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Offered by
Nationwide Life Insurance Company
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide VLI Separate Account - 2
Individual Flexible Premium Variable Universal Life Insurance Contract
PROSPECTUS
May 1, 1995
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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-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 and the flexibility to vary the
amount and frequency of premium payments. The Policies may also provide a Cash
Surrender Value if the Policy is terminated during the lifetime of the Insured.
Nationwide Life Insurance Company guarantees to keep the Policy in force during
the first three years so long as the Minimum Premium requirement has been met.
The death benefit and Cash Value of the Policies may vary to reflect the
experience of the Nationwide VLI Separate Account-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 Policy Owner may allocate Net Premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at net asset value, shares of a designated
underlying Mutual Fund in the following series of the underlying variable
account Mutual Fund options:
<TABLE>
<S> <C>
DREYFUS OPPENHEIMER VARIABLE ACCOUNT FUNDS:
-Dreyfus Stock Index Fund -Bond Fund
-Dreyfus Socially Responsible Growth Fund -Global Securities Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: -Multiple Strategies Fund
-High Income Portfolio* STRONG VARIABLE INSURANCE PRODUCTS FUND:
-Equity-Income Portfolio -Special Fund II, Inc.
-Growth Portfolio -Discovery Fund II, Inc.
-Overseas Portfolio TCI PORTFOLIOS, INC.:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: -TCI Growth
-Asset Manager Portfolio -TCI Balanced
NATIONWIDE SEPARATE ACCOUNT TRUST: -TCI International
-Capital Appreciation Fund VAN ECK WORLDWIDE INSURANCE TRUST (FORMERLY VAN
-Money Market Fund ECK INVESTMENT TRUST):
-Government Bond Fund -Gold and Natural Resources Fund
-Total Return Fund -Worldwide Bond Fund (Formerly Global Bond
NEUBERGER & BERMAN ADVISERS MANAGEMENT Fund)
TRUST:
-Limited Maturity Bond Portfolio
-Growth Portfolio
-Partners Portfolio
</TABLE>
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. Nationwide Life
Insurance
* The High Income Portfolio may invest lower quality debt securities commonly
referred to as junk bonds.
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Company guarantees to keep the Policy in force during the first three years so
long as the Minimum Premium requirement has been met. This prospectus generally
describes only that portion of the Cash Value allocated to the Variable Account.
For a brief summary of the Fixed Account Option, see "The Fixed Account Option".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995
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GLOSSARY OF TERMS
ATTAINED AGE-The Insured's age on the Policy Date, plus the number of full years
since the Policy Date.
ACCUMULATION UNIT-An accounting unit of measure used to calculate the Variable
Account Cash Value.
BENEFICIARY-The person to whom the Death Proceeds are paid.
BREAK POINT PREMIUM-The level annual premium at which the sales load is reduced
on a current basis.
CASH VALUE-The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE-The Policy's Cash Value, less any Indebtedness under the
Policy, less any Surrender Charge.
CODE-The Internal Revenue Code of 1986, as amended.
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. It
represents the level annual premiums required to mature the Policy under
guaranteed mortality and expense charges, and an interest rate of 5%.
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 of premiums that must be paid during the first three
Policy Years to guarantee the Policy remains in force.
MONTHLY ANNIVERSARY DAY-The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS-The underlying mutual funds which correspond to the sub-accounts of
the Variable Account.
NET 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.
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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.
SPECIFIED AMOUNT-A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE-An amount deducted from the Cash Value if the Policy is
surrendered.
VALUATION DATE-Each day the New York Stock Exchange and the Company's home
office 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.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
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............................................................. 8
Premiums........................................................................... 11
NATIONWIDE LIFE INSURANCE COMPANY........................................................... 12
THE VARIABLE ACCOUNT........................................................................ 12
Investments of the Variable Account................................................ 12
Dreyfus............................................................................ 13
Fidelity Variable Insurance Products Fund.......................................... 14
Fidelity Variable Insurance Products Fund II....................................... 15
Nationwide Separate Account Trust.................................................. 15
Neuberger & Berman Advisers Management Trust....................................... 16
Oppenheimer Variable Account Funds................................................. 16
Strong Variable Insurance Products Funds........................................... 17
Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust).............. 18
Transfers.......................................................................... 18
Dollar Cost Averaging.............................................................. 19
Substitution of Securities......................................................... 20
Voting Rights...................................................................... 20
INFORMATION ABOUT THE POLICIES.............................................................. 21
Underwriting and Issuance.......................................................... 21
-Minimum Requirements for Issuance of a Policy..................................... 21
-Premium Payments.................................................................. 21
Allocation of Cash Value........................................................... 21
Short-Term Right to Cancel Policy.................................................. 22
POLICY CHARGES.............................................................................. 22
Deductions from Premiums........................................................... 22
Surrender Charges.................................................................. 22
-Reductions to Surrender Charges................................................... 24
Deductions from Cash Value......................................................... 24
-Monthly Cost of Insurance......................................................... 24
-Monthly Administrative Charge..................................................... 25
-Increase Charge................................................................... 25
Deductions from the Sub-Accounts................................................... 25
HOW THE CASH VALUE VARIES................................................................... 26
How the Investment Experience is Determined........................................ 26
Net Investment Factor.............................................................. 26
Valuation of Assets................................................................ 27
Determining the Cash Value......................................................... 27
Valuation Periods and Valuation Dates.............................................. 27
SURRENDERING THE POLICY FOR CASH............................................................ 27
Right to Surrender................................................................. 27
</TABLE>
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<TABLE>
<S> <C>
Cash Surrender Value............................................................... 27
Partial Surrenders................................................................. 28
Maturity Proceeds.................................................................. 28
Income Tax Withholding............................................................. 28
POLICY LOANS................................................................................ 29
Taking a Policy Loan............................................................... 29
Effect on Investment Performance................................................... 29
Interest........................................................................... 29
Effect on Death Benefit and Cash Value............................................. 30
Repayment.......................................................................... 30
HOW THE DEATH BENEFIT VARIES................................................................ 30
Calculation of the Death Benefit................................................... 30
Proceeds Payable on Death.......................................................... 31
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY................................................ 31
CHANGES OF INVESTMENT POLICY................................................................ 32
GRACE PERIOD................................................................................ 32
-First Three Policy Years.......................................................... 32
-Policy Years Four and After....................................................... 32
-All Policy Years.................................................................. 32
REINSTATEMENT............................................................................... 33
THE FIXED ACCOUNT OPTION.................................................................... 33
CHANGES IN EXISTING INSURANCE COVERAGE...................................................... 34
Specified Amount Increases......................................................... 34
Specified Amount Decreases......................................................... 34
Changes in the Death Benefit Option................................................ 34
OTHER POLICY PROVISIONS..................................................................... 35
Policy Owner....................................................................... 35
Beneficiary........................................................................ 35
Assignment......................................................................... 35
Incontestability................................................................... 35
Error in Age or Sex................................................................ 36
Suicide............................................................................ 36
Nonparticipating Policies.......................................................... 36
LEGAL CONSIDERATIONS........................................................................ 36
DISTRIBUTION OF THE POLICIES................................................................ 36
CUSTODIAN OF ASSETS......................................................................... 37
TAX MATTERS................................................................................. 37
Policy Proceeds.................................................................... 37
Taxation of the Company............................................................ 38
Other Considerations............................................................... 38
THE COMPANY................................................................................. 38
COMPANY MANAGEMENT.......................................................................... 39
Directors of the Company........................................................... 39
Executive Officers of the Company.................................................. 40
OTHER CONTRACTS ISSUED BY THE COMPANY....................................................... 41
STATE REGULATION............................................................................ 41
REPORTS TO POLICY OWNERS.................................................................... 41
ADVERTISING................................................................................. 42
</TABLE>
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<TABLE>
<S> <C>
LEGAL PROCEEDINGS........................................................................... 42
EXPERTS..................................................................................... 42
REGISTRATION STATEMENT...................................................................... 42
LEGAL OPINIONS.............................................................................. 42
APPENDIX 1.................................................................................. 43
APPENDIX 2.................................................................................. 45
APPENDIX 3.................................................................................. 63
PERFORMANCE TABLES.......................................................................... 64
FINANCIAL STATEMENTS........................................................................ 68
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are similar in many ways to fixed-benefit whole life
insurance. As with fixed-benefit whole life insurance, the Owner of the Policy
pays a premium for life insurance coverage on the person insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the death benefit and Cash
Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated (See "How the Death Benefit Varies"). There is no
guaranteed Cash Surrender Value (See "How the Cash Value Varies"). If the Cash
Surrender Value is insufficient to pay the Policy Charges, the Policy will lapse
without value. Nationwide Life Insurance Company guarantees to keep the Policy
in force during the first three years so long as certain requirements have been
met (See "Underwriting and Issuance").
Under certain conditions, a Policy may become a modified endowment contract as a
result of a material change or a reduction in benefits as defined by the
Internal Revenue Code ("Code"). Excess premiums paid may also cause the Policy
to become a modified endowment contract. The Company will monitor premiums paid
and other policy transactions and will notify the Policy Owner when the Policy's
non-modified endowment contract status is in jeopardy (See "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner 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. For a description of the underlying Mutual Fund options
and their investment objectives, see "Investments of the Variable Account."
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes,
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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. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
3. an administrative expense charge. This charge is $25 per month in
the first year and $5 per month in renewal years. The charge in
renewal years may be increased at the sole discretion of the
Company but may not exceed $7.50 per month; plus
4. an increase charge per $1000 applied to any increase in the
Specified Amount. The increase charge is $2.04 per year per $1000
and is shown on the Policy data page. This charge is designed to
cover the costs associated with increasing the Specified Amount.
(See "Policy Charges.") This charge will be deducted on each
Monthly Anniversary Day for the first 12 months after the increase
becomes effective.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equivalent to an annual effective rate of 0.80% of the daily net assets of the
Variable Account. On each Policy Anniversary beginning with the 10th, the
mortality and expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a Standard basis (See
Appendix 1 for specific examples).
Initial Specified Amount $50,000-$99,999
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
25 $ 7.776 $ 7.521 $ 8.369 $ 7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
</TABLE>
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Initial Specified Amount $100,000+
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
25 $ 5.776 $ 5.521 $ 6.369 $ 5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
</TABLE>
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each underlying Mutual Fund's investment adviser
for managing the underlying Mutual Fund and selecting its portfolio of
securities. Other underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the underlying Mutual Fund. The
management fees and other expenses for each underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the underlying
Mutual Fund's average assets, are as follows:
<TABLE>
<CAPTION>
Management Other Total
Fees Expenses Expenses
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Stock Index Fund 0.14% 0.26% 0.40%
- ------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 0.00% 0.25% 0.25%
- ------------------------------------------------------------------------------------
Fidelity VIP-Equity-Income Portfolio 0.52% 0.06% 0.58%
- ------------------------------------------------------------------------------------
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 Fund II-Asset Manager Portfolio 0.72% 0.07% 0.79%
- ------------------------------------------------------------------------------------
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 Management 0.79% 0.12% 0.91%
Trust-Growth Portfolio
- ------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.60% 0.13% 0.73%
Trust-Limited Maturity Bond Portfolio
- ------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.80% 0.50% 1.30%
Trust-Partners Portfolio
- ------------------------------------------------------------------------------------
Oppenheimer-Bond Fund 0.75% 0.06% 0.81%
- ------------------------------------------------------------------------------------
Oppenheimer-Global Securities Fund 0.75% 0.20% 0.95%
- ------------------------------------------------------------------------------------
Oppenheimer-Multiple Strategies 0.74% 0.05% 0.79%
- ------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
Management Other Total
Fees Expenses Expenses
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
- --------------------------------------------------------------------------------------
TCI Portfolios-TCI International 1.50% 0.00% 1.50%
- --------------------------------------------------------------------------------------
Van Eck-Worldwide Bond Fund 0.75% 0.18% 0.93%
- --------------------------------------------------------------------------------------
Van Eck-Gold and Natural Resources 0.75% 0.21% 0.96%
- --------------------------------------------------------------------------------------
</TABLE>
The Mutual Fund expenses shown above are assessed at the underlying Mutual Fund
level and are not direct charges against the Variable Account or reductions in
Cash Value. These underlying Mutual Fund expenses are taken into consideration
in computing each underlying Mutual Fund's net asset value, which is the share
price used to calculate the Variable Account's unit value. The management fees
and other expenses are more fully described in the prospectuses for each
individual underlying Mutual Fund.
PREMIUMS
The minimum Initial Premium for which a Policy may be issued is equal to three
minimum monthly premiums. A policy may be issued to an Insured up to age 80.
For a limited time, the Policy Owner has the right to cancel the Policy and
receive a full refund of premiums paid. (See "Short-Term Right to Cancel
Policy").
The Initial Premium is due on the Policy Date. It will be credited on the Policy
Date. Any due and unpaid monthly deductions will be subtracted from the Cash
Value at this time. Insurance will not be effective until the Initial Premium is
paid. The Initial Premium is shown on the Policy data page.
Premiums, other than the Initial Premium may be made at any time while your
Policy is in force subject to the limits described below. During the first three
Policy Years, the total premium payments less any Policy Indebtedness, less any
partial surrenders, and less any partial surrender fee must be greater than or
equal to the Minimum Premium requirement in order to guarantee the Policy remain
in force. The Minimum Premium requirement is equal to the monthly Minimum
Premium multiplied by the number of completed policy months. The monthly Minimum
Premium is shown on the Policy data page.
We will send Scheduled Premium payment reminder notices to you. We will send
them according to the premium mode shown on the Policy data page.
You may pay the Initial Premium to us at our home office or to an authorized
agent. All premiums after the first are payable at our home office. Premium
receipts will be furnished upon request.
Each premium must be at least equal to the monthly Minimum Premium. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any additional premium payment which results in any increase in the
net amount at risk. Also, we will refund any portion of any premium payment
which is determined to be in excess of the premium limit established by law to
qualify your Policy as a contract for life insurance. Where permitted by state
law, we may also require that any existing Policy Indebtedness is repaid prior
to accepting any additional premium payments.
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NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide Mutual Insurance Company,
Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Insurance Company, National Casualty Company, 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 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 Fund options
designated by the Policy Owner. Thus, the investment performance of a Policy
depends upon the investment performance of the underlying Mutual Fund options
designated by the Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account. (See "Allocation of 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 Fund allocation factors. Any subsequent Net Premiums
received after this period will be allocated based on the Fund allocation
factors.
No less than 5% of Net Premiums may be allocated to any one sub-account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or may
transfer Cash Value from one sub-account to another, subject to such terms and
conditions as may be imposed by each underlying Mutual Fund option and as set
forth in this prospectus (See "Transfers", "Allocation of Cash Value", and
"Short-Term Right to Cancel Policy").
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These underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of life insurance companies which may or may not be
affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which is disclosed in the underlying
Mutual Funds' prospectuses. A full description of the underlying Mutual Funds,
their investment policies and restrictions, risks and charges are contained in
the prospectuses of the respective underlying Mutual Funds.
Each of the underlying Mutual Fund options is a registered investment company
which receives investment advice from a registered investment adviser:
1) Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment
Advisors;
2) The Dreyfus Socially Responsible Growth Fund, Inc., managed by
Dreyfus Corporation;
3) Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company; and
4) Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company.
5) Nationwide Separate Account Trust, managed by Nationwide Financial
Services, Inc.;
6) Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
7) Oppenheimer Variable Account Funds, managed by Oppenheimer
Management Corporation;
8) Strong Variable Insurance Products Fund, managed by
Strong/Corneliuson Capital Management, Inc.;
9) TCI Portfolios, Inc., a member of the Twentieth Century Family of
Mutual Funds;
10) 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 below. More detailed information may be found in the
current prospectus for each underlying Mutual Fund option. A prospectus for the
underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith.
DREYFUS
- - DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January 24,
1989, and commenced operations on September 29, 1989. Wells Fargo Nikko
Investment Advisors serves as the Fund's index fund manager. As of May 1,
1994, Dreyfus Life and Annuity Index Fund began doing business as Dreyfus
Stock Index Fund.
Investment Objective: To provide investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
13
<PAGE> 15
- - DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Dreyfus Socially Responsible Growth Fund, Inc. is an open-end,
diversified, management investment company. It was incorporated under
Maryland law on July 20, 1992, and commenced operations on October 7,
1993. Dreyfus Corporation serves as the Fund's investment advisor.
Tiffany Capitol Advisors, Inc. serves as the Fund's sub-investment
adviser and provides day-to-day management of the Fund's portfolio.
Investment Objective: The Fund's primary goal is to provide capital
growth through equity investment in companies that, in the opinion of the
Fund's management, not only meet traditional investment standards, but
which also show evidence that they conduct their business in a manner
that contributes to the enhancement of the quality of life in America.
Current income is secondary to the primary goal.
FIDELITY 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. Fidelity Management & Research Company ('FMR') is the Fund's
manager.
- - HIGH INCOME PORTFOLIO
Investment Objective: Seeks 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
portfolio's manager will seek high current income normally by investing
the Portfolio'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 Portfolio'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 Portfolio 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 Portfolio'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.
