-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pFlmhvwsjyqMY6gTMMWJ1vFcppprzw4kEtpzEWgdcunqt7KGKjwWqvE99GI4+GhR PsQparLf/+rIbtRAB75OIw== 0000950152-95-000842.txt : 19950505 0000950152-95-000842.hdr.sgml : 19950505 ACCESSION NUMBER: 0000950152-95-000842 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950504 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 2 CENTRAL INDEX KEY: 0000820914 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-35783 FILM NUMBER: 95534582 BUSINESS ADDRESS: STREET 1: ONE NATIONWIDE PLZ STREET 2: C/O NATIONWIDE LIFE INSURANCE CO CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 614-249-7111 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 424B3 1 NATIONWIDE VLI SEPARATE ACCOUNT-2 1 Offered by Nationwide Life Insurance Company NATIONWIDE LIFE INSURANCE COMPANY Nationwide VLI Separate Account - 2 Individual Multiple Payment Variable Life Insurance Contract PROSPECTUS May 1, 1995 2 NATIONWIDE LIFE INSURANCE COMPANY P.O. Box 182150 Columbus, Ohio 43218-2150 (800) 547-7548, TDD (800) 238-3035 MULTIPLE PAYMENT VARIABLE LIFE INSURANCE POLICIES ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2 The Life Insurance Policies offered by this prospectus are variable life insurance policies (collectively referred to as the "Policies"). The Policies are designed to provide life insurance coverage on the Insured named in the Policy. The Policies may also provide a Cash Surrender Value if the Policy is terminated during the lifetime of the Insured. The death benefit and Cash Value of the Policies may vary to reflect the experience of the Nationwide VLI Separate Account-2 (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 Policies are designed to generally require the payment of the Guideline Single Premium in five annual installments for death benefit Option 1 and five or more annual Guideline Level Premiums under death benefit Option 2. 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 mutual fund of the following series of the underlying variable account Mutual Fund options: FIDELITY VARIABLE INSURANCE PRODUCTS FUND: OPPENHEIMER VARIABLE ACCOUNT FUNDS: -High Income Portfolio* -Bond Fund -Equity Income Portfolio -Multiple Strategies Fund -Growth Portfolio STRONG VARIABLE INSURANCE PRODUCTS FUNDS: -Overseas Portfolio -Special Fund II, Inc. FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: -Discovery Fund II, Inc. -Asset Manager Portfolio TCI PORTFOLIOS, INC.: NATIONWIDE SEPARATE ACCOUNT TRUST: -TCI Growth -Capital Appreciation Fund -TCI Balanced -Money Market Fund VAN ECK WORLDWIDE INSURANCE TRUST -Government Bond Fund (FORMERLY VAN ECK INVESTMENT TRUST): -Total Return Fund -Gold and Natural Resources Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST: -Worldwide Bond Fund (Formerly Global -Limited Maturity Bond Portfolio Bond Fund) -Growth Portfolio
*The High Income Portfolio may invest in lower quality debt securities commonly referred to as junk bonds. 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. Also, during the first five Policy Years, the total premium payments less any existing Policy Indebtedness must be greater than or equal to the Minimum Premium requirement in order for the Policy to continue in force. 1 3 This prospectus generally describes only that portion of the Cash Value allocated to the Variable Account. For a brief summary of the Fixed Account Option, see "The Fixed Account Option." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH. The date of this Prospectus is May 1, 1995 2 4 GLOSSARY OF TERMS ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full years since the Policy Date. ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable Account Cash Value. 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 any Surrender Charge. CODE- The Internal Revenue Code of 1986, as amended. DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies while the Policy is in force. FIXED ACCOUNT- An investment option which is funded by the General Account of the Company. GENERAL ACCOUNT- All assets of the Company other than those of the Variable Account or in other separate accounts that have been or may be established by the Company. GUIDELINE LEVEL PREMIUM- The amount of level annual premium calculated in accordance with the provisions of the Internal Revenue Code of 1986, as amended. It represents the level annual premiums required to mature the Policy under guaranteed mortality and expense charges, and an interest rate of 4%. GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance with the provisions of the Internal Revenue Code of 1986, as amended. It represents the single premium required to mature the Policy under guaranteed mortality and expense charges, and an interest rate of 6%. INDEBTEDNESS- Amounts owed the Company as a result of Policy loans including both principal and accrued interest. INITIAL PREMIUM- The Initial Premium is the premium required for coverage to become effective on the Policy Date. It is shown on the Policy Data Page. INSURED- The person whose life is covered by the Policy, and who is named on the Policy Data Page. MATURITY DATE- The Policy Anniversary on or following the Insured's 95th birthday. MINIMUM PREMIUM- The Minimum Premium is shown on the Policy Data Page. It is used to measure the total amount that must be paid during the first five Policy Years to continue the Policy in force. MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding month. MUTUAL FUNDS- The underlying mutual funds which correspond to the sub-accounts of the Variable Account. 3 5 NET PREMIUMS- Net Premiums are equal to the actual premiums minus the percent of premium charge. The percent of premium charges are shown on the Policy Data Page. POLICY ANNIVERSARY- The same day and month as the Policy Date for succeeding years. POLICY CHARGES- All deductions made from the value of the Variable Account, or the Policy Cash Value. POLICY DATE- The date the provisions of the Policy take effect, as shown on the Policy Owner's Policy Data Page. POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy Indebtedness. POLICY OWNER- The person designated in the Policy application as the Owner. In the State of New York, the variable life insurance Policies offered by the Company are offered as "Certificates" for "Certificate Owners" under a group contract rather than individual Policies. The provisions of both these Certificates and the Policies are essentially the same and references to the provisions of Policies and rights of Policy Owners in this prospectus include Certificates and Certificate Owners. 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. It is used to calculate the initial Specified Amount. SPECIFIED AMOUNT- A dollar amount used to determine the death benefit under a Policy. It is shown on the Policy Data Page. SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is surrendered. UNSCHEDULED PREMIUM- Additional premium payments which may be allowed under certain conditions. 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. 4 6 TABLE OF CONTENTS GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SUMMARY OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Variable Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 The Variable Account and its Sub-Accounts . . . . . . . . . . . . . . . . . . . . . 8 The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 NATIONWIDE LIFE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Investments of the Variable Account . . . . . . . . . . . . . . . . . . . . . . . . 12 Fidelity's Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . . 13 Fidelity's Variable Insurance Products Fund II . . . . . . . . . . . . . . . . . . 14 Nationwide Separate Account Trust . . . . . . . . . . . . . . . . . . . . . . . . . 14 Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . . 15 Oppenheimer Variable Account Funds . . . . . . . . . . . . . . . . . . . . . . . . 15 Strong Variable Insurance Products Funds . . . . . . . . . . . . . . . . . . . . . 16 TCI Portfolios, Inc., member of the Twentieth Century Family of Mutual Funds . . . 16 Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust) . . . . . . . 17 Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Substitution of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Underwriting and Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 -Minimum Requirements for Issuance of a Policy . . . . . . . . . . . . . . . . . . 20 -Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Allocation of Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Short-Term Right to Cancel Policy . . . . . . . . . . . . . . . . . . . . . . . . . 21 POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 -Reductions to Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . 22 Deductions from Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 -Monthly Cost of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 -Monthly Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Deductions from the Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 24 HOW THE CASH VALUE VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 How the Investment Experience is Determined . . . . . . . . . . . . . . . . . . . . 24 Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Determining the Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Valuation Periods and Valuation Dates . . . . . . . . . . . . . . . . . . . . . . . 26 SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5 7 Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Maturity Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Taking a Policy Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Effect on Investment Performance . . . . . . . . . . . . . . . . . . . . . . . . . 27 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Effect on Death Benefit and Cash Value . . . . . . . . . . . . . . . . . . . . . . 28 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Calculation of the Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 28 Proceeds Payable on Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY . . . . . . . . . . . . . . . . . . . . . . . 30 CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 -First Five Policy Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 -Policy Years Six and After . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 -All Policy Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 CHANGES IN EXISTING INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Specified Amount Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Specified Amount Decreases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Changes in the Death Benefit Option . . . . . . . . . . . . . . . . . . . . . . . . 33 OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Nonparticipating Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 CUSTODIAN OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 39 OTHER CONTRACTS ISSUED BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6 8 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 APPENDIX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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. 7 9 THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. SUMMARY OF THE POLICIES VARIABLE LIFE INSURANCE The variable life insurance Policies offered by Nationwide Life Insurance Company (the "Company") are similar in many ways to fixed-benefit whole life insurance. As with fixed-benefit whole life insurance, the Owner of the Policy pays a premium for life insurance coverage on the person insured. Also like fixed-benefit whole life insurance, the Policies may provide for a Cash Surrender Value which is payable if the Policy is terminated during the Insured's lifetime. As with fixed-benefit whole life insurance, the Cash Surrender Value during the early Policy years may be substantially lower than the premiums paid. However, the Policies differ from fixed-benefit whole life insurance in several respects. Unlike fixed-benefit whole life insurance, the death benefit and Cash Value of the Policies may increase or decrease to reflect the investment performance of the Variable Account sub-accounts or the Fixed Account to which Cash Values are allocated (See "How the Death Benefit Varies"). There is no guaranteed Cash Surrender Value (See "How the Cash Value Varies"). If the Cash Surrender Value is insufficient to pay the Policy Charges, the Policy will lapse without value. Also, during the first five Policy Years, the total premium payments less any existing Policy Indebtedness must be greater than or equal to the Minimum Premium requirement in order for the Policy to continue in force. The Policies are designed to generally permit the payment of the Guideline Single Premium in five annual installments for death benefit Option 1 and five annual Guideline Level Premiums under death benefit Option 2. The Policies are designed to avoid classification as modified endowment contracts under Section 7702A of the Internal Revenue Code (the "Code"), which provides for taxation of surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions in the same way as annuities are taxed. Under certain conditions, a Policy may become a modified endowment contract as a result of a material change or a reduction in benefits as defined by the Code. Excess premiums paid may also cause the Policy to become a modified endowment contract. The Company will monitor premiums paid and other policy transactions and will notify the Policy Owner when the Policy's non-modified endowment contract status is in jeopardy (See "Tax Matters"). THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS The Company places the Policy's Net Premiums in the Variable Account or the Fixed Account at the time the Policy is issued. The Policy Owner chooses the sub-accounts of the Variable Account or the Fixed Account into which the Cash Value will be allocated (See "Allocation of Cash Value"). Assets of each sub-account are invested at net asset value in shares of a corresponding underlying Mutual Fund option. For a description of the underlying Mutual Fund option and its investment objectives, see the "Investments of the Variable Account" located in this prospectus. 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 8 10 rate declared is at the Company's sole discretion, but may never be less than an effective annual rate of 4%. DEDUCTIONS AND CHARGES The Company deducts certain charges from the assets of the Variable Account and the Cash Value of the Policy. These charges are made for administrative and sales expenses, state premium taxes, providing life insurance protection and assuming the mortality and expense risks. For a discussion of any charges imposed by the underlying Mutual Fund options, see the prospectuses of the respective underlying mutual funds. The Company deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. (The Company may reduce this sales loading at its sole discretion.) The total sales load actually deducted from any Policy will be equal to the sum of the 3.5% front-end sales load plus any sales surrender charge that may be deducted from Policies that are surrendered. The Company also deducts a charge for state premium taxes equal to 2.5% of all premium payments. The Company also deducts the following charges from the Policy's Cash Value on the Policy Date and each subsequent Monthly Anniversary Day: 1. monthly cost of insurance; plus 2. monthly cost of any additional benefits provided by riders to the Policy; plus 3. a current administrative expense charge of $5. This charge may be increased at the sole discretion of the Company but may not exceed $7.50. The Company also deducts on a daily basis from the assets of the Variable Account a charge to provide for mortality and expense risks. This charge is equal on an annual basis to 0.80% of the Variable Account assets. For Policies which are surrendered during the first nine Policy Years, the Company deducts a Surrender Charge. This Surrender Charge is comprised of an Underwriting Surrender Charge and a Sales Surrender Charge. The initial Surrender Charge varies by issue age, sex and underwriting classification and is calculated based on the initial Specified Amount. The following table illustrates the 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). Special guaranteed maximum Surrender Charges apply in Pennsylvania (See Appendix 1).
Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard 25 $5.878 $5.537 $6.680 $5.945 35 7.260 6.712 8.559 7.373 45 11.159 10.160 13.244 11.151 55 15.275 13.375 18.373 14.686 65 23.821 20.553 27.943 22.165
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 9 11 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:
Management Total Fees Other Expenses Expenses Fidelity VIP-Equity-Income 0.52% 0.06% 0.58% Portfolio Fidelity VIP-Growth Portfolio 0.62% 0.07% 0.69% Fidelity VIP-High Income Portfolio 0.61% 0.10% 0.71% Fidelity VIP-Overseas Portfolio 0.77% 0.15% 0.92% Fidelity VIP-Asset Manager 0.72% 0.07% 0.79% Portfolio NSAT-Capital Appreciation Fund 0.50% 0.06% 0.56% NSAT-Government Bond Fund 0.50% 0.01% 0.51% NSAT-Money Market Fund 0.50% 0.04% 0.54% NSAT-Total Return Fund 0.50% 0.02% 0.52% Neuberger & Berman Advisers 0.79% 0.12% 0.91% Management Trust-Growth Portfolio Neuberger & Berman Advisers 0.60% 0.13% 0.73% Management Trust-Limited Maturity Bond Portfolio Oppenheimer-Bond Fund 0.75% 0.06% 0.81% Oppenheimer-Multiple Strategies 0.74% 0.05% 0.79% Strong Discovery Fund II, Inc. 1.00% 0.21% 1.21% Strong Special Fund II, Inc. 1.00% 0.10% 1.10% TCI Portfolios-TCI Balanced 1.00% 0.00% 1.00% TCI Portfolios-TCI Growth 1.00% 0.00% 1.00% Van Eck-Worldwide Bond Fund 0.75% 0.18% 0.93% Van Eck-Gold and Natural Resources 0.75% 0.21% 0.96%
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. 10 12 PREMIUMS The minimum Initial Premium for which a Policy may be issued is $2,000. A Policy may be issued to an insured up to age 75. For a limited time, the Policy Owner has a right to cancel the Policy and receive a full refund of premiums paid (See "Short-Term Right to Cancel Policy"). The Initial Premium is due on the Policy Date. It will be credited on the 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 your Policy is in force subject to the limits described below. During the first five Policy Years, the total premium payments less any Policy Indebtedness must be greater than or equal to the Minimum Premium in order for the Policy to continue in force. The Minimum Premium is equal to the monthly Minimum Premium multiplied by the number of completed policy months. The monthly Minimum Premium is shown on the Policy data page. We will send Scheduled Premium payment reminder notices to you. We will send them according to the premium mode shown on the Policy data page. You may pay the Initial Premium to us at our home office or to an authorized agent. All premiums after the first are payable at our home office. Premium receipts will be furnished upon request. Each premium must be at least equal to the monthly Minimum Premium. The Company reserves the right to require satisfactory evidence of insurability before accepting any additional premium payment which results in 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. 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 Company, National Casualty Company, West Coast Life Insurance 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, including annuities and accident and health insurance. It is admitted to do business in all states, the District of Columbia, and Puerto Rico (For additional information, see "The Company"). THE VARIABLE ACCOUNT The Variable Account was established by a resolution of the Company's Board of Directors, on May 7,1987, pursuant to the provisions of Ohio law. The Company has caused the Variable Account to be registered with the Securities and Exchange Commission as a unit investment trust pursuant to the 11 13 provisions of the Investment Company Act of 1940. Such registration does not involve supervision of the management of the Variable Account or the Company by the Securities and Exchange Commission. The Variable Account is a separate investment account of the Company and as such, is not chargeable with the liabilities arising out of any other business the Company may conduct. The Company does not guarantee the investment performance of the Variable Account. The death benefit and Cash Value under the Policy may vary with the investment performance of the investments in the Variable Account (See "How the Death Benefit Varies" and "How the Cash Value Varies"). Net Premium payments and Cash Value are allocated within the Variable Account among one or more sub-accounts (See "Tax Matters"). The assets of each sub-account are used to purchase shares of the underlying Mutual Funds designated by the Policy Owner. Thus, the investment performance of a Policy depends upon the investment performance of the underlying Mutual Funds designated by the Policy Owner. INVESTMENTS OF THE VARIABLE ACCOUNT At the time of application, the Policy Owner elects to have the Net Premiums allocated among one or more of the Variable Account sub-accounts and the Fixed Account (See "Allocation of Cash Value"). During the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy, all Net Premiums not allocated to the Fixed Account are placed in the Nationwide Separate Account Trust Money Market Fund sub-account. At the end of this period, the Cash Value in that sub-account will be transferred to the Variable Account sub-accounts based on the underlying Mutual Fund allocation factors. Any subsequent Net Premiums received after this period will be allocated based on the underlying Mutual Fund allocation factors. No less than 5% of Net Premiums may be allocated to any one sub-account or the Fixed Account. The Policy Owner may change the allocation of Net Premiums or may transfer Cash Value from one sub-account to another, subject to such terms and conditions as may be imposed by each underlying Mutual Fund option and as set forth in this prospectus (See "Transfers", "Allocation of Cash Value" and "Short-Term Right to Cancel Policy"). These underlying Mutual Fund options are available only to serve as the underlying investment for variable annuity and variable life contracts issued through separate accounts of life insurance companies which may or may not be affiliated, also known as "mixed and shared funding." There are certain risks associated with mixed and shared funding, which are disclosed in the underlying Mutual Funds' prospectuses. A full description of the underlying Mutual Fund options, their investment policies and restrictions, risks and charges are contained in the prospectuses of the respective underlying Mutual Funds. Each of the underlying Mutual Funds is a registered investment company which receives investment advice from a registered investment adviser: 1) Fidelity Variable Insurance Products Fund, managed by Fidelity Management & Research Company; 2) Fidelity Variable Insurance Products Fund II, managed by Fidelity Management & Research Company; 3) The Nationwide Separate Account Trust, managed by Nationwide Financial Services, Inc.; 12 14 4) The Neuberger & Berman Advisers Management Trust, managed by Neuberger & Berman Management Incorporated; 5) Oppenheimer Variable Account Funds, managed by Oppenheimer Management Corporation; 6) Strong Variable Insurance Products Funds, managed by Strong/Corneliuson Capital Management, Inc.; 7) TCI Portfolios, Inc., managed by Investors Research Corporation, an affiliate of Twentieth Century Companies; and, 8) Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust), managed by Van Eck Associates Corporation. A summary of investment objectives is contained in the description of each underlying Mutual Fund option below. More detailed information may be found in the current prospectus for each underlying Mutual Fund. A prospectus for the underlying Mutual Fund option(s) being considered must accompany this prospectus and should be read in conjunction herewith. FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND The Fund is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. The Fund's shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. FMR is the Fund's manager. - - HIGH INCOME PORTFOLIO Investment Objective: To obtain a high level of current income by investing primarily in high-risk, high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. The Fund's manager will seek high current income normally by investing the Fund's assets as follows: - at least 65% in income-producing debt securities and preferred stocks, including convertible securities, zero coupon securities, and mortgage-backed and asset-backed securities; - up to 20% in common stocks and other equity securities when consistent with the Fund's primary objective or acquired as part of a unit combining fixed-income and equity securities. Higher yields are usually available on securities that are lower-rated or that are unrated. Lower-rated securities are usually defined as Ba or lower by Moody's; BB or lower by Standard & Poor's and may be deemed to be of a speculative nature. The Fund's may also purchase lower-quality bonds such as those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor protection for payment of principal and interest (commonly referred to as "junk bonds"). For a further discussion of lower-rated securities, please see the "Risks of Lower-Rated Debt Securities" section of the Fund's prospectus. - - EQUITY-INCOME PORTFOLIO Investment Objective: To seek reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR also will consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. 13 15 - - GROWTH PORTFOLIO Investment Objective: Seeks to achieve capital appreciation. This Portfolio will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the Portfolio. Many securities which FMR believes would have the greatest potential may be regarded as speculative, and investment in the Portfolio may involve greater risk than is inherent in other mutual funds. It is also important to point out that the Portfolio makes most sense for you if you can afford to ride out changes in the stock market, because it invests primarily in common stocks. FMR also can make temporary investments in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. - - OVERSEAS PORTFOLIO Investment Objective: To seek long term growth of capital primarily through investments in foreign securities. The Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II The Fund is an open-end, diversified, management investment company organized as a Massachusetts business trust on March 21, 1988. The fund's shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. Fidelity Management and Research Company (FMR) is the Fund's manager. - - ASSET MANAGER PORTFOLIO Investment Objective: To seek to obtain high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term fixed income instruments. NATIONWIDE SEPARATE ACCOUNT TRUST Nationwide Separate Account Trust (the "Trust") is a diversified open-end management investment company organized under the laws of Massachusetts, by a Declaration of Trust, dated June 30, 1981, as subsequently amended. The Trust offers shares in the four separate 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 insurance or annuity policies issued by life insurance companies. The assets of the Trust are managed by Nationwide Financial Services, Inc., of 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. 14 16 - - 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. - - 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. - - 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. NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST Neuberger & Berman Advisers Management Trust is an open-end diversified management investment company established as a Massachusetts business trust on December 14, 1983. Shares of the Trust are offered in connection with certain variable annuity contracts and variable life insurance policies issued through life insurance company separate accounts and are also offered to qualified pension and retirement plans outside of the separate account context. The investment adviser is Neuberger & Berman Management Incorporated. - - LIMITED MATURITY BOND PORTFOLIO Investment Objective: To provide the high level of current income, consistent with low risk to principal and liquidity. As a secondary objective, it also seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. It seeks to achieve its objectives through investments in a diversified portfolio of limited maturity debt securities. - - GROWTH PORTFOLIO Investment Objective: The Portfolio seeks capital growth through investments in common stocks of companies that the investment adviser believes will have above average earnings or otherwise provide investors with above average potential for capital appreciation. To maximize this potential, the investment adviser may also utilize, from time to time, securities convertible into common stocks, warrants and options to purchase such stocks. OPPENHEIMER VARIABLE ACCOUNT FUNDS The Oppenheimer Variable Account Funds is an open-ended, diversified management investment company organized as a Massachusetts business trust in 1984. Shares of the Funds are sold only to provide benefits under variable life insurance policies and variable annuity contracts. Oppenheimer Management Corporation is the Funds' Investment advisor. 