<PAGE> 1
REGISTRATION NO. 33-62795
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
--------------------
NATIONWIDE VLI SEPARATE ACCOUNT-2
(EXACT NAME OF TRUST)
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
GORDON E. MCCUTCHAN
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Title and amount of securities being registered: Single premium variable
life insurance policies. Such policies are not issued in predetermined amounts
or units.
The Registrant elects to register an indefinite number of securities by
this registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable
fee in the amount of $500.00 accompanies this registration.
Approximate date of proposed public offering: (As soon as practicable
after the effective date of this Registration Statement).
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall therefore become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section
8(a), may determine.
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1 of 87 REDLINED
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
The Variable Account
2 . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
3 . . . . . . . . . . . . . . . . . Custodian of Assets
4 . . . . . . . . . . . . . . . . . Distribution of The Policies
5 . . . . . . . . . . . . . . . . . The Variable Account
6 . . . . . . . . . . . . . . . . . Not Applicable
7 . . . . . . . . . . . . . . . . . Not Applicable
8 . . . . . . . . . . . . . . . . . Not Applicable
9 . . . . . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . . . . . Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11 . . . . . . . . . . . . . . . . . Investments of The Variable Account
12 . . . . . . . . . . . . . . . . . The Variable Account
13 . . . . . . . . . . . . . . . . . Policy Charges
Reinstatement
14 . . . . . . . . . . . . . . . . . Underwriting and Issuance - Premium
Payments
Minimum Requirements for Issuance
of a Policy
15 . . . . . . . . . . . . . . . . . Investments of the Variable Account;
Premium Payments
16 . . . . . . . . . . . . . . . . . Underwriting and Issuance -
Allocation of Cash Value
17 . . . . . . . . . . . . . . . . . Surrendering The Policy for Cash
18 . . . . . . . . . . . . . . . . . Reinvestment
19 . . . . . . . . . . . . . . . . . Not Applicable
20 . . . . . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . . . . . Policy Loans
22 . . . . . . . . . . . . . . . . . Not Applicable
23 . . . . . . . . . . . . . . . . . Not Applicable
24 . . . . . . . . . . . . . . . . . Not Applicable
25 . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
26 . . . . . . . . . . . . . . . . . Not Applicable
27 . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
28 . . . . . . . . . . . . . . . . . Company Management
29 . . . . . . . . . . . . . . . . . Company Management
30 . . . . . . . . . . . . . . . . . Not Applicable
31 . . . . . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . . . . . Not Applicable
35 . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
36 . . . . . . . . . . . . . . . . . Not Applicable
37 . . . . . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . . . . . Distribution of The Policies
39 . . . . . . . . . . . . . . . . . Distribution of The Policies
40 . . . . . . . . . . . . . . . . . Not Applicable
41(a) . . . . . . . . . . . . . . . . Distribution of The Policies
42 . . . . . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . . . How The Cash Value Varies
45 . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
46 . . . . . . . . . . . . . . . . . How The Cash Value Varies
47 . . . . . . . . . . . . . . . . . Not Applicable
48 . . . . . . . . . . . . . . . . . Custodian of Assets
49 . . . . . . . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . . . . . . . Not Applicable
51 . . . . . . . . . . . . . . . . . Summary of The Policies; Information
About The Policies
52 . . . . . . . . . . . . . . . . . Substitution of Securities
53 . . . . . . . . . . . . . . . . . Taxation of The Company
54 . . . . . . . . . . . . . . . . . Not Applicable
55 . . . . . . . . . . . . . . . . . Not Applicable
56 . . . . . . . . . . . . . . . . . Not Applicable
57 . . . . . . . . . . . . . . . . . Not Applicable
58 . . . . . . . . . . . . . . . . . Not Applicable
59 . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 182150
One Nationwide Plaza
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES*
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2
The Life Insurance Policies offered by this prospectus are variable
life insurance policies (collectively referred to as the "Policies"). The
Policies are designed to provide life insurance coverage on the Insured named
in the Policy. The Policies may also provide a Cash Surrender Value if the
Policy is surrendered during the lifetime of the Insured. The Death Benefit
and Cash Value of the Policies may vary to reflect the experience of the
Nationwide VLI Separate Account-2 (the "Variable Account") or the Fixed Account
to which Cash Values are allocated.