- - 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,
14
<PAGE> 16
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 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. 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.
- - 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
15
<PAGE> 17
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 directly 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.
- - PARTNERS PORTFOLIO
Investment Objective: To seek capital growth. This portfolio will seek to
achieve its objective by investing primarily in the common stock of
established companies. Its investment program seeks securities believed
to be undervalued based on fundamentals such as low price-to-earnings
ratios, consistent cash flows, and support from asset values. The
objective of the Partners Portfolio is not fundamental and can be changed
by the Trustees of the Trust without shareholder approval. Shareholders
will, however, receive at least 30 days prior notice thereof. There is no
assurance the investment objective will be met.
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.
- - 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.
- - GLOBAL SECURITIES FUND
Investment Objective: To seek long-term capital appreciation by investing
a substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special
16
<PAGE> 18
situations which are considered to have appreciation possibilities.
Current income is not an objective. These securities may be considered to
be speculative.
- - 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., A 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. 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 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.
17
<PAGE> 19
- - TCI INTERNATIONAL
Investment Objective: To seek capital growth. The fund will seek to
achieve its investment objective by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards
of selection and, in the opinion of the investment manager, have
potential for appreciation. Under normal conditions, the fund will invest
at least 65% of its assets in common stocks or other equity securities of
issuers from at least three countries outside the United States.
Securities of United States issuers may be included in the portfolio from
time to time. Although the primary investment of the fund will be common
stocks (defined to include depository receipts for common stocks), the
fund may also invest in other types of securities consistent with the
fund's objective. When the manager believes that the total return
potential of other securities equals or exceeds the potential return of
common stocks, the fund may invest up to 35% of its assets in such other
securities. There can be no assurance that the fund will achieve its
objectives.
(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 Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the underlying Mutual Funds.
The distribution of additional shares will not affect the number of Accumulation
Units attributable to a particular Policy. (See "Allocation of Cash Value.")
TRANSFERS
After the first Policy Anniversary, the Policy Owner may annually transfer a
portion of the value of the Variable Account to the Fixed Account, without
penalty or adjustment. The Policy Owner may request a transfer of up to 100% of
the Cash Value from the Variable Account to the Fixed Account. The Company
reserves the right to restrict transfers to the Fixed Account to 25% of the Cash
Value. The Policy Owner's Cash Value in each sub-account will be determined as
of the date the transfer request is received in the home office in good order.
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<PAGE> 20
The Policy Owner may transfer a portion of the value of the Fixed Account to the
Variable Account once each Policy Year, without penalty or adjustment. The
Policy Owner may request a transfer of up to 100% of the Cash Value in the Fixed
Account to the Variable sub-accounts. The Company reserves the right to restrict
the amounts of such transfers to 25% of the Cash Value in the Fixed Account.
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. In
states allowing telephone transfers, and if the Owner so elects, the Company
will also permit the Policy Owner to utilize the Telephone Exchange Privilege
for exchanging amounts among sub-account options. The Company will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Such procedures may include any or all of the following, or such other
procedures as the Company may, from time to time, deem reasonable: requesting
identifying information, such as name, contract number, Social Security number,
and/or personal identification number; tape recording all telephone
transactions; and providing written confirmation thereof to both the Policy
Owner and any agent of record at the last address of record. Although failure to
follow reasonable procedures may result in the Company's liability for any
losses due to unauthorized or fraudulent telephone transfers, the Company will
not be liable for following instructions communicated by telephone which it
reasonably believes to be genuine. Any losses incurred pursuant to actions taken
by the Company in reliance on telephone instructions reasonably believed to be
genuine shall be borne by the Contract Owner. The Company may determine to
withdraw the Telephone Exchange Privilege, upon 30 days written notice to
Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (See "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
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" above). A written
election of this service, on a form provided by the Company, must be completed
by the Policy Owner in order to begin transfers. Once elected, transfers from
the Money Market sub-account, 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.
19
<PAGE> 21
SUBSTITUTION OF SECURITIES
If shares of the underlying Mutual Fund options should no longer be available
for investment by the Variable Account or, if in the judgment of the Company's
management further investment in such underlying Mutual Funds should become
inappropriate in view of the purposes of the Policy, the Company may substitute
shares of another underlying Mutual Fund for shares already purchased or to be
purchased in the future by Net Premium payments under the Policy. No
substitution of securities in the Variable Account may take place without prior
approval of the Securities and Exchange Commission, and under such requirements
as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value allocated
to the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote the
shares of the underlying Mutual Funds held in the Variable Account at regular
and special meetings of the shareholders of the underlying Mutual Funds in
accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the Company
determines that it is permitted to vote the shares of the underlying Mutual
Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that underlying Mutual Fund by the net asset value
of one share of that underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as of
a date chosen by the Company, but not more than 90 days prior to the meeting of
the underlying Mutual Fund. Voting instructions will be solicited by written
communication prior to such meeting.
The Company will vote underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares held
by the Company or by the Variable Account as to which no timely instructions are
received will be voted by the Company in the same proportion as the voting
instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the underlying
Mutual Funds' proxy material and a form with which to give such voting
instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
underlying Mutual Fund shares in any manner necessary to enable the underlying
Mutual Fund to: (1) make or refrain from making any change in the investments or
investment policies for any of the underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance regulatory
authority.
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<PAGE> 22
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to provide life insurance coverage and the flexibility
to vary the amount and frequency of premium payments. At issue, the Policy Owner
selects the initial Specified Amount and premium. The minimum Specified Amount
is $50,000 ($100,000 in Pennsylvania and New Jersey). Policies may be issued to
Insureds with issue ages 80 or younger. Before issuing any Policy, the Company
requires satisfactory evidence of insurability which may include a medical
examination.
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's home
office. Upon payment of an initial premium, temporary insurance may be provided,
subject to a maximum amount. The effective date of permanent insurance coverage
is dependent upon completion of all underwriting requirements, payment of
Initial Premium, and delivery of the policy while the Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the first three
Policy Years, the total premium payments less any Policy Indebtedness, less any
partial surrenders, and less any partial surrender fee must be greater than or
equal to the Minimum Premium requirement in order to guarantee the Policy
remains in force. The Minimum Premium requirement is equal to the monthly
Minimum Premium multiplied by the number of completed policy months. The monthly
Minimum Premium is shown on the Policy data page.
Each premium payment must be at least equal to the monthly Minimum Premium.
Additional premium payments may be made at any time while the Policy is in
force. However, the Company reserves the right to require satisfactory evidence
of insurability before accepting any additional premium payment which results in
an increase in the net amount at risk. Also, the Company will refund any portion
of any premium payment which is determined to be in excess of the premium limit
established by law to qualify the Policy as a contract for life insurance. The
Company may also require that any existing Policy Indebtedness is repaid prior
to accepting any additional premium payments. Additional premium payments or
other changes to the contract, may jeopardize the Policy's non-modified
endowment status. The Company will monitor premiums paid and other policy
transactions and will notify the Policy Owner when non-modified endowment
contract status is in jeopardy. (See "Tax Matters.")
ALLOCATION OF CASH VALUE
At the time a Policy is issued, its Cash Value will be based on the 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 Funds specified
by the Policy Owner are purchased at net asset value for the respective
sub-account(s). The Policy Owner may change the allocation of Net Premiums
21
<PAGE> 23
or may transfer Cash Value from one sub-account to another, subject to such
terms and conditions as may be imposed by each underlying Mutual Fund and as set
forth in the prospectus. Net Premiums allocated to the Fixed Account at the time
of application may not be transferred prior to the first Policy Anniversary (See
"Transfers" and "Investments of the Variable Account").
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. On a current basis, the sales load is
reduced to 1.5% on any portion of the annual premium paid in excess of the
annual Break Point Premium. The total sales load actually deducted from any
Policy will be equal to the sum of this front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also pays any state premium taxes attributable to a particular
policy when incurred by the Company. The Company expects to pay an average state
premium tax rate of approximately 2.5% of premiums for all states, although such
tax rates range from 0% to 4%. To reimburse the Company for the payment of state
premium taxes associated with the Policies, the Company deducts a charge for
state premium taxes equal to 2.5% of all premium payments received. This charge
may be more or less than the amount actually assessed by the state in which a
particular Policy Owner lives. The Company does not expect to make a profit from
this charge.
SURRENDER CHARGES
The Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The maximum initial
Surrender Charge varies by issue age, sex, Specified Amount and underwriting
classification and is calculated based on the initial Specified Amount. The
following table illustrates the maximum initial Surrender Charge per $1,000 of
initial Specified Amount for Policies which are issued on a standard basis (See
Appendix 1 for specific examples).
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<PAGE> 24
Initial Specified Amount $50,000-$99,999
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
25 $7.776 $7.521 $8.369 $7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
</TABLE>
Initial Specified Amount $100,000+
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
25 $5.776 $5.521 $6.369 $5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
</TABLE>
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
Charge per $1,000 of
Initial Specified Amount
<TABLE>
<CAPTION>
Issue Specified Amounts Specified Amounts
Age less than $100,000 $100,000 or more
--- ------------------ -----------------
<S> <C> <C>
0-35 $6.00 $4.00
36-55 7.50 5.00
56-80 7.50 6.50
</TABLE>
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 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. In no event will this component exceed 26-1/2% of
the lesser of the Guideline Level Premium required in the first year or the
premiums actually paid in the first year. The purpose of the sales surrender
charge component is to reimburse the Company for some of the expenses incurred
in the distribution of the Policies. The company also deducts 3.5% of each
premium for sales load (See "Deductions from Premiums").
23
<PAGE> 25
- -Reductions to Surrender Charges
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
<S> <C> <C> <C>
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
</TABLE>
Special guaranteed maximum Surrender Charges apply in Pennsylvania (See Appendix
1).
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by riders; plus
3. monthly administrative expense charge; plus
Specified Amount (See "Specified Amount Increases"). The increase
charge is $2.04 per year per $1000 and is shown on the Policy data
page. This charge is designed to cover the costs associated with
increasing the Specified Amount (See "Policy Charges"). This
charge will be deducted on each Monthly Anniversary Day for the
first 12 months after the increase becomes effective.
These deductions will be charged proportionately to the Cash Value in each
Variable Account sub-account and the Fixed Account.
- -Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
If death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value shall first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on Specified Amounts less
than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table,
Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for Policies
issued on Specified Amounts $100,000 or more are based on the 1980 Commissioners
Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost
of insurance rates for Policies issued on a substandard basis are based on
appropriate percentage multiples of the 1980 CSO. These mortality tables are sex
distinct. In addition, separate mortality tables will be used for standard and
non-tobacco.
24
<PAGE> 26
For Policies issued in Texas on a standard basis ("Special Class - Standard" in
Texas), guaranteed cost of insurance rates for Specified Amounts less than
$100,000 are based on 130% of the 1980 Commissioners Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO).
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. The Company may also
issue certain Policies on a "Non Medical" basis to certain categories of
individuals. Due to the underwriting criteria established for Policies issued on
a Non Medical basis, actual rates will be higher than the current cost of
insurance rates being charged under Policies that are medically underwritten.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only to
reimburse the Company for certain actual administrative expenses. The Company
does not expect to recover from this charge any amount in excess of aggregate
maintenance expenses. Currently, this charge is $25 per month in the first year,
$5 per month in renewal years. The Company may at its sole discretion increase
this charge. However, the Company guarantees that this charge will never exceed
$7.50 per month in renewal years.
- -Increase Charge
The Increase Charge is comprised of two components: an underwriting and
administration charge as well as a sales charge (See "Specified Amount
Increases"). The underwriting and administration charge is $1.50 per year per
$1000. This charge is to cover the cost of underwriting the increases and any
processing expenses. The Company does not expect to profit from this charge. The
sales charge is equal to .54 per year per $1000 and reimburses the Company for
expenses incurred in distribution.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risks assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts on a daily basis from the assets of the Variable Account a
charge to provide for mortality and expense risks. This charge is equivalent to
an annual effective rate of 0.80% of the daily net assets of the Variable
Account. On each Policy Anniversary beginning with the 10th, the mortality and
expense risk charge is reduced to 0.50% on an annual basis of the daily net
assets of the Variable Account, provided the Cash Surrender Value is $25,000 or
more on such anniversary. To the extent that future levels of mortality and
expenses are less than or equal to those expected, the Company may realize a
profit from this charge. The Surrender Charge may be insufficient to recover
certain expenses related to the sale of the Policies. Unrecovered expenses are
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").
25
<PAGE> 27
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.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the underlying Mutual Fund shares in that sub-account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each sub-account for
the immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an Accumulation
Unit may increase or decrease from Valuation Period to Valuation Period. The
number of Accumulation Units will not change as a result of investment
experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the underlying Mutual Fund held
in the sub-account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the underlying Mutual Fund held in the sub-account if the
"ex-dividend" date occurs during the current Valuation Period.
(b) is the net asset value per share of the underlying Mutual Fund held in
the sub-account determined at the end of the immediately preceding
Valuation Period.
(c) is a factor representing the daily Mortality and Expense Risk Charge
deducted from the Variable Account. Such factor is equal to an annual
rate of 0.80% of the daily net asset value of the Variable Account. On
each Policy Anniversary beginning with the 10th, the mortality and
expense risk charge is reduced to 0.50% on an annual basis of the daily
net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary.
For underlying Mutual 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.
26
<PAGE> 28
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 charges or deductions are made against the Cash Value, an
appropriate number of Accumulation Units from the Variable Account and an
appropriate amount from the Fixed Account will be deducted in the same
proportion that the Policy Owner's interest in the Variable Account and the
Fixed Account bears to the total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited with
interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION 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.
27
<PAGE> 29
PARTIAL SURRENDERS
After the Policy has been in force for one year, the Policy Owner may request a
partial surrender. Partial surrenders will be permitted only if they satisfy the
following requirements:
1. The minimum partial surrender is $500;
2. The partial surrender may not reduce the Specified Amount to less
than $50,000;
3. After the partial surrender, the Cash Surrender Value is greater
than $500 or an amount equal to three times the current monthly
deduction if higher;
4. The maximum total partial surrenders in any policy year are
limited to 10% of the total premium payments. On a current basis,
this requirement is waived in years 15 and beyond provided the
Cash Surrender Value is $10,000 or more after the withdrawal; and
5. After the partial surrender, the Policy continues to qualify as
life insurance.
When a partial surrender is made, the Cash Value is reduced by the amount of the
partial surrender. 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 Account sub-accounts. Partial
surrenders will be deducted from the Fixed Account only to the extent that
insufficient values are available in the Variable Account sub-accounts. The
Company reserves the right to deduct a $25.00 fee from the partial surrender
amount.
Surrender charges will be waived for any partial surrenders which satisfy the
above conditions. Certain partial surrenders may result in currently taxable
income and tax penalties (See "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any Indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
28
<PAGE> 30
POLICY LOANS
TAKING A POLICY LOAN
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Value less Surrender Charge less interest due on the next Policy Anniversary.
Maximum Policy Indebtedness, in Texas, is limited to 90% of the Cash Value in
the sub-accounts and 100% of the Cash Value in the Fixed Account less Surrender
Charge less interest due on the next Policy Anniversary. The Company will not
grant a loan for an amount less than $200. Should the Death Proceeds become
payable, the Policy be surrendered, or the Policy mature while a loan is
outstanding, the amount of Policy Indebtedness will be deducted from the death
benefit, Cash Surrender Value or the maturity value, respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings and
Loan which is a member of the Federal Deposit Insurance Corporation. Certain
policy loans may result in currently taxable income and tax penalties. (See "Tax
Matters.")
A Policy Owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary payments are not made to
keep the Policy from lapsing. The amount of such payments necessary to prevent
the Policy from lapsing would increase with age (See "Tax Matters.")
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each Variable sub-account at the
time of the loan. Policy loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable sub-accounts. The amount
taken out of the Variable Account will not be affected by the Variable Account's
investment experience while the loan is outstanding.
INTEREST
On a current basis, policy loans are credited with an annual effective rate of
5.1% during policy years 2 through 14 and an annual effective rate of 6% during
the 15th and subsequent policy years. The rate is guaranteed never to be lower
than 4%. The Company may change the current interest crediting rate on policy
loans at any time at its sole discretion. The loan interest rate is 6% per year
for all Policy loans. In the event that it is determined that such loans will be
treated, as a result of the differential between the interest crediting rate and
the loan interest rate, as taxable distributions under any applicable ruling,
regulation, or court decision, the Company retains the right to increase the net
cost (by decreasing the interest crediting rate) on all subsequent policy loans
to an amount that would result in the transaction being treated as a loan under
Federal tax law. If this amount is not prescribed by such ruling, regulation, or
court decision, the amount will be that which the Company considers to be more
likely to result in the transaction being treated as a loan under Federal tax
law.
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary or
at the time of loan repayment. It will be allocated according to the Fund
allocation factors in effect at the time of the transfer.
29
<PAGE> 31
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 underlying Mutual Fund allocation factors in effect at the
time of the repayment. Each repayment may not be less than $50. The Company
reserves the right to require that any loan repayments resulting from Policy
loans transferred from the Fixed Account must be first allocated to the Fixed
Account.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects the Specified Amount.