15 17 - - BOND FUND Investment Objective: Primarily to seek a high level of current income from investment in high yield fixed-income securities rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. Secondarily, the Fund seeks capital growth when consistent with its primary objective. - - MULTIPLE STRATEGIES FUND Investment Objective: To seek a total investment return (which includes current income and capital appreciation in the value of its shares) from investments in common stocks and other equity securities, bonds and other debt securities, and "money market" securities. STRONG VARIABLE INSURANCE PRODUCTS FUNDS The Strong Variable Insurance Products Funds are diversified, open-end management investment companies, commonly called mutual funds. Strong Special Fund II, Inc. ("Special Fund II") and Strong Discovery Fund II, Inc. ("Discovery Fund II") were separately incorporated in Wisconsin on December 28, 1990. Shares of the Funds may only be purchased by the separate accounts of insurance companies for the purpose of funding variable annuity and variable life insurance contracts. Strong/Corneliuson Capital Management, Inc. is the investment advisor for each of the Funds. - - SPECIAL FUND II, INC. Investment Objective: To seek capital appreciation through investments in a diversified portfolio of equity securities. - - DISCOVERY FUND II, INC. Investment Objective: To seek maximum capital appreciation through investments in a diversified portfolio of securities. TCI PORTFOLIOS, INC., MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS TCI Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a diversified, open-end management company, designed only to provide investment vehicles for variable annuity and variable life insurance products of insurance companies. A member of the Twentieth Century Family of Mutual Funds, TCI Portfolios is managed by Investors Research Corporation. - - TCI BALANCED Investment Objective: Capital growth and current income. The fund will seek to achieve its objective by maintaining approximately 60% of the assets of the fund in common stocks (including securities convertible into common stocks and other equity equivalents) that are considered by management to have better-than-average prospects for appreciation and approximately 40% in fixed income securities. A minimum of 25% of the fixed income portion of the fund will be invested in fixed income senior securities. There can be no assurance that the Fund will achieve its investment objective. - - TCI GROWTH Investment Objective: Capital growth. The fund will seek to achieve its objective by investing in common stocks (including securities convertible into common stocks and other equity equivalents) that meet certain fundamental and technical standards of selection and have, in the opinion of the fund's investment manager, better than average potential for appreciation. The 16 18 fund tries to stay fully invested in such securities, regardless of the movement of stock prices generally. The fund may invest in cash and cash equivalents temporarily or when it is unable to find common stocks meeting its criteria of selection. It may purchase securities only of companies that have a record of at least three years continuous operation. There can be no assurance that the Fund will achieve its investment objective. (Although the Statement of Additional Information concerning TCI Portfolios, Inc., refers to redemptions of securities in kind under certain conditions, all surrendering or redeeming Contract Owners will receive cash from the Company.) VAN ECK WORLDWIDE INSURANCE TRUST (FORMERLY VAN ECK INVESTMENT TRUST) Van Eck Worldwide Insurance Trust is an open-end management investment company organized as a "business trust" under the laws of the Commonwealth of Massachusetts on January 7, 1987. Shares of the Trust are offered only to separate accounts of various insurance companies to fund benefits of variable insurance and annuity policies. The assets of the Trust are managed by Van Eck Associates Corporation. - - GOLD AND NATURAL RESOURCES FUND Investment Objective: To seek long-term capital appreciation by investing in equity and debt securities of companies engaged in the exploration, development, production and distribution of gold and other natural resources, such as strategic and other metals, minerals, forest products, oil, natural gas and coal. Current income is not an objective. - - WORLDWIDE BOND FUND (FORMERLY GLOBAL BOND FUND) Investment Objective: To seek high total return through a flexible policy of investing globally, primarily in debt securities. REINVESTMENT The underlying Mutual Fund options described above have as a policy the distribution of dividends in the form of additional shares (or fractions thereof) of the underlying Mutual Funds. The distribution of additional shares will not affect the number of Accumulation Units attributable to a particular Policy (See "Allocation of Cash Value"). TRANSFERS The Policy Owner may request a transfer of up to 100% of the Cash Value from the Variable Account to the Fixed Account. The Policy Owner's Cash Value in each sub-account will be determined as of the date the transfer request is received in the home office in good order. The Company reserves the right to restrict transfers to the Fixed Account to 25% of the Cash Value. The Policy Owner may annually transfer a portion of the value of the Fixed Account to the Variable Account and a portion of the Variable Account to the Fixed Account, without penalty or adjustment. The Company reserves the right to limit the amount of Cash Value transferred out of the Fixed Account each Policy Year. Transfers from the Fixed Account must be made within 30 days after the termination date of the interest rate guarantee period. Transfers among the sub-accounts may be made once per Valuation Date and may be made either in writing or, in states allowing such transfers, by telephone. The Company will employ reasonable 17 19 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 Company. The Company may withdraw the telephone exchange privilege upon 30 days written notice to Policy Owners. Policy Owners who have entered into a Dollar Cost Averaging Agreement with the Company (See "Dollar Cost Averaging" below) may transfer from the Fixed Account to the Variable Account under the terms of that agreement. DOLLAR COST AVERAGING The Policy Owner may direct the Company to automatically transfer from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account to any other sub-account within the Variable Account on a monthly basis. This service is intended to allow the Policy Owner to utilize Dollar Cost Averaging, a long-term investment program which provides for regular, level investments over time. The Company makes no guarantees that Dollar Cost Averaging, will result in a profit or protect against loss in a declining market. To qualify for Dollar Cost Averaging, there must be a minimum total Cash Value, less policy indebtedness, of $15,000. Transfers for purposes of Dollar Cost Averaging can only be made from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account. The minimum monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost Averaging monthly transfers from the Fixed Account must be equal to or less than 1/30th of the Fixed Account value when the Dollar Cost Averaging program is requested. Transfers out of the Fixed Account, other than for Dollar Cost Averaging, may be subject to certain additional restrictions (See "Transfers"). A written election of this service, on a form provided by the Company, must be completed by the Policy Owner in order to begin transfers. Once elected, transfers from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account will be processed monthly until either the value in the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account is completely depleted or the Policy Owner instructs the Company in writing to cancel the monthly transfers. The Company reserves the right to discontinue offering Dollar Cost Averaging upon 30 days' written notice to Policy Owners however, any such discontinuation would not affect Dollar Cost Averaging programs already commenced. The Company also reserves the right to assess a processing fee for this service. SUBSTITUTION OF SECURITIES If shares of the above 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 18 20 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 Funds' proxy material and a form with which to give such voting instructions. Notwithstanding contrary Policy Owner voting instructions, the Company may vote underlying Mutual Fund shares in any manner necessary to enable the underlying Mutual Fund to: (1) make or refrain from making any change in the investments or investment policies for any of the underlying Mutual Fund options, 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. 19 21 INFORMATION ABOUT THE POLICIES UNDERWRITING AND ISSUANCE - -Minimum Requirements for Issuance of a Policy The Policies are designed to generally permit the payment of the Guideline Single Premium in five annual installments for death benefit Option 1 and five annual Guideline Level Premiums under death benefit Option 2. At issue, the Policy Owner selects a Scheduled Premium level. This Scheduled Premium is used to determine the initial Specified Amount. The minimum Scheduled Premium is $2,000. Policies may be issued to Insureds with issue ages 75 or younger. Before issuing any Policy, the Company requires satisfactory evidence of insurability which may include a medical examination. - -Premium Payments The Initial Premium for a Policy is payable in full at the Company's home office. The effective date of insurance coverage and is dependent upon completion of all underwriting requirements, payment of the 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 first 5 Policy Years, the total premium payments less any Policy Indebtedness must be greater than or equal to the Minimum Premium requirement in order for the Policy to continue in force. The Minimum Premium requirement is equal to the monthly Minimum Premium multiplied by the number of completed policy months. The monthly Minimum Premium is shown on the Policy data page. Each premium payment must be at least equal to the monthly Minimum Premium. Additional premium payments may be made at any time while the Policy is in force. However, the Company reserves the right to require satisfactory evidence of insurability before accepting any additional premium payment which results in an increase in the net amount at risk. Also, the Company will refund any portion of any premium payment which is determined to be in excess of the premium limit established by law to qualify the Policy as a contract for life insurance. The Company may also require that any existing Policy Indebtedness is repaid prior to accepting any additional premium payments. Additional premium payments or other changes to the contract, may jeopardize the Policy's non-modified endowment contract status. The Company will monitor premiums paid and other policy transactions and will notify the Policy Owner when non-modified endowment contract status is in jeopardy by such additional premiums (See "Tax Matters"). ALLOCATION OF CASH VALUE At the time a Policy is issued, its Cash Value will be based on the Nationwide Separate Account Trust Money Market Fund sub-account value or the Fixed Account as if the Policy had been issued and the Initial Net Premium invested on the date such premium was received in good order by the Company. When the Policy is issued, the Net Premiums will be allocated to the 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 Fund options specified by the Policy Owner are purchased at net asset value for the respective sub-account(s). The Policy Owner may change the allocation of Net 20 22 Premiums or may transfer Cash Value from one sub-account to another, subject to such terms and conditions as may be imposed by each underlying Mutual Fund option and as set forth in the prospectus. Net Premiums allocated to the Fixed Account at the time of application may not be transferred prior to the first Policy Anniversary (See "Transfers" and "Investments of the Variable Account"). The designation of investment allocations will be made by the prospective Policy Owner at the time of application for a Policy. The Policy Owner may change the way in which future Net Premiums are allocated by giving written notice to the Company. All percentage allocations must be in whole numbers, and must be at least 5%. The sum of allocations must equal 100%. SHORT-TERM RIGHT TO CANCEL POLICY A Policy may be returned for cancellation and a full refund of premium within 10 days after the Policy is received, within 45 days after the application for insurance is signed, or within 10 days after the Company mails or delivers a Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or delivered to the registered representative who sold it, or to the Company. Immediately after such mailing or delivery, the Policy will be deemed void from the beginning. The Company will refund the total premiums paid within seven days after it receives the Policy. POLICY CHARGES DEDUCTIONS FROM PREMIUMS The Company deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. (The Company may reduce this sales loading at its sole discretion.) The total sales load actually deducted from any Policy will be equal to the sum of the 3.5% front-end sales load plus any sales surrender charge that may be deducted from Policies that are surrendered. The Company also pays any state premium taxes attributable to a particular policy when incurred by the Company. The Company expects to pay an average state premium tax rate of approximately 2.5% of premiums for all states, although such tax rates generally can range from 0% to 4%. To reimburse the Company for the payment of state premium taxes associated with the Policies, the Company deducts a charge for state premium taxes equal to 2.5% of all premium payments received. This charge may be more or less than the amount actually assessed by the state in which a particular Policy Owner lives. The Company does not expect to make a profit from this charge. SURRENDER CHARGES The Company will deduct a Surrender Charge from the Policy's Cash Value for any Policy surrendered during the first nine Policy Years. The initial Surrender Charge varies by issue age, sex and underwriting classification and is calculated based on the initial Specified Amount. The following table illustrates the 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). Special guaranteed maximum Surrender Charges apply in Pennsylvania (See Appendix 1). 21 23
Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard --- ----------- ----------- -------- -------- 25 $5.878 $5.537 $6.680 $5.945 35 7.260 6.712 8.559 7.373 45 11.159 10.160 13.244 11.151 55 15.275 13.375 18.373 14.686 65 23.821 20.553 27.943 22.165
The Surrender Charge is comprised of two components: an underwriting surrender charge and sales surrender charge. The underwriting surrender charge varies by issue age in the following manner:
Issue Charge per $1,000 of Age Initial Specified Amount ----- ------------------------ 0-39 $3.50 40-59 $5.00 60-75 $6.50
The underwriting surrender charge is designed to cover the administrative expenses associated with underwriting and issuing the Policy, including the costs of processing applications, conducting medical exams, determining insurability and the Insured's underwriting class, and establishing policy records. The Company does not expect to profit from the underwriting surrender charges. The Surrender Charge may be insufficient to recover certain expenses related to the sale of the Policies. Unrecovered expenses are born by the company's general assets which may include profits, if any, from mortality and expense risk charges (See "Deductions from the Sub-Accounts"). Additional premiums and/or income earned on assets in the Variable Account or partial surrenders have no effect on these charges. The remainder of the Surrender Charge which is not attributable to the underwriting surrender charge component represents the sales surrender charge component. The purpose of the sales surrender charge component is to reimburse the Company for some of the expenses incurred in the distribution of the Policies. The Company also deducts 3.5% of each premium for sales load (See "Deductions from Premiums"). - -Reductions to Surrender Charges The Surrender Charges are reduced in subsequent Policy Years in the following manner:
Surrender Charge Surrender Charge Completed as a % of Initial Completed as a % of Initial Policy Years Surrender Charges Policy Years Surrender Charges - ------------ ----------------- ------------ ----------------- 0 100% 5 85% 1 100% 6 80% 2 100% 7 75% 3 95% 8 50% 4 90% 9+ 0%
Special guaranteed maximum Surrender Charges apply in Pennsylvania (See Appendix 1). 22 24 DEDUCTIONS FROM CASH VALUE The Company also deducts the following charges from the Policy's Cash Value on the Policy Date and each subsequent Monthly Anniversary Day: 1. monthly cost of insurance charges; plus 2. monthly cost of any additional benefits provided by Riders; plus 3. monthly administrative expense charge. These deductions will be charged proportionately to the Cash Value in each Variable Account sub-account and the Fixed Account. - -Monthly Cost of Insurance The monthly cost of insurance charge for each policy month is determined by multiplying the monthly cost of insurance rate by the net amount at risk. The net amount at risk is the difference between the death benefit and the Policy's Cash Value, each calculated at the beginning of the policy month. If death benefit Option 1 is in effect and there have been increases in the Specified Amount, then the Cash Value shall first be considered a part of the initial Specified Amount. If the Cash Value exceeds the initial Specified Amount, it shall then be considered a part of the additional increases in Specified Amount resulting from the increases in the order of the increases. Monthly cost of insurance rates will not exceed those guaranteed in the Policy. Guaranteed cost of insurance rates for Policies issued on a simplified basis are based on the 1980 Commissioners Extended Term Mortality Table, Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for Policies issued on a preferred basis are based on the 1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for Policies issued on a substandard basis are based on appropriate percentage multiples of the 1980 CSO. These mortality tables are sex distinct. In addition, separate mortality tables will be used for standard and non-tobacco. For Policies issued in Texas, guaranteed cost of insurance rates for Standard-Simplified issues ("Special Class-Simplified" in Texas) are based on 130% of the 1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). The rates for Policies issued on a simplified or preferred basis will not exceed the rates in the appropriate table. The cost of insurance rates per $1,000 of net amount at risk is less for Policies issued on a preferred basis as compared to a simplified basis. The rate class of an Insured may affect the cost of insurance rate. The Company currently places Insureds into both standard rate classes and substandard classes that involve a higher mortality risk. In an otherwise identical Policy, an Insured in the standard rate class will have a lower cost of insurance than an Insured in a rate class with higher mortality risks. The Company may also issue certain Policies on a 'Simplified Issue' basis to certain categories of individuals. Due to the underwriting criteria established for Policies issued on a Simplified Issue basis, actual rates for healthy individuals will be higher than the current cost of insurance rates being charged under otherwise identical Policies that are issued on a Preferred basis. 23 25 - -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 $5 per month. The Company may at its sole discretion increase this charge. However, the Company guarantees that this charge will never exceed $7.50 per month. DEDUCTIONS FROM THE SUB-ACCOUNTS The Company assumes certain risks for guaranteeing the mortality and expense charges. The mortality risk assumed under the Policies is that the Insured may not live as long as expected. The expense risk assumed is that the actual expenses incurred in issuing and administering the Policies may be greater than expected. In addition, the Company assumes risks associated with the non-recovery of policy issue, underwriting and other administrative expenses due to Policies which lapse or are surrendered in the early Policy Years. To compensate the Company for assuming these risks associated with the Policies, the Company deducts a daily Mortality and Expense Risk Charge from the assets of the sub-accounts of the Variable Account. This charge is equivalent to an annual effective rate of 0.80% of the daily net assets of the Variable Account. 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. HOW THE CASH VALUE VARIES On any date during the Policy Year, the Cash Value equals the Cash Value on the preceding Valuation Date, plus any Net Premium applied since the previous Valuation Date, minus any partial surrenders, plus or minus any investment results, and less any Policy Charges. There is no guaranteed Cash Value. The Cash Value will vary with the investment experience of the Variable Account and/or the daily crediting of interest in the Fixed Account and Policy Loan Account depending on the allocation of Cash Value by the Policy Owner. HOW THE INVESTMENT EXPERIENCE IS DETERMINED The Cash Value in each 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. 24 26 The value of an Accumulation Unit for each sub-account was arbitrarily set initially at $10 when the mutual fund shares in that sub-account were available for purchase. The value for any subsequent Valuation Period is determined by multiplying the Accumulation Unit value for each sub-account for the immediately preceding Valuation Period by the Net Investment Factor for the sub-account during the subsequent Valuation Period. The value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. The number of Accumulation Units will not change as a result of investment experience. NET INVESTMENT FACTOR The Net Investment Factor for any Valuation Period is determined by dividing (a) by (b) and subtracting (c) from the result where: (a) is the net of: (1) the net asset value per share of the underlying Mutual Fund held in the sub-account determined at the end of the current Valuation Period, plus (2) the per share amount of any dividend or capital gain distributions made by the underlying Mutual Fund held in the sub-account if the "ex-dividend" date occurs during the current Valuation Period. (b) is the net asset value per share of the underlying Mutual Fund held in the sub-account determined at the end of the immediately preceding Valuation Period. (c) is a factor representing the daily Mortality and Expense Risk Charge deducted from the Variable Account. Such factor is equal to an annual rate of .80% of the daily net asset value of the Variable Account. 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 the deduction for Mortality and Expense Risk Charge, and any charge or credit for tax reserves. VALUATION OF ASSETS Underlying Mutual Fund shares in the Variable Account will be valued at their net asset value. DETERMINING THE CASH VALUE The sum of the value of all Variable Account Accumulation Units attributable to the Policy and amounts credited to the Fixed Account is the Cash Value. The number of Accumulation Units credited per each sub-account are determined by dividing the net amount allocated to the sub-account by the Accumulation Unit Value for the sub-account for the Valuation Period during which the premium is received by the Company. In the event part or all of the Cash Value is surrendered or changes 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. 25 27 The Cash Value in the Fixed Account and the Policy Loan Account is credited with interest daily at an effective annual rate which the Company periodically declares. The annual effective rate will never be less than 4%. Upon request, the Company will inform the Policy Owner of the then applicable rates for each account. VALUATION PERIODS AND VALUATION DATES A Valuation Period is the period commencing at the close of business on the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. A Valuation Date is each day that the New York Stock Exchange and the Company's home office 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, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a Commercial Bank or a Savings and Loan, which is a member of the Federal Deposit Insurance Corporation. In some cases, the Company may require additional documentation of a customary nature. CASH SURRENDER VALUE The Cash Surrender Value increases or decreases daily to reflect the investment experience of the Variable Account and the daily crediting of interest in the Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the Policy's Cash Value, next computed after the date the Company receives a proper written request for surrender and the Policy, minus any charges, Indebtedness or other deductions due on that date, which may also include a Surrender Charge. PARTIAL SURRENDERS After the Policy has been in force for 5 Policy Years, the Policy Owner may request a partial surrender. Partial surrenders will be permitted only if they satisfy the following requirements: 1. The maximum partial surrender in any Policy Year is limited to 10% of the total premium payments; 2. The minimum partial surrender is $500; and 3. After the partial surrender, the Policy continues to qualify as life insurance. When a partial surrender is made, the Cash Value is reduced by the amount of the partial surrender. Also, under death benefit Option 1, the Specified Amount is reduced by the amount of the partial surrender. Partial surrender amounts must be first deducted from the values in the Variable sub-accounts. Partial surrenders will be deducted from the Fixed Account only to the extent that insufficient values are available in the Variable sub-accounts. Surrender charges will be waived for any partial surrenders which satisfy the above conditions. Certain partial surrenders may result in currently taxable income and tax penalties (See "Tax Matters"). 26 28 MATURITY PROCEEDS The Maturity Date is the Policy Anniversary on or next following the Insured's 95th birthday. The maturity proceeds will be payable to the Policy Owner on the Maturity Date provided the Policy is still in force. The Maturity Proceeds will be equal to the amount of the Policy's Cash Value, less any Indebtedness. INCOME TAX WITHHOLDING Federal law requires the Company to withhold income tax from any portion of surrender proceeds that is subject to tax, unless the Policy Owner advises the Company, in writing, of his or her request not to withhold. If the Policy Owner requests that the Company not withhold taxes, or if the taxes withheld are insufficient, the Policy Owner may be liable for payment of an estimated tax. The Policy Owner should consult his or her tax advisor. POLICY LOANS TAKING A POLICY LOAN After the first Policy Year, the Policy Owner may take a Policy loan using the Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash Surrender Value less interest due on the next Policy Anniversary. Maximum policy indebtedness, in Texas, is limited to 90% of the Cash Surrender Value in the sub-accounts and 100% of the Cash Surrender Value in the Fixed Account less interest due on the next Policy Anniversary. The Company will not grant a loan for an amount less than $1,000 ($200 in Connecticut, $500 in New York). Should the Death Proceeds become payable, the Policy be surrendered, or the Policy mature while a loan is outstanding, the amount of Policy Indebtedness will be deducted from the death benefit, Cash Surrender Value or the maturity value, respectively. Any request for a Policy loan must be in written form satisfactory to the Company. The request must be signed and, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings and Loan which is a member of the Federal Deposit Insurance Corporation. Certain policy loans may result in currently taxable income and tax penalties (See "Tax Matters"). EFFECT ON INVESTMENT PERFORMANCE When a loan is made, an amount equal to the amount of the loan is transferred from the Variable Account to the Policy Loan Account. If the assets relating to a Policy are held in more than one sub-account, withdrawals from sub-accounts will be made in proportion to the assets in each Variable sub-account at the time of the loan. Policy loans will be transferred from the Fixed Account only when insufficient amounts are available in the Variable sub-accounts. The amount taken out of the Variable Account will not be affected by the Variable Account's investment experience while the loan is outstanding. INTEREST Amounts transferred to the Policy Loan Account will earn interest daily from the date of transfer. 27 29 Policy loans will be currently credited interest daily at an annual effective rate of 5.1%. This rate is guaranteed never to be lower than 4%. The Company may change the current interest crediting rate on Policy loans at any time at its sole discretion. This earned interest is transferred from the Policy Loan Account to a Variable Account or the Fixed Account on each Policy Anniversary 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. The loan interest rate is 6% per year for all Policy loans. Interest is charged daily and is payable at the end of each Policy Year or at the time of loan repayment. Unpaid interest will be added to the existing Policy Indebtedness as of the due date and will be charged interest at the same rate as the rest of the Indebtedness. Whenever the total Policy Indebtedness exceeds the Cash Value less any Surrender Charges, the Company will send a notice to the Policy Owner and the assignee, if any. The Policy will terminate without value 61 days after the mailing of the notice unless a sufficient repayment is made during that period. A repayment is sufficient if it is large enough to reduce the total Policy Indebtedness to an amount equal to the total Cash Value less any Surrender Charges plus an amount sufficient to continue the Policy in force for 3 months. 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 Fund allocation factors in effect at the time of the repayment. Each repayment may not be less than $1,000 ($50 in Connecticut and New York). The Company reserves the right to require that any loan repayments resulting from Policy loans transferred from the Fixed Account must be first allocated to the Fixed Account. HOW THE DEATH BENEFIT VARIES CALCULATION OF THE DEATH BENEFIT At issue, the Policy Owner selects a desired Scheduled Premium level. The Scheduled Premium is used to determine the initial Specified Amount. Under death benefit Option 1, the initial Specified Amount is determined by treating the Scheduled Premium as 20% of the Guideline Single Premium. Under death benefit Option 2, the initial Specified Amount is determined by treating the Scheduled Premium as the Guideline Level Premium. For either death benefit option, the initial Specified Amount will be set at such a level such that payment of the Scheduled Premiums will not result in the Policy being classified as a modified endowment contract (see "Tax Matters"). The following table illustrates the Initial Specified Amount that results from a $2,000 Scheduled Premium payment. 28 30