The Policies described in this prospectus may meet the definition of a
"modified endowment contract" under Section 7702A of the Internal Revenue Code
(the "Code"). The Code provides for taxation in the same manner as annuities
for surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts. Any distribution is
taxable to the extent the Cash Value of the Policy exceeds, at the time of the
distribution, the premiums paid into the Policy. The Code also provides for a
10% tax penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is 1) paid after the Policy Owner is 59 1/2
or disabled; or 2) the distribution is part of an annuity to the Policy Owner
as defined in the Code. (See "Tax Matters.")
It may not be advantageous to replace existing insurance with Policies
described in this prospectus. It may also be disadvantageous to purchase a
Policy to obtain additional insurance protection if the purchaser already owns
another variable life insurance policy. The Policies may not be advantageous
for persons who may wish to make policy loans or withdrawals prior to attaining
age 59 1/2. (See "Tax Matters.")
*The contract is titled a "Flexible Premium Variable Life Insurance Policy"
in Texas.
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 Policy Owner may allocate 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>
<CAPTION>
<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 SPECIAL FUND II, INC.:
-Equity-Income Portfolio -Special Fund II
-Growth Portfolio STRONG VARIABLE INSURANCE FUNDS, INC.:
-Overseas Portfolio -International Stock Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: -Discovery Fund II, Inc.
-Asset Manager Portfolio TCI PORTFOLIOS, INC.:
-Contrafund Portfolio -TCI Growth
NATIONWIDE SEPARATE ACCOUNT TRUST: -TCI Balanced
-Capital Appreciation Fund -TCI International
-Money Market Fund VAN ECK WORLDWIDE INSURANCE TRUST:
-Government Bond Fund -Gold and Natural Resources Fund
-Worldwide Bond Fund
-Small Company Fund
-Total Return Fund
</TABLE>
1
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
NEUBERGER & BERMAN ADVISERS MANAGEMENT VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
TRUST: -American Capital Real Estate Securities Fund
-Limited Maturity Bond Portfolio WARBURG PINCUS TRUST
-Growth Portfolio -International Equity Portfolio
-Partners Portfolio -Small Company Growth Portfolio
</TABLE>
**The High Income Portfolio may invest in lower quality debt securities
commonly referred to as junk bonds.
The Company (Nationwide Life Insurance 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.
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."
The date of this Prospectus is January 1, 1996.
2
<PAGE> 6
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 proceeds due on the Insured's death are
paid.
CASH VALUE- The sum of the value of Policy assets 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 those of other separate accounts that have been or may be
established by the Company.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in
accordance with the provisions of the Code. It represents the single premium
required to mature the Policy under guaranteed mortality and expense charges,
and an interest rate of 6%.
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 100th
birthday.
MONTHLY ANNIVERSARY DATE- The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS- The underlying mutual funds which correspond to the sub-accounts
of the Variable Account.
NET ASSET VALUE- The worth of one share of a Mutual Fund as calculated
at the end of a business day. Net Asset Value is computed by adding the value
of all portfolio holdings, plus other assets, deducting liabilities and then
dividing the result by the number of shares outstanding.
POLICY ANNIVERSARY- An anniversary of the Policy Date.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on
the Policy Owner's Policy data page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy
Loans.
POLICY OWNER- The person designated in the Policy application as the Owner.
POLICY YEAR- Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
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 both the New York Stock Exchange and the Company's
Home Office is open for business or any other day during which there is a
sufficient degree of trading such that the current net asset value of the
Accumulated 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- Nationwide VLI Separate -2, a separate investment account
of Nationwide Life Insurance Company.