While the Policy is in force, the death benefit will never be less than the
Specified Amount. The death benefit may vary with the Cash Value of the Policy,
which depends on investment performance.
The Policy Owner may choose one of two death benefit options. Under Option 1,
the death benefit will be the greater of the Specified Amount or the Applicable
Percentage of Cash Value. Under Option 1, the amount of the death benefit will
ordinarily not change for several years to reflect the investment performance
and may not change at all. If investment performance is favorable the amount of
death benefit may increase. To see how and when investment performance will
begin to affect death benefits, please see the illustrations. Under Option 2,
the death benefit will be the greater of the Specified Amount plus the Cash
Value, or the Applicable Percentage of Cash Value and will vary directly with
the investment performance.
The term "Applicable Percentage" means:
1. 250% when the Insured is Attained Age 40 or less at the beginning
of a Policy Year; and
2. when the Insured is above Attained Age 40, the percentage shown in
the "Applicable Percentage of Cash Value Table."
30
<PAGE> 32
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
PROCEEDS PAYABLE ON DEATH
The actual Death Proceeds payable on the Insured's death will be the death
benefit as described above, less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted
(See "Incontestability", "Error in Age or Sex", and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a flexible premium adjustable life
insurance policy offered by the Company on the Policy Date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the Policy Date. No evidence
of insurability will be required.
The Policy Owner and Beneficiary under the new policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original Policy immediately prior to the exchange date. The new policy
will have the same Policy Date and issue age as the original Policy. The initial
Specified Amount and any increases in Specified Amount will have the same rate
class as those of the original Policy. Any Indebtedness may be transferred to
the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the
31
<PAGE> 33
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 Three Policy Years
This Policy will not lapse during the first three Policy Years provided that on
each Monthly Anniversary Day (1) is greater than or equal to (2) where:
(1) Is the sum of all premiums paid to date minus any Policy
Indebtedness, minus any partial surrenders, and minus any partial
surrender fee; and
(2) Is the sum of monthly Minimum Premiums required since the Policy
Date including the monthly Minimum Premium for the current Monthly
Anniversary Day.
If (1) is less than (2) and the Cash Surrender Value is less than zero, a Grace
Period of 61 days from the Monthly Anniversary Day will be allowed for the
payment of sufficient premium to satisfy the Minimum Premium requirement. If
sufficient premium is not paid by the end of the Grace Period, the Policy will
lapse without value. In any event the Policy will not lapse as long as there is
a positive Cash Surrender Value.
- -Policy Years Four and After
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current Policy Charges, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of sufficient premium to cover
the current Policy Charges due plus an amount equal to three times the current
monthly deduction.
- -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.
32
<PAGE> 34
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the
end of the Grace Period and prior to the Maturity Date;
2. providing evidence of insurability satisfactory to the Company;
3. paying an amount of premium equal to the sum of the Minimum
Monthly Premiums missed since the beginning of the Grace Period,
if your Policy terminated in the first three policy years;
4. paying sufficient premium to cover all policy charges that were
due and unpaid during the Grace Period if your Policy terminated
in the fourth or later policy year;
5. paying sufficient premium to keep the Policy in force for 3 months
from the date of reinstatement; and
6. paying or reinstating any Indebtedness against the Policy which
existed at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day on
or next following the date the application for reinstatement is approved by the
Company. If your Policy is reinstated, the Cash Value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
1. the Cash Value at the end of the Grace Period; or
2. the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the underlying Mutual Fund allocation factors in effect at the start of
the Grace Period.
THE FIXED ACCOUNT OPTION
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
33
<PAGE> 35
Fixed Account crediting rate will not be less than an effective annual rate of
4%. Upon request the Company will inform a Policy Owner of the then applicable
rate. The Company is not obligated to credit interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under the
Policy. Any request must be in writing and received at the Company's home
office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
SPECIFIED AMOUNT INCREASES
After the first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy in
force for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the Monthly Anniversary Day
on or next following the date the Company approves the supplemental application.
The Company reserves the right to limit the number of Specified Amount increases
to one each Policy Year.
SPECIFIED AMOUNT DECREASES
After the first Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
1. reduce the Specified Amount to less than $50,000 ($100,000 in New
Jersey); or
2. disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the first Policy Year, the Policy Owner may change the death benefit
option under the Policy. If the change is from Option 1 to Option 2, the
Specified Amount will be decreased by the amount of the Cash Value. If the
change is from Option 2 to Option 1, the Specified Amount will be increased by
the amount of the Cash Value. Evidence of insurability is not required for a
change from Option 2 to Option 1. The Company reserves the right to require
evidence of insurability for a change from Option
34
<PAGE> 36
1 to Option 2. The effective date of the change will be the Monthly Anniversary
Day on or next following the date the Company approves the request for change.
Only one change of option is permitted per Policy Year. A change in death
benefit option will not be permitted if it results in the total premiums paid
exceeding the then current maximum premium limitations prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance contract.
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to the
Company and recorded at the Company's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by the Company before it was recorded. The Company may require that
the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
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.
35
<PAGE> 37
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 premiums made on or after
August 1, 1983. The Policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women and thus the Policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives of
broker dealers registered under the Securities Exchange Act of 1934 who are
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 plus any expense allowance payments paid by the
Company on the sale of these policies provided by the General Distributor will
not exceed 80% of the target Premium plus 4% of any excess premium payments.
Gross renewal commissions in years 2-10 paid by the Company will not exceed 4%
of actual premium payment, and will not exceed 1% in years 11+.
36
<PAGE> 38
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 on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums. (See "Information about the Policies.") The Code provides for taxation
of surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts in the same way
annuities are taxed. Modified endowment contract distributions are defined by
the Code as amounts not received as an annuity and are taxable to the extent the
cash value of the policy exceeds, at the time of distribution, the premiums paid
into the policy. A 10% tax penalty generally applies to the taxable portion of
such distributions unless the Policy Owner is over age 59-1/2 or disabled.
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.
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
37
<PAGE> 39
the Policy would no longer qualify as life insurance under Section 7702 of the
Code, the Company will take whatever steps are available to remain in
compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse or the maturity of the
Policy on its Maturity Date may have adverse tax consequences. If the amount
received by the Policy Owner plus total Policy Indebtedness exceeds the premiums
paid into the Policy, the excess generally will be treated as taxable income,
regardless of whether or not the Policy is a modified endowment contract.
Federal estate and 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.
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,
38
<PAGE> 40
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
affiliate companies comprise the Nationwide Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Corporation is the sole
shareholder of Nationwide Life.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Director
Name Since Principal Occupation
<S> <C> <C>
Lewis J. Alphin 1993 Farm Owner and Operator (1)
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)
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C> <C>
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, Nationwide Life and Annuity Insurance
Company (2)
David O. Miller *+ 1985 Farm Owner and Land Developer; President, Owen Potato Farm, Inc.;
Partner, M&M Enterprises (1)
C. Ray Noecker 1994 Farm Owner and Operator (1)
James F. Patterson 1989 Vice President, Pattersons, Inc.; President Patterson Farms, Inc.
Robert H. Rickel 1984 Rancher (1)
Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and Chief
Executive Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Farm Owner and Operator; Owner, Sunnydale Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farm (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
- --------------------------------------
*Member, Executive Committee +Member, Investment Committee
</TABLE>
(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 other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Frenzer who is a director only
of the Company and Nationwide Life Insurance Company. Each of the directors of
the Company is a director of Nationwide Financial Services, Inc., a registered
broker-dealer.
Messrs. Frenzer, Holloway, McFerson, Miller, Patterson and Shisler are directors
of Nationwide Corporation. Messrs. Fuellgraf, Frenzer, McFerson, Ms. Thomas and
Mr. Weihl are trustees of Nationwide Investing Foundation, a registered
investment company. Messrs. Frenzer and McFerson are trustees of Nationwide
Separate Account Trust, Financial Horizons Investment Trust and Nationwide
Investing Foundation II, registered investment companies. Mr Engel is a director
of Western Cooperative Transport.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME OFFICE HELD
<S> <C>
D. Richard McFerson President and Chief Executive Officer-Nationwide Insurance Enterprise
Peter F. Frenzer President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate Services and Secretary
James E. Brock Senior Vice President - Investment Product Operations
</TABLE>
40
<PAGE> 42
<TABLE>
<S> <C>
W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
Richard A. Karas Senior Vice President - Sales and Financial Services
Robert A. Oakley Senior Vice President-Chief Financial Officer
Carl Santillo Senior Vice President - Life and Health Operations
Mark A. Folk Vice President and Treasurer
</TABLE>
Mr. Frenzer is also President and Chief Operating Officer of Nationwide Life and
Annuity Insurance Company and President of Nationwide Corporation and Executive
Vice President-Investments of Nationwide Mutual Insurance Company. Mr. Galloway
is also an officer of Nationwide Mutual Insurance Company and Nationwide Life
and Annuity Insurance Company. Each of the other officers listed above is also
an officer of each of the companies comprising the Nationwide Insurance
Enterprise. Each of the executive officers listed above has been associated with
the registrant in an executive capacity for more than the past five years,
except Mr. Folk.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of the Company.
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.
41
<PAGE> 43
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes in
future premium allocation, transfers among sub-accounts, premium payments,
loans, loan repayments, reinstatement and termination.
ADVERTISING
The Company is also ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
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.
42
<PAGE> 44
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a Policy with a Specified
Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender
the Policy during the first Policy year. By using the initial surrender charge
table reproduced below, (also see "Surrender Charges") the total surrender
charge per thousand multiplied by the Specified Amount expressed in thousands
equals the total surrender charge of $569.80 ($11.396 x 50=569.80).
Example 2: A male non-tobacco, age 35, purchases a Policy with a Specified
Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender
the Policy in the sixth Policy Year. The total initial surrender charge is
calculated using the method illustrated above. (surrender charge per 1000 6.817
x 100=681.70 maximum initial surrender charge). Because the fifth Policy Year
has been completed, the maximum initial surrender charge is reduced by
multiplying it by the applicable percentage factor from the "Reductions to
Surrender Charges" table below. (Also see "Reductions to Surrender Charges"). In
this case, $681.70 x 60%=$409.02.
Maximum Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
Initial Specified Amount $50,000-$99,999
<TABLE>
<CAPTION>
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
<S> <C> <C> <C> <C>
25 $ 7.776 $ 7.521 $ 8.369 $ 7.818
35 8.817 8.398 9.811 8.891
45 12.191 11.396 13.887 12.169
55 15.636 14.011 18.415 15.116
65 22.295 19.086 26.577 20.641
</TABLE>
Initial Specified Amount $100,000+
<TABLE>
<CAPTION>
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
<S> <C> <C> <C> <C>
25 $ 5.776 $ 5.521 $ 6.369 $ 5.818
35 6.817 6.398 7.811 6.891
45 9.691 8.896 11.387 9.669
55 13.136 11.511 15.915 12.616
65 21.295 18.086 25.577 19.641
</TABLE>
Reductions to Surrender Charges.
<TABLE>
<CAPTION>
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
<S> <C> <C> <C>
0 100% 5 60%
1 100% 6 50%
2 90% 7 40%
3 80% 8 30%
4 70% 9+ 0%
</TABLE>
43
<PAGE> 45
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14
years. The guaranteed maximum Surrender Charge in subsequent years in
Pennsylvania is reduced in the following manner:
<TABLE>
<CAPTION>
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE
POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL
YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES
----- ----------------- ----- ----------------- ----- -----------------
<S> <C> <C> <C> <C> <C>
0 100% 5 60% 10 20%
1 100% 6 50% 11 15%
2 90% 7 40% 12 10%
3 80% 8 30% 13 5%
4 70% 9 25% 14+ 0%
</TABLE>
The illustrations of current values in this prospectus are the same for
Pennsylvania. However, the illustrations of guaranteed values in this prospectus
do not reflect guaranteed maximum Surrender Charges which are spread out over 14
years. If this contract is issued in Pennsylvania, please contact the Home
Office for an illustration.
The Company has no plans to change the current Surrender Charges.
44
<PAGE> 46
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 0.80% of the daily net asset value of
the Variable Account. On each Policy Anniversary beginning with the 10th, the
mortality and expense risk charge is reduced to 0.50% on an annual basis of the
daily net assets of the Variable Account, provided the Cash Surrender Value is
$25,000 or more on such anniversary. In addition, the net investment returns
also reflect the deduction of underlying Mutual Fund investment advisory fees
and other expenses which are equivalent to an annual effective rate of 0.80% of
the daily net asset value of the Variable Account. 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 underlying
Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.60%, 4.40% and
10.40%. On each Policy Anniversary beginning with the 10th, the gross annual
rates of return of 0%, 6%, and 12% correspond to net investment experience at
constant annual rates of -1.30%, 4.70%, and 10.70%, provided the Cash Surrender
Value is $25,000 or more on such anniversary. This is due to a guaranteed
reduction in the mortality and expense risk charge from an annual effective rate
of 0.80% to an annual effective rate of 0.50% if the aforementioned conditions
apply.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as standard. Policies issued on a substandard basis would result in lower
Cash Values and Death benefits than those illustrated.
The illustrations also reflect the fact that the Company deducts a sales load
from each premium payment. Current values reflect a deduction of 3.5% of each
premium payment up to Break Point Premium and 1.5% of any excess. Guaranteed
values reflect a deduction of 3.5% of each premium payment. The illustrations
also reflect the fact that the Company deducts a charge for state premium taxes
equal to 2.5% of all premium payments.