Male Female Issue Non-Tobacco Non-Tobacco Age Option 1 Option 2 Option 1 Option 2 30 $85,779 $75,378 $99,541 $93,577 35 $68,165 $61,559 $79,212 $76,497 40 $54,111 $50,082 $63,070 $62,320 45 $43,165 $40,605 $50,599 $50,633 50 $34,675 $32,791 $40,824 $40,958 55 $28,136 $26,852 $33,171 $32,949 60 $23,176 $22,867 $27,141 $26,301 65 $19,474 $19,474 $22,369 $22,168
Generally, for a given Scheduled Premium, the initial Specified Amount is greater for non-tobacco than standard and females than males. The Specified Amount is shown in the Policy. While the Policy is in force, the death benefit will never be less than the Specified Amount. The death benefit may vary with the Cash Value of the Policy, which depends on investment performance. The Policy Owner may choose one of two death benefit options. Under Option 1, the death benefit will be the greater of the Specified Amount or the Applicable Percentage of Cash Value. Under Option 1, the amount of the death benefit will ordinarily not change for several years to reflect the investment performance and may not change at all. If investment performance is favorable the amount of death benefit may increase. To see how and when investment performance will begin to affect death benefits, please see the illustrations located in the prospectus. Under Option 2, the death benefit will be the greater of the Specified Amount plus the Cash Value, or the Applicable Percentage of Cash Value and will vary directly with the investment performance. The term "Applicable Percentage" means: 1. 250% when the Insured is Attained Age 40 or less at the beginning of a Policy Year, and 2. when the Insured is above Attained Age 40, the percentage shown in the "Applicable Percentage of Cash Value Table" shown below. 29 31
APPLICABLE PERCENTAGE OF CASH VALUE TABLE Attained Percentage Attained Percentage Attained Percentage Age of Cash Value Age of Cash Value Age of Cash Value - -------- ------------- -------- ------------- -------- ------------- 0-40 250% 60 130% 80 105% 41 243% 61 128% 81 105% 42 236% 62 126% 82 105% 43 229% 63 124% 83 105% 44 222% 64 122% 84 105% 45 215% 65 120% 85 105% 46 209% 66 119% 86 105% 47 203% 67 118% 87 105% 48 197% 68 117% 88 105% 49 191% 69 116% 89 105% 50 185% 70 115% 90 105% 51 178% 71 113% 91 104% 52 171% 72 111% 92 103% 53 164% 73 109% 93 102% 54 157% 74 107% 94 101% 55 150% 75 105% 95 100% 56 146% 76 105% 57 142% 77 105% 58 138% 78 105% 59 134% 79 105%
PROCEEDS PAYABLE ON DEATH The actual 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 30 32 Policy Owner, the Company will pay the excess to the Policy Owner in cash. The exchange may be subject to federal income tax withholding (See "Income Tax Withholding"). CHANGES OF INVESTMENT POLICY The Company may materially change the investment policy of the Variable Account. The Company must inform the Policy Owners and obtain all necessary regulatory approvals. Any change must be submitted to the various state insurance departments which may disapprove it if deemed detrimental to the interests of the Policy Owners or if it renders the Company's operations hazardous to the public. If a Policy Owner objects, the Policy may be converted to a substantially comparable General Account life insurance policy offered by the Company on the life of the Insured. The Policy Owner has the later of 60 days (6 months in Pennsylvania) from the date of the investment policy change or 60 days (6 months in Pennsylvania) from being informed of such change to make this conversion. The Company will not require evidence of insurability for this conversion. The new policy will not be affected by the investment experience of any separate account. The new policy will be for an amount of insurance not exceeding the death benefit of the Policy converted on the date of such conversion. GRACE PERIOD - -First Five Policy Years This Policy will not lapse during the first five Policy Years provided that on each Monthly Anniversary Day (1) is greater than or equal to (2) where: (1) Is the sum of all premiums paid to date minus any Policy Indebtedness; and (2) Is the sum of monthly Minimum Premiums since the Policy Date including the monthly Minimum Premium for the current Monthly Anniversary Day. If (1) is less than (2), a Grace Period of 61 days from the Monthly Anniversary Day will be allowed for the payment of sufficient premium to satisfy the Minimum Premium requirement. If sufficient premium is not paid by the end of the Grace Period, the Policy will lapse. The Policy will be terminated with the return of any available Cash Surrender Value. The Cash Surrender Value will be calculated as of the beginning of the Grace Period. The Policy Owner may also elect in writing to have the Policy placed on Extended Term Insurance. - -Policy Years Six and After If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to cover the current monthly deduction for insurance costs, administrative expenses and other benefits, a Grace Period of 61 days from the Monthly Anniversary Day will be allowed for the payment of sufficient premium to cover the current monthly deduction plus an amount equal to three times the current monthly deduction. - -All Policy Years The Company will send such a notice at the start of the Grace Period to the Policy Owner's last known address. If the Insured dies during the Grace Period, the Company will pay the Death Proceeds. 31 33 REINSTATEMENT If the Grace Period ends and the Policy Owner has neither paid the required premium nor surrendered the Policy for its Cash Surrender Value, the Policy Owner may reinstate the Policy by: 1. submitting a written request at any time within 3 years after the end of the Grace Period and prior to the Maturity Date: 2. providing evidence of insurability satisfactory to the Company; 3. paying sufficient premium to cover all Policy Charges that were due and unpaid during the Grace Period; 4. paying sufficient premium to keep the Policy in force for 3 months from the date of reinstatement; and 5. paying or reinstating any Indebtedness against the Policy which existed at the end of the Grace Period. The effective date of a reinstated Policy will be the Monthly Anniversary Day on or next following the date the application for reinstatement is approved by us. 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 Fund allocation factors in effect at the start of the Grace Period. THE FIXED ACCOUNT OPTION Because of exemptive and exclusionary provisions, interests in the Company's General Account have not been registered under the Securities Act of 1933 and the General Account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the General Account nor any interests therein are subject to the provisions of these Acts, and the Company has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this prospectus relating to the Fixed Account option. Disclosures regarding the General Account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. 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 4%. Upon request the 32 34 Company will inform a Policy Owner of the then applicable rate. The Company is not obligated to credit interest at a higher rate. CHANGES IN EXISTING INSURANCE COVERAGE The Policy Owner may request certain changes in the insurance coverage under the Policy. Any request must be in writing and received at the Company's home office. No change will take effect unless the Cash Surrender Value, after the change, is sufficient to keep the Policy in force for at least 3 months. SPECIFIED AMOUNT INCREASES After the fifth 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 a new issue. Any approved increase will have an effective date of the Monthly Anniversary Day on or next following the date the Company approves the supplemental application. The Company reserves the right to limit the number of Specified Amount increases to one each Policy Year. SPECIFIED AMOUNT DECREASES After the fifth 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 $10,000; or (2) disqualify the Policy as a contract for life insurance. CHANGES IN THE DEATH BENEFIT OPTION After the fifth Policy Year, the Policy Owner may change the death benefit option under the Policy. If the change is from Option 1 to Option 2, the Specified Amount will be decreased by the amount of the Cash Value. If the change is from Option 2 to Option 1, the Specified Amount will be increased by the amount of the Cash Value. The Company reserves the right to require evidence of insurability for either change (from Option 1 to Option 2 only in New York). The effective date of the change will be 33 35 the Monthly Anniversary Day on or next following the date the Company approves the request for change. Only one change of option is permitted per Policy Year. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the then current maximum premium limitations prescribed by the Internal Revenue Service to qualify the Policy as a life insurance contract. OTHER POLICY PROVISIONS POLICY OWNER While the Insured is living, all rights in this Policy are vested in the Policy Owner named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a contingent Policy Owner or a new Policy Owner while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's home office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. The Company may require that the Policy be submitted for endorsement before making a change. If the Policy Owner is other than the Insured and names no contingent Policy Owner, and dies before the Insured, the Policy Owner's rights in this Policy belong to the Policy Owner's estate. BENEFICIARY The Beneficiary(ies) shall be as named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a new Beneficiary while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's home office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. If any Beneficiary predeceases the Insured, that Beneficiary's interest passes to any surviving Beneficiary(ies), unless otherwise provided. Multiple Beneficiaries will be paid in equal shares, unless otherwise provided. If no named Beneficiary survives the Insureds, the Death Proceeds shall be paid to the Policy Owner or the Policy Owner's estate. ASSIGNMENT While the Insured is living, the Policy Owner may assign his or her rights in the Policy. The assignment must be in writing, signed by the Policy Owner and recorded by the Company at its home office. Any assignment will not affect any payments made or actions taken by the Company before it was recorded. The Company is not responsible for any assignment not submitted for recording, nor is the Company responsible for the sufficiency or validity of any assignment. The assignment will be subject to any Indebtedness owed to the Company before it was recorded. INCONTESTABILITY The Company will not contest payment of the Death Proceeds based on the initial Specified Amount after the Policy has been in force during the Insured's lifetime for 2 years from the Policy Date. For any increase in Specified Amount requiring evidence of insurability, the Company will not contest payment of the Death Proceeds based on such an increase after it has been in force during the Insured's lifetime for 2 years from its effective date. 34 36 ERROR IN AGE OR SEX If the age or sex of the Insured has been misstated, the affected benefits will be adjusted. The amount of the death benefit will be (1) multiplied by (2) and then the result added to (3), where: (1) is the amount of the death benefit at the time of the Insured's death reduced by the amount of the Cash Value at the time of the Insured's death; (2) is the ratio of the monthly cost of insurance applied in the policy month of death and the monthly cost of insurance that should have been applied at the true age and sex in the policy month of death; and (3) is the Cash Value at the time of the Insured's death. SUICIDE If the Insured dies by suicide, while sane or insane, within two years from the Policy Date, the Company will pay no more than the sum of the premiums paid, less any Indebtedness. If the Insured dies by suicide, while sane or insane, within two years from the date an application is accepted for an increase in the Specified Amount, the Company will pay no more than the amount paid for such additional benefit. NONPARTICIPATING POLICIES These are nonparticipating Policies on which no dividends are payable. These Policies do not share in the profits or surplus earnings of the Company. LEGAL CONSIDERATIONS On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v. Norris that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. This decision applies only to benefits derived from contributions made on or after August 1, 1983. The Policies offered by this prospectus are based upon actuarial tables which distinguish between men and women and thus the Policies 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 members of the National Association of Securities Dealers, Inc. (NASD). The Policies will be distributed by the General Distributor, Nationwide Financial Services, Inc. Gross first year commissions paid by the Company on the sale of these Policies plus fees for marketing services provided by the General Distributor are not more than 26% of the Scheduled Premium plus 5% of any excess premium payments. Gross renewal commissions paid by the Company will not exceed 5% of actual premium payments. 35 37 CUSTODIAN OF ASSETS The Company serves as the Custodian of the assets of the Variable Account. TAX MATTERS POLICY PROCEEDS Section 7702 of the Internal Revenue Code ("Code") provides that if certain tests are met, a Policy will be treated as a life insurance policy for federal tax purposes. The Company will monitor compliance with these tests. The Policy should thus receive the same federal income tax treatment as fixed benefit life insurance. As a result, the 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 after June 21, 1988, on which the total premiums paid during the first seven years exceed the amount that would have been paid if the policy provided for paid up benefits after seven level annual premiums (See "Information about the Policies"). The Code provides for taxation of surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions from modified endowment contracts in the same way annuities are taxed. Modified endowment contract distributions are defined by the Code as amounts not received as an annuity and are taxable to the extent the cash value of the policy exceeds, at the time of distribution, the premiums paid into the policy. A 10% tax penalty generally applies to the taxable portion of such distributions unless the Policy Owner is over age 59-1/2 or disabled. 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 issued by the Secretary of the Treasury, set the standards for measuring the adequacy of this diversification. To be adequately diversified, each sub-account of the Variable Account must meet certain tests. The Company believes that the investments of the Variable Account meet the applicable diversification standards. The regulations provide that a variable life policy which does not satisfy the diversification standards will not be treated as Life Insurance under Section 7702 of the Internal Revenue Code, unless the failure to satisfy regulations was inadvertent, the failure is corrected, and the Policy Owner or the Company pays an amount to the Internal Revenue Service. The amount will be based on the tax that would have been paid by the Policy Owner if the income, for the period the policy was not diversified, had been received by the Policy Owner. If the failure to diversify is not corrected in this manner, the Policy Owner of the life policy will be deemed the owner of the underlying securities and will be taxed on the earnings of his or her account. 36 38 Should the Secretary of the Treasury issue additional rules or regulations limiting the number of funds, transfers between funds, exchanges of funds or changes in investment objectives of 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 may have adverse tax consequences depending on the circumstances. If the amount received by the Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the Policy, the excess will generally be treated as taxable income, regardless of whether or not the Policy is a modified endowment contract. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each Policy Owner or Beneficiary. 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. OTHER CONSIDERATIONS The foregoing discussion is general and is not intended as tax advice. Counsel and other competent advisors should be consulted for more complete information. This discussion is based on the Company's understanding of Federal income tax laws as they are currently interpreted by the Internal Revenue Service. No representation is made as to the likelihood of continuation of these current laws and interpretations. THE COMPANY The life insurance business, which includes product lines in health insurance and annuities, is the only business in which the Company is engaged. The Company markets its Policies through independent insurance brokers, general agents, and registered representatives of registered NASD broker/dealer firms. 37 39 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 Indemnity Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity Company 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 Corporation is the sole shareholder of Nationwide Life. DIRECTORS OF THE COMPANY
Director Name Since Principal Occupation ---- ----- -------------------- Lewis J. Alphin 1993 Farm Owner and Operator (1) Willard J. Engel 1994 General Manager Lyon County Cooperative Oil Company (1) Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm; Operator, Melrose Orchard Peter F. Frenzer 1991 President, Nationwide Corporation; President and Chief Operating Officer, Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company; Executive Vice President - Investments, Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide General Insurance Company, Nationwide Property and Casualty Insurance Company Charles L. Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf Electric Company, Electrical Construction and Engineering Services (1) Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
38 40 D. Richard McFerson *+ 1988 President and Chief Executive Officer, Nationwide Mutual, Nationwide Mutual Fire, Nationwide General, and Nationwide Property and Casualty Insurance Companies; Chief Executive Officer, Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company (2) David O. Miller *+ 1985 Farm Owner and Land Developer; President, Owen Potato Farm, Inc.; Partner, M&M Enterprises (1) C. Ray Noecker 1994 Farm Owner and Operator (1) James F. Patterson + 1989 Vice President, Pattersons, Inc.; President, Patterson Farms, Inc. Robert H. Rickel 1984 Rancher (1) Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and Chief Executive Officer, K&B Transport, Inc. (1) Robert L. Stewart 1989 Farm Owner and Operator; Owner, Sunnydale Mining (1) Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farms (1) Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
- -------------------------------------- *Member, Executive Committee +Member, Investment Committee 1) Principal occupation for last five years. 2) Prior to assuming his current position, Mr. McFerson held other executive management positions with the companies. Each of the directors is a director of the major insurance affiliates of the Nationwide Insurance Enterprise, except Mr. Frenzer who is a director only of the Company and Nationwide Life and Annuity Insurance Company. Each of the directors of the Company is a director of Nationwide Financial Services, Inc., a registered broker-dealer. Messrs. Frenzer, Holloway, McFerson, Miller, Patterson and Shisler are directors of Nationwide Corporation. Messrs. Fuellgraf, Frenzer, McFerson, Ms. Thomas and Mr. Weihl are trustees of Nationwide Investing Foundation, a registered investment company. Messrs. Frenzer and McFerson are trustees of Nationwide Separate Account Trust, Financial Horizons Investment Trust, and Nationwide Investing Foundation II, registered investment companies. Mr. Engel is a director of Western Cooperative Transport. EXECUTIVE OFFICERS OF THE COMPANY
NAME OFFICE HELD - ---- ----------- D. Richard McFerson President and Chief Executive Officer-Nationwide Insurance Enterprise Peter F. Frenzer President and Chief Operating Officer Gordon E. McCutchan Executive Vice President, Law and Corporate Services and Secretary James E. Brock Senior Vice President - Investment Product Operations
39 41 W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary Richard A. Karas Senior Vice President - Sales and Financial Services Robert A. Oakley Senior Vice President - Chief Financial Officer Carl Santillo Senior Vice President - Life and Health Operations Mark A. Folk Vice President and Treasurer
Mr. Frenzer is also President and Chief Operating Officer of Nationwide Life and Annuity Insurance Company and President of Nationwide Corporation. Mr. Galloway is also an officer of Nationwide Mutual Insurance Company and Nationwide Life and Annuity Insurance Company. Each of the other officers listed above is also an officer of each of the companies comprising the Nationwide Insurance Enterprise. Each of the executive officers listed above has been associated with the registrant in an executive capacity for more than the past five years, except Mr. Folk. OTHER CONTRACTS ISSUED BY THE COMPANY The Company does presently and will, from time to time, offer variable contracts and policies with benefits which vary in accordance with the investment experience of a separate account of the Company. STATE REGULATION The Company is subject to the laws of Ohio governing insurance companies and to regulation by the Ohio Insurance Department. An annual statement in a prescribed form is filed with the Insurance Department each year covering the operation of the Company for the preceding year and its financial condition as of the end of such year. Regulation by the Insurance Department includes periodic examination to determine the Company's contract liabilities and reserves so that the Insurance Department may certify the items are correct. The Company's books and accounts are subject to review by the Insurance Department at all times and a full examination of its operations is conducted periodically by the National Association of Insurance Commissioners. Such regulation does not, however, involve any supervision of management or investment practices or policies. In addition, the Company is subject to regulation under the insurance laws of other jurisdictions in which it may operate. REPORTS TO POLICY OWNERS The Company will mail to the Policy Owner, at the last known address of record, an annual statement showing the amount of the current death benefit, the Cash Value, and Cash Surrender Value, premiums paid and monthly charges deducted since the last report, the amounts invested in the Fixed Account and in the Variable Account and in each sub-account of the Variable Account, and any Policy Indebtedness. Policy Owners will also be sent annual and semi-annual reports containing financial statements for the Variable Account as required by the 1940 Act. 40 42 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, among which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of these ratings is to reflect the financial strength or claims-paying ability of the Company. The ratings are not intended to reflect the investment experience or financial strength of the Variable Account. The Company may advertise these ratings from time to time. In addition, the Company may include in certain advertisements endorsements in the form of a list of organizations, individuals or other parties which recommend the Company or the Contracts . Furthermore, the Company may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs based on selected tax brackets or discussions of alternative investment vehicles and general economic conditions. LEGAL PROCEEDINGS There are no material legal proceedings, other than ordinary routine litigation incidental to the business to which the Company and the Variable Account are parties or to which any of their property is the subject. The General Distributor, Nationwide Financial Services, Inc., is not engaged in any material litigation of any nature. EXPERTS The financial statements and schedule included herein have been included herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing. REGISTRATION STATEMENT A Registration Statement has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the Policies offered hereby. This prospectus does not contain all the information set forth in the Registration Statement and amendments thereto and exhibits filed as a part thereof, to all of which reference is hereby made for further information concerning the Variable Account, the Company, and the Policies offered hereby. Statements contained in this prospectus as to the content of Policies and other legal instruments are summaries. For a complete statement of the terms thereof, reference is made to such instruments as filed. LEGAL OPINIONS Legal matters in connection with the Policies described herein are being passed upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216. All the members of such firm are employed by the Nationwide Mutual Insurance Company. 41 43 APPENDIX 1 ILLUSTRATION OF SURRENDER CHARGES Example 1: A female non-tobacco, age 45, purchases a Policy with a Scheduled Premium of $2,000 yielding a Specified Amount of $50,599. 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 $514.09 ($10.160 X 50.599 = $514.09). Example 2: A male non-tobacco, age 35, purchases a Policy with a Scheduled Premium of $2,000 yielding a Specified Amount of $68,165. He now wants to surrender the Policy in the sixth Policy Year. The total initial surrender value is calculated using the method illustrated above. (Specified Amount in thousands $68.165 X 7.260 = 494.88 total first year surrender charge.) Because the fifth Policy Year has been completed, the total 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, $494.88 X 85% = $420.65. Initial Surrender Charge per $1,000 of initial Specified Amount for policies which are issued on a standard basis.
ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD - ----- ----------- ----------- -------- -------- 25 $5.878 $5.537 $6.680 $5.945 35 7.260 6.712 8.559 7.373 45 11.159 10.160 13.244 11.151 55 15.275 13.375 18.373 14.686 65 23.821 20.553 27.943 22.165
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 85% 1 100% 6 80% 2 100% 7 75% 3 95% 8 50% 4 90% 9+ 0%
The current Surrender Charges are the same for all states. However, in Pennsylvania the guaranteed maximum Surrender Charges are 8% higher than those shown. In addition, the guaranteed maximum Surrender Charge in subsequent years in Pennsylvania are reduced in the following manner:
SURRENDER CHARGE SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES - ------------ ----------------- ------------ ----------------- ------------ ----------------- 0 100% 5 83% 10 46% 1 98% 6 75% 11 37% 2 95% 7 70% 12 28% 3 92% 8 65% 13 14% 4 88% 9 55% 14+ 0%
42 44 The illustrations of current values are the same for Pennsylvania. However, the guaranteed maximum Surrender Charges are slightly higher in Pennsylvania. 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. 43 45 APPENDIX 2 ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS The illustrations in this prospectus have been prepared to help show how values under the Policies change with investment performance. The illustrations illustrate how Cash Values, Cash Surrender Values and death benefits under a Policy would vary over time if the hypothetical gross investment rates of return were a uniform annual effective rate of either 0%, 6% or 12%. If the hypothetical gross investment rate of return averages 0%, 6% or 12% over a period of years, but fluctuates above or below those averages for individual years, the Cash Values, Cash Surrender Values and death benefits may be different. For hypothetical returns of 0% and 6%, the illustrations also illustrate when the Policies would go into default, at which time additional premium payments would be required to continue the Policy in force. The illustrations also assume there is no Policy Indebtedness, no additional premium payments are made, no Cash Values are allocated to the Fixed Account, and there are no changes in the Specified Amount or death benefit option. The amounts shown for the Cash Value, Cash Surrender Value and death benefit as of each Policy Anniversary reflect the fact that the net investment return on the assets held in the sub-accounts is lower than the gross return. This is due to the daily charges made against the assets of the sub-accounts for assuming mortality and expense risks. The mortality and expense risk charges are equivalent to an annual effective rate of .80% of the daily net asset value of the Variable Account. In addition, the net investment returns also reflect the deduction of Fund investment advisory fees and other expenses which are equivalent to an annual effective rate of 0.85% of the daily net asset value of the Variable Account. 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 April 30, 1995. Considering current charges for mortality and expense risks and Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -1.65%, 4.35% and 10.35%. The illustrations also reflect the fact that the Company makes monthly charges for providing insurance protection. Current values reflect current cost of insurance charges and guaranteed values reflect the maximum cost of insurance charges guaranteed in the Policy. The values shown are for Policies which are issued as standard (including non-tobacco). Policies issued on a substandard basis would result in lower Cash Values and Death benefits than those illustrated. In addition, the illustrations reflect the fact that the Company deducts a monthly administrative charge at the beginning of each Policy Month. This monthly administrative expense charge is $5 and is guaranteed not to exceed $7.50. Current values reflect a current monthly administrative expense charge of $5 and guaranteed values reflect the $7.50 maximum monthly administrative charge under the Policy. 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. 44 46 DEATH BENEFIT OPTION 1 $2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN --------------------------- ---------------------------- ------------------------------ ANNUAL PREMIUMS CASH NET CASH NET CASH NET CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,000 2,100 1,668 1,186 43,165 1,773 1,292 43,165 1,879 1,397 43,165 2 2,000 4,305 3,307 2,825 43,165 3,620 3,139 43,165 3,947 3,465 43,165 3 2,000 6,620 4,915 4,433 43,165 5,544 5,062 43,165 6,225 5,743 43,165 4 2,000 9,051 6,495 6,037 43,165 7,549 7,091 43,165 8,734 8,277 43,165 5 2,000 11,604 8,044 7,611 43,165 9,636 9,203 43,165 11,499 11,066 43,165 6 0 12,184 7,707 7,298 43,165 9,844 9,434 43,165 12,468 12,059 43,165 7 0 12,793 7,363 6,977 43,165 10,049 9,664 43,165 13,530 13,144 43,165 8 0 13,433 7,009 6,648 43,165 10,252 9,891 43,165 14,693 14,331 43,165 9 0 14,105 6,646 6,405 43,165 10,452 10,211 43,165 15,970 15,729 43,165 10 0 14,810 6,270 6,270 43,165 10,647 10,647 43,165 17,371 17,371 43,165 15 0 18,901 4,172 4,172 43,165 11,510 11,510 43,165 26,820 26,820 43,165 20 0 24,124 1,433 1,433 43,165 11,959 11,959 43,165 42,382 42,382 51,706 25 0 30,788 (*) (*) (*) 11,388 11,388 43,165 67,360 67,360 78,138 30 0 39,295 (*) (*) (*) 8,375 8,375 43,165 107,288 107,288 114,798 35 0 50,151 (*) (*) (*) (*) (*) (*) 171,712 171,712 180,297
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS 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 47 DEATH BENEFIT OPTION 1 $2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ---------------------------- ---------------------------- ----------------------------- ANNUAL CASH NET CASH NET CASH NET PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,000 2,100 1,575 1,094 43,165 1,678 1,196 43,165 1,780 1,299 43,165 2 2,000 4,305 3,118 2,636 43,165 3,420 2,939 43,165 3,736 3,254 43,165 3 2,000 6,620 4,627 4,146 43,165 5,231 4,749 43,165 5,885 5,403 43,165 4 2,000 9,051 6,105 5,647 43,165 7,113 6,656 43,165 8,249 7,791 43,165 5 2,000 11,604 7,549 7,116 43,165 9,070 8,637 43,165 10,852 10,419 43,165 6 0 12,184 7,099 6,690 43,165 9,133 8,723 43,165 11,636 11,227 43,165 7 0 12,793 6,632 6,246 43,165 9,176 8,791 43,165 12,485 12,100 43,165 8 0 13,433 6,143 5,781 43,165 9,198 8,837 43,165 13,405 13,044 43,165 9 0 14,105 5,627 5,386 43,165 9,192 8,951 43,165 14,401 14,160 43,165 10 0 14,810 5,082 5,082 43,165 9,154 9,154 43,165 15,481 15,481 43,165 15 0 18,901 1,733 1,733 43,165 8,288 8,288 43,165 22,508 22,508 43,165 20 0 24,124 (*) (*) (*) 5,399 5,399 43,165 33,826 33,826 43,165 25 0 30,788 (*) (*) (*) (*) (*) (*) 52,553 52,553 60,962 30 0 39,295 (*) (*) (*) (*) (*) (*) 82,040 82,040 87,783 35 0 50,151 (*) (*) (*) (*) (*) (*) 129,233 129,233 135,695
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS 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 48 DEATH BENEFIT OPTION 2 $2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------------- ----------------------------- ------------------------------ ANNUAL CASH NET CASH NET CASH NET PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,000 2,100 1,670 1,217 42,276 1,776 1,322 42,381 1,881 1,428 42,486 2 2,000 4,305 3,306 2,853 43,911 3,619 3,166 44,225 3,945 3,492 44,551 3 2,000 6,620 4,906 4,453 45,512 5,533 5,080 46,138 6,210 5,757 46,816 4 2,000 9,051 6,472 6,041 47,077 7,519 7,089 48,124 8,697 8,266 49,302 5 2,000 11,604 8,000 7,592 48,605 9,578 9,170 50,183 11,423 11,015 52,028 6 2,000 14,284 9,491 9,106 50,096 11,712 11,327 52,317 14,414 14,029 55,020 7 2,000 17,098 10,944 10,582 51,549 13,924 13,561 54,529 17,695 17,333 58,301 8 2,000 20,053 12,359 12,019 52,964 16,214 15,875 56,820 21,295 20,955 61,900 9 2,000 23,156 13,736 13,509 54,341 18,588 18,361 59,193 25,244 25,018 65,850 10 2,000 26,414 15,072 15,072 55,677 21,043 21,043 61,649 29,576 29,576 70,182 15 2,000 45,315 21,328 21,328 61,934 34,889 34,889 75,494 58,723 58,723 99,328 20 2,000 69,439 26,366 26,366 66,971 51,122 51,122 91,728 105,084 105,084 145,690 25 2,000 100,227 29,734 29,734 70,339 69,680 69,680 110,285 178,686 178,686 219,292 30 2,000 139,522 30,537 30,537 71,143 89,915 89,915 130,520 295,140 295,140 335,746 35 2,000 189,673 27,631 27,631 68,237 110,666 110,666 151,271 479,373 479,373 519,978
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS 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 49 DEATH BENEFIT OPTION 2 $2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN --------------------------- --------------------------- ----------------------------- ANNUAL CASH NET CASH NET CASH NET PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,000 2,100 1,579 1,126 42,184 1,681 1,228 42,287 1,784 1,331 42,389 2 2,000 4,305 3,118 2,665 43,723 3,420 2,966 44,025 3,734 3,281 44,339 3 2,000 6,620 4,616 4,163 45,221 5,216 4,763 45,821 5,865 5,412 46,470 4 2,000 9,051 6,072 5,641 46,677 7,071 6,640 47,676 8,195 7,764 48,800 5 2,000 11,604 7,485 7,077 48,091 8,985 8,577 49,591 10,741 10,334 51,347 6 2,000 14,284 8,854 8,469 49,459 10,959 10,574 51,565 13,524 13,139 54,130 7 2,000 17,098 10,176 9,814 50,781 12,993 12,630 53,598 16,564 16,202 57,170 8 2,000 20,053 11,448 11,108 52,053 15,083 14,743 55,689 19,883 19,543 60,488 9 2,000 23,156 12,666 12,440 53,272 17,229 17,003 57,835 23,505 23,278 64,110 10 2,000 26,414 13,828 13,828 54,434 19,429 19,429 60,035 27,456 27,456 68,062 15 2,000 45,315 18,689 18,689 59,294 31,176 31,176 71,781 53,297 53,297 93,902 20 2,000 69,439 21,506 21,506 62,111 43,754 43,754 84,359 93,070 93,070 133,675 25 2,000 100,227 21,252 21,252 61,857 55,986 55,986 96,591 153,879 153,879 194,485 30 2,000 139,522 16,189 16,189 56,794 65,535 65,535 106,140 246,274 246,274 286,879 35 2,000 189,673 3,371 3,371 43,976 67,920 67,920 108,526 385,475 385,475 426,080
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS 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 50 DEATH BENEFIT OPTION 1 $5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------------- --------------------------- ----------------------------- ANNUAL CASH NET CASH NET CASH NET PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 5,000 5,250 4,291 3,019 114,019 4,558 3,286 114,019 4,825 3,553 114,019 2 5,000 10,763 8,507 7,234 114,019 9,306 8,034 114,019 10,138 8,866 114,019 3 5,000 16,551 12,646 11,373 114,019 14,251 12,979 114,019 15,987 14,715 114,019 4 5,000 22,628 16,712 15,503 114,019 19,405 18,196 114,019 22,433 21,224 114,019 5 5,000 29,010 20,700 19,555 114,019 24,772 23,626 114,019 29,532 28,387 114,019 6 0 30,460 19,975 18,893 114,019 25,447 24,365 114,019 32,163 31,082 114,019 7 0 31,983 19,232 18,214 114,019 26,127 25,109 114,019 35,047 34,029 114,019 8 0 33,582 18,468 17,514 114,019 26,811 25,857 114,019 38,211 37,257 114,019 9 0 35,261 17,685 17,049 114,019 27,500 26,864 114,019 41,688 41,052 114,019 10 0 37,024 16,873 16,873 114,019 28,186 28,186 114,019 45,506 45,506 114,019 15 0 47,254 12,337 12,337 114,019 31,571 31,571 114,019 71,267 71,267 114,019 20 0 60,309 6,421 6,421 114,019 34,445 34,445 114,019 113,599 113,599 138,591 25 0 76,971 (*) (*) (*) 35,716 35,716 114,019 181,626 181,626 210,686 30 0 98,237 (*) (*) (*) 32,871 32,871 114,019 290,627 290,627 310,971 35 0 125,378 (*) (*) (*) 20,885 20,885 114,019 466,657 466,657 489,989
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS 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 51 DEATH BENEFIT OPTION 1 $5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- ANNUAL CASH NET CASH NET CASH NET PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 5,000 5,250 4,159 2,886 114,019 4,422 3,149 114,019 4,685 3,413 114,019 2 5,000 10,763 8,235 6,962 114,019 9,018 7,746 114,019 9,834 8,561 114,019 3 5,000 16,551 12,229 10,956 114,019 13,798 12,526 114,019 15,496 14,223 114,019 4 5,000 22,628 16,142 14,933 114,019 18,770 17,561 114,019 21,727 20,518 114,019 5 5,000 29,010 19,974 18,829 114,019 23,944 22,798 114,019 28,589 27,444 114,019 6 0 30,460 19,078 17,996 114,019 24,402 23,320 114,019 30,945 29,864 114,019 7 0 31,983 18,147 17,129 114,019 24,839 23,821 114,019 33,514 32,496 114,019 8 0 33,582 17,174 16,220 114,019 25,247 24,293 114,019 36,314 35,360 114,019 9 0 35,261 16,151 15,514 114,019 25,619 24,983 114,019 39,369 38,732 114,019 10 0 37,024 15,069 15,069 114,019 25,947 25,947 114,019 42,703 42,703 114,019 15 0 47,254 8,481 8,481 114,019 26,597 26,597 114,019 64,815 64,815 114,019 20 0 60,309 (*) (*) (*) 24,190 24,190 114,019 101,107 101,107 123,350 25 0 76,971 (*) (*) (*) 14,938 14,938 114,019 159,556 159,556 185,085 30 0 98,237 (*) (*) (*) (*) (*) (*) 252,154 252,154 269,805 35 0 125,378 (*) (*) (*) (*) (*) (*) 400,851 400,851 420,893
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS 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 52 DEATH BENEFIT OPTION 2 $5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ------------------------- -------------------------- -------------------------------- ANNUAL PREMIUMS CASH NET CASH NET CASH NET CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 5,000 5,250 4,306 3,151 107,827 4,573 3,418 108,094 4,841 3,685 108,362 2 5,000 10,763 8,526 7,371 112,047 9,325 8,170 112,847 10,157 9,002 113,678 3 5,000 16,551 12,658 11,502 116,179 14,261 13,105 117,782 15,993 14,838 119,515 4 5,000 22,628 16,704 15,606 120,225 19,388 18,291 122,909 22,404 21,307 125,926 5 5,000 29,010 20,657 19,618 124,179 24,707 23,667 128,228 29,439 28,400 132,961 6 5,000 35,710 24,522 23,540 128,043 30,227 29,245 133,748 37,164 36,182 140,685 7 5,000 42,746 28,293 27,369 131,815 35,953 35,029 139,474 45,643 44,718 149,164 8 5,000 50,133 31,971 31,105 135,493 41,890 41,024 145,411 54,950 54,084 158,471 9 5,000 57,889 35,558 34,980 139,079 48,048 47,471 151,569 65,171 64,593 168,692 10 5,000 66,034 39,046 39,046 142,567 54,428 54,428 157,949 76,389 76,389 179,910 15 5,000 113,287 55,493 55,493 159,014 90,520 90,520 194,042 152,000 152,000 255,521 20 5,000 173,596 69,077 69,077 172,598 133,213 133,213 236,734 272,686 272,686 376,207 25 5,000 250,567 78,844 78,844 182,366 182,703 182,703 286,224 465,021 465,021 568,542 30 5,000 348,804 82,881 82,881 186,402 238,011 238,011 341,532 770,716 770,716 874,238 35 5,000 474,182 78,731 78,731 182,252 297,141 297,141 400,662 1,256,583 1,256,583 1,360,104
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS 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 53 DEATH BENEFIT OPTION 2 $5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ------------------------- -------------------------- -------------------------------- ANNUAL PREMIUMS CASH NET CASH NET CASH NET CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 5,000 5,250 4,180 3,024 107,701 4,443 3,288 107,964 4,706 3,551 108,227 2 5,000 10,763 8,262 7,107 111,783 9,046 7,890 112,567 9,861 8,705 113,382 3 5,000 16,551 12,248 11,092 115,769 13,813 12,658 117,334 15,507 14,351 119,028 4 5,000 22,628 16,134 15,036 119,655 18,750 17,652 122,271 21,691 20,593 125,212 5 5,000 29,010 19,920 18,880 123,441 23,858 22,819 127,380 28,465 27,425 131,986 6 5,000 35,710 23,602 22,620 127,123 29,142 28,160 132,663 35,883 34,901 139,405 7 5,000 42,746 27,175 26,251 130,696 34,601 33,677 138,122 44,005 43,081 147,526 8 5,000 50,133 30,634 29,768 134,156 40,236 39,370 143,757 52,894 52,027 156,415 9 5,000 57,889 33,974 33,396 137,495 46,046 45,468 149,567 62,619 62,042 166,140 10 5,000 66,034 37,187 37,187 140,708 52,030 52,030 155,551 73,258 73,258 176,779 15 5,000 113,287 51,171 51,171 154,692 84,551 84,551 188,072 143,444 143,444 246,965 20 5,000 173,596 60,809 60,809 164,330 120,924 120,924 224,445 253,129 253,129 356,650 25 5,000 250,567 64,135 64,135 167,656 159,381 159,381 262,902 423,868 423,868 527,389 30 5,000 348,804 57,829 57,829 161,350 196,058 196,058 299,579 688,770 688,770 792,291 35 5,000 474,182 36,319 36,319 139,840 223,193 223,193 326,714 1,098,021 1,098,021 1,201,543
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 52 54 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ------------------------- -------------------------- -------------------------------- ANNUAL PREMIUMS CASH NET CASH NET CASH NET CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 17,219 12,612 301,625 18,290 13,683 301,625 19,362 14,755 301,625 2 20,000 43,050 34,140 29,533 301,625 37,351 32,744 301,625 40,691 36,083 301,625 3 20,000 66,203 50,782 46,175 301,625 57,238 52,630 301,625 64,217 59,610 301,625 4 20,000 90,513 67,147 62,770 301,625 77,990 73,613 301,625 90,181 85,804 301,625 5 20,000 116,038 83,219 79,072 301,625 99,636 95,490 301,625 118,836 114,689 301,625 6 0 121,840 80,411 76,495 301,625 102,519 98,603 301,625 129,664 125,748 301,625 7 0 127,932 77,510 73,824 301,625 105,434 101,748 301,625 141,575 137,889 301,625 8 0 134,329 74,485 71,030 301,625 108,359 104,904 301,625 154,679 151,223 301,625 9 0 141,045 71,326 69,022 301,625 111,293 108,990 301,625 169,121 166,817 301,625 10 0 148,097 68,037 68,037 301,625 114,247 114,247 301,625 185,075 185,075 301,625 15 0 189,014 48,054 48,054 301,625 128,364 128,364 301,625 294,478 294,478 341,595 20 0 241,235 17,507 17,507 301,625 138,985 138,985 301,625 472,509 472,509 505,585 25 0 307,884 (*) (*) (*) 141,234 141,234 301,625 760,267 760,267 798,281 30 0 392,947 (*) (*) (*) 124,862 124,862 301,625 1,217,535 1,217,535 1,278,412 35 0 501,511 (*) (*) (*) 59,677 59,677 301,625 1,935,318 1,935,318 2,032,083
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 53 55 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ------------------------- ------------------------- -------------------------------- ANNUAL PREMIUMS CASH NET CASH NET CASH NET CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 16,081 11,474 301,625 17,117 12,510 301,625 18,155 13,548 301,625 2 20,000 43,050 31,805 27,198 301,625 34,883 30,275 301,625 38,086 33,479 301,625 3 20,000 66,203 47,188 42,581 301,625 53,347 48,740 301,625 60,015 55,408 301,625 4 20,000 90,513 62,237 57,860 301,625 72,558 68,181 301,625 84,184 79,807 301,625 5 20,000 116,038 76,955 72,808 301,625 92,570 88,423 301,625 110,875 106,728 301,625 6 0 121,840 72,607 68,691 301,625 93,579 89,663 301,625 119,426 115,509 301,625 7 0 127,932 67,951 64,265 301,625 94,347 90,661 301,625 128,709 125,023 301,625 8 0 134,329 62,922 59,466 301,625 94,816 91,360 301,625 138,800 135,345 301,625 9 0 141,045 57,453 55,149 301,625 94,923 92,619 301,625 149,795 147,491 301,625 10 0 148,097 51,472 51,472 301,625 94,602 94,602 301,625 161,814 161,814 301,625 15 0 189,014 10,890 10,890 301,625 83,750 83,750 301,625 243,970 243,970 301,625 20 0 241,235 (*) (*) (*) 42,243 42,243 301,625 385,307 385,307 412,279 25 0 307,884 (*) (*) (*) (*) (*) (*) 612,829 612,829 643,471 30 0 392,947 (*) (*) (*) (*) (*) (*) 963,397 963,397 1,011,567 35 0 501,511 (*) (*) (*) (*) (*) (*) 1,486,642 1,486,642 1,560,974
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 54 56 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- CASH NET CASH SURR NET DEATH CASH NET ANNUAL PREMIUMS CASH SURR DEATH CASH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 17,271 13,125 288,733 18,342 14,195 289,804 19,413 15,266 290,875 2 20,000 43,050 34,168 30,021 305,630 37,371 33,224 308,833 40,702 36,555 312,164 3 20,000 66,203 50,702 46,556 322,164 57,123 52,977 328,585 64,064 59,918 335,526 4 20,000 90,513 66,864 62,925 338,326 77,613 73,674 349,075 89,694 85,755 361,156 5 20,000 116,038 82,622 78,890 354,084 98,834 95,102 370,296 117,783 114,051 389,245 6 20,000 142,840 97,989 94,465 369,451 120,824 117,299 392,286 148,588 145,063 420,050 7 20,000 170,982 112,959 109,641 384,421 143,600 140,283 415,062 182,370 179,052 453,832 8 20,000 200,531 127,503 124,393 398,965 167,163 164,053 438,625 219,397 216,287 490,859 9 20,000 231,558 141,620 139,547 413,082 191,536 189,463 462,998 259,988 257,915 531,450 10 20,000 264,136 155,325 155,325 426,787 216,763 216,763 488,225 304,517 304,517 575,979 15 20,000 453,150 218,239 218,239 489,701 357,592 357,592 629,054 602,578 602,578 874,040 20 20,000 694,385 265,419 265,419 536,881 518,819 518,819 790,281 1,072,248 1,072,248 1,343,710 25 20,000 1,002,269 291,795 291,795 563,257 697,917 697,917 969,379 1,812,137 1,812,137 2,083,599 30 20,000 1,395,216 290,557 290,557 562,019 889,293 889,293 1,160,756 2,979,455 2,979,455 3,250,917 35 20,000 1,896,726 249,775 249,775 521,237 1,079,693 1,079,693 1,351,155 4,822,266 4,822,266 5,093,728
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 55 57 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN --------------------------- --------------------------- ------------------------------- CASH NET CASH NET CASH NET ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 16,184 12,038 287,646 17,220 13,073 288,682 18,257 14,110 289,719 2 20,000 43,050 31,877 27,730 303,339 34,940 30,794 306,402 38,128 33,982 309,590 3 20,000 66,203 47,072 42,926 318,534 53,168 49,022 324,630 59,765 55,618 331,227 4 20,000 90,513 61,751 57,812 333,213 71,898 67,958 343,360 83,317 79,378 354,779 5 20,000 116,038 75,889 72,157 347,351 91,116 87,384 362,578 108,945 105,213 380,407 6 20,000 142,840 89,459 85,934 360,921 110,807 107,282 382,269 136,821 133,297 408,283 7 20,000 170,982 102,431 99,114 373,893 130,950 127,633 402,413 167,134 163,817 438,596 8 20,000 200,531 114,758 111,648 386,220 151,507 148,397 422,969 200,069 196,959 471,531 9 20,000 231,558 126,392 124,318 397,854 172,434 170,361 443,896 235,832 233,759 507,294 10 20,000 264,136 137,288 137,288 408,750 193,690 193,690 465,152 274,652 274,652 546,114 15 20,000 453,150 179,287 179,287 450,749 303,404 303,404 574,866 524,459 524,459 795,921 20 20,000 694,385 193,401 193,401 464,863 410,516 410,516 681,978 897,812 897,812 1,169,274 25 20,000 1,002,269 165,230 165,230 436,692 495,149 495,149 766,611 1,449,402 1,449,402 1,720,864 30 20,000 1,395,216 76,531 76,531 347,993 527,482 527,482 798,944 2,262,330 2,262,330 2,533,792 35 20,000 1,896,726 (*) (*) (*) 454,371 454,371 725,833 3,451,917 3,451,917 3,723,379
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 56 58 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ------------------------- --------------------------- --------------------------------- ANNUAL PREMIUMS CASH NET CASH NET CASH NET CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 16,618 11,732 205,135 17,673 12,786 205,135 18,728 13,842 205,135 2 20,000 43,050 32,941 28,054 205,135 36,092 31,206 205,135 39,372 34,485 205,135 3 20,000 66,203 48,992 44,105 205,135 55,327 50,441 205,135 62,184 57,297 205,135 4 20,000 90,513 64,779 60,137 205,135 75,440 70,798 205,135 87,442 82,800 205,135 5 20,000 116,038 80,339 75,941 205,135 96,529 92,131 205,135 115,498 111,100 205,135 6 0 121,840 76,906 72,753 205,135 98,778 94,625 205,135 125,708 121,555 205,135 7 0 127,932 73,232 69,323 205,135 100,961 97,052 205,135 136,997 133,088 205,135 8 0 134,329 69,291 65,627 205,135 103,072 99,407 205,135 149,534 145,869 205,135 9 0 141,045 65,045 62,602 205,135 105,098 102,654 205,135 163,519 161,076 205,135 10 0 148,097 60,430 60,430 205,135 107,010 107,010 205,135 179,187 179,187 205,135 15 0 189,014 29,550 29,550 205,135 114,133 114,133 205,135 287,698 287,698 302,083 20 0 241,235 (*) (*) (*) 113,840 113,840 205,135 460,496 460,496 483,521 25 0 307,884 (*) (*) (*) 94,478 94,478 205,135 731,738 731,738 768,325 30 0 392,947 (*) (*) (*) 15,855 15,855 205,135 1,166,147 1,166,147 1,177,808
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 57 59 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ------------------------- ------------------------- -------------------------- ANNUAL CASH NET CASH NET CASH NET PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 14,205 9,319 205,135 15,188 10,302 205,135 16,174 11,288 205,135 2 20,000 43,050 28,074 23,187 205,135 30,954 26,067 205,135 33,958 29,072 205,135 3 20,000 66,203 41,640 36,754 205,135 47,385 42,499 205,135 53,624 48,737 205,135 4 20,000 90,513 54,939 50,297 205,135 64,586 59,944 205,135 75,496 70,854 205,135 5 20,000 116,038 67,999 63,601 205,135 82,675 78,277 205,135 99,971 95,573 205,135 6 0 121,840 61,657 57,503 205,135 81,451 77,297 205,135 106,042 101,889 205,135 7 0 127,932 54,577 50,668 205,135 79,596 75,686 205,135 112,561 108,652 205,135 8 0 134,329 46,582 42,917 205,135 76,953 73,288 205,135 119,588 115,924 205,135 9 0 141,045 37,460 35,016 205,135 73,337 70,894 205,135 127,215 124,772 205,135 10 0 148,097 26,972 26,972 205,135 68,532 68,532 205,135 135,581 135,581 205,135 15 0 189,014 (*) (*) (*) 15,446 15,446 205,135 198,356 198,356 208,274 20 0 241,235 (*) (*) (*) (*) (*) (*) 311,439 311,439 327,011 25 0 307,884 (*) (*) (*) (*) (*) (*) 480,207 480,207 504,217 30 0 392,947 (*) (*) (*) (*) (*) (*) 746,244 746,244 753,706
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 58 60 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN --------------------------- --------------------------- -------------------------------- CASH NET CASH NET CASH NET ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 16,547 11,908 211,285 17,594 12,955 212,332 18,642 14,003 213,381 2 20,000 43,050 32,613 27,974 227,351 35,722 31,083 230,460 38,957 34,318 233,695 3 20,000 66,203 48,191 43,552 242,929 54,391 49,752 249,129 61,097 56,458 255,836 4 20,000 90,513 63,246 58,839 257,984 73,579 69,172 268,318 85,205 80,798 279,943 5 20,000 116,038 77,770 73,595 272,509 93,294 89,119 288,032 111,462 107,287 306,201 6 20,000 142,840 91,757 87,814 286,496 113,540 109,596 308,278 140,070 136,127 334,809 7 20,000 170,982 105,157 101,446 299,895 134,280 130,569 329,019 171,208 167,497 365,947 8 20,000 200,531 117,963 114,484 312,701 155,519 152,040 350,258 205,115 201,636 399,853 9 20,000 231,558 130,153 127,834 324,892 177,246 174,926 371,984 242,039 239,720 436,778 10 20,000 264,136 141,679 141,679 336,418 199,420 199,420 394,159 282,225 282,225 476,963 15 20,000 453,150 190,197 190,197 384,936 318,421 318,421 513,160 545,952 545,952 740,690 20 20,000 694,385 216,571 216,571 411,309 444,024 444,024 638,763 949,833 949,833 1,144,572 25 20,000 1,002,269 212,426 212,426 407,165 566,208 566,208 760,946 1,568,052 1,568,052 1,762,790 30 20,000 1,395,216 167,420 167,420 362,158 669,255 669,255 863,994 2,516,798 2,516,798 2,711,536
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 59 61 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES 0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN --------------------------- --------------------------- ------------------------------- CASH NET CASH NET CASH NET ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 20,000 21,000 14,065 9,426 208,804 15,033 10,394 209,771 16,003 11,364 210,741 2 20,000 43,050 27,434 22,795 222,172 30,225 25,586 224,964 33,136 28,497 227,875 3 20,000 66,203 40,082 35,444 234,821 45,548 40,910 240,287 51,479 46,840 246,217 4 20,000 90,513 51,978 47,571 246,716 60,962 56,555 255,700 71,106 66,699 265,844 5 20,000 116,038 63,071 58,896 257,810 76,406 72,231 271,145 92,083 87,908 286,822 6 20,000 142,840 73,294 69,351 268,032 91,798 87,855 286,537 114,461 110,518 309,200 7 20,000 170,982 82,559 78,848 277,298 107,032 103,321 301,771 138,276 134,565 333,014 8 20,000 200,531 90,758 87,279 285,497 121,972 118,493 316,710 163,539 160,060 358,278 9 20,000 231,558 97,782 95,462 292,520 136,475 134,155 331,213 190,265 187,945 385,003 10 20,000 264,136 103,541 103,541 298,279 150,410 150,410 345,149 218,487 218,487 413,225 15 20,000 453,150 111,282 111,282 306,020 207,629 207,629 402,368 384,589 384,589 579,328 20 20,000 694,385 73,398 73,398 268,136 226,517 226,517 421,255 595,047 595,047 789,786 25 20,000 1,002,269 (*) (*) (*) 168,760 168,760 363,499 843,370 843,370 1,038,109 30 20,000 1,395,216 (*) (*) (*) (*) (*) (*) 1,119,536 1,119,536 1,314,275
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 60 62 ================================================================================ Independent Auditors' Report The Board of Directors and Contract Owners of Nationwide VLI Separate Account-2 Nationwide Life Insurance Company: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide VLI Separate Account-2 as of December 31, 1994, and the related statements of operations and changes in contract owners' equity for each of the years in the three year period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1994, by correspondence with the custodian and the transfer agents of the underlying mutual funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nationwide VLI Separate Account-2 as of December 31, 1994, and the results of its operations and its changes in contract owners' equity for each of the years in the three year period then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in Schedule I is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG Peat Marwick LLP Columbus, Ohio February 3, 1995 ================================================================================ 61 63 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1994 ASSETS: Investments at market value: The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) 17,066 shares (cost $229,907) ............................... $ 225,779 Dreyfus Stock Index Fund (DryStkIx) 43,240 shares (cost $563,926) ............................... 559,526 Fidelity VIP -- Equity-Income Portfolio (FidEqInc) 697,536 shares (cost $10,605,997) ........................... 10,707,181 Fidelity VIP -- Growth Portfolio (FidGro) 620,392 shares (cost $13,197,513) ........................... 13,456,301 Fidelity VIP -- High Income Portfolio (FidHiInc) 323,349 shares (cost $3,487,968) ............................ 3,479,234 Fidelity VIP -- Overseas Portfolio (FidOSeas) 638,682 shares (cost $10,310,133) ........................... 10,008,141 Fidelity VIP-II -- Asset Manager Portfolio (FidAsMgr) 979,509 shares (cost $14,057,007) ........................... 13,507,428 Nationwide SAT -- Capital Appreciation Fund (NWCapApp) 96,931 shares (cost $1,061,238) ............................. 1,058,489 Nationwide SAT -- Government Bond Fund (NWGvtBd) 290,229 shares (cost $3,109,145) ............................ 2,960,341 Nationwide SAT -- Money Market Fund (NWMyMkt) 23,348,692 shares (cost $23,348,692) ........................ 23,348,692 Nationwide SAT -- Total Return Fund (NWTotRet) 819,787 shares (cost $8,206,513) ............................ 7,951,937 Neuberger & Berman -- Growth Portfolio (NBGro) 177,087 shares (cost $3,641,513) ............................ 3,596,635 Neuberger & Berman -- Limited Maturity Bond Portfolio (NBLtdMat) 175,119 shares (cost $2,486,014) ............................ 2,455,173 Neuberger & Berman -- Partners Portfolio (NBPart) 29,166 shares (cost $284,180) ............................... 284,956 Oppenheimer -- Bond Fund (OppBdFd) 161,232 shares (cost $1,824,307) ............................ 1,738,080 Oppenheimer -- Global Securities Fund (OppGISec) 280,112 shares (cost $4,446,200) ............................ 4,226,889 Oppenheimer -- Multiple Strategies Fund (OppMult) 218,847 shares (cost $2,878,510) ............................ 2,825,318 Strong VIP -- Strong Discovery Fund II, Inc. (StDisc2) 235,086 shares (cost $2,502,680) ............................ 2,367,311 Strong VIP -- Strong Special Fund II, Inc. (StSpec2) 362,758 shares (cost $5,317,192) ............................ 5,162,053 TCI Portfolios -- TCI Balanced (TCIBal) 154,092 shares (cost $945,391) .............................. 918,387 TCI Portfolios -- TCI Growth (TCIGro) 579,319 shares (cost $5,277,073) ............................ 5,335,528 TCI Portfolios -- TCI International (TCIInt) 99,911 shares (cost $486,109) ............................... 474,578 Van Eck -- Global Bond Fund (VEGlobBd) 115,655 shares (cost $1,175,056) ............................ 1,180,841 Van Eck -- Gold and Natural Resources Fund (VEGoldNR) 200,034 shares (cost $2,815,779) ............................ 2,624,440 ------------ Total investments .................................. 120,453,238 Accounts receivable ............................................. 524,383 ------------ Total assets ....................................... $120,977,621 ============ CONTRACT OWNERS' EQUITY ............................................. $120,977,621 ============