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Variable Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Variable Account and its Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
NATIONWIDE LIFE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investments of the Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Dreyfus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fidelity's Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fidelity's Variable Insurance Products Fund II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Nationwide Separate Account Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Oppenheimer Variable Account Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Strong Special Fund II, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Strong Variable Insurance Funds, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TCI Portfolios, Inc., a member of the Twentieth Century Family of Mutual Funds . . . . . . . . . . . . . . . 12
Van Eck Worldwide Insurance Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Van Kampen American Capital Life Investment Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Warburg Pincus Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Substitution of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Underwriting and Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-Minimum Requirements for Issuance of a Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-Premium Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-Allocation of Cash Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-Short-Term Right to Cancel Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-Cost of Insurance Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-Administrative Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-Tax Expense Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
HOW THE CASH VALUE VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
How the Investment Experience is Determined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Determining the Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Valuation Periods and Valuation Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Maturity Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Taking a Policy Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Effect on Investment Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Effect on Death Benefit and Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
-Calculation of the Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-Proceeds Payable on Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Nonparticipating Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CUSTODIAN OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
OTHER CONTRACTS ISSUED BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</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.
5
<PAGE> 9
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION
FOR THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES
ARE IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A
MUTUAL FUND.
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are similar in many ways to fixed-benefit whole life
insurance. As with fixed-benefit whole life insurance, the Owner of the Policy
pays a premium for life insurance coverage on the person insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. (As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.)
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the Death Benefit and
Cash Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated. (See "How the Death Benefit Varies.") There is no
guaranteed Cash Surrender Value. (See "How the Cash Value Varies.") If the
Cash Surrender Value is insufficient to pay Policy Charges, the Policy will
lapse.
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Cash Value in the Nationwide VLI Separate
Account-2 and/or the Fixed Account (the "Variable Account") at the time the
Policy is issued. The Policy Owner selects the sub-accounts of the Variable
Account into which the Cash Value will be allocated. (See "Allocation of Cash
Value.") When the Policy is issued, the Policy's Premium Payments not
allocated to the Fixed Account will be placed in the Nationwide Separate
Account Trust Money Market Fund until the expiration of the period in which the
Policy Owner may exercise his or her short-term right to cancel the Policy.
(See "Short-Term Right to Cancel Policy.") Assets of each sub-account are
invested at net asset value in shares of a corresponding underlying Mutual Fund
option. For a description of the underlying Mutual Fund options and their
investment objectives, see "Investments of the Variable Account." The Policy
Owner also can have Cash Value allocated to the Fixed Account.
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account.
Cash Values allocated to the Fixed Account are credited with interest daily at
a rate declared by the Company. The interest rate declared is at the Company's
sole discretion, but may never be less than an effective annual rate of 3%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the Cash Value of the Policy. These
charges are made for administrative expenses, state premium taxes, federal
taxes, providing life insurance protection and assuming the mortality and
expense risks.
The Company deducts a monthly charge for the cost of insurance, administrative
charges, premium tax, and federal tax from the Policy's Cash Value attributable
to the Variable Account and Fixed Account. The Company also deducts on a
monthly basis from the Cash Value attributable to the Variable Account, a
charge to provide for mortality and expense risks. For Policies which are
surrendered in the first 9 Policy Years, the Company deducts a Surrender Charge
not to exceed 10% of the initial Premium Payment. This includes a charge for
deferred sales expenses and premium tax recovery. The sales surrender charge
will never exceed 7.5% of the initial premium payments. For a complete
discussion of all charges, deductions and reductions of charges, see "Charges
and Other Deductions."