45
<PAGE> 47
The Cash Surrender Values shown in the illustrations reflect the fact that the
Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered in full during the first nine years.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy Month. This
monthly administrative expense charge is $25 per month in the first year, $5 per
month in renewal years. Current values reflect a current monthly administrative
expense charge of $5 in renewal years, and guaranteed values reflect the $7.50
maximum monthly administrative charge under the Policy in renewal years. The
illustrations also reflect the fact that no charges for federal or state income
taxes are currently made against the Variable Account. If such a charge is made
in the future, it will require a higher gross investment return than illustrated
in order to produce the net after-tax returns shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
46
<PAGE> 48
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 241 0 50,000 268 0 50,000 296 0 50,000
2 750 1,614 706 132 50,000 783 210 50,000 864 290 50,000
3 750 2,483 1,154 637 50,000 1,310 794 50,000 1,480 964 50,000
4 750 3,394 1,579 1,120 50,000 1,845 1,386 50,000 2,144 1,685 50,000
5 750 4,351 1,981 1,579 50,000 2,386 1,985 50,000 2,860 2,459 50,000
6 750 5,357 2,362 2,018 50,000 2,937 2,592 50,000 3,636 3,292 50,000
7 750 6,412 2,727 2,440 50,000 3,502 3,215 50,000 4,483 4,196 50,000
8 750 7,520 3,071 2,842 50,000 4,077 3,847 50,000 5,404 5,174 50,000
9 750 8,683 3,395 3,223 50,000 4,663 4,491 50,000 6,407 6,235 50,000
10 750 9,905 3,698 3,698 50,000 5,262 5,262 50,000 7,503 7,503 50,000
15 750 16,993 4,785 4,785 50,000 8,326 8,326 50,000 14,657 14,657 50,000
20 750 26,039 4,747 4,747 50,000 11,163 11,163 50,000 25,820 25,820 50,000
25 750 37,585 2,779 2,779 50,000 13,084 13,084 50,000 44,987 44,987 52,185
30 750 52,321 (*) (*) (*) 12,846 12,846 50,000 77,324 77,324 82,737
35 750 71,127 (*) (*) (*) 7,510 7,510 50,000 130,329 130,329 136,846
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
47
<PAGE> 49
DEATH BENEFIT OPTION 1
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 175 0 50,000 200 0 50,000 226 0 50,000
2 750 1,614 540 0 50,000 608 34 50,000 679 105 50,000
3 750 2,483 881 365 50,000 1,015 498 50,000 1,161 644 50,000
4 750 3,394 1,198 739 50,000 1,420 961 50,000 1,672 1,213 50,000
5 750 4,351 1,489 1,087 50,000 1,823 1,421 50,000 2,216 1,814 50,000
6 750 5,357 1,751 1,407 50,000 2,219 1,875 50,000 2,792 2,448 50,000
7 750 6,412 1,982 1,695 50,000 2,605 2,318 50,000 3,401 3,115 50,000
8 750 7,520 2,178 1,948 50,000 2,977 2,748 50,000 4,044 3,814 50,000
9 750 8,683 2,333 2,161 50,000 3,330 3,157 50,000 4,718 4,546 50,000
10 750 9,905 2,445 2,445 50,000 3,657 3,657 50,000 5,425 5,425 50,000
15 750 16,993 2,199 2,199 50,000 4,731 4,731 50,000 9,486 9,486 50,000
20 750 26,039 (*) (*) (*) 3,966 3,966 50,000 14,446 14,446 50,000
25 750 37,585 (*) (*) (*) (*) (*) (*) 20,249 20,249 50,000
30 750 52,321 (*) (*) (*) (*) (*) (*) 27,165 27,165 50,000
35 750 71,127 (*) (*) (*) (*) (*) (*) 37,284 37,284 50,000
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
48
<PAGE> 50
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 240 0 50,240 267 0 50,267 294 0 50,294
2 750 1,614 702 128 50,702 779 205 50,779 859 285 50,859
3 750 2,483 1,145 628 51,145 1,300 784 51,300 1,469 952 51,469
4 750 3,394 1,563 1,104 51,563 1,826 1,367 51,826 2,122 1,663 52,122
5 750 4,351 1,956 1,555 51,956 2,356 1,954 52,356 2,823 2,421 52,823
6 750 5,357 2,326 1,982 52,326 2,891 2,546 52,891 3,577 3,233 53,577
7 750 6,412 2,677 2,391 52,677 3,436 3,149 53,436 4,395 4,108 54,395
8 750 7,520 3,005 2,775 53,005 3,985 3,756 53,985 5,277 5,047 55,277
9 750 8,683 3,309 3,137 53,309 4,540 4,368 54,540 6,230 6,058 56,230
10 750 9,905 3,590 3,590 53,590 5,100 5,100 55,100 7,261 7,261 57,261
15 750 16,993 4,508 4,508 54,508 7,815 7,815 57,815 13,712 13,712 63,712
20 750 26,039 4,169 4,169 54,169 9,813 9,813 59,813 22,659 22,659 72,659
25 750 37,585 1,809 1,809 51,809 9,931 9,931 59,931 34,844 34,844 84,844
30 750 52,321 (*) (*) (*) 6,336 6,336 56,336 50,867 50,867 100,867
35 750 71,127 (*) (*) (*) (*) (*) (*) 70,540 70,540 120,540
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
49
<PAGE> 51
DEATH BENEFIT OPTION 2
$750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 750 788 173 0 50,173 198 0 50,198 224 0 50,224
2 750 1,614 534 0 50,534 602 28 50,602 672 99 50,672
3 750 2,483 870 354 50,870 1,002 486 51,002 1,146 630 51,146
4 750 3,394 1,179 720 51,179 1,398 939 51,398 1,646 1,187 51,646
5 750 4,351 1,460 1,058 51,460 1,787 1,385 51,787 2,172 1,770 52,172
6 750 5,357 1,710 1,366 51,710 2,165 1,821 52,165 2,723 2,379 52,723
7 750 6,412 1,925 1,638 51,925 2,529 2,242 52,529 3,299 3,012 53,299
8 750 7,520 2,102 1,873 52,102 2,871 2,642 52,871 3,896 3,667 53,896
9 750 8,683 2,236 2,064 52,236 3,187 3,015 53,187 4,512 4,340 54,512
10 750 9,905 2,323 2,323 52,323 3,471 3,471 53,471 5,142 5,142 55,142
15 750 16,993 1,909 1,909 51,909 4,161 4,161 54,161 8,382 8,382 58,382
20 750 26,039 (*) (*) (*) 2,670 2,670 52,670 10,970 10,970 60,970
25 750 37,585 (*) (*) (*) (*) (*) (*) 10,552 10,552 60,552
30 750 52,321 (*) (*) (*) (*) (*) (*) 2,076 2,076 52,076
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
50
<PAGE> 52
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 493 0 50,000 540 0 50,000 587 0 50,000
2 1,200 2,583 1,195 502 50,000 1,328 635 50,000 1,466 773 50,000
3 1,200 3,972 1,862 1,238 50,000 2,125 1,502 50,000 2,411 1,788 50,000
4 1,200 5,431 2,489 1,935 50,000 2,929 2,375 50,000 3,426 2,872 50,000
5 1,200 6,962 3,070 2,585 50,000 3,731 3,246 50,000 4,509 4,024 50,000
6 1,200 8,570 3,605 3,189 50,000 4,534 4,119 50,000 5,673 5,257 50,000
7 1,200 10,259 4,087 3,740 50,000 5,330 4,984 50,000 6,918 6,571 50,000
8 1,200 12,032 4,507 4,230 50,000 6,111 5,833 50,000 8,247 7,970 50,000
9 1,200 13,893 4,868 4,660 50,000 6,877 6,669 50,000 9,675 9,467 50,000
10 1,200 15,848 5,160 5,160 50,000 7,621 7,621 50,000 11,207 11,207 50,000
15 1,200 27,189 5,361 5,361 50,000 10,798 10,798 50,000 20,938 20,938 50,000
20 1,200 41,663 2,465 2,465 50,000 12,184 12,184 50,000 36,920 36,920 50,000
25 1,200 60,136 (*) (*) (*) 9,324 9,324 50,000 66,534 66,534 69,861
30 1,200 83,713 (*) (*) (*) (*) (*) (*) 114,688 114,688 120,423
35 1,200 113,804 (*) (*) (*) (*) (*) (*) 190,213 190,213 199,723
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
51
<PAGE> 53
DEATH BENEFIT OPTION 1
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 288 0 50,000 328 0 50,000 369 0 50,000
2 1,200 2,583 730 37 50,000 835 142 50,000 947 254 50,000
3 1,200 3,972 1,113 490 50,000 1,312 689 50,000 1,530 907 50,000
4 1,200 5,431 1,434 879 50,000 1,752 1,198 50,000 2,117 1,563 50,000
5 1,200 6,962 1,683 1,198 50,000 2,146 1,661 50,000 2,700 2,215 50,000
6 1,200 8,570 1,855 1,439 50,000 2,485 2,069 50,000 3,272 2,856 50,000
7 1,200 10,259 1,940 1,594 50,000 2,756 2,409 50,000 3,824 3,478 50,000
8 1,200 12,032 1,926 1,649 50,000 2,943 2,666 50,000 4,344 4,066 50,000
9 1,200 13,893 1,798 1,590 50,000 3,028 2,820 50,000 4,814 4,607 50,000
10 1,200 15,848 1,542 1,542 50,000 2,991 2,991 50,000 5,220 5,220 50,000
15 1,200 27,189 (*) (*) (*) 106 106 50,000 5,495 5,495 50,000
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
52
<PAGE> 54
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 487 0 50,487 534 0 50,534 581 0 50,581
2 1,200 2,583 1,180 487 51,180 1,311 618 51,311 1,448 755 51,448
3 1,200 3,972 1,831 1,207 51,831 2,090 1,466 52,090 2,371 1,747 52,371
4 1,200 5,431 2,436 1,882 52,436 2,865 2,311 52,865 3,350 2,796 53,350
5 1,200 6,962 2,986 2,501 52,986 3,628 3,143 53,628 4,381 3,896 54,381
6 1,200 8,570 3,483 3,067 53,483 4,377 3,961 54,377 5,471 5,055 55,471
7 1,200 10,259 3,917 3,570 53,917 5,102 4,755 55,102 6,613 6,267 56,613
8 1,200 12,032 4,279 4,002 54,279 5,791 5,514 55,791 7,803 7,526 57,803
9 1,200 13,893 4,570 4,362 54,570 6,443 6,235 56,443 9,045 8,837 59,045
10 1,200 15,848 4,781 4,781 54,781 7,044 7,044 57,044 10,334 10,334 60,334
15 1,200 27,189 4,390 4,390 54,390 8,915 8,915 58,915 17,325 17,325 67,325
20 1,200 41,663 776 776 50,776 7,486 7,486 57,486 24,406 24,406 74,406
25 1,200 60,136 (*) (*) (*) (*) (*) (*) 29,600 29,600 79,600
30 1,200 83,713 (*) (*) (*) (*) (*) (*) 27,765 27,765 77,765
35 1,200 113,804 (*) (*) (*) (*) (*) (*) 9,106 9,106 59,106
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
53
<PAGE> 55
DEATH BENEFIT OPTION 2
$1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 280 0 50,280 320 0 50,320 361 0 50,361
2 1,200 2,583 710 17 50,710 813 120 50,813 921 228 50,921
3 1,200 3,972 1,074 450 51,074 1,266 643 51,266 1,478 854 51,478
4 1,200 5,431 1,368 814 51,368 1,674 1,119 51,674 2,023 1,468 52,023
5 1,200 6,962 1,585 1,100 51,585 2,023 1,538 52,023 2,546 2,061 52,546
6 1,200 8,570 1,718 1,302 51,718 2,304 1,888 52,304 3,036 2,620 53,036
7 1,200 10,259 1,758 1,411 51,758 2,504 2,157 52,504 3,481 3,134 53,481
8 1,200 12,032 1,693 1,415 51,693 2,605 2,327 52,605 3,860 3,582 53,860
9 1,200 13,893 1,510 1,302 51,510 2,588 2,380 52,588 4,151 3,943 54,151
10 1,200 15,848 1,199 1,199 51,199 2,434 2,434 52,434 4,332 4,332 54,332
15 1,200 27,189 (*) (*) (*) (*) (*) (*) 2,609 2,609 52,609
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
54
<PAGE> 56
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 799 0 100,000 864 0 100,000 928 31 100,000
2 1,500 3,229 1,803 905 100,000 1,989 1,091 100,000 2,183 1,286 100,000
3 1,500 4,965 2,771 1,963 100,000 3,143 2,335 100,000 3,547 2,739 100,000
4 1,500 6,788 3,704 2,986 100,000 4,328 3,610 100,000 5,031 4,313 100,000
5 1,500 8,703 4,604 3,976 100,000 5,546 4,918 100,000 6,650 6,022 100,000
6 1,500 10,713 5,472 4,933 100,000 6,800 6,262 100,000 8,420 7,881 100,000
7 1,500 12,824 6,297 5,848 100,000 8,081 7,632 100,000 10,345 9,897 100,000
8 1,500 15,040 7,069 6,710 100,000 9,379 9,020 100,000 12,433 12,074 100,000
9 1,500 17,367 7,790 7,521 100,000 10,698 10,428 100,000 14,704 14,435 100,000
10 1,500 19,810 8,451 8,451 100,000 12,028 12,028 100,000 17,170 17,170 100,000
15 1,500 33,986 11,068 11,068 100,000 19,125 19,125 100,000 33,766 33,766 100,000
20 1,500 52,079 11,929 11,929 100,000 26,663 26,663 100,000 61,182 61,182 100,000
25 1,500 75,170 9,916 9,916 100,000 34,418 34,418 100,000 107,751 107,751 124,991
30 1,500 104,641 2,735 2,735 100,000 41,087 41,087 100,000 184,431 184,431 197,341
35 1,500 142,254 (*) (*) (*) 44,522 44,522 100,000 310,217 310,217 325,728
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
55
<PAGE> 57
DEATH BENEFIT OPTION 1
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 751 0 100,000 814 0 100,000 878 0 100,000
2 1,500 3,229 1,675 777 100,000 1,854 956 100,000 2,041 1,144 100,000
3 1,500 4,965 2,558 1,750 100,000 2,913 2,105 100,000 3,298 2,490 100,000
4 1,500 6,788 3,399 2,681 100,000 3,989 3,271 100,000 4,655 3,937 100,000
5 1,500 8,703 4,196 3,567 100,000 5,082 4,453 100,000 6,122 5,494 100,000
6 1,500 10,713 4,945 4,406 100,000 6,187 5,649 100,000 7,707 7,168 100,000
7 1,500 12,824 5,642 5,193 100,000 7,302 6,853 100,000 9,417 8,969 100,000
8 1,500 15,040 6,282 5,923 100,000 8,421 8,062 100,000 11,262 10,903 100,000
9 1,500 17,367 6,858 6,588 100,000 9,537 9,268 100,000 13,251 12,982 100,000
10 1,500 19,810 7,365 7,365 100,000 10,646 10,646 100,000 15,395 15,395 100,000
15 1,500 33,986 8,667 8,667 100,000 15,879 15,879 100,000 29,121 29,121 100,000
20 1,500 52,079 7,003 7,003 100,000 19,687 19,687 100,000 50,746 50,746 100,000
25 1,500 75,170 (*) (*) (*) 19,705 19,705 100,000 87,111 87,111 101,049
30 1,500 104,641 (*) (*) (*) 10,491 10,491 100,000 149,298 149,298 159,749
35 1,500 142,254 (*) (*) (*) (*) (*) (*) 250,764 250,764 263,302
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
56
<PAGE> 58
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 796 0 100,796 860 0 100,860 925 27 100,925
2 1,500 3,229 1,793 896 101,793 1,978 1,081 101,978 2,171 1,274 102,171
3 1,500 4,965 2,751 1,943 102,751 3,120 2,313 103,120 3,521 2,713 103,521
4 1,500 6,788 3,670 2,952 103,670 4,288 3,570 104,288 4,983 4,265 104,983
5 1,500 8,703 4,552 3,924 104,552 5,482 4,853 105,482 6,571 5,942 106,571
6 1,500 10,713 5,397 4,858 105,397 6,704 6,165 106,704 8,296 7,758 108,296
7 1,500 12,824 6,193 5,745 106,193 7,942 7,494 107,942 10,161 9,712 110,161
8 1,500 15,040 6,931 6,572 106,931 9,187 8,828 109,187 12,167 11,808 112,167
9 1,500 17,367 7,610 7,341 107,610 10,437 10,168 110,437 14,329 14,060 114,329
10 1,500 19,810 8,221 8,221 108,221 11,682 11,682 111,682 16,651 16,651 116,651
15 1,500 33,986 10,477 10,477 110,477 18,031 18,031 118,031 31,632 31,632 131,632
20 1,500 52,079 10,710 10,710 110,710 23,760 23,760 123,760 54,303 54,303 154,303
25 1,500 75,170 7,771 7,771 107,771 27,485 27,485 127,485 87,582 87,582 187,582
30 1,500 104,641 (*) (*) (*) 26,171 26,171 126,171 135,472 135,472 235,472
35 1,500 142,254 (*) (*) (*) 13,912 13,912 113,912 202,743 202,743 302,743
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
57
<PAGE> 59
DEATH BENEFIT OPTION 2
$1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,500 1,575 748 0 100,748 810 0 100,810 873 0 100,873
2 1,500 3,229 1,664 766 101,664 1,842 944 101,842 2,028 1,131 102,028
3 1,500 4,965 2,536 1,728 102,536 2,887 2,080 102,887 3,269 2,461 103,269
4 1,500 6,788 3,361 2,643 103,361 3,944 3,226 103,944 4,602 3,884 104,602
5 1,500 8,703 4,137 3,509 104,137 5,009 4,381 105,009 6,033 5,405 106,033
6 1,500 10,713 4,861 4,322 104,861 6,079 5,540 106,079 7,567 7,029 107,567
7 1,500 12,824 5,525 5,077 105,525 7,146 6,697 107,146 9,209 8,760 109,209
8 1,500 15,040 6,126 5,767 106,126 8,204 7,845 108,204 10,961 10,602 110,961
9 1,500 17,367 6,655 6,386 106,655 9,243 8,974 109,243 12,826 12,557 112,826
10 1,500 19,810 7,108 7,108 107,108 10,257 10,257 110,257 14,809 14,809 114,809
15 1,500 33,986 7,992 7,992 107,992 14,608 14,608 114,608 26,644 26,644 126,644
20 1,500 52,079 5,673 5,673 105,673 16,391 16,391 116,391 42,448 42,448 142,448
25 1,500 75,170 (*) (*) (*) 12,425 12,425 112,425 61,419 61,419 161,419
30 1,500 104,641 (*) (*) (*) (*) (*) (*) 80,800 80,800 180,800
35 1,500 142,254 (*) (*) (*) (*) (*) (*) 92,554 92,554 192,554
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON
ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
58
<PAGE> 60
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,386 223 100,000 1,495 333 100,000 1,605 443 100,000
2 2,500 5,381 2,961 1,799 100,000 3,275 2,112 100,000 3,602 2,439 100,000
3 2,500 8,275 4,489 3,443 100,000 5,109 4,063 100,000 5,782 4,736 100,000
4 2,500 11,314 5,949 5,019 100,000 6,982 6,052 100,000 8,147 7,217 100,000
5 2,500 14,505 7,327 6,513 100,000 8,878 8,064 100,000 10,701 9,887 100,000
6 2,500 17,855 8,626 7,929 100,000 10,805 10,107 100,000 13,471 12,773 100,000
7 2,500 21,373 9,844 9,262 100,000 12,760 12,178 100,000 16,479 15,898 100,000
8 2,500 25,066 10,965 10,500 100,000 14,732 14,267 100,000 19,743 19,278 100,000
9 2,500 28,945 11,988 11,639 100,000 16,721 16,372 100,000 23,293 22,944 100,000
10 2,500 33,017 12,919 12,919 100,000 18,735 18,735 100,000 27,174 27,174 100,000
15 2,500 56,644 15,657 15,657 100,000 28,929 28,929 100,000 53,773 53,773 100,000
20 2,500 86,798 13,769 13,769 100,000 39,070 39,070 100,000 99,843 99,843 106,832
25 2,500 125,284 3,152 3,152 100,000 47,636 47,636 100,000 178,503 178,503 187,428
30 2,500 174,402 (*) (*) (*) 51,634 51,634 100,000 304,551 304,551 319,778
35 2,500 237,091 (*) (*) (*) 43,079 43,079 100,000 502,828 502,828 527,969
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
59
<PAGE> 61
DEATH BENEFIT OPTION 1
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,212 50 100,000 1,316 154 100,000 1,421 258 100,000
2 2,500 5,381 2,542 1,380 100,000 2,832 1,670 100,000 3,135 1,973 100,000
3 2,500 8,275 3,778 2,732 100,000 4,340 3,294 100,000 4,953 3,906 100,000
4 2,500 11,314 4,913 3,983 100,000 5,833 4,903 100,000 6,878 5,948 100,000
5 2,500 14,505 5,937 5,123 100,000 7,301 6,488 100,000 8,915 8,101 100,000
6 2,500 17,855 6,842 6,145 100,000 8,735 8,037 100,000 11,070 10,372 100,000
7 2,500 21,373 7,617 7,036 100,000 10,121 9,540 100,000 13,348 12,767 100,000
8 2,500 25,066 8,245 7,780 100,000 11,443 10,978 100,000 15,753 15,288 100,000
9 2,500 28,945 8,708 8,359 100,000 12,682 12,333 100,000 18,289 17,940 100,000
10 2,500 33,017 8,989 8,989 100,000 13,818 13,818 100,000 20,963 20,963 100,000
15 2,500 56,644 7,002 7,002 100,000 17,234 17,234 100,000 37,407 37,407 100,000
20 2,500 86,798 (*) (*) (*) 12,880 12,880 100,000 62,409 62,409 100,000
25 2,500 125,284 (*) (*) (*) (*) (*) (*) 109,545 109,545 115,023
30 2,500 174,402 (*) (*) (*) (*) (*) (*) 190,458 190,458 199,981
35 2,500 237,091 (*) (*) (*) (*) (*) (*) 314,104 314,104 329,809
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
60
<PAGE> 62
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,374 211 101,374 1,482 320 101,482 1,591 429 101,591
2 2,500 5,381 2,927 1,764 102,927 3,236 2,074 103,236 3,559 2,397 103,559
3 2,500 8,275 4,419 3,373 104,419 5,029 3,983 105,029 5,691 4,645 105,691
4 2,500 11,314 5,832 4,902 105,832 6,841 5,911 106,841 7,980 7,050 107,980
5 2,500 14,505 7,144 6,330 107,144 8,651 7,837 108,651 10,420 9,607 110,420
6 2,500 17,855 8,362 7,664 108,362 10,463 9,765 110,463 13,032 12,335 113,032
7 2,500 21,373 9,478 8,897 109,478 12,268 11,687 112,268 15,824 15,242 115,824
8 2,500 25,066 10,477 10,012 110,477 14,049 13,584 114,049 18,794 18,329 118,794
9 2,500 28,945 11,354 11,005 111,354 15,797 15,448 115,797 21,956 21,607 121,956
10 2,500 33,017 12,115 12,115 112,115 17,516 17,516 117,516 25,333 25,333 125,333
15 2,500 56,644 13,550 13,550 113,550 24,855 24,855 124,855 46,145 46,145 146,145
20 2,500 86,798 9,551 9,551 109,551 28,172 28,172 128,172 73,441 73,441 173,441
25 2,500 125,284 (*) (*) (*) 22,016 22,016 122,016 106,695 106,695 206,695
30 2,500 174,402 (*) (*) (*) (*) (*) (*) 141,554 141,554 241,554
35 2,500 237,091 (*) (*) (*) (*) (*) (*) 168,976 168,976 268,976
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00
THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS
UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT
FOR ANY SINGLE POLICY YEAR.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
61
<PAGE> 63
DEATH BENEFIT OPTION 2
$2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
CASH CASH CASH
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,500 2,625 1,197 35 101,197 1,300 138 101,300 1,404 241 101,404
2 2,500 5,381 2,500 1,338 102,500 2,785 1,623 102,785 3,083 1,921 103,083
3 2,500 8,275 3,693 2,647 103,693 4,242 3,196 104,242 4,840 3,794 104,840
4 2,500 11,314 4,768 3,838 104,768 5,660 4,730 105,660 6,671 5,741 106,671
5 2,500 14,505 5,715 4,901 105,715 7,024 6,211 107,024 8,571 7,758 108,571
6 2,500 17,855 6,523 5,825 106,523 8,319 7,622 108,319 10,534 9,836 110,534
7 2,500 21,373 7,179 6,598 107,179 9,527 8,946 109,527 12,549 11,968 112,549
8 2,500 25,066 7,665 7,200 107,665 10,622 10,157 110,622 14,600 14,135 114,601
9 2,500 28,945 7,962 7,613 107,962 11,578 11,229 111,578 16,669 16,320 116,669
10 2,500 33,017 8,052 8,052 108,052 12,366 12,366 112,366 18,734 18,734 118,734
15 2,500 56,644 4,841 4,841 104,841 12,798 12,798 112,798 28,282 28,282 128,282
20 2,500 86,798 (*) (*) (*) 2,956 2,956 102,956 32,479 32,479 132,479
25 2,500 125,284 (*) (*) (*) (*) (*) (*) 19,082 19,082 119,082
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR
AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM
CHARGE ON ALL PREMIUMS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUES WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL RATES OF RETURN AVERAGED THE ASSUMED RATES, BUT ALSO FLUCTUATED
ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS.