62 64 Contract owners' equity represented by:
Units Unit Value --------- ---------- Single Premium contracts issued prior to April 16, 1990: Fidelity VIP -- Equity-Income Portfolio................................... 13,321 $19.708533 $ 262,537 Fidelity VIP -- Growth Portfolio.......................................... 9,478 22.566466 213,885 Fidelity VIP -- High Income Portfolio..................................... 3,361 18.151674 61,008 Fidelity VIP -- Overseas Portfolio........................................ 13,422 16.131866 216,522 Fidelity VIP-II -- Asset Manager Portfolio................................ 2,603 15.607540 40,626 Nationwide SAT -- Government Bond Fund.................................... 6,330 16.457035 104,173 Nationwide SAT -- Money Market Fund....................................... 11,053 13.652006 150,896 Nationwide SAT -- Total Return fund....................................... 1,202 17.312690 20,811 Neuberger & Berman -- Growth Portfolio.................................... 5,016 17.608267 88,323 Neuberger & Berman -- Limited Maturity Bond Portfolio..................... 3,923 14.475203 56,786 Oppenheimer -- Global Securities Fund..................................... 1,694 11.358489 19,241 Strong VIP -- Strong Special Fund II...................................... 223 14.690448 3,276 TCI Portfolios -- TCI Growth.............................................. 9,010 19.544976 176,100 Van Eck -- Global Bond Fund............................................... 23 12.443161 286 Van Eck -- Gold and Natural Resources Fund................................ 4,470 11.677805 52,200 Single Premium contracts issued on or after April 16, 1990: The Dreyfus Socially Responsible Growth Fund, Inc......................... 1,810 10.722275 19,407 Dreyfus Stock Index Fund.................................................. 2,251 10.088849 22,710 Fidelity VIP -- Equity-Income Portfolio................................... 323,332 16.234159 5,249,023 Fidelity VIP -- Growth Portfolio.......................................... 280,939 15.715602 4,415,126 Fidelity VIP -- High Income Portfolio..................................... 67,741 18.805616 1,273,911 Fidelity VIP -- Overseas Portfolio........................................ 412,762 11.700527 4,829,533 Fidelity VIP-II -- Asset Manager Portfolio................................ 408,876 15.350115 6,276,294 Nationwide SAT -- Capital Appreciation Fund............................... 8,559 11.312336 96,822 Nationwide SAT -- Government Bond Fund.................................... 156,063 13.739287 2,144,194 Nationwide SAT -- Money Market Fund....................................... 1,309,314 11.534440 15,102,204 Nationwide SAT -- Total Return Fund....................................... 120,485 15.031721 1,811,097 Neuberger & Berman -- Growth Portfolio.................................... 115,954 12.508337 1,450,392 Neuberger & Berman -- Limited Maturity Bond Portfolio..................... 82,503 12.496729 1,031,018 Neuberger & Berman -- Partners Portfolio.................................. 5,109 10.018146 51,183 Oppenheimer -- Bond Fund.................................................. 47,345 13.903136 658,244 Oppenheimer -- Global Securities Fund..................................... 121,746 11.309050 1,376,832 Oppenheimer -- Multiple Strategies Fund................................... 111,321 13.693997 1,524,429 Strong VIP -- Strong Discovery Fund II, Inc............................... 91,405 12.144445 1,110,063 Strong VIP -- Strong Special Fund II, Inc................................. 118,446 14.552799 1,723,721 TCI Portfolios -- TCI Balanced............................................ 49,551 10.801955 535,248 TCI Portfolios -- TCI Growth.............................................. 198,216 13.226279 2,621,660 TCI Portfolios -- TCI International Fund.................................. 25,205 9.392654 236,742 Van Eck -- Global Bond Fund............................................... 37,371 12.237880 457,342 Van Eck -- Gold and Natural Resources Fund................................ 96,291 12.988341 1,250,660 Multiple Payment contracts and Flexible Premium contracts: The Dreyfus Socially Responsible Growth Fund, Inc......................... 19,208 10.788547 207,226 Dreyfus Stock Index Fund.................................................. 52,892 10.151919 536,955 Fidelity VIP -- Equity-Income Portfolio................................... 313,251 16.576413 5,192,578 Fidelity VIP -- Growth Portfolio.......................................... 557,100 15.828463 8,818,037 Fidelity VIP -- High Income Portfolio..................................... 123,032 17.428943 2,144,318 Fidelity VIP -- Overseas Portfolio........................................ 395,360 12.540728 4,958,102 Fidelity VIP-II -- Asset Manager Portfolio................................ 521,838 13.774855 7,188,243 Nationwide SAT -- Capital Appreciation Fund............................... 83,892 11.465403 961,856 Nationwide SAT -- Government Bond Fund.................................... 55,992 12.720514 712,247 Nationwide SAT -- Money Market Fund....................................... 772,913 11.176411 8,638,393 Nationwide SAT -- Total Return Fund....................................... 430,902 14.205723 6,121,274 Neuberger & Berman -- Growth Portfolio.................................... 168,359 12.214794 2,056,471 Neuberger & Berman -- Limited Maturity Bond Portfolio..................... 114,924 11.900389 1,367,640 Neuberger & Berman -- Partners Portfolio.................................. 23,346 10.038887 234,368 Oppenheimer -- Bond Fund.................................................. 82,713 13.065574 1,080,693 Oppenheimer -- Global Securities Fund..................................... 248,498 11.379737 2,827,842 Oppenheimer -- Multiple Strategies Fund................................... 97,117 13.372968 1,298,743 Strong VIP -- Strong Discovery Fund II, Inc............................... 102,169 12.307607 1,257,456 Strong VIP -- Strong Special Fund II, Inc................................. 232,802 14.748256 3,433,423 TCI Portfolios -- TCI Balanced............................................ 35,010 10.948128 383,294 TCI Portfolios -- TCI Growth.............................................. 204,938 12.417011 2,544,717 TCI Portfolios -- TCI International....................................... 25,025 9.412116 235,538 Van Eck -- Global Bond Fund............................................... 63,390 11.388987 721,948 Van Eck -- Gold and Natural Resources Fund................................ 93,221 14.178501 1,321,734 ========= ========= ------------ $120,977,621 ============
See accompanying notes to financial statements 63 65 ================================================================================ NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ------------ ------------ ----------- Investment activity: Reinvested capital gains and dividends ................ $ 3,376,057 974,676 604,541 ------------ ------------ ----------- Gain (loss) on investments: Proceeds from redemption of mutual fund shares ..... 184,340,809 115,961,691 40,509,633 Cost of mutual fund shares sold .................... (184,441,475) (113,135,035) (39,859,527) ------------ ------------ ----------- Realized gain (loss) on investments ................ (100,666) 2,826,656 650,106 Change in unrealized gain (loss) on investments..... (3,604,010) 1,224,589 (62,290) ------------ ------------ ----------- Net gain (loss) on investments ................... (3,704,676) 4,051,245 587,816 ------------ ------------ ----------- Net investment activity .............. (328,619) 5,025,921 1,192,357 ------------ ------------ ----------- Equity transactions: Purchase payments received from contract owners ....... 77,172,455 31,008,045 10,528,830 Surrenders (note 2d) .................................. (1,308,994) (559,275) (466,222) Death benefits (note 4) ............................... (15,398) (360,580) (75,324) Policy loans (net of repayments) (note 5) ............. (2,980,396) (1,781,013) (974,590) ------------ ------------ ----------- Net equity transactions .............. 72,867,667 28,307,177 9,012,694 ------------ ------------ ----------- Expenses: Deductions for surrender charges (note 2d) ............ (116,899) (24,490) (18,062) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) ....... (5,382,393) (1,539,443) (390,248) Deductions for asset charges (note 3) ................. (879,737) (430,173) (219,427) ------------ ------------ ---------- Total expenses ....................... (6,379,029) (1,994,106) (627,737) ------------ ------------ ---------- Net change in contract owners' equity .................... 66,160,019 31,338,992 9,577,314 Contract owners' equity beginning of period .............. 54,817,602 23,478,610 13,901,296 ------------ ------------ ----------- Contract owners' equity end of period .................... $120,977,621 54,817,602 23,478,610 ============ ============ ===========
See accompanying notes to financial statements. ================================================================================ 64 66 ================================================================================ NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993 AND 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization The Nationwide VLI Separate Account--2 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on May 7, 1987. The Account has been registered as a unit investment trust under the Investment Company Act of 1940. (b) The Contracts Prior to December 31, 1990, only single premium life insurance contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees, were offered for purchase. Beginning December 31, 1990, multiple payment life insurance contracts and flexible premium life insurance contracts with a front-end sales charge, a contingent deferred sales charge and certain other fees, are offered for purchase. See note 2 for a discussion of policy charges. Contract owners may invest in the following: The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) Dreyfus Stock Index Fund (DryStkIx)(formerly Dreyfus Life and Annuity Index Fund, Inc. (DLAI)) Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP); Fidelity VIP -- Equity-Income Portfolio (FidEqInc) Fidelity VIP -- Growth Portfolio (FidGro) Fidelity VIP -- High Income Portfolio (FidHiInc) Fidelity VIP -- Overseas Portfolio (FidOSeas) Portfolio of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II) Fidelity VIP-II -- Asset Manager Portfolio (FidAsMgr) Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed for a fee by an affiliated investment adviser); Nationwide SAT -- Capital Appreciation Fund (NWCapApp) Nationwide SAT -- Government Bond Fund (NWGvtBd) Nationwide SAT -- Money Market Fund (NWMyMkt) Nationwide SAT -- Total Return Fund (NWTotRet) Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger & Berman); Neuberger & Berman -- Growth Portfolio (NBGro) Neuberger & Berman -- Limited Maturity Bond Portfolio (NBLtdMat) Neuberger & Berman -- Partners Portfolio (NBPart) Funds of the Oppenheimer Variable Account Funds (Oppenheimer); Oppenheimer -- Bond Fund (OppBdFd) Oppenheimer -- Global Securities Fund (OppGlSec) Oppenheimer -- Multiple Strategies Fund (OppMult) Funds of the Strong Variable Insurance Products Funds (Strong VIP); Strong VIP -- Strong Discovery Fund II, Inc. (StDisc2) Strong VIP -- Strong Special Fund II, Inc. (StSpec2) Portfolios of the TCI Portfolios, Inc. (TCI Portfolios); TCI Portfolios -- TCI Balanced (TCIBal) TCI Portfolios -- TCI Growth (TCIGro) TCI Portfolios -- TCI International (TCIInt) Funds of the Van Eck Investment Trust (Van Eck); Van Eck -- Global Bond Fund (VEGlobBd) Van Eck -- Gold and Natural Resources Fund (VEGoldNR) 65 67 At December 31, 1994, contract owners have invested in all of the above funds. The contract owners' equity is affected by the investment results of each fund and certain policy charges (see note 2). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. (c) Security Valuation, Transactions and Related Investment Income The market value of investments is based on the closing net asset value per share at December 31, 1994. Fund purchases and sales are accounted for on the trade date (date the order to buy or sell is executed). The cost of investments sold is determined on a specific identification basis, and dividends (which include capital gain distributions) are accrued as of the ex-dividend date. (d) Federal Income Taxes The operations of the Account form a part of, and are taxed with, the operations of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code. Currently, no charge is being made to the Account for Federal income taxes, or reserves for such taxes, which may be attributed to the Account. However, the Company reserves the right to make such charges in the future. (2) Policy Charges (a) Deductions from Premiums On multiple payment contracts and flexible premium contracts, the Company deducts a charge for state premium taxes equal to 2.5% of all premiums received to cover the payment of these premium taxes. The Company also deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. The Company may at its sole discretion reduce this sales loading. (b) Cost of Insurance A cost of insurance charge is assessed monthly against each contract by liquidating units. The amount of the charge is based upon age, sex, rate class and net amount at risk (death benefit less total contract value). (c) Administrative Charges For single premium contracts, the Company deducts an annual administrative charge which is determined as follows: Contracts issued prior to April 16, 1990: Purchase payments totalling less than $25,000 - $10/month Purchase payments totalling $25,000 or more - none Contracts issued on or after April 16, 1990: Purchase payments totalling less than $25,000 - $90/year ($65/year in New York) Purchase payments totalling $25,000 or more - $50/year For multiple payment contracts, the Company currently deducts a monthly administrative charge of $5 (may deduct up to $7.50, maximum) to recover policy maintenance, accounting, record keeping and other administrative expenses. For flexible premium contracts, the Company currently deducts a monthly administrative charge of $25 during the first policy year and $5 per month thereafter (may deduct up to $7.50, maximum) to recover policy maintenance, accounting, record keeping and other administrative expenses. Additionally, the Company deducts an increase charge of $2.04 per year per $1,000 applied to any increase in the specified amount during the first 12 months after the increase becomes effective. The above charges are assessed against each contract by liquidating units. (d) Surrenders Policy surrenders result in a redemption of the contract value from the Account and payment of the surrender proceeds to the contract owner or designee. The surrender proceeds consist of the contract value, less any outstanding policy loans, and less a surrender charge, if applicable. The charge is determined according to contract type. For single premium contracts, the charge is determined based upon a specified percentage of the original purchase payment. For single premium contracts issued prior to April 16, 1990, the charge is 8% in the first year and declines to 0% after the ninth year. For single premium contracts issued on or after April 16, 1990, the charge is 8.5% in the first year, and declines to 0% after the ninth year. 66 68 For multiple payment contracts and flexible premium contracts, the amount charged is based upon a specified percentage of the initial surrender charge, which varies by issue age, sex and rate class. The charge is 100% of the initial surrender charge in the first year, declining to 0% after the ninth year. The Company may waive the surrender charge for certain contracts in which the sales expenses normally associated with the distribution of a contract are not incurred. (3) Asset Charges For single premium contracts, the Company deducts a charge from the contract to cover mortality and expense risk charges related to operations, and to recover policy maintenance and premium tax charges. For contracts issued prior to April 16, 1990, the charge is equal to an annual rate of .95% during the first ten policy years, and .50% thereafter. A reduction of charges on these contracts is possible in policy years six through ten for those contracts achieving certain investment performance criteria. For single premium contracts issued on or after April 16, 1990, the charge is equal to an annual rate of 1.30% during the first ten policy years, and 1.00% thereafter. For multiple payment contracts and flexible premium contracts the Company deducts a charge equal to an annual rate of .80%, with certain exceptions, to cover mortality and expense risk charges related to operations. The above charges are assessed through the daily unit value calculation. (4) Death Benefits Death benefits result in a redemption of the contract value from the Account and payment of the death benefit proceeds, less any outstanding policy loans (and policy charges), to the legal beneficiary. The excess of the death benefit proceeds over the contract value on the date of death is paid by the Company's general account. (5) Policy Loans (Net of Repayments) Contract provisions allow contract owners to borrow up to 90% (50% during first year of single premium contracts) of a policy's cash surrender value. For single premium contracts issued prior to April 16, 1990, 6.5% interest is due and payable annually in advance. For single premium contracts issued on or after April 16, 1990, multiple payment contracts and flexible premium contracts, 6% interest is due and payable in advance on the policy anniversary when there is a loan outstanding on the policy. At the time the loan is granted, the amount of the loan is transferred from the Account to the Company's general account as collateral for the outstanding loan. Collateral amounts in the general account are credited with the stated rate of interest in effect at the time the loan is made, subject to a guaranteed minimum rate. Loan repayments result in a transfer of collateral, including interest, back to the Account. (6) Schedule I Schedule I presents the components of the change in the unit values, which are the basis for determining contract owners' equity. This schedule is presented for each series, as applicable, in the following format: - Beginning unit value - Jan. 1 - Reinvested dividends and capital gains (This amount reflects the increase in the unit value due to dividend and capital gain distributions from the underlying mutual fund.) - Unrealized gain (loss) (This amount reflects the increase (decrease) in the unit value resulting from the market appreciation (depreciation) of the fund.) - Asset charges (This amount reflects the decrease in the unit value due to the charges discussed in note 3.) - Ending unit value - Dec. 31 - Percentage increase (decrease) in unit value. ================================================================================ 67 69 SCHEDULE I NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
FIDEQINC FIDGRO FIDHIINC FIDOSEAS FIDASMGR NWGVTBD ---------- --------- --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $18.583057 22.785679 18.612185 16.009316 16.778042 17.168348 - ---------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains 1.395798 1.371061 1.706032 .082663 .815806 1.079469 - ---------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.087894) (1.381165) ( 1.991707) .196908 (1.832732) (1.633239) - ---------------------------------------------------------------------------------------------------------------------------- Asset charges (.182428) (.209109) (.174836) (.157021) (.153576) (.157543) - ---------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $19.708533 22.566466 18.151674 16.131866 15.607540 16.457035 - ---------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 6% (1)% (2)% 1% (7)% (4)% ============================================================================================================================ 1993 Beginning unit value - Jan. 1 $15.870837 19.270345 15.591886 11.777024 13.992516 15.826033 - ---------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .463717 .428707 1.282532 .275295 .649736 1.013212 - ---------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 2.415095 3.287237 1.901458 4.091447 2.280467 .488744 - ---------------------------------------------------------------------------------------------------------------------------- Asset charges (.166592) (.200610) (.163691) (.134450) (.144677) (.159641) - ---------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $18.583057 22.785679 18.612185 16.009316 16.778042 17.168348 - ---------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 17% 18% 19% 36% 20% 8% ============================================================================================================================ 1992 Beginning unit value - Jan. 1 $13.697404 17.795954 12.791968 13.316077 12.626216 14.812100 - ---------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .489013 .461042 1.083931 .182793 .643268 1.584012 - ---------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 1.823212 1.181841 1.855998 (1.599225) .849351 (.425439) - ---------------------------------------------------------------------------------------------------------------------------- Asset charges (.138792) (.168492) (.140011) (.122621) (.126319) (.144640) - ---------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $15.870837 19.270345 15.591886 11.777024 13.992516 15.826033 - ---------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 16% 8% 22% (12)% 11% 7% ============================================================================================================================
*An annualized rate of return cannot be determined as asset charges do not include the policy charges described in note 2. 68 70 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NWMYMKT NWTOTRET NBGRO NBLTDMAT OPPGLSEC STSPEC2 ---------- --------- --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $13.267517 17.291720 18.709214 14.635617 12.162716 14.315226 - -------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .512535 .875020 2.255334 .618309 .214436 .411358 - -------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 (.688478) (3.185612) (.641424) (.903773) .103258 - -------------------------------------------------------------------------------------------------------------------------- Asset charges (.128046) (.165572) (.170669) (.137299) (.114890) (.139394) - -------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.652006 17.312690 17.608267 14.475203 11.358489 14.690448 - -------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 3% 0% (6)% (1)% (7)% 3% ========================================================================================================================== 1993 Beginning unit value - Jan. 1 $13.035884 15.738275 17.686598 13.856975 ** ** - -------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .357335 .643850 .409995 .569917 - -------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 1.067081 .782366 .345457 - -------------------------------------------------------------------------------------------------------------------------- Asset charges (.125702) (.157486) (.169745) (.136732) - -------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.267517 17.291720 18.709214 14.635617 - -------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 2% 10% 6% 6% ========================================================================================================================== 1992 Beginning unit value - Jan. 1 $12.726690 14.687309 16.300625 13.300964 ** ** - -------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .431470 .553999 .174368 .639966 - -------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 .639905 1.366598 .044916 - -------------------------------------------------------------------------------------------------------------------------- Asset charges (.122276) (.142938) (.154993) (.128871) - -------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.035884 15.738275 17.686598 13.856975 - -------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 2% 7% 9% 4% ==========================================================================================================================
TCIGRO VEGLOBBD VEGOLDNR --------- --------- --------- 1994 Beginning unit value - Jan. 1 19.964524 12.729709 12.382561 - ------------------------------------------------------------------------------------ Reinvested dividends and capital gains .002137 .051271 .062321 - ------------------------------------------------------------------------------------ Unrealized gain (loss) (.236035) (.220753) (.652194) - ------------------------------------------------------------------------------------ Asset charges (.185650) (.117066) (.114883) - ------------------------------------------------------------------------------------ Ending unit value - Dec. 31 19.544976 12.443161 11.677805 - ------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (2)% (2)% (6)% ==================================================================================== 1993 Beginning unit value - Jan. 1 18.270571 ** 7.583732 - ------------------------------------------------------------------------------------ Reinvested dividends and capital gains .049805 .035765 - ------------------------------------------------------------------------------------ Unrealized gain (loss) 1.825395 4.857738 - ------------------------------------------------------------------------------------ Asset charges (.181247) (.094674) - ------------------------------------------------------------------------------------ Ending unit value - Dec. 31 19.964524 12.382561 - ------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* 9% 63% ==================================================================================== 1992 Beginning unit value - Jan. 1 18.695945 ** 7.983003 - ------------------------------------------------------------------------------------ Reinvested dividends and capital gains .118729 .036024 - ------------------------------------------------------------------------------------ Unrealized gain (loss) (.376601) (.359988) - ------------------------------------------------------------------------------------ Asset charges (.167502) (.075307) - ------------------------------------------------------------------------------------ Ending unit value - Dec. 31 18.270571 7.583732 - ------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (2)% (5)% ====================================================================================
*An annualized rate of return cannot be determined as asset charges do not include the policy charges discussed in note 2. **This investment option was not being utilized. 69 71 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
DRYSRGRO DRYSTKIX FIDEQINC FIDGRO FIDHIINC ---------- --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $10.702403 10.131165 15.360584 15.923752 19.350153 - --------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .276372 .283260 1.152726 .957853 1.773098 - --------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.117327) (.195255) (.073161) (.966373) (2.069306) - --------------------------------------------------------------------------------------------------------------------- Asset charges (.139173) (.130321) (.205990) (.199630) (.248329) - --------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.722275 10.088849 16.234159 15.715602 18.805616 - --------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 0% 0% 6% (1)% (3)% ===================================================================================================================== 1993 Beginning unit value - Jan. 1 ** $10.000000 13.165400 13.515048 16.267831 - --------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains 1.497818 .383884 .300564 1.337665 - --------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (1.334006) 2.000061 2.300317 1.977956 - --------------------------------------------------------------------------------------------------------------------- Asset charges (.032647) (.188761) (.192177) (.233299) - --------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.131165 15.360584 15.923752 19.350153 - --------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 1%(b) 17% 18% 19% ===================================================================================================================== 1992 Beginning unit value - Jan. 1 ** ** $11.404102 12.526775 13.395420 - --------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .406294 .324413 1.134645 - --------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 1.514696 .827788 1.940375 - --------------------------------------------------------------------------------------------------------------------- Asset charges (.159692) (.163928) (.202609) - --------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.165400 13.515048 16.267831 - --------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 15% 8% 21% =====================================================================================================================
