08 5.17 21 26 2.84 2.83 2.83 46 51 3.97 3.91 3.82 71 76 7.23 6.16 5.19 22 27 2.86 2.86 2.85 47 52 4.04 3.98 3.88 72 77 7.42 6.24 5.21 23 28 2.89 2.88 2.88 48 53 4.12 4.05 3.94 73 78 7.61 6.30 5.23 24 29 2.92 2.91 2.91 49 54 4.21 4.12 4.00 74 79 7.79 6.37 5.24 25 30 2.94 2.94 2.93 50 55 4.29 4.20 4.07 75 80 7.97 6.42 5.25 26 31 2.97 2.97 2.96 51 56 4.38 4.28 4.13 76 81 8.14 6.47 5.26 27 32 3.01 3.00 2.99 52 57 4.48 4.36 4.19 77 82 8.31 6.51 5.26 28 33 3.04 3.03 3.02 53 58 4.57 4.44 4.26 78 83 8.46 6.54 5.27 29 34 3.07 3.07 3.06 54 59 4.68 4.53 4.32 79 84 8.61 6.57 5.27 80 & 85 & Over Over 8.74 6.59 5.27 - ----------------------------------------------------------------------------------------------------------------- If the income payable for a specific guaranteed period is equal to that for other guarantee periods the longer period will be deemed to have been elected. - -----------------------------------------------------------------------------------------------------------------
Monthly Installments for each $1,000 of Proceeds Option 5 - Joint & Survivor Life Income OPTION 5
Male Female 50 55 60 65 70 - ------------------------------------------------------------------------------------------------------- 50 3.53 3.71 3.86 4.00 4.11 55 3.62 3.86 4.09 4.30 4.48 60 3.70 4.00 4.30 4.60 4.89 65 3.77 4.11 4.48 4.89 5.30 70 3.83 4.20 4.63 5.13 5.70 - -------------------------------------------------------------------------------------------------------
20 NATIONWIDE LIFE INSURANCE COMPANY ENDORSEMENTS (Endorsements may be made only by the Company at the Home Office) 21 LOGO NATIONWIDE LIFE INSURANCE COMPANY FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY o Adjustable Death Benefit o Flexible premiums payable during Insured's lifetime until the Maturity Date o Death Proceeds payable at Insured's death prior to the Maturity Date o Maturity Proceeds payable on the Maturity Date o Not eligible for dividends o Investment experience reflected in benefits EX-7 4 EXHIBIT 7 1 DRUEN, DIETRICH, REYNOLDS & KOOGLER ATTORNEYS AT LAW ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 (614) 249-7617 FACSIMILE: (614) 249-2418 BRIAN M. BACON LEROY JOHNSTON, III PETER J. OESTERLING** THERESA R. SCHAEFER THOMAS E. BARNES MARK B. KOOGLER RANDALL L. ORR W. JOSEPH SCHLEPPI ROGER A. CRAIG WALTER R. LEAHY ROBERT M. PARSONS DAVID E. SIMAITIS RAE ANN DANKOVIC* GEORGE K. MACKLIN THOMAS J. PRUNTE KENT N. SIMMONS ELIZABETH A. DAVIN RANDALL W. MAY ARLENE L. REILLY LEE A. THORNBURY THOMAS W. DIETRICH M. LINDA MAZZITTI LUCINDA A. REYNOLDS PHILIP W. WHITAKER W. SIDNEY DRUEN DAVID A. MEYER DANIEL R. RUPP DAVID L. WHITE JEANNE A. GRIFFIN SANDRA L. NEELY ANNE DANZA SAXON STEVEN L. ZISSER Practice limited to Nationwide Insurance Companies and their associated companies * Practice limited to the State of Michigan ** Practice limited to the State of Pennsylvania
July 17, 1997 Nationwide Life Insurance Company One Nationwide Plaza Columbus, Ohio 43216 Ladies and Gentlemen: We have prepared the Registration Statement filed with the Securities and Exchange Commission for the purpose of registering under the Securities Act of 1933, as amended, Flexible Premium Variable Universal Life Insurance Policies to be sold by Nationwide Life Insurance Company ("Nationwide") and to be issued and administered through Nationwide VLI Separate Account-4. In connection therewith, we have examined the Articles of Incorporation, Code of Regulations and Bylaws of Nationwide, minutes of meetings of the Board of Directors, pertinent provisions of federal and Ohio Laws, together with such other documents as we have deemed relevant for the purposes of this opinion. Based on the foregoing, it is our opinion that: 1. Nationwide is a stock life insurance corporation duly organized and validly existing under the laws of the State of Ohio and duly authorized to issue and sell life insurance and annuity contracts. 2. Nationwide VLI Separate Account-4 has been properly created and is a validly existing separate account pursuant to the laws of the State of Ohio. 3. The issuance and sale of the Flexible Premium Variable Universal Life Insurance Policies have been duly authorized by Nationwide. As issued and sold in the manner stated in the prospectus constituting a part of the Registration Statement, the Policies will be legal and binding obligations of Nationwide in accordance with their terms, except that clearance must be obtained, or the contract form must be approved, prior to the issuance thereof in certain jurisdictions. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the Caption "Legal Opinions" in the prospectus contained in the Registration Statement. Very truly yours, DRUEN, DIETRICH, REYNOLDS & KOOGLER /s/ Brian M. Bacon Brian M. Bacon BMB/bt -----END PRIVACY-ENHANCED MESSAGE-----