62
<PAGE> 64
APPENDIX 3
The following performance tables display historical investment results of the
underlying Mutual Fund sub-accounts of the Variable Account. This information
may be useful in helping potential investors in deciding which underlying Mutual
Fund sub-accounts to choose and in assessing the competence of the underlying
Mutual Funds' investment advisers. The performance figures shown should be
considered in light of the investment objectives and policies, characteristics
and quality of the underlying portfolios of the underlying Mutual Funds, and the
market conditions during the periods of time quoted. The performance figures
should not be considered as estimates or predictions of future performance.
Investment return and the principal value of the underlying Mutual Fund
sub-accounts are not guaranteed and will fluctuate so that a Policy Owner's
units, when redeemed, may be worth more or less than their original cost.
63
<PAGE> 65
PERFORMANCE TABLES
TOTAL RETURN
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE
CHANGE
- --------------------------------------------------------------------------------
Fund
Inception
Date* 1992 1993 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 09/29/89 6.25 8.46 0.08
Socially Responsible Growth Fund 10/06/93 N/A* N/A* 0.69
- --------------------------------------------------------------------------------
FIDELITY VIP FUND & VIP FUND II
Asset Manager Portfolio 09/06/89 10.98 20.09 -6.84
High Income Portfolio 09/19/85 22.07 19.55 -2.33
Equity-Income Portfolio 10/09/86 16.04 17.26 6.22
Overseas Portfolio 01/28/87 -11.43 36.14 0.92
Growth Portfolio 10/09/86 8.44 18.42 -0.81
- --------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund 11/10/81 2.58 1.93 3.05
Government Bond Fund 11/08/82 7.00 8.64 -4.00
Total Return Fund 11/08/82 7.31 10.03 0.27
Capital Appreciation Fund 04/15/92 N/A* 8.73 -1.69
- --------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MGT
TRUST
Growth Portfolio 09/10/84 8.66 5.94 -5.74
Limited Maturity Bond Portfolio 09/10/84 4.33 5.78 -0.95
Partners Portfolio 03/22/94 N/A* N/A* N/A*
- --------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Multiple Strategies Fund 02/09/87 8.12 15.02 -2.73
Bond Fund 04/30/85 5.65 12.14 -2.72
Global Securities Fund 11/12/90 -7.85 68.96 -6.47
- --------------------------------------------------------------------------------
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. 05/08/92 N/A* 21.05 -6.14
Strong Special Fund II, Inc. 05/08/92 N/A* 24.17 2.77
- --------------------------------------------------------------------------------
TCI PORTFOLIOS, INC
TCI Growth 11/20/87 -2.13 9.43 -1.95
TCI Balanced 05/01/91 -6.80 6.83 -0.19
TCI International 05/01/94 N/A* N/A* N/A*
- --------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Bond Fund 09/01/89 -6.06 6.92 -2.10
Gold and Natural Resources Fund 09/01/89 -4.86 63.52 -5.55
- --------------------------------------------------------------------------------
<CAPTION>
NON-ANNUALIZED PERCENTAGE CHANGE
- ------------------------------------------------------------------------------------------------------------------
Inception
1 Mo. to 1 Yr. to 2 Yrs. to 3 Yrs. to 5 Yrs. to to
12/31/94 12/31/94 12/31/94 12/31/94 12/31/94 12/31/94
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 1.37 0.08 8.55 15.33 42.22 45.00
Socially Responsible Growth Fund 1.12 0.69 N/A* N/A* N/A* 7.89
- ------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND & VIP FUND II
Asset Manager Portfolio -2.26 -6.84 11.87 24.16 59.97 60.70
High Income Portfolio 0.49 -2.33 16.76 42.53 85.22 140.61
Equity-Income Portfolio 0.26 6.22 24.55 44.53 58.37 120.13
Overseas Portfolio -0.64 0.92 37.39 21.69 27.26 60.61
Growth Portfolio 2.49 -0.81 17.45 27.37 60.98 147.94
- ------------------------------------------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund 0.38 3.05 5.04 7.75 21.32 127.34
Government Bond Fund 0.81 -4.00 4.30 11.60 40.33 168.83
Total Return Fund 1.02 0.27 10.33 18.40 48.39 334.95
Capital Appreciation Fund 2.00 -1.69 6.90 N/A* N/A* 12.44
- ------------------------------------------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MGT
TRUST
Growth Portfolio 1.23 -5.74 -0.15 8.50 27.17 182.83
Limited Maturity Bond Portfolio 0.08 -0.95 4.77 9.31 29.74 112.43
Partners Portfolio 0.86 N/A* N/A* N/A* N/A* -2.90
- ------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Multiple Strategies Fund 0.33 -2.73 11.89 20.98 37.19 97.05
Bond Fund -1.08 -2.72 9.09 15.25 43.97 124.82
Global Securities Fund -2.52 -6.47 58.03 45.62 N/A 49.78
- ------------------------------------------------------------------------------------------------------------------
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. 1.50 -6.14 13.62 N/A* N/A* 23.08
Strong Special Fund II, Inc. 0.08 2.77 27.62 N/A* N/A* 47.48
- ------------------------------------------------------------------------------------------------------------------
TCI PORTFOLIOS, INC
TCI Growth 1.81 -1.95 7.29 5.01 44.72 91.95
TCI Balanced 1.19 -0.19 6.63 -0.62 N/A 24.10
TCI International -1.31 N/A* N/A* N/A* N/A* -5.50
- ------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Bond Fund -0.16 -2.10 4.67 -1.67 27.50 28.06
Gold and Natural Resources Fund 2.59 -5.55 54.44 46.93 20.61 30.76
</TABLE>
This table displays three types of total return. Simply stated, total return
shows the percent change in unit values, with dividends and capital gains
reinvested, after the deduction of a 0.80% asset charge (and the deduction of
applicable investment advisory fees and other expenses of the underlying Mutual
Funds). The total return figures shown in the Annual Percentage Change and
Annualized Percentage Change columns represent annualized figures, i.e., they
show the rate of growth that would have produced the corresponding cumulative
return had performance been constant over the entire period quoted. The
Non-Annualized Percentage Change total return figures are not annual return
figures but instead represent the total percentage change in unit value over the
stated periods without annualization. THE TOTAL RETURN FIGURES DO NOT TAKE INTO
ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY
CHARGES" SECTION. THESE OTHER CHARGES INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF
INSURANCE CHARGES, SURRENDER CHARGES AND A MONTHLY ADMINISTRATIVE CHARGE.
*The underlying Mutual Fund Inception Date is the date the underlying Mutual
Fund first became effective, which is not necessarily the same date the
underlying Mutual Fund was first made available through the Variable Account.
For those underlying Mutual Funds which have not been offered as sub-accounts
through the Variable Account for one of the quoted periods, the total return
figures will show the investment performance such underlying Mutual Funds would
have achieved (reduced by the 0.80% asset charge and Fund investment advisory
fees and expenses) had they been offered as sub-accounts through the Variable
Account for the period quoted. Certain underlying Mutual Funds are not as old as
some of the periods quoted, therefore, total return figures may not be available
for all of the periods shown.
64
<PAGE> 66
PERFORMANCE TABLES
TOTAL RETURN
(CONTINUED)
<TABLE>
<CAPTION>
ANNUALIZED PERCENTAGE CHANGE
- -----------------------------------------------------------------------
3 Yrs. to 5 Yrs. to Inception to
12/31/94 12/31/94 12/31/94
- -----------------------------------------------------------------------
<S> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 4.87 7.30 7.33
Socially Responsible N/A* N/A* 6.34
Growth Fund
- -----------------------------------------------------------------------
FIDELITY VIP FUND &
VIP FUND II
Asset Manager 7.48 9.85 9.33
Portfolio
High Income Portfolio 17.54 13.12 9.92
Equity-Income 13.06 9.63 10.07
Portfolio
Overseas Portfolio 6.76 4.94 6.16
Growth Portfolio 8.40 9.99 11.67
- -----------------------------------------------------------------------
NATIONWIDE SEPARATE
ACCOUNT TRUST
Money Market Fund 2.52 3.94 6.45
Government Bond Fund 3.73 7.01 8.48
Total Return Fund 5.79 8.21 12.87
Capital Appreciation N/A* N/A* 4.42
Fund
- -----------------------------------------------------------------------
NEUBERGER & BERMAN
ADVISERS MGT. TRUST
Growth Portfolio 2.76 4.93 10.62
Limited Maturity Bond 3.01 5.35 7.59
Portfolio
Partners Portfolio N/A* N/A* -3.74
- -----------------------------------------------------------------------
OPPENHEIMER VARIABLE
ACCOUNT FUNDS
Multiple Strategies 6.55 6.53 8.98
Fund
Bond Fund 4.85 7.56 8.74
Global Securities Fund 13.35 N/A* 10.27
- -----------------------------------------------------------------------
STRONG VIP FUNDS
Strong Discovery Fund N/A* N/A* 8.17
II, Inc.
Strong Special Fund N/A* N/A* 15.82
II, Inc.
- -----------------------------------------------------------------------
TCI PORTFOLIOS, INC
TCI Growth 1.64 7.67 9.60
TCI Balanced -0.21 N/A* 6.06
TCI International N/A* N/A* -8.17
- -----------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Bond Fund -0.56 4.98 4.75
Gold and Natural 13.69 3.82 5.16
Resources Fund
- -----------------------------------------------------------------------
</TABLE>
65
<PAGE> 67
PERFORMANCE TABLES
CASH VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1 YR. TO 12/31/94 2 YRS. TO 12/31/94
- --------------------------------------------------------------------------------------------------------------------
Fund Cash Cash
Inception Cash. Surr. Cash. Surr.
Date** Value Value Value Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 09/29/89 7,941 3,135 16,777 11,971
Socially Responsible Growth Fund 10/06/93 8,007 3,201 N/A** N/A**
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND & VIP FUND II
Asset Manager Portfolio 09/06/89 7,354 2,548 16,512 11,706
High Income Portfolio 09/19/85 7,747 2,941 17,326 12,520
Equity-Income Portfolio 10/09/86 8,489 3,683 18,709 13,903
Overseas Portfolio 01/28/87 8,072 3,266 19,451 14,645
Growth Portfolio 10/09/86 7,834 3,028 17,460 12,655
- --------------------------------------------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund 11/10/81 8,202 3,397 16,712 11,906
Government Bond Fund 11/08/82 7,581 2,775 16,100 11,294
Total Return Fund 11/08/82 7,982 3,176 16,975 12,169
Capital Appreciation Fund 04/15/92 7,787 2,981 16,445 11,639
- --------------------------------------------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MGT
TRUST
Growth Portfolio 09/10/84 7,434 2,628 15,529 10,723
Limited Maturity Bond Portfolio 09/10/84 7,854 3,048 16,382 11,576
Partners Portfolio 03/22/94 N/A** N/A** N/A** N/A**
- --------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Multiple Strategies Fund 02/09/87 7,708 2,902 16,853 12,047
Bond Fund 04/30/85 7,705 2,899 16,628 11,823
Global Securities Fund 11/12/90 7,426 2,620 20,553 15,747
- --------------------------------------------------------------------------------------------------------------------
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. 05/08/92 7,386 2,580 16,650 11,844
Strong Special Fund II, Inc. 05/08/92 8,207 3,401 18,699 13,893
- --------------------------------------------------------------------------------------------------------------------
TCI PORTFOLIOS, INC
TCI Growth 11/20/87 7,762 2,956 16,498 11,692
TCI Balanced 05/01/91 7,929 3,123 16,598 11,792
TCI International 05/01/94 N/A** N/A** N/A** N/A**
- --------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Bond Fund 09/01/89 7,733 2,927 16,237 11,431
Gold and Natural Resources Fund 09/01/89 7,479 2,673 20,405 15,599
<CAPTION>
- ----------------------------------------------------------------------------------------------------
3 YRS. TO 12/31/94 5 YRS. TO 12/31/94
- ----------------------------------------------------------------------------------------------------
Cash Cash
Cash. Surr. Cash. Surr.