FIDOSEAS FIDASMGR NWCAPAPP --------- --------- --------- 1994 Beginning unit value - Jan. 1 11.652241 16.559029 11.563943 - -------------------------------------------------------------------------------------- Reinvested dividends and capital gains .060146 .804872 .182742 - -------------------------------------------------------------------------------------- Unrealized gain (loss) .144272 (1.806726) (.286826) - -------------------------------------------------------------------------------------- Asset charges (.156132) (.207060) (.147523) - -------------------------------------------------------------------------------------- Ending unit value - Dec. 31 11.700527 15.350115 11.312336 - -------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 0% (7)% (2)% ====================================================================================== 1993 Beginning unit value - Jan. 1 8.602313 13.859040 10.688742 - -------------------------------------------------------------------------------------- Reinvested dividends and capital gains .201014 .643313 .260088 - -------------------------------------------------------------------------------------- Unrealized gain (loss) 2.983042 2.252405 .755302 - -------------------------------------------------------------------------------------- Asset charges (.134128) (.195729) (.140189) - -------------------------------------------------------------------------------------- Ending unit value - Dec. 31 11.652241 16.559029 11.563943 - -------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 35% 19% 8% ====================================================================================== 1992 Beginning unit value - Jan. 1 9.762186 12.551604 10.000000 - -------------------------------------------------------------------------------------- Reinvested dividends and capital gains .133959 .639230 .116911 - -------------------------------------------------------------------------------------- Unrealized gain (loss) (1.169584) .841759 .662491 - -------------------------------------------------------------------------------------- Asset charges (.124248) (.173553) (.090660) - -------------------------------------------------------------------------------------- Ending unit value - Dec. 31 8.602313 13.859040 10.688742 - -------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (12)% 10% 7%(b) ======================================================================================
*An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. **This investment option was not available. 70 72 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NWGVTBD NWMYMKT NWTOTRET NBGRO ---------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $14.383265 11.249231 15.066007 13.336899 - ------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .902346 .433762 .760244 1.607088 - ------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (1.366016) .000000 (.597472) (2.269450) - ------------------------------------------------------------------------------------------------------------- Asset charges (.180308) (.148553) (.197058) (.166200) - ------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.739287 11.534440 15.031721 12.508337 - ------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (4)% 3% 0% (6)% ============================================================================================================= 1993 Beginning unit value - Jan. 1 $13.305926 11.092030 13.761364 12.652864 - ------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .849957 .303567 .561430 .293188 - ------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .410720 .000000 .931322 .556715 - ------------------------------------------------------------------------------------------------------------- Asset charges (.183338) (.146366) (.188109) (.165868) - ------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 14.383265 11.249231 15.066007 13.336899 - ------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 8% 1% 9% 5% ============================================================================================================= 1992 Beginning unit value - Jan. 1 $12.499106 10.868645 12.889484 11.704085 - ------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains 1.333128 .367907 .484903 .125129 - ------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.357624) .000000 .560353 .977464 - ------------------------------------------------------------------------------------------------------------- Asset charges (.168684) (.144522) (.173376) (.153814) - ------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.305926 11.092030 13.761364 12.652864 - ------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 6% 2% 7% 8% =============================================================================================================
NBLTDMAT NBPART OPPBDFD OPPGLSEC --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 12.679406 10.000000 14.362878 12.152136 - ----------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .535454 .000000 .809172 .214078 - ----------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.555628) .072562 (1.086058) (.900362) - ----------------------------------------------------------------------------------------------------------- Asset charges (.162503) (.054416) (.182856) (.156802) - ----------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 12.496729 10.018146 13.903136 11.309050 - ----------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (1)% 0% (3)% (7)% =========================================================================================================== 1993 Beginning unit value - Jan. 1 12.047601 ** 12.872824 10.000000 - ----------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .495297 .894915 .000000 - ----------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .298894 .774891 2.187580 - ----------------------------------------------------------------------------------------------------------- Asset charges (.162386) (.179752) (.035444) - ----------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 12.679406 14.362878 12.152136 - ----------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 5% 12% 22%(b) =========================================================================================================== 1992 Beginning unit value - Jan. 1 11.606586 ** 12.247292 ** - ----------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .558129 .965315 - ----------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .038299 (.174660) - ----------------------------------------------------------------------------------------------------------- Asset charges (.155413) (.165123) - ----------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 12.047601 12.872824 - ----------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 4% 5% ===========================================================================================================
*An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. **This investment option was not available. 71 73 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
OPPMULT STDISC2 STSPEC2 TCIBAL ---------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $14.148115 13.003547 14.230663 10.876445 - -------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .720350 .971167 .407898 .260556 - -------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.993926) (1.670283) .103521 (.194370) - -------------------------------------------------------------------------------------------------------- Asset charges (.180542) (.159986) (.189283) (.140676) - -------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.693997 12.144445 14.552799 10.801955 - -------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (3)% (7)% 2% (1)% ======================================================================================================== 1993 Beginning unit value - Jan. 1 $12.362293 10.796269 11.518529 10.232336 - -------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .546245 .809234 .057229 .193813 - -------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 1.411883 1.546688 2.823424 .587650 - -------------------------------------------------------------------------------------------------------- Asset charges (.172306) (.148644) (.168519) (.137354) - -------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $14.148115 13.003547 14.230663 10.876445 - -------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 14% 20% 24% 6% ======================================================================================================== 1992 Beginning unit value - Jan. 1 $11.492307 10.000000 10.000000 10.000000 - -------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .523482 .686609 .254111 .088862 - -------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .502568 .192175 1.351260 .231816 - -------------------------------------------------------------------------------------------------------- Asset charges (.156064) (.082515) (.086842) (.088342) - -------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $12.362293 10.796269 11.518529 10.232336 - -------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 8% 8%(b) 15%(b) 2%(b) ========================================================================================================
TCIGRO TCIINT VEGLOBBD VEGOLDNR --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 13.557427 10.000000 12.563474 13.820369 - ------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .001450 .000000 .050533 .069418 - ------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.160376) (.554327) (.218292) (.726294) - ------------------------------------------------------------------------------------------------------- Asset charges (.172222) (.053019) (.157835) (.175152) - ------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 13.226279 9.392654 12.237880 12.988341 - ------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (2)% (6)% (3)% (6)% ======================================================================================================= 1993 Beginning unit value - Jan. 1 12.451309 ** 11.809827 8.494453 - ------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .033826 .949184 .039957 - ------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 1.241015 (.037350) 5.430795 - ------------------------------------------------------------------------------------------------------- Asset charges (.168723) (.158187) (.144836) - ------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 13.557427 12.563474 13.820369 - ------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 9% 6% 63% ======================================================================================================= 1992 Beginning unit value - Jan. 1 12.787927 ** 12.636322 8.974487 - ------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .081089 1.071867 .040438 - ------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.259357) (1.734743) (.403465) - ------------------------------------------------------------------------------------------------------- Asset charges (.158350) (.163619) (.117007) - ------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 12.451309 11.809827 8.494453 - ------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (3)% (7)% (5)% =======================================================================================================
*An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. **This investment option was not available. 72 74 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
DRYSRGRO DRYSTKIX FIDEQINC FIDGRO FIDHIINC FIDOSEAS ---------- --------- --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $10.715005 10.143796 15.606442 15.958341 17.844401 12.426854 - ------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .278073 .284601 1.172669 .960381 1.635883 .064174 - ------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) (.118575) (.195976) (.073581) (.966828) (1.910067) .152413 - ------------------------------------------------------------------------------------------------------------------ Asset charges (.085956) (.080502) (.129117) (.123431) (.141274) (.102713) - ------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $10.788547 10.151919 16.576413 15.828463 17.428943 12.540728 - ------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 1% 0% 6% (1)% (2)% 1% ================================================================================================================== 1993 Beginning unit value - Jan. 1 $10.000000 10.000000 13.308899 13.476298 14.926526 9.128094 - ------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .031142 1.499665 .389191 .299849 1.227974 .213405 - ------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) .703426 (1.335764) 2.026087 2.300419 1.821967 3.173177 - ------------------------------------------------------------------------------------------------------------------ Asset charges (.019563) (.020105) (.117735) (.118225) (.132066) (.087822) - ------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $10.715005 10.143796 15.606442 15.958341 17.844401 12.426854 - ------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 7%(b) 1%(b) 17% 18% 20% 36% ================================================================================================================== 1992 Beginning unit value - Jan. 1 ** ** $11.469514 12.426998 12.228193 10.305868 - ------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .409816 .321995 1.036312 .141492 - ------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 1.527971 .826930 1.775349 (1.238908) - ------------------------------------------------------------------------------------------------------------------ Asset charges (.098402) (.099625) (.113328) (.080358) - ------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $13.308899 13.476298 14.926526 9.128094 - ------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 16% 8% 22% (11)% ==================================================================================================================
FIDASMGR NWCAPAPP --------- --------- 1994 Beginning unit value - Jan. 1 14.785784 11.662121 - ----------------------------------------------------------------- Reinvested dividends and capital gains .719044 .184927 - ----------------------------------------------------------------- Unrealized gain (loss) (1.615920) (.289863) - ----------------------------------------------------------------- Asset charges (.114053) (.091782) - ----------------------------------------------------------------- Ending unit value - Dec. 31 13.774855 11.465403 - ----------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (7)% (2)% ================================================================= 1993 Beginning unit value - Jan. 1 12.312732 10.725293 - ----------------------------------------------------------------- Reinvested dividends and capital gains .571816 .261975 - ----------------------------------------------------------------- Unrealized gain (loss) 2.008516 .761628 - ----------------------------------------------------------------- Asset charges (.107280) (.086775) - ----------------------------------------------------------------- Ending unit value - Dec. 31 14.785784 11.662121 - ----------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 20% 9% ================================================================= 1992 Beginning unit value - Jan. 1 11.094195 10.000000 - ----------------------------------------------------------------- Reinvested dividends and capital gains .565299 .117198 - ----------------------------------------------------------------- Unrealized gain (loss) .747233 .663590 - ----------------------------------------------------------------- Asset charges (.093995) (.055495) - ----------------------------------------------------------------- Ending unit value - Dec. 31 12.312732 10.725293 - ----------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 11% 7%(b) =================================================================
*An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. **This investment option was not available. 73 75 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NWGVIBD NWMYMKT NWTOTRET NBGRO ---------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $13.250482 10.845265 14.167308 12.959107 - ----------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .833925 .419275 .717782 1.562441 - ----------------------------------------------------------------------------------------------- Unrealized gain (loss) (1.261429) .000000 (.565055) (2.207122) - ----------------------------------------------------------------------------------------------- Asset charges (.102464) (.088129) (.114312) (.099632) - ----------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $12.720514 11.176411 14.205723 12.214794 - ----------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (4)% 3% 0% (6)% =============================================================================================== 1993 Beginning unit value - Jan. 1 $12.196370 10.639809 12.875439 12.232618 - ----------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .781559 .291848 .527331 .283612 - ----------------------------------------------------------------------------------------------- Unrealized gain (loss) .376228 .000000 .873117 .541815 - ----------------------------------------------------------------------------------------------- Asset charges (.103675) (.086392) (.108579) (.098938) - ----------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.250482 10.845265 14.167308 12.959107 - ----------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 9% 2% 10% 6% =============================================================================================== 1992 Beginning unit value - Jan. 1 11.398284 10.372248 11.998073 11.257546 - ----------------------------------------------------------------------------------------------- Reinvested dividends and capital gains 1.220229 .351875 .453040 .120449 - ----------------------------------------------------------------------------------------------- Unrealized gain (loss) (.327900) .000000 .523204 .945268 - ----------------------------------------------------------------------------------------------- Asset charges (.094243) (.084314) (.098878) (.090645) - ----------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 12.196370 10.639809 12.875439 12.232618 - ----------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 7% 3% 7% 9% ===============================================================================================
NBLTDMAT NBPART OPPBDFD OPPGLSEC --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 12.014277 10.000000 13.430475 12.167250 - ---------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .507651 .000000 .759284 .214589 - ---------------------------------------------------------------------------------------------- Unrealized gain (loss) (.526553) .072401 (1.018698) (.905246) - ---------------------------------------------------------------------------------------------- Asset charges (.094986) (.033514) (.105487) (.096856) - ---------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 11.900389 10.038887 13.065574 11.379737 - ---------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (1)% 0% (3)% (6)% ============================================================================================== 1993 Beginning unit value - Jan. 1 11.358230 ** 11.976650 10.000000 - ---------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .467224 .835328 .000000 - ---------------------------------------------------------------------------------------------- Unrealized gain (loss) .283278 .721678 2.189077 - ---------------------------------------------------------------------------------------------- Asset charges (.094455) (.103181) (.021827) - ---------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 12.014277 13.430475 12.167250 - ---------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 6% 12% 22%(b) ============================================================================================== 1992 Beginning unit value - Jan. 1 10.886535 ** 11.336437 ** - ---------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .523915 .896156 - ---------------------------------------------------------------------------------------------- Unrealized gain (loss) .037093 (.162290) - ---------------------------------------------------------------------------------------------- Asset charges (.089313) (.093653) - ---------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 11.358230 11.976650 - ---------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 4% 6% ==============================================================================================
*An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. **This investment option was not available. 74 76 Schedule I, Continued NATIONWIDE VLI SEPARATE ACCOUNT-2 MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
OPPMULT STDISC2 STSPEC2 TCIBAL ---------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 $13.747705 13.112678 14.350073 10.968814 - ------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .702216 .983647 .412806 .263602 - ------------------------------------------------------------------------------------------------------ Unrealized gain (loss) (.968729) (1.689193) .103139 (.196764) - ------------------------------------------------------------------------------------------------------ Asset charges (.108224) (.099525) (.117762) (.087524) - ------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $13.372968 12.307607 14.748256 10.948128 - ------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (3)% (6)% 3% 0% ====================================================================================================== 1993 Beginning unit value - Jan. 1 $11.952042 10.832134 11.556788 10.267347 - ------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .529802 .814568 .057587 .195102 - ------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 1.368631 1.557980 2.840017 .591395 - ------------------------------------------------------------------------------------------------------ Asset charges (.102770) (.092004) (.104319) (.085030) - ------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $13.747705 13.112678 14.350073 10.968814 - ------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* 15% 21% 24% 7% ====================================================================================================== 1992 Beginning unit value - Jan. 1 $11.054157 10.000000 10.000000 10.000000 - ------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .505102 .688214 .254638 .089065 - ------------------------------------------------------------------------------------------------------ Unrealized gain (loss) .484754 .194428 1.355307 .232359 - ------------------------------------------------------------------------------------------------------ Asset charges (.091971) (.050508) (.053157) (.054077) - ------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $11.952042 10.832134 11.556788 10.267347 - ------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* 8% 8%(b) 16%(b) 3%(b) ======================================================================================================
TCIGRO TCIINT VEGLOBBD VEGOLDNR --------- --------- --------- --------- 1994 Beginning unit value - Jan. 1 12.664593 10.000000 11.633841 15.011706 - ------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .001356 .000000 .046884 .075618 - ------------------------------------------------------------------------------------------------------ Unrealized gain (loss) (.149703) (.555221) (.201583) (.791458) - ------------------------------------------------------------------------------------------------------ Asset charges (.099235) (.032663) (.090155) (.117365) - ------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 12.417011 9.412116 11.388987 14.178501 - ------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (2)% (6)% (2)% (6)% ====================================================================================================== 1993 Beginning unit value - Jan. 1 11.572833 ** 10.880964 9.180337 - ------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .031592 .876895 .043340 - ------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 1.156915 (.034094) 5.884613 - ------------------------------------------------------------------------------------------------------ Asset charges (.096747) (.089924) (.096584) - ------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 12.664593 11.633841 15.011706 - ------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* 9% 7% 64% ====================================================================================================== 1992 Beginning unit value - Jan. 1 11.824933 ** 11.582940 9.649533 - ------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .075139 .985234 .043570 - ------------------------------------------------------------------------------------------------------ Unrealized gain (loss) (.237534) (1.595322) (.435683) - ------------------------------------------------------------------------------------------------------ Asset charges (.089705) (.091888) (.077083) - ------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 11.572833 10.880964 9.180337 - ------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (2)% (6)% (5)% ======================================================================================================
*An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. **This investment option was not available. 75 77 INDEPENDENT AUDITORS' REPORT The Board of Directors Nationwide Life Insurance Company: We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Participating insurance and the related surplus are discussed in note 13. The Company and its counsel are of the opinion that the ultimate ownership of the participating surplus in excess of the contemplated equitable policyholder dividends belongs to the shareholder. The accompanying consolidated financial statements are presented on such basis. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in note 2 to the consolidated financial statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. In 1993, the Company adopted the provisions of SFAS No. 109, Accounting for Income Taxes and SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. KPMG Peat Marwick LLP Columbus, Ohio February 27, 1995 76 78 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Balance Sheets December 31, 1994 and 1993 (000's omitted)
Assets 1994 1993 ------ ----------- ---------- Investments (notes 5, 8 and 9): Securities available-for-sale, at fair value: Fixed maturities (cost $8,318,865 in 1994) $ 8,045,906 - Equity securities (cost $18,373 in 1994; $8,263 in 1993) 24,713 16,593 Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310 in 1994; $10,886,820 in 1993) 3,688,787 10,120,978 Mortgage loans on real estate 4,222,284 3,871,560 Real estate 252,681 253,831 Policy loans 340,491 315,898 Other long-term investments 63,914 118,490 Short-term investments (note 14) 131,643 41,797 ----------- ----------- 16,770,419 14,739,147 ----------- ----------- Cash 7,436 21,835 Accrued investment income 220,540 190,886 Deferred policy acquisition costs 1,064,159 811,944 Deferred Federal income tax 36,515 - Other assets 790,603 636,161 Assets held in Separate Accounts (note 8) 12,222,461 9,006,388 ----------- ----------- $31,112,133 25,406,361 =========== =========== Liabilities and Shareholder's Equity ------------------------------------ Future policy benefits and claims (notes 6 and 8) 16,321,461 14,092,255 Policyholders' dividend accumulations 338,058 322,686 Other policyholder funds 72,770 71,959 Accrued Federal income tax (note 7): Current 13,126 12,294 Deferred - 31,659 ----------- ----------- 13,126 43,953 ----------- ----------- Other liabilities 235,778 217,952 Liabilities related to Separate Accounts (note 8) 12,222,461 9,006,388 ----------- ----------- 29,203,654 23,755,193 ----------- ----------- Shareholder's equity (notes 3, 4, 7 and 13): Capital shares, $1 par value. Authorized 5,000 shares, issued and outstanding 3,815 shares 3,815 3,815 Paid-in additional capital 622,753 422,753 Unrealized gains (losses) on securities available-for-sale, net of adjustment to deferred policy acquisition costs of $82,525 ($0 in 1993) and net of deferred Federal income tax benefit of $64,425 ($1,583 expense in 1993) (119,668) 6,747 Retained earnings 1,401,579 1,217,853 ----------- ----------- 1,908,479 1,651,168 ----------- ----------- Commitments and contingencies (notes 9 and 16) $31,112,133 25,406,361 =========== ===========
See accompanying notes to consolidated financial statements. 79 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Statements of Income Years ended December 31, 1994, 1993 and 1992 (000's omitted)
1994 1993 1992 ---------- ---------- ---------- Revenues (note 17): Traditional life insurance premiums $ 209,538 215,715 226,888 Accident and health insurance premiums 324,524 312,655 430,009 Universal life and investment product policy charges 239,021 188,057 148,464 Net investment income (note 5) 1,289,501 1,204,426 1,120,157 Net ceded commissions from disposition of credit life and credit accident and health business (note 12) - - 27,115 Realized gains (losses) on investments (notes 5 and 14) (16,384) 113,673 (19,315) ---------- ---------- ---------- 2,046,200 2,034,526 1,933,318 ---------- ---------- ---------- Benefits and expenses: Benefits and claims 1,279,763 1,236,906 1,319,735 Provision for policyholders' dividends on participating policies (note 13) 46,061 53,189 61,834 Amortization of deferred policy acquisition costs 94,744 102,134 99,197 Other operating costs and expenses 352,402 329,396 321,993 ---------- ---------- ---------- 1,772,970 1,721,625 1,802,759 ---------- ---------- ---------- Income before Federal income tax and cumulative effect of changes in accounting principles 273,230 312,901 130,559 ---------- ---------- ---------- Federal income tax (note 7): Current expense 79,847 75,124 47,402 Deferred expense (benefit) 9,657 31,634 (13,660) ---------- ---------- ---------- 89,504 106,758 33,742 ---------- ---------- ---------- Income before cumulative effect of changes in accounting principles 183,726 206,143 96,817 Cumulative effect of changes in accounting principles, net of tax (note 3) - 5,365 - ---------- ---------- ---------- Net income $ 183,726 211,508 96,817 ========== ========== ==========
See accompanying notes to consolidated financial statements. 80 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Statements of Shareholder's Equity Years ended December 31, 1994, 1993 and 1992 (000's omitted)