Value Value Value Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund 26,019 21,694 49,296 45,932
Socially Responsible Growth Fund N/A** N/A** N/A** N/A**
- ----------------------------------------------------------------------------------------------------
FIDELITY VIP FUND & VIP FUND II
Asset Manager Portfolio 26,544 22,219 51,537 48,173
High Income Portfolio 29,006 24,681 59,374 56,010
Equity-Income Portfolio 30,413 26,088 58,153 54,788
Overseas Portfolio 29,167 24,841 49,682 46,318
Growth Portfolio 27,643 23,317 55,370 52,006
- ----------------------------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund 25,362 21,036 44,010 40,646
Government Bond Fund 25,068 20,743 46,590 43,226
Total Return Fund 26,497 22,171 51,401 48,037
Capital Appreciation Fund N/A** N/A** N/A** N/A**
- ----------------------------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MGT
TRUST
Growth Portfolio 24,213 19,888 45,517 42,153
Limited Maturity Bond Portfolio 25,160 20,834 45,125 41,761
Partners Portfolio N/A** N/A** N/A** N/A**
- ----------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Multiple Strategies Fund 26,597 22,272 48,758 45,393
Bond Fund 25,895 21,570 48,176 44,812
Global Securities Fund 32,240 27,915 N/A** N/A**
- ----------------------------------------------------------------------------------------------------
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. N/A** N/A** N/A** N/A**
Strong Special Fund II, Inc. N/A** N/A** N/A** N/A**
- ----------------------------------------------------------------------------------------------------
TCI PORTFOLIOS, INC
TCI Growth 24,807 20,482 48,377 45,012
TCI Balanced 24,448 20,122 N/A N/A
TCI International N/A** N/A** N/A** N/A**
- ----------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Bond Fund 24,093 19,768 43,461 40,097
Gold and Natural Resources Fund 32,181 27,855 52,760 49,396
- ----------------------------------------------------------------------------------------------------
</TABLE>
This table shows the effect of the performance quoted on accumulated values and
cash surrender values, based on a hypothetical annual premium of $10,000 for a
45 year-old male, non-tobacco preferred, with a level death benefit and an
initial specified amount of $495,941 (based on a guideline-level premium of
$10,000 issued on a preferred basis). The cash surrender value figures reflect
the deduction of all applicable Policy Charges, including a deduction from each
premium payment, a 0.80% asset charge, applicable cost of insurance charges,
surrender charges, and a monthly administrative charge (and the deduction of
applicable investment advisory fees and other expenses of the underlying Mutual
Funds). See the "Policy Charges" section for more information about these
charges. The cost of insurance charges may be higher or lower for purchasers who
do not meet the profile of the hypothetical purchaser. Illustrations reflecting
a potential purchaser's specific characteristics are available from the Company
upon request.
**The underlying Mutual Fund Inception Date is the date the underlying Mutual
Fund first became effective, which is not necessarily the same date the
underlying Mutual Fund was first made available through the Variable Account.
For those underlying Mutual Funds which have not been offered as sub-accounts
through the Variable Account for one of the quoted periods, the cash values will
show the investment performance such underlying Mutual Funds would have achieved
(reduced by any applicable Variable Account and Policy Charges, and underlying
Mutual Fund investment advisory fees and expenses) had they been offered as
sub-accounts through the Variable Account for the period quoted. Certain
underlying Mutual Funds are not as old as some of the periods quoted, therefore,
the cash values may not be available for all of the periods shown.
66
<PAGE> 68
PERFORMANCE TABLES
TOTAL RETURN
(CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
10 YRS. TO INCEPTION
12/31/94 TO 12/31/94
- ------------------------------------------------------------------------------------------------------
Cash Cash
Cash. Surr. Cash. Surr.
Value Value Value Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DREYFUS CORPORATION
Stock Index Fund N/A** N/A** 61,163 58,280
Socially Responsible Growth Fund N/A** N/A** 17,775 12,969
- ------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND & VIP FUND II
Asset Manager Portfolio N/A** N/A** 62,087 59,204
High Income Portfolio N/A** N/A** 131,372 131,372
Equity-Income Portfolio N/A** N/A** 114,964 113,522
Overseas Portfolio N/A** N/A** 88,144 86,222
Growth Portfolio N/A** N/A** 119,739 118,297
- ------------------------------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund 101,291 101,291 158,140 158,140
Government Bond Fund 118,669 118,669 170,946 170,946
Total Return Fund 139,378 139,378 219,326 219,326
Capital Appreciation Fund N/A** N/A** 26,238 21,913
- ------------------------------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MGT
TRUST
Growth Portfolio 130,719 130,719 136,635 136,635
Limited Maturity Bond Portfolio 109,134 109,134 120,830 120,830
Partners Portfolio N/A** N/A** 7,918 3,112
- ------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Multiple Strategies Fund N/A** N/A** 91,155 89,232
Bond Fund N/A** N/A** 120,173 120,173
Global Securities Fund N/A** N/A** 53,755 50,391
- ------------------------------------------------------------------------------------------------------
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. N/A** N/A** 27,436 23,110
Strong Special Fund II, Inc. N/A** N/A** 30,246 25,921
- ------------------------------------------------------------------------------------------------------
TCI PORTFOLIOS, INC
TCI Growth N/A** N/A** 90,448 88,525
TCI Balanced N/A** N/A** 36,069 32,224
TCI International N/A** N/A** 7,975 3,169
- ------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Bond Fund N/A** N/A** 53,137 50,254
Gold and Natural Resources Fund N/A** N/A** 60,565 57,682
- ------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE> 69
================================================================================
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
================================================================================
68
<PAGE> 70
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1994
<TABLE>
<CAPTION>
<S> <C>
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 (OppGlSec)
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
============
</TABLE>
69
<PAGE> 71
Contract owners' equity represented by:
<TABLE>
<CAPTION>
Units Unit Value
--------- ----------
<S> <C> <C> <C>
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
============
</TABLE>
See accompanying notes to financial statements
70
<PAGE> 72
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ........... $ 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
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
================================================================================
71
<PAGE> 73
================================================================================
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)
72
<PAGE> 74
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.
73
<PAGE> 75
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.
================================================================================
74
<PAGE> 76
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
<TABLE>
<CAPTION>
FIDEQINC FIDGRO FIDHIINC FIDOSEAS FIDASMGR NWGVTBD
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
============================================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as asset charges do not
include the policy charges described in note 2.
75
<PAGE> 77
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
<TABLE>
<CAPTION>
NWMYMKT NWTOTRET NBGRO NBLTDMAT OPPGLSEC STSPEC2
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TCIGRO VEGLOBBD VEGOLDNR
--------- --------- ---------
<S> <C> <C> <C>
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)%
====================================================================================
</TABLE>
*An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
**This investment option was not being utilized.
76
<PAGE> 78
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
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKIX FIDEQINC FIDGRO FIDHIINC
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDOSEAS FIDASMGR NWCAPAPP
--------- --------- ---------
<S> <C> <C> <C>
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)
======================================================================================
</TABLE>
*An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
**This investment option was not available.
77
<PAGE> 79
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
<TABLE>
<CAPTION>
NWGVTBD NWMYMKT NWTOTRET NBGRO
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
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%
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NBLTDMAT NBPART OPPBDFD OPPGLSEC
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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%
===========================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
**This investment option was not available.
78
<PAGE> 80
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
<TABLE>
<CAPTION>
OPPMULT STDISC2 STSPEC2 TCIBAL
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
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)
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TCIGRO TCIINT VEGLOBBD VEGOLDNR
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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)%
=======================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
**This investment option was not available.
79
<PAGE> 81
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
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKIX FIDEQINC FIDGRO
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
Beginning unit value - Jan. 1 $10.715005 10.143796 15.606442 15.958341
- ---------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .278073 .284601 1.172669 .960381
- ---------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.118575) (.195976) (.073581) (.966828)
- ---------------------------------------------------------------------------------------------------------
Asset charges (.085956) (.080502) (.129117) (.123431)
- ---------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.788547 10.151919 16.576413 15.828463
- ---------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 0% 6% (1)%
=========================================================================================================
1993
Beginning unit value - Jan. 1 $10.000000 10.000000 13.308899 13.476298
- ---------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .031142 1.499665 .389191 .299849
- ---------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .703426 (1.335764) 2.026087 2.300419
- ---------------------------------------------------------------------------------------------------------
Asset charges (.019563) (.020105) (.117735) (.118225)
- ---------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.715005 10.143796 15.606442 15.958341
- ---------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 7%(b) 1%(b) 17% 18%
=========================================================================================================
1992
Beginning unit value - Jan. 1 ** ** $11.469514 12.426998
- ---------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .409816 .321995
- ---------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.527971 .826930
- ---------------------------------------------------------------------------------------------------------
Asset charges (.098402) (.099625)
- ---------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.308899 13.476298
- ---------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 16% 8%
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDHIINC FIDOSEAS FIDASMGR NWCAPAPP
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
Beginning unit value - Jan. 1 17.844401 12.426854 14.785784 11.662121
- --------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.635883 .064174 .719044 .184927
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.910067) .152413 (1.615920) (.289863)
- --------------------------------------------------------------------------------------------------------
Asset charges (.141274) (.102713) (.114053) (.091782)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 17.428943 12.540728 13.774855 11.465403
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% 1% (7)% (2)%
========================================================================================================
1993
Beginning unit value - Jan. 1 14.926526 9.128094 12.312732 10.725293
- --------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.227974 .213405 .571816 .261975
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.821967 3.173177 2.008516 .761628
- --------------------------------------------------------------------------------------------------------
Asset charges (.132066) (.087822) (.107280) (.086775)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 17.844401 12.426854 14.785784 11.662121
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 20% 36% 20% 9%
========================================================================================================
1992
Beginning unit value - Jan. 1 12.228193 10.305868 11.094195 10.000000
- --------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.036312 .141492 .565299 .117198
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.775349 (1.238908) .747233 .663590
- --------------------------------------------------------------------------------------------------------
Asset charges (.113328) (.080358) (.093995) (.055495)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.926526 9.128094 12.312732 10.725293
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 22% (11)% 11% 7%(b)
========================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
**This investment option was not available.
80
<PAGE> 82
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
<TABLE>
<CAPTION>
NWGVTBD NWMYMKT NWTOTRET NBGRO
---------- --------- --------- ---------
1994
<S> <C> <C> <C> <C>
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%
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
NBLTDMAT NBPART OPPBDFD OPPGLSEC
--------- --------- --------- ---------
1994
<S> <C> <C> <C> <C>
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%
============================================================================================
</TABLE>
*An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year
indicated.
**This investment option was not available.
81
<PAGE> 83
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
<TABLE>
<CAPTION>
OPPMULT STDISC2 STSPEC2 TCIBAL
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
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)
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TCIGRO TCIINT VEGLOBBD VEGOLDNR
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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)%
=====================================================================================================
</TABLE>
*An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year
indicated.
**This investment option was not available.
82
<PAGE> 84
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
83
<PAGE> 85
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
<TABLE>
Consolidated Balance Sheets
December 31, 1994 and 1993
(000's omitted)
<CAPTION>
Assets 1994 1993
------ ----------- ----------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $8,318,865 in 1994) $ 8,045,906 -
Equity securities (cost $18,373 in 1994; $8,263 in 1993) 24,713 16,593
Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310
in 1994; $10,886,820 in 1993) 3,688,787 10,120,978
Mortgage loans on real estate 4,222,284 3,871,560
Real estate 252,681 253,831
Policy loans 340,491 315,898
Other long-term investments 63,914 118,490
Short-term investments (note 14) 131,643 41,797
----------- -----------
16,770,419 14,739,147
----------- -----------
Cash 7,436 21,835
Accrued investment income 220,540 190,886
Deferred policy acquisition costs 1,064,159 811,944
Deferred Federal income tax 36,515 -
Other assets 790,603 636,161
Assets held in Separate Accounts (note 8) 12,222,461 9,006,388
----------- -----------
$31,112,133 25,406,361
=========== ===========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) 16,321,461 14,092,255
Policyholders' dividend accumulations 338,058 322,686
Other policyholder funds 72,770 71,959
Accrued Federal income tax (note 7):
Current 13,126 12,294
Deferred - 31,659
----------- -----------
13,126 43,953
----------- -----------
Other liabilities 235,778 217,952
Liabilities related to Separate Accounts (note 8) 12,222,461 9,006,388
----------- -----------
29,203,654 23,755,193
----------- -----------
Shareholder's equity (notes 3, 4, 7 and 13):
Capital shares, $1 par value. Authorized 5,000 shares, issued and
outstanding 3,815 shares 3,815 3,815
Paid-in additional capital 622,753 422,753
Unrealized gains (losses) on securities available-for-sale, net of adjustment
to deferred policy acquisition costs of $82,525 ($0 in 1993) and net of
deferred Federal income tax benefit of $64,425 ($1,583 expense in 1993) (119,668) 6,747
Retained earnings 1,401,579 1,217,853
----------- -----------
1,908,479 1,651,168
----------- -----------
Commitments and contingencies (notes 9 and 16)
$31,112,133 25,406,361
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 86
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 17):
Traditional life insurance premiums $ 209,538 215,715 226,888
Accident and health insurance premiums 324,524 312,655 430,009
Universal life and investment product policy charges 239,021 188,057 148,464
Net investment income (note 5) 1,289,501 1,204,426 1,120,157
Net ceded commissions from disposition of credit life and
credit accident and health business (note 12) - - 27,115
Realized gains (losses) on investments (notes 5 and 14) (16,384) 113,673 (19,315)
---------- ---------- ----------
2,046,200 2,034,526 1,933,318
---------- ---------- ----------
Benefits and expenses:
Benefits and claims 1,279,763 1,236,906 1,319,735
Provision for policyholders' dividends on participating
policies (note 13) 46,061 53,189 61,834
Amortization of deferred policy acquisition costs 94,744 102,134 99,197
Other operating costs and expenses 352,402 329,396 321,993
---------- ---------- ----------
1,772,970 1,721,625 1,802,759
---------- ---------- ----------
Income before Federal income tax and cumulative
effect of changes in accounting principles 273,230 312,901 130,559
---------- ---------- ----------
Federal income tax (note 7):
Current expense 79,847 75,124 47,402
Deferred expense (benefit) 9,657 31,634 (13,660)
---------- ---------- ----------
89,504 106,758 33,742
---------- ---------- ----------
Income before cumulative effect of changes in
accounting principles 183,726 206,143 96,817
Cumulative effect of changes in accounting principles,
net of tax (note 3) - 5,365 -
---------- ---------- ----------
Net income $ 183,726 211,508 96,817
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 87
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Paid-in on securities Total
Capital additional available-for- Retained shareholder's
shares capital sale, net earnings equity
--------- ----------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1992:
Balance, beginning of year $ 3,815 311,753 96,048 933,179 1,344,795
Dividends paid to shareholder - - - (5,846) (5,846)
Net income - - - 96,817 96,817
Unrealized losses on equity
securities, net of deferred
Federal income tax - - (5,524) - (5,524)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 311,753 90,524 1,024,150 1,430,242
========= =========== ============== ========== =============
1993:
Balance, beginning of year 3,815 311,753 90,524 1,024,150 1,430,242
Capital contributions - 111,000 - - 111,000
Dividends paid to shareholder - - - (17,805) (17,805)
Net income - - - 211,508 211,508
Unrealized losses on equity
securities, net of deferred
Federal income tax - - (83,777) - (83,777)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 422,753 6,747 1,217,853 1,651,168
========= =========== ============== ========== =============
1994:
Balance, beginning of year 3,815 422,753 6,747 1,217,853 1,651,168
Capital contribution - 200,000 - - 200,000
Net income - - - 183,726 183,726
Adjustment for change in
accounting for certain
investments in debt and
equity securities, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax (note 3) - - 216,915 - 216,915
Unrealized losses on securities
available-for-sale, net of
adjustment to deferred policy
acquisition costs and deferred
Federal income tax - - (343,330) - (343,330)
--------- ----------- -------------- ---------- -------------
Balance, end of year $ 3,815 622,753 (119,668) 1,401,579 1,908,479
========= =========== ============== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 88
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
(000's omitted)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 183,726 211,508 96,817
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalization of deferred policy acquisition costs (264,434) (191,994) (177,928)
Amortization of deferred policy acquisition costs 94,744 102,134 99,197
Amortization and depreciation 6,207 11,156 5,607
Realized losses (gains) on invested assets, net 15,949 (113,648) 19,092
Deferred Federal income tax benefit (2,166) (6,006) (13,105)
Increase in accrued investment income (29,654) (4,218) (11,518)
(Increase) decrease in other assets (112,566) (549,277) 6,132
Increase in policyholder account balances 1,038,641 509,370 19,087
Increase in policyholders' dividend accumulations 15,372 17,316 18,708
Increase (decrease) in accrued Federal income tax payable 832 16,838 (15,723)
Increase in other liabilities 17,826 26,958 73,512
Other, net (19,303) (11,745) (10,586)
---------- ---------- ----------
Net cash provided by operating activities 945,174 18,392 109,292
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 579,067 - -
Proceeds from sale of securities available-for-sale 247,876 247,502 27,844
Proceeds from maturity of fixed maturities held-to-maturity 516,003 1,192,093 1,030,397
Proceeds from sale of fixed maturities - 33,959 123,422
Proceeds from repayments of mortgage loans on real estate 220,744 146,047 259,659
Proceeds from sale of real estate 46,713 23,587 22,682
Proceeds from repayments of policy loans and
sale of other invested assets 134,998 59,643 99,189
Cost of securities available-for-sale acquired (2,569,672) (12,550) (12,718)
Cost of fixed maturities held-to-maturity acquired (675,835) (2,016,831) (2,687,975)
Cost of mortgage loans on real estate acquired (627,025) (475,336) (654,403)
Cost of real estate acquired (15,962) (8,827) (137,843)
Policy loans issued and other invested assets acquired (118,012) (76,491) (97,491)
---------- ---------- ----------
Net cash used in investing activities (2,261,105) (887,204) (2,027,620)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from capital contributions 200,000 111,000 -
Dividends paid to shareholder - (17,805) (5,846)
Increase in universal life and investment product account balances 3,640,958 2,249,740 2,468,236
Decrease in universal life and investment product account balances (2,449,580) (1,458,504) (575,180)
---------- ---------- ----------
Net cash provided by financing activities 1,391,378 884,431 1,887,210
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 75,447 15,619 (31,118)
Cash and cash equivalents, beginning of year 63,632 48,013 79,131
---------- ---------- ----------
Cash and cash equivalents, end of year $ 139,079 63,632 48,013
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 89
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.