Unrealized gains (losses) Paid-in on securities Total Capital additional available-for- Retained shareholder's shares capital sale, net earnings equity --------- ----------- -------------- ---------- ------------- 1992: Balance, beginning of year $ 3,815 311,753 96,048 933,179 1,344,795 Dividends paid to shareholder - - - (5,846) (5,846) Net income - - - 96,817 96,817 Unrealized losses on equity securities, net of deferred Federal income tax - - (5,524) - (5,524) --------- ----------- -------------- ---------- ------------- Balance, end of year $ 3,815 311,753 90,524 1,024,150 1,430,242 ========= =========== ============== ========== ============= 1993: Balance, beginning of year 3,815 311,753 90,524 1,024,150 1,430,242 Capital contributions - 111,000 - - 111,000 Dividends paid to shareholder - - - (17,805) (17,805) Net income - - - 211,508 211,508 Unrealized losses on equity securities, net of deferred Federal income tax - - (83,777) - (83,777) --------- ----------- -------------- ---------- ------------- Balance, end of year $ 3,815 422,753 6,747 1,217,853 1,651,168 ========= =========== ============== ========== ============= 1994: Balance, beginning of year 3,815 422,753 6,747 1,217,853 1,651,168 Capital contribution - 200,000 - - 200,000 Net income - - - 183,726 183,726 Adjustment for change in accounting for certain investments in debt and equity securities, net of adjustment to deferred policy acquisition costs and deferred Federal income tax (note 3) - - 216,915 - 216,915 Unrealized losses on securities available-for-sale, net of adjustment to deferred policy acquisition costs and deferred Federal income tax - - (343,330) - (343,330) --------- ----------- -------------- ---------- ------------- Balance, end of year $ 3,815 622,753 (119,668) 1,401,579 1,908,479 ========= =========== ============== ========== =============
See accompanying notes to consolidated financial statements. 81 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Statements of Cash Flows Years ended December 31, 1994, 1993 and 1992 (000's omitted)
1994 1993 1992 ---------- ---------- ---------- Cash flows from operating activities: Net income $ 183,726 211,508 96,817 Adjustments to reconcile net income to net cash provided by operating activities: Capitalization of deferred policy acquisition costs (264,434) (191,994) (177,928) Amortization of deferred policy acquisition costs 94,744 102,134 99,197 Amortization and depreciation 6,207 11,156 5,607 Realized losses (gains) on invested assets, net 15,949 (113,648) 19,092 Deferred Federal income tax benefit (2,166) (6,006) (13,105) Increase in accrued investment income (29,654) (4,218) (11,518) (Increase) decrease in other assets (112,566) (549,277) 6,132 Increase in policyholder account balances 1,038,641 509,370 19,087 Increase in policyholders' dividend accumulations 15,372 17,316 18,708 Increase (decrease) in accrued Federal income tax payable 832 16,838 (15,723) Increase in other liabilities 17,826 26,958 73,512 Other, net (19,303) (11,745) (10,586) ---------- ---------- ---------- Net cash provided by operating activities 945,174 18,392 109,292 ---------- ---------- ---------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 579,067 - - Proceeds from sale of securities available-for-sale 247,876 247,502 27,844 Proceeds from maturity of fixed maturities held-to-maturity 516,003 1,192,093 1,030,397 Proceeds from sale of fixed maturities - 33,959 123,422 Proceeds from repayments of mortgage loans on real estate 220,744 146,047 259,659 Proceeds from sale of real estate 46,713 23,587 22,682 Proceeds from repayments of policy loans and sale of other invested assets 134,998 59,643 99,189 Cost of securities available-for-sale acquired (2,569,672) (12,550) (12,718) Cost of fixed maturities held-to-maturity acquired (675,835) (2,016,831) (2,687,975) Cost of mortgage loans on real estate acquired (627,025) (475,336) (654,403) Cost of real estate acquired (15,962) (8,827) (137,843) Policy loans issued and other invested assets acquired (118,012) (76,491) (97,491) ---------- ---------- ---------- Net cash used in investing activities (2,261,105) (887,204) (2,027,620) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from capital contributions 200,000 111,000 - Dividends paid to shareholder - (17,805) (5,846) Increase in universal life and investment product account balances 3,640,958 2,249,740 2,468,236 Decrease in universal life and investment product account balances (2,449,580) (1,458,504) (575,180) ---------- ---------- ---------- Net cash provided by financing activities 1,391,378 884,431 1,887,210 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 75,447 15,619 (31,118) Cash and cash equivalents, beginning of year 63,632 48,013 79,131 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 139,079 63,632 48,013 ========== ========== ==========
See accompanying notes to consolidated financial statements. 82 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements December 31, 1994, 1993 and 1992 (000 s omitted) (1) Organization and Description of Business ---------------------------------------- Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary of Nationwide Corporation (Corp.). Wholly-owned subsidiaries of NLIC include Financial Horizons Life Insurance Company (FHLIC), West Coast Life Insurance Company (WCLIC), National Casualty Company and subsidiaries (NCC), Nationwide Financial Services, Inc. (NFS), and effective December 31, 1994, Employers Life Insurance Company of Wausau and subsidiary (ELICW). NLIC and its subsidiaries are collectively referred to as "the Company". NLIC, FHLIC, WCLIC and ELICW are life and accident and health insurers and NCC is a property and casualty insurer. The Company is licensed in all 50 states, the District of Columbia, the Virgin Islands and Puerto Rico. The Company offers a full range of life, health and annuity products through exclusive agents and other distribution channels and is subject to competition from other insurers throughout the United States. The Company is subject to regulation by the Insurance Departments of states in which it is licensed, and undergoes periodic examinations by those departments. The following is a description of the most significant risks facing life and health insurers and how the Company mitigates those risks: LEGAL/REGULATORY RISK is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the insurer in pricing its products. That is, regulatory initiatives designed to reduce insurer profits, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those recorded in the consolidated financial statements. The Company mitigates this risk by offering a wide range of products and by operating throughout the United States, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of this risk. CREDIT RISK is the risk that issuers of securities owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining sound reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible. INTEREST RATE RISK is the risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. (2) Summary of Significant Accounting Policies ------------------------------------------ The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) which differ from statutory accounting practices prescribed or permitted by regulatory authorities. See note 4. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and revenues and expenses for the period. Actual results could differ significantly from those estimates. The estimates susceptible to significant change are those used in determining the liability for future policy benefits and claims and those used in determining valuation allowances for mortgage loans on real estate and real estate. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. 83 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (a) Consolidation Policy -------------------- The December 31, 1994, 1993 and 1992 consolidated financial statements include the accounts of NLIC and its wholly owned subsidiaries FHLIC, WCLIC, NCC and NFS. The December 31, 1994 consolidated balance sheet also includes the accounts of ELICW, which was acquired by NLIC effective December 31, 1994. See Note 14. All significant intercompany balances and transactions have been eliminated. (b) Valuation of Investments and Related Gains and Losses ----------------------------------------------------- Prior to January 1, 1994, the Company classified fixed maturities in accordance with the then existing accounting standards, and accordingly, fixed maturity securities were carried at amortized cost, adjusted for amortization of premium or discount, since the Company had both the ability and intent to hold those securities until maturity. Equity securities were carried at fair value with the unrealized gains and losses, net of deferred Federal income tax, reported as a separate component of shareholder's equity. In May 1993, the Financial Accounting Standards Board (FASB) issued STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES (SFAS 115). SFAS 115 requires fixed maturities and equity securities to be classified as either held-to-maturity, available-for-sale, or trading. The Company has no trading securities. The Company adopted SFAS 115 as of January 1, 1994, with no effect on consolidated net income. See note 3 regarding the effect on consolidated shareholder's equity. Fixed maturity securities are classified as held-to- maturity when the Company has the positive intent and ability to hold the securities to maturity and are stated at amortized cost. Fixed maturity securities not classified as held-to-maturity and all equity securities are classified as available-for-sale and are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs and deferred Federal income tax, reported as a separate component of shareholder's equity. The adjustment to deferred policy acquisition costs represents the change in amortization of deferred policy acquisition costs that would have been required as a charge or credit to operations had such unrealized amounts been realized. Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. Loans in foreclosure and loans considered in-substance foreclosed as of the balance sheet date are placed on non-accrual status and written down to the fair value of the existing property to derive a new cost basis. Real estate is carried at cost less accumulated depreciation and valuation allowances. Other long-term investments are carried on the equity basis, adjusted for valuation allowances. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. In May, 1993, the FASB issued STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 114 - ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN (SFAS 114). SFAS 114, which was amended by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 118 - ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURE in October, 1994, requires the measurement of impaired loans be based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The impact on the consolidated financial statements of adopting SFAS 114 as amended is not expected to be material. Previously issued consolidated financial statements shall not be restated. The Company will adopt SFAS 114 as amended in 1995. 84 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (c) Revenues and Benefits --------------------- TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life, limited-payment life, term life and certain annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due and collected. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future policy benefits and the deferral and amortization of policy acquisition costs. UNIVERSAL LIFE AND INVESTMENT PRODUCTS: Universal life products include universal life, variable universal life and other interest-sensitive life insurance policies. Investment products consist primarily of individual and group deferred annuities, annuities without life contingencies and guaranteed investment contracts. Revenues for universal life and investment products consist of cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. Policy benefits and claims that are charged to expense include benefits and claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. ACCIDENT AND HEALTH INSURANCE: Accident and health insurance premiums are recognized as revenue over the terms of the policies. Policy claims are charged to expense in the period that the claims are incurred. (d) Deferred Policy Acquisition Costs --------------------------------- The costs of acquiring new business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable agency expenses have been deferred. For traditional life and individual health insurance products, these deferred acquisition costs are predominantly being amortized with interest over the premium paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue was estimated using the same assumptions as were used for computing liabilities for future policy benefits. For universal life and investment products, deferred policy acquisition costs are being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, cost of insurance, policy administration and surrender charges. For years in which gross profits are negative, deferred policy acquisition costs are amortized based on the present value of gross revenues. Beginning January 1, 1994, deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale. See note 2(b). (e) Separate Accounts ----------------- Separate Account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. The investment income and gains or losses of these accounts accrue directly to the contractholders. The activity of the Separate Accounts is not reflected in the consolidated statements of income and cash flows except for the fees the Company receives for administrative services and risks assumed. (f) Future Policy Benefits ---------------------- Future policy benefits for traditional life and individual health policies have been calculated using a net level premium method based on estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the time the policies were issued, rather than the assumptions prescribed by state regulatory authorities. See note 6. Future policy benefits for annuity policies in the accumulation phase, universal life and variable universal life policies have been calculated based on participants' contributions plus interest credited less applicable contract charges. Future policy benefits and claims for group long-term disability policies are the present value (primarily discounted at 5.5%) of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. The impact of reserve discounting is not material. Future policy benefits and claims on other group health policies are not discounted. 85 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (g) Participating Business ---------------------- Participating business represents approximately 45% (48% in 1993 and 1992) of the Company's ordinary life insurance in force, 72% (72% in 1993; 71% in 1992) of the number of policies in force, and 41% (45% in 1993 and 1992) of life insurance premiums. The provision for policyholder dividends is based on current dividend scales. Future dividends are provided for ratably in future policy benefits based on dividend scales in effect at the time the policies were issued. Dividend scales are approved by the Board of Directors. Income attributable to participating policies in excess of policyholder dividends is accounted for as belonging to the shareholder. See note 13. (h) Federal Income Tax ------------------ NLIC, FHLIC, WCLIC and NCC file a consolidated Federal income tax return with Nationwide Mutual Insurance Company (NMIC), the majority shareholder of Corp. Through 1994, ELICW filed a consolidated Federal income tax return with Employers Insurance of Wausau A Mutual Company. Beginning in 1995, ELICW will file a separate Federal income tax return. In 1993, the Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES, which required a change from the deferred method of accounting for income tax of APB Opinion 11 to the asset and liability method of accounting for income tax. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. Prior to 1993, the Company applied the deferred method of accounting for income tax which recognized deferred income tax for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of calculation. Under the deferred method, deferred tax is not adjusted for subsequent changes in tax rates. See note 7. The Company has reported the cumulative effect of the change in method of accounting for income tax in the 1993 consolidated statement of income. See note 3. (i) Reinsurance Ceded ----------------- Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. (j) Cash Equivalents ---------------- For purposes of the consolidated statements of cash flows, the Company considers all short-term investments with original maturities of three months or less to be cash equivalents. (k) Reclassification ---------------- Certain items in the 1993 and 1992 consolidated financial statements have been reclassified to conform to the 1994 presentation. 86 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (3) Changes in Accounting Principles -------------------------------- Effective January 1, 1994, the Company changed its method of accounting for certain investments in debt and equity securities in connection with the issuance of a new accounting standard by the FASB as described in Note 2(b). As of January 1, 1994, the company classified fixed maturity securities with amortized cost and fair value of $6,593,844 and $7,024,736, respectively, as available-for-sale and recorded the securities at fair value. Previously, these securities were recorded at amortized cost. The effect as of January 1, 1994 has been recorded as a direct credit to shareholder's equity as follows: Excess of fair value over amortized cost of fixed maturity securities available-for-sale $430,892 Adjustment to deferred policy acquisition costs (97,177) Deferred Federal income tax (116,800) -------- $216,915 ========
During 1993, the Company adopted accounting principles in connection with the issuance of two accounting standards by the FASB. The effect as of January 1, 1993, the date of adoption, has been recognized in the 1993 consolidated statement of income as the cumulative effect of changes in accounting principles, as follows: Asset/liability method of recognizing income tax (note 7) $ 26,344 Accrual method of recognizing postretirement benefits other than pensions (net of tax benefit of $11,296), (note 11) (20,979) -------- Net cumulative effect of changes in accounting principles $ 5,365 ========
(4) Basis of Presentation --------------------- The consolidated financial statements have been prepared in accordance with GAAP. Annual Statements for NLIC and FHLIC, WCLIC, ELICW and NCC, filed with the Department ofInsurance of the State of Ohio, California Department of Insurance, Wisconsin Insurance Department and Michigan Bureau of Insurance, respectively, are prepared on the basis of accounting practices prescribed or permitted by such regulatory authorities. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company has no material permitted statutory accounting practices. The following reconciles the statutory net income of NLIC as reported to regulatory authorities to the net income as shown in the accompanying consolidated financial statements:
1994 1993 1992 -------- ------- ------- Statutory net income $ 76,532 185,943 33,812 Adjustments to restate to the basis of GAAP: Consolidating statutory net income of subsidiaries 14,350 19,545 21,519 Increase in deferred policy acquisition costs, net 167,166 89,860 78,731 Future policy benefits (76,310) (70,640) (63,355) Deferred Federal income tax (expense) benefit (9,657) (31,634) 13,660 Equity in earnings of affiliates 1,013 7,121 4,618 Valuation allowances and other than temporary declines accounted for directly in surplus 6,275 (6,638) 3,402 Interest maintenance reserve (7,332) 13,754 7,588 Cumulative effect of changes in accounting principles, net of tax - 5,365 - Other, net 11,689 (1,168) (3,158) -------- ------- ------- Net income per accompanying consolidated statements of income $183,726 211,508 96,817 ======== ======= =======
87 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The following reconciles the statutory capital shares and surplus of NLIC as reported to regulatory authorities to the shareholder's equity as shown in the accompanying consolidated financial statements:
1994 1993 1992 ---------- -------- -------- Statutory capital shares and surplus $1,262,861 992,631 647,307 Add (deduct) cumulative effect of adjustments: Deferred policy acquisition costs 1,064,159 811,944 722,084 Nonadmitted assets and furniture and equipment charged to income in the year of acquisition, net of accumulated depreciation 16,120 22,573 15,712 Asset valuation reserve 153,387 105,596 138,727 Interest maintenance reserve 18,843 21,069 7,315 Future policy benefits (310,302) (238,231) (167,591) Deferred Federal income tax, including effect of changes in accounting principles in 1993 36,515 (31,659) (82,724) Cumulative effect of change in accounting principles for postretirement benefits other than pensions, gross - (32,275) - Difference between amortized cost and fair value of fixed maturity securities available-for-sale, gross (272,959) - - Other, net (60,145) (480) 149,412 ---------- ---------- ---------- Shareholder's equity per accompanying consolidated balance sheets $1,908,479 1,651,168 1,430,242 ========== ========== ==========
(5) Investments ----------- An analysis of investment income by investment type follows for the years ended December 31:
1994 1993 1992 ---------- -------- -------- Gross investment income: Securities available-for-sale: Fixed maturities $ 674,346 - - Equity securities 550 7,230 6,949 Fixed maturities held-to-maturity 193,009 800,255 754,876 Mortgage loans on real estate 376,783 364,810 334,769 Real estate 40,280 39,684 27,410 Short-term 6,990 5,080 7,298 Other 42,831 33,832 30,717 ---------- -------- -------- Total investment income 1,334,789 1,250,891 1,162,019 Less investment expenses 45,288 46,465 41,862 ---------- ---------- ---------- Net investment income $1,289,501 1,204,426 1,120,157 ========== ========== ==========
An analysis of the change in gross unrealized gains (losses) on securities available-for-sale and fixed maturities held-to-maturity follows for the years ended December 31:
1994 1993 1992 ---------- -------- -------- Securities available-for-sale: Fixed maturities $ (703,851) - - Equity securities (1,990) (128,837) (9,195) Fixed maturities held-to-maturity (421,427) 223,392 17,774 ----------- -------- -------- $(1,127,268) 94,555 8,579 =========== ======== ========
88 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued An analysis of realized gains (losses) on investments by investment type follows for the years ended December 31:
1994 1993 1992 ---------- -------- -------- Realized on disposition of investments: Securities available-for-sale: Fixed maturities $(13,720) - - Equity securities 1,427 129,728 7,215 Fixed maturities - 21,159 13,399 Mortgage loans on real estate (16,130) (17,763) (30,334) Real estate and other 5,765 (12,813) (12,997) ---------- -------- -------- (22,658) 120,311 (22,717) ---------- -------- -------- Valuation allowances: Securities available-for-sale: Fixed maturities 6,600 - - Fixed maturities - (934) 1,792 Mortgage loans on real estate (4,332) (10,478) (5,969) Real estate and other 4,006 4,774 7,579 ---------- -------- -------- 6,274 (6,638) 3,402 ---------- -------- -------- $(16,384) 113,673 (19,315) ========== ======== ========
The amortized cost and estimated fair value of securities available-for-sale and fixed maturities held-to-maturity were as follows as of December 31, 1994:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ----------- ---------- ---------- ---------- Securities available-for-sale ----------------------------- Fixed maturities: US Treasury securities and obligations of US government corporations and agencies $ 393,156 1,794 (18,941) 376,009 Obligations of states and political subdivisions 2,202 55 (21) 2,236 Debt securities issued by foreign governments 177,910 872 (9,205) 169,577 Corporate securities 4,201,738 50,405 (128,698) 4,123,445 Mortgage-backed securities 3,543,859 18,125 (187,345) 3,374,639 ----------- ---------- ---------- ---------- Total fixed maturities 8,318,865 71,251 (344,210) 8,045,906 Equity securities 18,373 6,636 (296) 24,713 ----------- ---------- ---------- ---------- $8,337,238 77,887 (344,506) 8,070,619 =========== ========== ========== ========== Fixed maturity securities held-to-maturity ------------------------------------------ Obligations of states and political subdivisions $ 11,613 92 (255) 11,450 Debt securities issued by foreign governments 16,131 111 (39) 16,203 Corporate securities 3,661,043 34,180 (120,566) 3,574,657 ----------- ---------- ---------- ---------- $3,688,787 34,383 (120,860) 3,602,310 =========== ========== ========== ==========
89 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The amortized cost and estimated fair value of investments of fixed maturity securities were as follows as of December 31, 1993:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ----------- ---------- ---------- ---------- US Treasury securities and obligations of US government corporations and agencies $ 287,738 18,204 (392) 305,550 Obligations of states and political subdivisions 16,519 2,700 (5) 19,214 Debt securities issued by foreign governments 137,092 7,719 (1,213) 143,598 Corporate securities 6,819,355 647,778 (15,648) 7,451,485 Mortgage-backed securities 2,860,274 121,721 (15,022) 2,966,973 ----------- ---------- ---------- ---------- $10,120,978 798,122 (32,280) 10,886,820 =========== ========== ========== ==========
As of December 31, 1993 the net unrealized gain on equity securities, before providing for deferred Federal income tax, was $8,330, comprised of gross unrealized gains of $8,345 and gross unrealized losses of $15. The amortized cost and estimated fair value of fixed maturity securities available-for-sale and fixed maturity securities held-to-maturity as of December 31, 1994, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated cost fair value ---------- ----------- Fixed maturity securities available-for-sale -------------------------------------------- Due in one year or less $ 294,779 294,778 Due after one year through five years 2,553,825 2,490,886 Due after five years through ten years 1,382,311 1,327,089 Due after ten years 544,091 558,514 ---------- ----------- 4,775,006 4,671,267 Mortgage-backed securities 3,543,859 3,374,639 ---------- ----------- $8,318,865 8,045,906 ========== =========== Fixed maturity securities held-to-maturity ------------------------------------------ Due in one year or less $ 333,517 333,000 Due after one year through five years 1,953,179 1,942,260 Due after five years through ten years 1,080,069 1,013,083 Due after ten years 322,022 313,967 ---------- ----------- $3,688,787 3,602,310 ========== ===========
Proceeds from the sale of securities available-for-sale during 1994 were $247,876, while proceeds from sales of investments in fixed maturity securities during 1993 were $33,959 ($123,422 during 1992). Gross gains of $3,406 ($2,413 in 1993 and $3,194 in 1992) and gross losses of $21,866 ($39 in 1993 and $513 in 1992) were realized on those sales. Investments that were non-income producing for the twelve month period preceding December 31, 1994 amounted to $11,513 ($13,158 for 1993) and consisted of $11,111 ($10,907 in 1993) in real estate and $402 ($2,251 in 1993) in other long-term investments. Real estate is presented at cost less accumulated depreciation of $29,275 in 1994 ($24,717 in 1993) and valuation allowances of $27,330 in 1994 ($31,357 in 1993). Other valuation allowances are $0 in 1994 ($6,680 in 1993) on fixed maturities and $47,892 in 1994 ($42,350 in 1993) on mortgage loans on real estate. 90 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The Company generally initiates foreclosure proceedings on all mortgage loans on real estate delinquent sixty days. Foreclosures of mortgage loans on real estate were $37,187 in 1994 ($39,281 in 1993) and mortgage loans on real estate in process of foreclosure or in-substance foreclosed as of December 31, 1994 totaled $19,878 ($24,658 as of December 31, 1993), which approximates fair value. Investments with an amortized cost of $11,137 and $11,383 as of December 31, 1994 and 1993, respectively, were on deposit with various regulatory agencies as required by law. (6) Future Policy Benefits and Claims --------------------------------- The liability for future policy benefits for traditional life and individual health policies has been established based upon the following assumptions: Interest rates: Interest rates vary as follows:
Year of issue Life Health ------------- ---- ------ 1994 7.2 %, not graded - permanent contracts with loan provisions; 5.0% 6.0%, not graded - all other contracts 1984-1993 7.4% to 10.5%, not graded 5.0% to 6% 1966-1983 6% to 8.1%, graded over 20 years to 4% to 6.6% 3.5% to 6% 1965 and prior generally lower than post 1965 issues 3.5% to 4%
Withdrawals: Rates, which vary by issue age, type of coverage and policy duration, are based on Company experience. Mortality: Mortality and morbidity rates are based on published tables, modified for the Company's actual experience. The liability for future policy benefits for investment contracts (approximately 81% and 80% of the total liability for future policy benefits as of December 31, 1994 and 1993, respectively) has been established based on policy term, interest rates and various contract provisions. The average interest rate credited on investment product policies was 6.5%, 7.0% and 7.5% for the years ended December 31, 1994, 1993 and 1992, respectively. Future policy benefits and claims for group long-term disability policies are the present value (primarily discounted at 5.5%) of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. The impact of reserve discounting is not material. Future policy benefits and claims on other group health policies are not discounted. Activity in the liability for unpaid claims and claim adjustment expenses is summarized for the years ended December 31:
1994 1993 1992 --------- -------- -------- Balance as of January 1 $591,258 760,312 672,581 Less reinsurance recoverables 429,798 547,786 445,934 --------- -------- -------- Net balance as of January 1 161,460 212,526 226,647 --------- -------- -------- Incurred related to: Current year 273,299 309,721 360,545 Prior years (26,156) (26,248) (17,433) --------- -------- -------- Total incurred 247,143 283,473 343,112 --------- -------- -------- Paid related to: Current year 175,700 208,978 226,886 Prior years 73,889 125,561 130,347 --------- -------- -------- Total paid 249,589 334,539 357,233 --------- -------- -------- Unpaid claims of ELICW (note 14) 40,223 - - --------- -------- -------- Net balance as of December 31 199,237 161,460 212,526 Plus reinsurance recoverables 457,694 429,798 547,786 --------- -------- -------- Balance as of December 31 $656,931 591,258 760,312 ======== ======== ========