<PAGE> 90
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.
<PAGE> 91
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.
<PAGE> 92
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.
<PAGE> 93
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(3) Changes in Accounting Principles
--------------------------------
Effective January 1, 1994, the Company changed its method of
accounting for certain investments in debt and equity securities in
connection with the issuance of a new accounting standard by the FASB
as described in Note 2(b). As of January 1, 1994, the company
classified fixed maturity securities with amortized cost and fair value
of $6,593,844 and $7,024,736, respectively, as available-for-sale
and recorded the securities at fair value. Previously, these
securities were recorded at amortized cost. The effect as of January
1, 1994 has been recorded as a direct credit to shareholder's equity
as follows:
<TABLE>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $430,892
Adjustment to deferred policy acquisition costs (97,177)
Deferred Federal income tax (116,800)
--------
$216,915
========
</TABLE>
During 1993, the Company adopted accounting principles in
connection with the issuance of two accounting standards by the FASB.
The effect as of January 1, 1993, the date of adoption, has been
recognized in the 1993 consolidated statement of income as the
cumulative effect of changes in accounting principles, as follows:
<TABLE>
<S> <C>
Asset/liability method of recognizing income tax (note 7) $ 26,344
Accrual method of recognizing postretirement benefits other
than pensions (net of tax benefit of $11,296), (note 11) (20,979)
--------
Net cumulative effect of changes in accounting principles $ 5,365
========
</TABLE>
(4) Basis of Presentation
---------------------
The consolidated financial statements have been prepared in
accordance with GAAP. Annual Statements for NLIC and FHLIC, WCLIC,
ELICW and NCC, filed with the Department ofInsurance of the State of
Ohio, California Department of Insurance, Wisconsin Insurance
Department and Michigan Bureau of Insurance, respectively, are prepared
on the basis of accounting practices prescribed or permitted by
such regulatory authorities. Prescribed statutory accounting
practices include a variety of publications of the National Association
of Insurance Commissioners (NAIC), as well as state laws, regulations
and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The
Company has no material permitted statutory accounting practices.
The following reconciles the statutory net income of NLIC as
reported to regulatory authorities to the net income as shown
in the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Statutory net income $ 76,532 185,943 33,812
Adjustments to restate to the basis of GAAP:
Consolidating statutory net income of subsidiaries 14,350 19,545 21,519
Increase in deferred policy acquisition costs, net 167,166 89,860 78,731
Future policy benefits (76,310) (70,640) (63,355)
Deferred Federal income tax (expense) benefit (9,657) (31,634) 13,660
Equity in earnings of affiliates 1,013 7,121 4,618
Valuation allowances and other than temporary
declines accounted for directly in surplus 6,275 (6,638) 3,402
Interest maintenance reserve (7,332) 13,754 7,588
Cumulative effect of changes in accounting principles,
net of tax - 5,365 -
Other, net 11,689 (1,168) (3,158)
-------- ------- -------
Net income per accompanying consolidated
statements of income $183,726 211,508 96,817
======== ======= =======
</TABLE>
<PAGE> 94
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The following reconciles the statutory capital shares and
surplus of NLIC as reported to regulatory authorities to the
shareholder's equity as shown in the accompanying consolidated
financial statements:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Statutory capital shares and surplus $1,262,861 992,631 647,307
Add (deduct) cumulative effect of adjustments:
Deferred policy acquisition costs 1,064,159 811,944 722,084
Nonadmitted assets and furniture and equipment charged to
income in the year of acquisition, net of accumulated
depreciation 16,120 22,573 15,712
Asset valuation reserve 153,387 105,596 138,727
Interest maintenance reserve 18,843 21,069 7,315
Future policy benefits (310,302) (238,231) (167,591)
Deferred Federal income tax, including effect of changes in
accounting principles in 1993 36,515 (31,659) (82,724)
Cumulative effect of change in accounting principles for
postretirement benefits other than pensions, gross - (32,275) -
Difference between amortized cost and fair value of fixed
maturity securities available-for-sale, gross (272,959) - -
Other, net (60,145) (480) 149,412
---------- ---------- ----------
Shareholder's equity per accompanying consolidated
balance sheets $1,908,479 1,651,168 1,430,242
========== ========== ==========
</TABLE>
(5) Investments
-----------
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $ 674,346 - -
Equity securities 550 7,230 6,949
Fixed maturities held-to-maturity 193,009 800,255 754,876
Mortgage loans on real estate 376,783 364,810 334,769
Real estate 40,280 39,684 27,410
Short-term 6,990 5,080 7,298
Other 42,831 33,832 30,717
---------- -------- --------
Total investment income 1,334,789 1,250,891 1,162,019
Less investment expenses 45,288 46,465 41,862
---------- ---------- ----------
Net investment income $1,289,501 1,204,426 1,120,157
========== ========== ==========
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturities held-to-maturity
follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ (703,851) - -
Equity securities (1,990) (128,837) (9,195)
Fixed maturities held-to-maturity (421,427) 223,392 17,774
----------- -------- --------
$(1,127,268) 94,555 8,579
=========== ======== ========
</TABLE>
<PAGE> 95
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
An analysis of realized gains (losses) on investments by investment
type follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Realized on disposition of investments:
Securities available-for-sale:
Fixed maturities $(13,720) - -
Equity securities 1,427 129,728 7,215
Fixed maturities - 21,159 13,399
Mortgage loans on real estate (16,130) (17,763) (30,334)
Real estate and other 5,765 (12,813) (12,997)
---------- -------- --------
(22,658) 120,311 (22,717)
---------- -------- --------
Valuation allowances:
Securities available-for-sale:
Fixed maturities 6,600 - -
Fixed maturities - (934) 1,792
Mortgage loans on real estate (4,332) (10,478) (5,969)
Real estate and other 4,006 4,774 7,579
---------- -------- --------
6,274 (6,638) 3,402
---------- -------- --------
$(16,384) 113,673 (19,315)
========== ======== ========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale and fixed maturities held-to-maturity were as
follows as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available-for-sale
-----------------------------
Fixed maturities:
US Treasury securities and obligations of US
government corporations and agencies $ 393,156 1,794 (18,941) 376,009
Obligations of states and political
subdivisions 2,202 55 (21) 2,236
Debt securities issued by foreign governments 177,910 872 (9,205) 169,577
Corporate securities 4,201,738 50,405 (128,698) 4,123,445
Mortgage-backed securities 3,543,859 18,125 (187,345) 3,374,639
----------- ---------- ---------- ----------
Total fixed maturities 8,318,865 71,251 (344,210) 8,045,906
Equity securities 18,373 6,636 (296) 24,713
----------- ---------- ---------- ----------
$8,337,238 77,887 (344,506) 8,070,619
=========== ========== ========== ==========
Fixed maturity securities held-to-maturity
------------------------------------------
Obligations of states and political
subdivisions $ 11,613 92 (255) 11,450
Debt securities issued by foreign governments 16,131 111 (39) 16,203
Corporate securities 3,661,043 34,180 (120,566) 3,574,657
----------- ---------- ---------- ----------
$3,688,787 34,383 (120,860) 3,602,310
=========== ========== ========== ==========
</TABLE>
<PAGE> 96
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of investments of fixed
maturity securities were as follows as of December 31, 1993:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of US
government corporations and agencies $ 287,738 18,204 (392) 305,550
Obligations of states and political
subdivisions 16,519 2,700 (5) 19,214
Debt securities issued by foreign governments 137,092 7,719 (1,213) 143,598
Corporate securities 6,819,355 647,778 (15,648) 7,451,485
Mortgage-backed securities 2,860,274 121,721 (15,022) 2,966,973
----------- ---------- ---------- ----------
$10,120,978 798,122 (32,280) 10,886,820
=========== ========== ========== ==========
</TABLE>
As of December 31, 1993 the net unrealized gain on equity
securities, before providing for deferred Federal income tax, was
$8,330, comprised of gross unrealized gains of $8,345 and gross
unrealized losses of $15.
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale and fixed maturity securities
held-to-maturity as of December 31, 1994, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
---------- -----------
<S> <C> <C>
Fixed maturity securities available-for-sale
--------------------------------------------
Due in one year or less $ 294,779 294,778
Due after one year through five years 2,553,825 2,490,886
Due after five years through ten years 1,382,311 1,327,089
Due after ten years 544,091 558,514
---------- -----------
4,775,006 4,671,267
Mortgage-backed securities 3,543,859 3,374,639
---------- -----------
$8,318,865 8,045,906
========== ===========
Fixed maturity securities held-to-maturity
------------------------------------------
Due in one year or less $ 333,517 333,000
Due after one year through five years 1,953,179 1,942,260
Due after five years through ten years 1,080,069 1,013,083
Due after ten years 322,022 313,967
---------- -----------
$3,688,787 3,602,310
========== ===========
</TABLE>
Proceeds from the sale of securities available-for-sale during
1994 were $247,876, while proceeds from sales of investments in
fixed maturity securities during 1993 were $33,959 ($123,422 during
1992). Gross gains of $3,406 ($2,413 in 1993 and $3,194 in 1992) and
gross losses of $21,866 ($39 in 1993 and $513 in 1992) were realized
on those sales.
Investments that were non-income producing for the twelve month
period preceding December 31, 1994 amounted to $11,513 ($13,158 for
1993) and consisted of $11,111 ($10,907 in 1993) in real estate and
$402 ($2,251 in 1993) in other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$29,275 in 1994 ($24,717 in 1993) and valuation allowances of $27,330
in 1994 ($31,357 in 1993). Other valuation allowances are $0 in 1994
($6,680 in 1993) on fixed maturities and $47,892 in 1994 ($42,350 in
1993) on mortgage loans on real estate.
<PAGE> 97
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company generally initiates foreclosure proceedings on all
mortgage loans on real estate delinquent sixty days. Foreclosures
of mortgage loans on real estate were $37,187 in 1994 ($39,281 in
1993) and mortgage loans on real estate in process of foreclosure or
in-substance foreclosed as of December 31, 1994 totaled $19,878
($24,658 as of December 31, 1993), which approximates fair value.
Investments with an amortized cost of $11,137 and $11,383 as of
December 31, 1994 and 1993, respectively, were on deposit with various
regulatory agencies as required by law.
(6) Future Policy Benefits and Claims
---------------------------------
The liability for future policy benefits for traditional life and
individual health policies has been established based upon the
following assumptions:
Interest rates: Interest rates vary as follows:
<TABLE>
<CAPTION>
Year of issue Life Health
------------- ---- ------
<S> <C> <C>
1994 7.2 %, not graded - permanent contracts with loan provisions; 5.0%
6.0%, not graded - all other contracts
1984-1993 7.4% to 10.5%, not graded 5.0% to 6%
1966-1983 6% to 8.1%, graded over 20 years to 4% to 6.6% 3.5% to 6%
1965 and prior generally lower than post 1965 issues 3.5% to 4%
</TABLE>
Withdrawals: Rates, which vary by issue age, type of coverage
and policy duration, are based on Company experience.
Mortality: Mortality and morbidity rates are based on
published tables, modified for the Company's actual experience.
The liability for future policy benefits for investment contracts
(approximately 81% and 80% of the total liability for future policy
benefits as of December 31, 1994 and 1993, respectively) has been
established based on policy term, interest rates and various contract
provisions. The average interest rate credited on investment product
policies was 6.5%, 7.0% and 7.5% for the years ended December 31, 1994,
1993 and 1992, respectively.
Future policy benefits and claims for group long-term disability
policies are the present value (primarily discounted at 5.5%) of
amounts not yet due on reported claims and an estimate of amounts to be
paid on incurred but unreported claims. The impact of reserve
discounting is not material. Future policy benefits and claims on
other group health policies are not discounted.
Activity in the liability for unpaid claims and claim adjustment
expenses is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Balance as of January 1 $591,258 760,312 672,581
Less reinsurance recoverables 429,798 547,786 445,934
--------- -------- --------
Net balance as of January 1 161,460 212,526 226,647
--------- -------- --------
Incurred related to:
Current year 273,299 309,721 360,545
Prior years (26,156) (26,248) (17,433)
--------- -------- --------
Total incurred 247,143 283,473 343,112
--------- -------- --------
Paid related to:
Current year 175,700 208,978 226,886
Prior years 73,889 125,561 130,347
--------- -------- --------
Total paid 249,589 334,539 357,233
--------- -------- --------
Unpaid claims of ELICW (note 14) 40,223 - -
--------- -------- --------
Net balance as of December 31 199,237 161,460 212,526
Plus reinsurance recoverables 457,694 429,798 547,786
--------- -------- --------
Balance as of December 31 $656,931 591,258 760,312
======== ======== ========
</TABLE>
<PAGE> 98
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
As a result of changes in estimates for insured events of prior
years, the provision for claims and claim adjustment expenses
decreased in each of the three years ended December 31, 1994 due to
lower-than-anticipated costs to settle accident and health claims.
(7) Federal Income Tax
------------------
Prior to 1984, the Life Insurance Company Income Tax Act of 1959 as
amended by the Deficit Reduction Act of 1984 (DRA), permitted the
deferral from taxation of a portion of statutory income under certain
circumstances. In these situations, the deferred income was
accumulated in the Policyholders' Surplus Account (PSA). Management
considers the likelihood of distributions from the PSA to be remote;
therefore, no Federal income tax has been provided for such
distributions in the consolidated financial statements. The DRA
eliminated any additional deferrals to the PSA. Any distributions
from the PSA, however, will continue to be taxable at the then current
tax rate. The balance of the PSA is approximately $35,344 as of
December 31, 1994.
The Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
109 - ACCOUNTING FOR INCOME TAXES (SFAS 109), as of January 1, 1993.
See note 3. The 1992 consolidated financial statements have not
been restated to apply the provisions of SFAS 109.
The significant components of deferred income tax expense for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Deferred income tax expense (exclusive of the
effects of other components listed below) $9,657 29,930
Adjustments to deferred income tax assets and
liabilities for enacted changes in tax laws
and rates - 1,704
------ ------
$9,657 31,634
====== ======
</TABLE>
For the year ended December 31, 1992, the deferred income tax
benefit results from timing differences in the recognition of
income and expense for income tax and financial reporting purposes.
The primary sources of those timing differences were deferred policy
acquisition costs (deferred expense of $16,457) and reserves for future
policy benefits (deferred benefit of $32,045).
Total Federal income tax expense for the years ended December 31,
1994, 1993 and 1992 differs from the amount computed by applying the
U.S. Federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
Amount % Amount % Amount %
------- ---- -------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $95,631 35.0 $109,515 35.0 $44,390 34.0
Tax exempt interest and dividends
received deduction (194) (0.1) (2,322) (0.7) (4,172) (3.2)
Current year increase in U.S. Federal
income tax rate - - 1,704 0.5 - -
Real estate valuation allowance
adjustment - - - - (3,463) (2.7)
Other, net (5,933) (2.1) (2,139) (0.7) (3,013) (2.3)
------- ---- -------- ---- ------- ----
Total (effective rate of each
year) $89,504 32.8 $106,758 34.1 $33,742 25.8
======= ==== ======== ==== ======= ====
</TABLE>
Total Federal income tax paid was $87,576, $58,286 and $63,124 during
the years ended December 31, 1994, 1993 and 1992, respectively.