91 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued As a result of changes in estimates for insured events of prior years, the provision for claims and claim adjustment expenses decreased in each of the three years ended December 31, 1994 due to lower-than-anticipated costs to settle accident and health claims. (7) Federal Income Tax ------------------ Prior to 1984, the Life Insurance Company Income Tax Act of 1959 as amended by the Deficit Reduction Act of 1984 (DRA), permitted the deferral from taxation of a portion of statutory income under certain circumstances. In these situations, the deferred income was accumulated in the Policyholders' Surplus Account (PSA). Management considers the likelihood of distributions from the PSA to be remote; therefore, no Federal income tax has been provided for such distributions in the consolidated financial statements. The DRA eliminated any additional deferrals to the PSA. Any distributions from the PSA, however, will continue to be taxable at the then current tax rate. The balance of the PSA is approximately $35,344 as of December 31, 1994. The Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES (SFAS 109), as of January 1, 1993. See note 3. The 1992 consolidated financial statements have not been restated to apply the provisions of SFAS 109. The significant components of deferred income tax expense for the years ended December 31 are as follows:
1994 1993 ------ ------ Deferred income tax expense (exclusive of the effects of other components listed below) $9,657 29,930 Adjustments to deferred income tax assets and liabilities for enacted changes in tax laws and rates - 1,704 ------ ------ $9,657 31,634 ====== ======
For the year ended December 31, 1992, the deferred income tax benefit results from timing differences in the recognition of income and expense for income tax and financial reporting purposes. The primary sources of those timing differences were deferred policy acquisition costs (deferred expense of $16,457) and reserves for future policy benefits (deferred benefit of $32,045). Total Federal income tax expense for the years ended December 31, 1994, 1993 and 1992 differs from the amount computed by applying the U.S. Federal income tax rate to income before tax as follows:
1994 1993 1992 ---- ---- ---- Amount % Amount % Amount % ------- ---- -------- ---- ------- ---- Computed (expected) tax expense $95,631 35.0 $109,515 35.0 $44,390 34.0 Tax exempt interest and dividends received deduction (194) (0.1) (2,322) (0.7) (4,172) (3.2) Current year increase in U.S. Federal income tax rate - - 1,704 0.5 - - Real estate valuation allowance adjustment - - - - (3,463) (2.7) Other, net (5,933) (2.1) (2,139) (0.7) (3,013) (2.3) ------- ---- -------- ---- ------- ---- Total (effective rate of each year) $89,504 32.8 $106,758 34.1 $33,742 25.8 ======= ==== ======== ==== ======= ====
Total Federal income tax paid was $87,576, $58,286 and $63,124 during the years ended December 31, 1994, 1993 and 1992, respectively. 92 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The tax effects of temporary differences that give rise to significant components of the net deferred tax asset (liability) as of December 31, 1994 and 1993 are as follows:
1994 1993 -------- --------- Deferred tax assets: Future policy benefits $124,044 129,995 Fixed maturity securities available-for-sale 95,536 - Liabilities in Separate Accounts 94,783 64,722 Mortgage loans on real estate and real estate 25,632 24,020 Other policyholder funds 7,137 7,759 Other assets and other liabilities 57,528 41,390 -------- --------- Total gross deferred tax assets 404,660 267,886 -------- --------- Deferred tax liabilities: Deferred policy acquisition costs 317,224 243,731 Fixed maturities, equity securities and other long-term investments 3,620 11,137 Other 47,301 44,677 -------- --------- Total gross deferred tax liabilities 368,145 299,545 -------- --------- Net deferred tax asset (liability) $ 36,515 (31,659) ======== =========
The Company has determined that valuation allowances are not necessary as of December 31, 1994 and 1993 and January 1, 1993 (date of adoption of SFAS 109) based on its analysis of future deductible amounts. All future deductible amounts can be offset by future taxable amounts or recovery of Federal income tax paid within the statutory carryback period. In addition, for future deductible amounts for securities available-for-sale, affiliates of the Company which are included in the same consolidated Federal income tax return hold investments that could be sold for capital gains that could offset capital losses realized by the Company should securities available-for-sale be sold at a loss. (8) Disclosures about Fair Value of Financial Instruments ----------------------------------------------------- STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) requires disclosure of fair value information about existing on and off-balance sheet financial instruments. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. SFAS 107 excludes certain assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from SFAS 107 disclosures, estimated fair value of policy reserves on insurance contracts are provided to make the fair value disclosures more meaningful. The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following methods and assumptions were used by the Company in estimating its fair value disclosures: CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount reported in the balance sheets for these instruments approximate their fair value. 93 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued INVESTMENT SECURITIES: Fair value for fixed maturity securities is based on quoted market prices, where available. For fixed maturity securities not actively traded, fair value is estimated using values obtained from independent pricing services or, in the case of private placements, is estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets held in Separate Accounts is based on quoted market prices. The fair value of liabilities related to Separate Accounts is the amount payable on demand. MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair value for mortgages in default is valued at the estimated fair value of the underlying collateral. INVESTMENT CONTRACTS: Fair value for the Company's liabilities under investment type contracts is disclosed using two methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. POLICY RESERVES ON INSURANCE CONTRACTS: Included are disclosures for individual life, universal life and supplementary contracts with life contingencies for which the estimated fair value is the amount payable on demand. Also included are disclosures for the Company's limited payment policies, which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. POLICYHOLDERS DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. Carrying amount and estimated fair value of financial instruments subject to SFAS 107 and policy reserves on insurance contracts were as follows as of December 31:
1994 1993 ---- ---- Carrying Estimated Carrying Estimated amount fair value amount fair value ----------- ----------- ----------- ----------- Assets ------ Investments: Securities available-for-sale: Fixed maturities $ 8,045,906 8,045,906 - - Equity securities 24,713 24,713 16,593 16,593 Fixed maturities held-to-maturity 3,688,787 3,602,310 10,120,978 10,886,820 Mortgage loans on real estate 4,222,284 4,173,284 3,871,560 4,175,271 Policy loans 340,491 340,491 315,898 315,898 Short-term investments 131,643 131,643 41,797 41,797 Cash 7,436 7,436 21,835 21,835 Assets held in Separate Accounts 12,222,461 12,222,461 9,006,388 9,006,388 Liabilities ----------- Investment contracts 12,189,894 11,657,556 10,332,661 10,117,288 Policy reserves on insurance contracts 3,170,085 2,934,384 2,945,120 2,873,503 Policyholders' dividend accumulations 338,058 338,058 322,686 322,686 Other policyholder funds 72,770 72,770 71,959 71,959 Liabilities related to Separate Accounts 12,222,461 11,807,331 9,006,388 8,714,586
94 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (9) Additional Financial Instruments Disclosures -------------------------------------------- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business through management of its investment portfolio. These financial instruments include commitments to extend credit in the form of loans. These instruments involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. Commitments to fund fixed rate mortgage loans on real estate are agreements to lend to a borrower, and are subject to conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a deposit. Commitments extended by the Company are based on management's case-by-case credit evaluation of the borrower and the borrower's loan collateral. The underlying mortgage property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to lend no more than 80% of collateral value. Should the commitment be funded, the Company's exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for all unfunded commitments. Commitments on mortgage loans on real estate of $243,200 extending into 1995 were outstanding as of December 31, 1994. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly commercial mortgage loans on real estate to customers throughout the United States. The Company has a diversified portfolio with no more than 22% (23% in 1993) in any geographic area and no more than 2% (2% in 1993) with any one borrower. The summary below depicts loans by remaining principal balance as of each December 31:
Apartment Office Warehouse Retail & other Total -------- --------- --------- --------- ---------- 1994: East North Central $109,233 103,499 540,686 191,489 944,907 East South Central 24,298 10,803 127,845 76,897 239,843 Mountain 3,150 13,770 140,358 39,682 196,960 Middle Atlantic 61,299 53,285 140,847 30,111 285,542 New England 10,536 43,282 139,131 4 192,953 Pacific 195,393 210,930 397,911 68,768 873,002 South Atlantic 87,150 81,576 424,150 210,354 803,230 West North Central 127,760 11,766 80,854 4,738 225,118 West South Central 51,013 84,796 184,923 194,788 515,520 -------- --------- --------- --------- ---------- $669,832 613,707 2,176,705 816,831 4,277,075 ======== ========= ========= ========= Less valuation allowances and unamortized discount 54,791 ---------- Total mortgage loans on real estate, net $4,222,284 ========== 1993: East North Central $109,208 108,478 470,755 158,964 847,405 East South Central 27,562 1,460 117,341 69,991 216,354 Mountain 3,228 4,742 105,560 23,065 136,595 Middle Atlantic 56,664 52,766 132,821 15,414 257,665 New England 10,565 48,398 142,530 8 201,501 Pacific 174,409 185,116 389,428 65,497 814,450 South Atlantic 112,640 58,165 391,102 238,337 800,244 West North Central 104,933 13,458 78,408 3,917 200,716 West South Central 50,955 47,103 183,420 161,033 442,511 -------- --------- ------- --------- ---------- $650,164 519,686 2,011,365 736,226 3,917,441 ======== ========= ========= ========= Less valuation allowances and unamortized discount 45,881 ---------- Total mortgage loans on real estate, net $3,871,560 ==========
95 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (10) Pension Plan ------------ NLIC, FHLIC, WCLIC, NCC, and NFS participate together with other affiliated companies, in a pension plan covering all employees who have completed at least one thousand hours of service within a twelve-month period and who have met certain age requirements. Plan contributions are invested in a group annuity contract of NLIC. Benefits are based upon the highest average annual salary of any three consecutive years of the last ten years of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Pension costs charged to operations by the Company during the years ended December 31, 1994, 1993 and 1992 were $10,451, $6,702 and $4,613, respectively. The Company's net accrued pension expense as of December 31, 1994 and 1993 was $1,836 and $1,472, respectively. The net periodic pension cost for the plan as a whole for the years ended December 31, 1994, 1993 and 1992 follows:
1994 1993 1992 -------- -------- -------- Service cost (benefits earned during the period) $64,740 47,694 44,343 Interest cost on projected benefit obligation 73,951 70,543 68,215 Actual return on plan assets (21,495) (105,002) (62,307) Net amortization and deferral (62,150) 20,832 (24,281) -------- -------- -------- Net periodic pension cost $55,046 34,067 25,970 ======== ======== ======== Basis for measurements, net periodic pension cost: Weighted average discount rate 5.75% 6.75% 7.25% Rate of increase in future compensation levels 4.50% 4.75% 5.25% Expected long-term rate of return on plan assets 7.00% 7.50% 8.00%
Information regarding the funded status of the plan as a whole as of December 31, 1994 and 1993 follows:
1994 1993 ---------- ---------- Accumulated benefit obligation: Vested $ 914,850 972,475 Nonvested 7,570 10,227 ---------- ---------- $ 922,420 982,702 ========== ========== Projected benefit obligation for services rendered to date 1,305,547 1,292,477 Plan assets at fair value 1,241,771 1,208,007 ---------- ---------- Plan assets less than projected benefit obligation (63,776) (84,470) Unrecognized prior service cost 46,201 49,551 Unrecognized net losses 39,408 55,936 Unrecognized net assets at January 1, 1987 (21,994) (24,146) ---------- ---------- Net accrued pension expense $ (161) (3,129) ========== ========== Basis for measurements, funded status of plan: Weighted average discount rate 7.50% 5.75% Rate of increase in future compensation levels 6.75% 4.50%
96 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (11) Postretirement Benefits Other Than Pensions ------------------------------------------- In addition to the defined benefit pension plan, NLIC, FHLIC, WCLIC, NCC and NFS participate with other affiliated companies in life and health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits are contributory and available to full time employees who have attained age 55 and have accumulated 15 years of service with the Company after reaching age 40. Postretirement life insurance contributions are based on age and coverage amount of each retiree. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. The accounting for the health care plan anticipates future cost-sharing changes to the written plan that are consistent with the Company's expressed intent to increase the retiree contribution amount annually for expected health care inflation. The Company's policy is to fund the cost of health care benefits in amounts determined at the discretion of management. The Company began funding in 1994. Plan assets are invested in group annuity contracts of NLIC. Effective January 1, 1993, the Company adopted the provisions of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106 - EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106), which requires the accrual method of accounting for postretirement life and health care insurance benefits based on actuarially determined costs to be recognized over the period from the date of hire to the full eligibility date of employees who are expected to qualify for such benefits. Postretirement benefit cost for 1992, which was recorded on a cash basis, has not been restated. The Company elected to immediately recognize its estimated accumulated postretirement benefit obligation as of January 1, 1993. Accordingly, a noncash charge of $32,275 ($20,979 net of related income tax benefit) was recorded in the consolidated statement of income as a cumulative effect of a change in accounting principle. See note 3. The adoption of SFAS 106, including the cumulative effect of the change in accounting principle, increased the expense for postretirement benefits by $35,277 to $36,544 in 1993. Net periodic postretirement benefit cost for 1994 was $4,627. The Company's accrued postretirement benefit obligation as of December 31, 1994 and 1993 was $36,001 and $35,277, respectively. Actuarial assumptions for the measurement of the December 31, 1994 accumulated postretirement benefit obligation include a discount rate of 8% and an assumed health care cost trend rate of 11%, uniformly declining to an ultimate rate of 6% over 12 years. Actuarial assumptions for the measurement of the December 31, 1993 accumulated postretirement benefit obligation and the 1994 net periodic postretirement benefit cost include a discount rate of 7% and an assumed health care cost trend rate of 12%, uniformly declining to an ultimate rate of 6% over 12 years. Actuarial assumptions used to determine the accumulated postretirement benefit obligation as of January 1, 1993 and the 1993 net periodic postretirement benefit cost include a discount rate of 8% and an assumed health care cost trend rate of 14%, uniformly declining to an ultimate rate of 6% over 12 years. Information regarding the funded status of the plan as a whole as of December 31, 1994 and 1993 follows:
1994 1993 --------- --------- Accumulated postretirement benefit obligation: Retirees $ 76,677 90,312 Fully eligible, active plan participants 22,013 24,833 Other active plan participants 59,089 84,103 --------- --------- Accumulated postretirement benefit obligation 157,779 199,248 Plan assets at fair value 49,012 - --------- --------- Plan assets less than accumulated postretirement benefit obligation (108,767) (199,248) Unrecognized net (gains) losses (41,497) 15,128 --------- --------- Accrued postretirement benefit obligation $(150,264) (184,120) ========= =========
97 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The amount of net periodic postretirement benefit cost for the plan as a whole for the years ended December 31, 1994 and 1993 is as follows:
1994 1993 ------- ------- Net periodic postretirement benefit cost: Service cost - benefits attributed to employee service during the year $ 8,586 7,090 Interest cost on accumulated postretirement benefit obligation 14,011 13,928 Actual return on plan assets (1,622) - Net amortization and deferral 1,622 - ------- ------ Net periodic postretirement benefit cost $22,597 21,018 ======= ======
The health care cost trend rate assumption has a significant effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1994 and 1993 by $8,109 and $15,621, respectively, and the net periodic postretirement benefit cost for the years ended December 31, 1994 and 1993 by $866 and $2,377, respectively. (12) Portfolio Transfer of Credit Life and Credit Accident and Health ---------------------------------------------------------------- On March 13, 1992, WCLIC entered into an assignment and assumption agreement with American Bankers Life Assurance Company of Florida (ABLAC) under which ABLAC assumed, by portfolio transfer, substantially all of WCLIC's credit life and accident and health policies in force as of January 1, 1992. A pre-tax loss of approximately $15,000 was recognized from this transaction in 1992. The loss represents approximately $34,000 of amortization of deferred policy acquisition costs, less approximately $27,000 in ceded commissions earned, plus death benefits incurred and other expenses. Under the terms defined in the assignment and assumption agreement, WCLIC is contingently liable for adverse development of claims activity up to a defined limit. As of December 31, 1994, WCLIC has provided for a contingent liability based on the development of claims experience through December 31, 1994. As of December 31, 1993, WCLIC had provided for the maximum contingent liability in the absence of conclusive claims experience development. (13) Regulatory Risk-Based Capital, Retained Earnings and Dividend ------------------------------------------------------------- Restrictions ------------ Each insurance company's state of domicile imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and each of its insurance subsidiaries exceed the minimum risk-based capital requirements. In accordance with the requirements of the New York statutes, the Company has agreed with the Superintendent of Insurance of that state that so long as participating policies and contracts are held by residents of New York, no profits on participating policies and contracts in excess of the larger of (a) ten percent of such profits or (b) fifty cents per year per thousand dollars of participating life insurance in force, exclusive of group term, at the year-end shall inure to the benefit of the shareholders. Such New York statutes further provide that so long as such agreement is in effect, such excess of profits shall be exhibited as "participating policyholders' surplus" in annual statements filed with the Superintendent and shall be used only for the payment or apportionment of dividends to participating policyholders at least to the extent required by statute or for the purpose of making up any loss on participating policies. In the opinion of counsel for the Company, the ultimate ownership of the entire surplus, however classified, of the Company resides with the shareholder, subject to the usual requirements under state laws and regulations that certain deposits, reserves and minimum surplus be maintained for the protection of the policyholders until all policy contracts are discharged. 98 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Based on the opinion of counsel with respect to the ownership of its surplus, the Company is of the opinion that the earnings attributable to participating policies in excess of the amounts paid as dividends to policyholders belong to the shareholder rather than the policyholders, and such earnings are so treated by the Company. The amount of shareholder's equity other than capital shares was $1,904,664, $1,647,353, and $1,426,427 as of December 31, 1994, 1993 and 1992, respectively. The amount thereof not presently available for dividends to the shareholder due to the New York restrictions and to adjustments relating to GAAP was $929,934, $954,037 and $841,583 as of December 31, 1994, 1993 and 1992, respectively. Ohio law limits the payment of dividends to shareholders. The maximum dividend that may be paid by the Company without prior approval of the Director of the Department of Insurance of the State of Ohio is limited to the greater of statutory gain from operations of the preceding calendar year or 10% of statutory shareholder's surplus as of the prior December 31. Therefore, $1,707,110, of shareholder's equity, as presented in the accompanying consolidated financial statements, is restricted as to dividend payments in 1995. California law limits the payment of dividends to shareholders of WCLIC. The maximum dividend that may be paid by WCLIC without prior approval of the Commissioner of the State of California Department of Insurance is limited to the greater of WCLIC's statutory net income of the preceding calendar year or 10% of WCLIC's statutory shareholder's surplus as of the prior December 31. Therefore, $126,489 of WCLIC's shareholder's equity is restricted as to dividend payments in 1995. Wisconsin law limits the payment of dividends to shareholders of ELICW. The maximum dividend that may be paid by ELICW without prior approval of the Commissioner of the State of Wisconsin is limited to the greater of ELICW's statutory net income of the preceding calendar year or 10% of ELICW s statutory surplus as of the prior December 31, Therefore, $135,369 of ELICW's shareholder's equity is restricted as to dividend payments in 1995. Michigan law limits the payment of dividends to shareholders of NCC. The maximum dividend that may be paid by NCC without prior approval of the Commissioner of the State of Michigan Bureau of Insurance is limited to the greater of NCC's statutory net income, not including realized capital gains, of the preceding calendar year or 10% of NCC's statutory shareholder's surplus as of the prior December 31. Therefore, $66,564 of NCC's shareholder's equity is restricted as to dividend payments in 1995. In addition, prior approval is not required for a dividend which does not increase gross leverage to a point in excess of the United States consolidated industry average for the most recent available year. (14) Transactions With Affiliates ---------------------------- Effective December 31, 1994, NLIC purchased all of the outstanding shares of ELICW from Wausau Service Corporation (WSC) for an amount approximating $165,000, subject to specified adjustments, if any, subsequent to year end. NLIC transferred fixed maturity securities and cash with a fair value of $155,000 to WSC on December 28, 1994, which resulted in a realized loss of $19,239 on the disposition of the securities. An accrual approximating $10,000 is reflected in the accompanying consolidated balance sheet. The purchase price approximated both the historical cost basis and fair value of net assets of ELICW. ELICW has and will continue to share home office, other facilities, equipment and common management and administrative services with WSC. The deferred compensation annuity line of business of the Company is primarily sold through Public Employees Benefit Services Corporation (PEBSCO). The Company paid PEBSCO commissions and administrative fees of $26,699, $22,681 and $20,146 in 1994, 1993 and 1992, respectively. PEBSCO is a wholly owned subsidiary of Corp. The Company and NEA Valuebuilder Investor Services, Inc. (NEAVIS) have contracted with the National Education Association (NEA) to provide individual annuity contracts to be marketed exclusively to members of the NEA. The Company paid NEAVIS a marketing development fee of $11,095, $9,229 and $6,426 in 1994, 1993 and 1992, respectively. NEAVIS is a wholly owned subsidiary of Corp. The Company shares home office, other facilities, equipment and common management and administrative services with affiliates. 99 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The Company participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or a stated period, the securities will be repurchased by the seller at the original sales price plus a price differential. Transactions under the agreements during 1994 and 1993 were not material. During 1993, the Company sold equity securities with a market value $194,515 to NMIC, resulting in a realized gain of $122,823. With the proceeds, the Company purchased securities with a market value of $194,139 and cash of $376 from NMIC. Intercompany reinsurance contracts exist between NLIC and NMIC, NLIC and WCLIC, NLIC and NCC, WCLIC and NMIC and WCLIC and ELICW as of December 31, 1994. These contracts are immaterial to the consolidated financial statements. NCC participates in several 100% quota share reinsurance agreements with NMIC. NCC serves as the licensed insurer as required for an affiliated excess and surplus lines company and cedes 100% of direct written premiums to NMIC. In 1989, NCC transferred 100% of assets and unearned premiums and loss reserves related to a discontinued block of assumed reinsurance to NMIC (95.3%) and Nationwide Mutual Fire Insurance Company (4.7%). Effective January 1, 1993, NCC entered into a 100% quota share reinsurance agreement to cede to NMIC 100% of all written premiums not subject to any other reinsurance agreements. As a result of these agreements, and in accordance with STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 113 - ACCOUNTING AND REPORTING FOR REINSURANCE OF SHORT-DURATION AND LONG-DURATION CONTRACTS, the following amounts are included in the consolidated financial statements as of December 31, 1994 and 1993 for reinsurance ceded:
1994 1993 -------- -------- Reinsurance recoverable $575,721 533,401 Unearned premium reserves (118,092) (102,644) Loss and claim reserves (371,974) (352,303) Loss and expense reserves (85,655) (78,454) -------- -------- $ 0 0 ======== ========
The ceding of reinsurance does not discharge the original insurer from primary liability to its policyholder. The insurer which assumes the coverage assumes the related liability and it is the practice of insurers to treat insured risks, to the extent of reinsurance ceded, as though they were risks for which the original insurer is not liable. Management believes the financial strength of NMIC reduces to an acceptable level any risk to NCC under these intercompany reinsurance agreements. The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC) and California Cash Management Company (CCMC), both affiliates, under which NCMC and CCMC act as common agents in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC and CCMC were $92,531 and $28,683 at December 31, 1994 and 1993, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. (15) Bank Lines of Credit -------------------- As of December 31, 1994 and 1993, NLIC had $120,000 of confirmed but unused bank lines of credit which support a $100,000 commercial paper borrowing authorization. Additionally, NFS had $27,000 of confirmed but unused bank lines of credit. 100 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (16) 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. (17) Major Lines of Business ----------------------- The Company operates in the life and accident and health lines of business in the life insurance and property and casualty insurance industries. Life insurance operations include whole life, universal life, variable universal life, endowment and term life insurance and annuity contracts issued to individuals and groups. Accident and health operations also provide coverage to individuals and groups. The following table summarizes the revenues and income before Federal income tax and cumulative effect of changes in accounting principles for the years ended December 31, 1994, 1993 and 1992 and assets as of December 31, 1994, 1993 and 1992, by line of business.
1994 1993 1992 ----------- ---------- ---------- Revenues: Life insurance $ 1,577,809 1,479,956 1,406,417 Accident and health 345,544 339,764 475,290 Investment income allocated to capital and surplus 122,847 214,806 51,611 ----------- --------- --------- Total $ 2,046,200 2,034,526 1,933,318 =========== ========= ========= Income before Federal income tax and cumulative effect of changes in accounting principles: Life insurance 141,650 83,917 78,627 Accident and health 13,220 15,043 436 Investment income allocated to capital and surplus 118,360 213,941 51,496 ----------- --------- --------- Total $ 273,230 312,901 130,559 =========== ========= ========= Assets: Life insurance 28,351,628 22,982,186 19,180,561 Accident and health 852,026 773,007 343,535 Capital and surplus 1,908,479 1,651,168 1,430,242 ----------- --------- --------- Total $31,112,133 25,406,361 20,954,338 =========== ========= =========
Included in life insurance revenues are premiums from certain annuities with life contingencies of $20,134 ($35,341 and $54,066 for the years ended December 31, 1993 and 1992, respectively) as well as universal life and investment product policy charges of $239,021 ($188,057 and $148,464 for the years ended December 31, 1993 and 1992 respectively) for the year ended December 31, 1994. Allocations of investment income and certain general expenses were based on a number of assumptions and estimates, and reported operating results would change by line if different methods were applied. Investment income and realized gains allocable to policyholders in 1994 were $1,193,292 and $1,775, respectively. (18) Subsequent Event ---------------- On January 30, 1995, FHLIC received approval from the Ohio Secretary of State to change its name to Nationwide Life and Annuity Insurance Company. -----END PRIVACY-ENHANCED MESSAGE-----