<PAGE> 99
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $124,044 129,995
Fixed maturity securities available-for-sale 95,536 -
Liabilities in Separate Accounts 94,783 64,722
Mortgage loans on real estate and real estate 25,632 24,020
Other policyholder funds 7,137 7,759
Other assets and other liabilities 57,528 41,390
-------- ---------
Total gross deferred tax assets 404,660 267,886
-------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 317,224 243,731
Fixed maturities, equity securities and other
long-term investments 3,620 11,137
Other 47,301 44,677
-------- ---------
Total gross deferred tax liabilities 368,145 299,545
-------- ---------
Net deferred tax asset (liability) $ 36,515 (31,659)
======== =========
</TABLE>
The Company has determined that valuation allowances are not
necessary as of December 31, 1994 and 1993 and January 1, 1993 (date of
adoption of SFAS 109) based on its analysis of future deductible
amounts. All future deductible amounts can be offset by future
taxable amounts or recovery of Federal income tax paid within the
statutory carryback period. In addition, for future deductible
amounts for securities available-for-sale, affiliates of the Company
which are included in the same consolidated Federal income tax return
hold investments that could be sold for capital gains that could offset
capital losses realized by the Company should securities
available-for-sale be sold at a loss.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107 - DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) requires disclosure of
fair value information about existing on and off-balance sheet financial
instruments. In cases where quoted market prices are not available,
fair value is based on estimates using present value or other valuation
techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in the immediate
settlement of the instruments. SFAS 107 excludes certain assets and
liabilities from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
Although insurance contracts, other than policies such as annuities that
are classified as investment contracts, are specifically exempted from
SFAS 107 disclosures, estimated fair value of policy reserves on
insurance contracts are provided to make the fair value disclosures more
meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying
amount reported in the balance sheets for these instruments
approximate their fair value.
<PAGE> 100
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
INVESTMENT SECURITIES: Fair value for fixed maturity
securities is based on quoted market prices, where available.
For fixed maturity securities not actively traded, fair value is
estimated using values obtained from independent pricing services
or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on quoted
market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices.
The fair value of liabilities related to Separate Accounts is the
amount payable on demand.
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans on
real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans
to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is valued at the estimated fair
value of the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value
is the amount payable on demand. For investment contracts with
known or determined maturities, fair value is estimated using
discounted cash flow analysis. Interest rates used are similar
to currently offered contracts with maturities consistent with
those remaining for the contracts being valued.
POLICY RESERVES ON INSURANCE CONTRACTS: Included are disclosures
for individual life, universal life and supplementary contracts with
life contingencies for which the estimated fair value is the
amount payable on demand. Also included are disclosures for the
Company's limited payment policies, which the Company has used
discounted cash flow analyses similar to those used for investment
contracts with known maturities to estimate fair value.
POLICYHOLDERS DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
FUNDS: The carrying amount reported in the consolidated
balance sheets for these instruments approximates their fair value.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on insurance contracts were as
follows as of December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturities $ 8,045,906 8,045,906 - -
Equity securities 24,713 24,713 16,593 16,593
Fixed maturities held-to-maturity 3,688,787 3,602,310 10,120,978 10,886,820
Mortgage loans on real estate 4,222,284 4,173,284 3,871,560 4,175,271
Policy loans 340,491 340,491 315,898 315,898
Short-term investments 131,643 131,643 41,797 41,797
Cash 7,436 7,436 21,835 21,835
Assets held in Separate Accounts 12,222,461 12,222,461 9,006,388 9,006,388
Liabilities
-----------
Investment contracts 12,189,894 11,657,556 10,332,661 10,117,288
Policy reserves on insurance contracts 3,170,085 2,934,384 2,945,120 2,873,503
Policyholders' dividend accumulations 338,058 338,058 322,686 322,686
Other policyholder funds 72,770 72,770 71,959 71,959
Liabilities related to Separate Accounts 12,222,461 11,807,331 9,006,388 8,714,586
</TABLE>
<PAGE> 101
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(9) Additional Financial Instruments Disclosures
--------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to
extend credit in the form of loans. These instruments involve, to
varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a deposit. Commitments extended by the Company are based on
management's case-by-case credit evaluation of the borrower and
the borrower's loan collateral. The underlying mortgage property
represents the collateral if the commitment is funded. The Company's
policy for new mortgage loans on real estate is to lend no more than
80% of collateral value. Should the commitment be funded, the
Company's exposure to credit loss in the event of nonperformance by
the borrower is represented by the contractual amounts of these
commitments less the net realizable value of the collateral. The
contractual amounts also represent the cash requirements for all
unfunded commitments. Commitments on mortgage loans on real estate
of $243,200 extending into 1995 were outstanding as of December 31,
1994.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the
United States. The Company has a diversified portfolio with no more
than 22% (23% in 1993) in any geographic area and no more than 2%
(2% in 1993) with any one borrower. The summary below depicts loans
by remaining principal balance as of each December 31:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1994:
East North Central $109,233 103,499 540,686 191,489 944,907
East South Central 24,298 10,803 127,845 76,897 239,843
Mountain 3,150 13,770 140,358 39,682 196,960
Middle Atlantic 61,299 53,285 140,847 30,111 285,542
New England 10,536 43,282 139,131 4 192,953
Pacific 195,393 210,930 397,911 68,768 873,002
South Atlantic 87,150 81,576 424,150 210,354 803,230
West North Central 127,760 11,766 80,854 4,738 225,118
West South Central 51,013 84,796 184,923 194,788 515,520
-------- --------- --------- --------- ----------
$669,832 613,707 2,176,705 816,831 4,277,075
======== ========= ========= =========
Less valuation allowances and unamortized discount 54,791
----------
Total mortgage loans on real estate, net $4,222,284
==========
1993:
East North Central $109,208 108,478 470,755 158,964 847,405
East South Central 27,562 1,460 117,341 69,991 216,354
Mountain 3,228 4,742 105,560 23,065 136,595
Middle Atlantic 56,664 52,766 132,821 15,414 257,665
New England 10,565 48,398 142,530 8 201,501
Pacific 174,409 185,116 389,428 65,497 814,450
South Atlantic 112,640 58,165 391,102 238,337 800,244
West North Central 104,933 13,458 78,408 3,917 200,716
West South Central 50,955 47,103 183,420 161,033 442,511
-------- --------- ------- --------- ----------
$650,164 519,686 2,011,365 736,226 3,917,441
======== ========= ========= =========
Less valuation allowances and unamortized discount 45,881
----------
Total mortgage loans on real estate, net $3,871,560
==========
</TABLE>
<PAGE> 102
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(10) Pension Plan
------------
NLIC, FHLIC, WCLIC, NCC, and NFS participate together with other
affiliated companies, in a pension plan covering all employees who
have completed at least one thousand hours of service within a
twelve-month period and who have met certain age requirements. Plan
contributions are invested in a group annuity contract of NLIC.
Benefits are based upon the highest average annual salary of any
three consecutive years of the last ten years of service. The Company
funds pension costs accrued for direct employees plus an allocation of
pension costs accrued for employees of affiliates whose work efforts
benefit the Company.
Pension costs charged to operations by the Company during the years
ended December 31, 1994, 1993 and 1992 were $10,451, $6,702 and
$4,613, respectively.
The Company's net accrued pension expense as of December 31, 1994
and 1993 was $1,836 and $1,472, respectively.
The net periodic pension cost for the plan as a whole for the years
ended December 31, 1994, 1993 and 1992 follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $64,740 47,694 44,343
Interest cost on projected benefit obligation 73,951 70,543 68,215
Actual return on plan assets (21,495) (105,002) (62,307)
Net amortization and deferral (62,150) 20,832 (24,281)
-------- -------- --------
Net periodic pension cost $55,046 34,067 25,970
======== ======== ========
Basis for measurements, net periodic pension cost:
Weighted average discount rate 5.75% 6.75% 7.25%
Rate of increase in future compensation levels 4.50% 4.75% 5.25%
Expected long-term rate of return on plan assets 7.00% 7.50% 8.00%
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 914,850 972,475
Nonvested 7,570 10,227
---------- ----------
$ 922,420 982,702
========== ==========
Projected benefit obligation for
services rendered to date 1,305,547 1,292,477
Plan assets at fair value 1,241,771 1,208,007
---------- ----------
Plan assets less than projected benefit
obligation (63,776) (84,470)
Unrecognized prior service cost 46,201 49,551
Unrecognized net losses 39,408 55,936
Unrecognized net assets at January 1, 1987 (21,994) (24,146)
---------- ----------
Net accrued pension expense $ (161) (3,129)
========== ==========
Basis for measurements, funded status of plan:
Weighted average discount rate 7.50% 5.75%
Rate of increase in future compensation levels 6.75% 4.50%
</TABLE>
<PAGE> 103
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(11) Postretirement Benefits Other Than Pensions
-------------------------------------------
In addition to the defined benefit pension plan, NLIC, FHLIC, WCLIC,
NCC and NFS participate with other affiliated companies in life and
health care defined benefit plans for qualifying retirees.
Postretirement life and health care benefits are contributory and
available to full time employees who have attained age 55 and
have accumulated 15 years of service with the Company after reaching
age 40. Postretirement life insurance contributions are based on age
and coverage amount of each retiree. Postretirement health care
benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. The accounting for the
health care plan anticipates future cost-sharing changes to the
written plan that are consistent with the Company's expressed intent
to increase the retiree contribution amount annually for expected
health care inflation. The Company's policy is to fund the cost of
health care benefits in amounts determined at the discretion of
management. The Company began funding in 1994. Plan assets are
invested in group annuity contracts of NLIC.
Effective January 1, 1993, the Company adopted the provisions of
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106 - EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106),
which requires the accrual method of accounting for postretirement
life and health care insurance benefits based on actuarially
determined costs to be recognized over the period from the date of
hire to the full eligibility date of employees who are expected to
qualify for such benefits. Postretirement benefit cost for 1992, which
was recorded on a cash basis, has not been restated.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation as of January 1, 1993. Accordingly,
a noncash charge of $32,275 ($20,979 net of related income tax
benefit) was recorded in the consolidated statement of income as a
cumulative effect of a change in accounting principle. See note 3.
The adoption of SFAS 106, including the cumulative effect of the
change in accounting principle, increased the expense for
postretirement benefits by $35,277 to $36,544 in 1993. Net periodic
postretirement benefit cost for 1994 was $4,627. The Company's
accrued postretirement benefit obligation as of December 31, 1994 and
1993 was $36,001 and $35,277, respectively.
Actuarial assumptions for the measurement of the December 31, 1994
accumulated postretirement benefit obligation include a discount rate
of 8% and an assumed health care cost trend rate of 11%, uniformly
declining to an ultimate rate of 6% over 12 years.
Actuarial assumptions for the measurement of the December 31, 1993
accumulated postretirement benefit obligation and the 1994 net
periodic postretirement benefit cost include a discount rate of 7% and
an assumed health care cost trend rate of 12%, uniformly declining to
an ultimate rate of 6% over 12 years.
Actuarial assumptions used to determine the accumulated postretirement
benefit obligation as of January 1, 1993 and the 1993 net periodic
postretirement benefit cost include a discount rate of 8% and an
assumed health care cost trend rate of 14%, uniformly declining to an
ultimate rate of 6% over 12 years.
Information regarding the funded status of the plan as a whole as of
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 76,677 90,312
Fully eligible, active plan participants 22,013 24,833
Other active plan participants 59,089 84,103
--------- ---------
Accumulated postretirement benefit obligation 157,779 199,248
Plan assets at fair value 49,012 -
--------- ---------
Plan assets less than accumulated postretirement benefit
obligation (108,767) (199,248)
Unrecognized net (gains) losses (41,497) 15,128
--------- ---------
Accrued postretirement benefit obligation $(150,264) (184,120)
========= =========
</TABLE>
<PAGE> 104
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The amount of net periodic postretirement benefit cost for the plan as
a whole for the years ended December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Net periodic postretirement benefit cost:
Service cost - benefits attributed to employee service during the year $ 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,011 13,928
Actual return on plan assets (1,622) -
Net amortization and deferral 1,622 -
------- ------
Net periodic postretirement benefit cost $22,597 21,018
======= ======
</TABLE>
The health care cost trend rate assumption has a significant effect
on the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1994 and 1993 by
$8,109 and $15,621, respectively, and the net periodic postretirement
benefit cost for the years ended December 31, 1994 and 1993 by $866 and
$2,377, respectively.
(12) Portfolio Transfer of Credit Life and Credit Accident and Health
----------------------------------------------------------------
On March 13, 1992, WCLIC entered into an assignment and assumption
agreement with American Bankers Life Assurance Company of Florida
(ABLAC) under which ABLAC assumed, by portfolio transfer, substantially
all of WCLIC's credit life and accident and health policies in force as
of January 1, 1992. A pre-tax loss of approximately $15,000 was
recognized from this transaction in 1992. The loss represents
approximately $34,000 of amortization of deferred policy acquisition
costs, less approximately $27,000 in ceded commissions earned, plus
death benefits incurred and other expenses. Under the terms defined in
the assignment and assumption agreement, WCLIC is contingently liable
for adverse development of claims activity up to a defined limit. As
of December 31, 1994, WCLIC has provided for a contingent liability
based on the development of claims experience through December 31,
1994. As of December 31, 1993, WCLIC had provided for the maximum
contingent liability in the absence of conclusive claims experience
development.
(13) Regulatory Risk-Based Capital, Retained Earnings and Dividend
-------------------------------------------------------------
Restrictions
------------
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The
formulas for determining the amount of risk-based capital specify
various weighting factors that are applied to financial balances or
various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by a ratio of the company's
regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level risk-based capital, as defined by the NAIC.
Companies below specific trigger points or ratios are classified
within certain levels, each of which requires specified corrective
action. NLIC and each of its insurance subsidiaries exceed the minimum
risk-based capital requirements.
In accordance with the requirements of the New York statutes, the
Company has agreed with the Superintendent of Insurance of that state
that so long as participating policies and contracts are held by
residents of New York, no profits on participating policies and
contracts in excess of the larger of (a) ten percent of such profits or
(b) fifty cents per year per thousand dollars of participating life
insurance in force, exclusive of group term, at the year-end shall
inure to the benefit of the shareholders. Such New York statutes
further provide that so long as such agreement is in effect, such
excess of profits shall be exhibited as "participating policyholders'
surplus" in annual statements filed with the Superintendent and shall be
used only for the payment or apportionment of dividends to participating
policyholders at least to the extent required by statute or for the
purpose of making up any loss on participating policies.
In the opinion of counsel for the Company, the ultimate ownership of
the entire surplus, however classified, of the Company resides with the
shareholder, subject to the usual requirements under state laws and
regulations that certain deposits, reserves and minimum surplus be
maintained for the protection of the policyholders until all policy
contracts are discharged.
<PAGE> 105
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.
<PAGE> 106
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the
securities will be repurchased by the seller at the original sales
price plus a price differential. Transactions under the agreements
during 1994 and 1993 were not material.
During 1993, the Company sold equity securities with a market value
$194,515 to NMIC, resulting in a realized gain of $122,823. With the
proceeds, the Company purchased securities with a market value of
$194,139 and cash of $376 from NMIC.
Intercompany reinsurance contracts exist between NLIC and NMIC,
NLIC and WCLIC, NLIC and NCC, WCLIC and NMIC and WCLIC and
ELICW as of December 31, 1994. These contracts are immaterial to
the consolidated financial statements.
NCC participates in several 100% quota share reinsurance agreements
with NMIC. NCC serves as the licensed insurer as required for an
affiliated excess and surplus lines company and cedes 100% of direct
written premiums to NMIC. In 1989, NCC transferred 100% of assets and
unearned premiums and loss reserves related to a discontinued block of
assumed reinsurance to NMIC (95.3%) and Nationwide Mutual Fire
Insurance Company (4.7%). Effective January 1, 1993, NCC entered into
a 100% quota share reinsurance agreement to cede to NMIC 100% of all
written premiums not subject to any other reinsurance agreements.
As a result of these agreements, and in accordance with STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 113 - ACCOUNTING AND REPORTING FOR
REINSURANCE OF SHORT-DURATION AND LONG-DURATION CONTRACTS, the
following amounts are included in the consolidated financial statements
as of December 31, 1994 and 1993 for reinsurance ceded:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Reinsurance recoverable $575,721 533,401
Unearned premium reserves (118,092) (102,644)
Loss and claim reserves (371,974) (352,303)
Loss and expense reserves (85,655) (78,454)
-------- --------
$ 0 0
======== ========
</TABLE>
The ceding of reinsurance does not discharge the original insurer
from primary liability to its policyholder. The insurer which assumes
the coverage assumes the related liability and it is the practice of
insurers to treat insured risks, to the extent of reinsurance ceded,
as though they were risks for which the original insurer is not liable.
Management believes the financial strength of NMIC reduces to an
acceptable level any risk to NCC under these intercompany reinsurance
agreements.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and CCMC
act as common agents in handling the purchase and sale of short-term
securities for the respective accounts of the participants. Amounts on
deposit with NCMC and CCMC were $92,531 and $28,683 at December 31,
1994 and 1993, respectively, and are included in short-term
investments on the accompanying consolidated balance sheets.
(15) Bank Lines of Credit
--------------------
As of December 31, 1994 and 1993, NLIC had $120,000 of confirmed but
unused bank lines of credit which support a $100,000 commercial paper
borrowing authorization. Additionally, NFS had $27,000 of confirmed
but unused bank lines of credit.
<PAGE> 107
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.
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
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
=========== ========= =========
</TABLE>
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.