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:
6
<PAGE> 10
<TABLE>
<CAPTION>
Management Fees Other Expenses Total Expenses
--------------- -------------- --------------
<S> <C> <C> <C>
American Capital Real Estate Securities Fund 1.00% 0.00% 1.00%
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 II-Asset Manager Portfolio 0.72% 0.07% 0.79%
Fidelity VIP II-Contrafund Portfolio 0.62% 0.27% 0.89%
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-Small Company Fund 1.00%* 0.25% 1.25%
NSAT-Total Return Fund 0.50% 0.02% 0.52%
Neuberger & Berman Advisers Management Trust- 0.79% 0.12% 0.91%
Growth Portfolio
Neuberger & Berman Advisers Management Trust- 0.60% 0.13% 0.73%
Limited Maturity Bond Portfolio
Neuberger & Berman Advisers Management Trust- 0.80% 0.50% 1.30%
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%
Strong Discovery Fund II, Inc. 1.00% 0.21% 1.21%
Strong International Stock Fund, II 1.00% 1.05% 2.05%
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%
Warburg Pincus-International Equity Portfolio 1.00% 0.44% 1.44%
Warburg Pincus-Small Company Growth Portfolio 0.90% 0.35% 1.25%
</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 some of which are subject to fee waivers or expense
reimbursements are more fully described in the prospectuses for each
individual underlying Mutual Fund.
PREMIUMS
The minimum premium for which a Policy may be issued is $10,000 for issue ages
0-70 and $50,000 for issue ages 71-80. A Policy may be issued to an insured up
to age 80.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid. (See "Short-Term Right to Cancel
Policy.")
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 of companies 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,
7
<PAGE> 11
National Casualty Company, West Coast Life Insurance Company, Scottsdale
Indemnity Company and Nationwide General Insurance Company and their affiliated
companies. 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 the District
of Columbia, Puerto Rico, and in all states. (For additional information, see
"The Company.")
THE VARIABLE ACCOUNT
The Nationwide VLI Separate Account-2 (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. Nationwide Life Insurance Company Inc., One Nationwide Plaza, Columbus,
Ohio 43216 serves as depositor for the Variable Account. Nationwide Financial
Services, Inc., of One Nationwide Plaza, Columbus, Ohio 43216 serves as
principal underwriter for the Variable Account. 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.")
Premium payments and Cash Value are allocated within the Variable Account among
one or more sub-accounts. 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 Cash Value
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account. (See "Allocation of Cash Value.") When the policy is issued, the
Policy's Cash Value not allocated to the Fixed Account is placed in the
Nationwide Separate Account Trust Money Market sub-account until expiration of
the period in which the Policy Owner may exercise his or her short-term right
to cancel the Policy. (See "Short-Term Right to Cancel Policy.") At the
expiration of this period, shares of the underlying Mutual Funds specified by
the Policy Owner are purchased at net asset value for the respective
sub-account(s). Such election is subject to any minimum premium limitations
which may be imposed by the underlying Mutual Fund option(s). In addition, no
less than 5% of premium may be allocated to any one sub-account or the Fixed
Account. The Policy Owner may change the allocation of Cash Value 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.")
Additional Premium Payments, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise. (See "Premium Payments.")
Each of the underlying Mutual Fund options is a series of registered investment
companies which receive investment advice from a registered investment adviser:
1) Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment
Advisors;
2) 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) The Nationwide Separate Account Trust, managed by Nationwide Financial
Services, Inc.;
6) Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
8
<PAGE> 12
7) Oppenheimer Variable Account Funds, managed by Oppenheimer Management
Corporation;
8) Strong Special Fund II, Inc., managed by Strong Capital Management, Inc.;
9) Strong Variable Insurance Funds, Inc., managed by Strong Capital
Management, Inc.;
10) TCI Portfolios, Inc., managed by Investors Research Corporation, an
affiliate of Twentieth Century Companies;
11) Van Eck Worldwide Insurance Trust, managed by Van Eck Associates
Corporation;
12) Van Kampen American Capital Life Investment Trust managed by Van Kampen
American Capital Asset Management, Inc.
13) Warburg Pincus Trust, managed by Warburg Pincus Counsellors, Inc.
A summary of investment objectives is contained in the description of each
underlying Mutual Fund below. 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. 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
The Dreyfus Stock Index Fund, Inc. 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, the Dreyfus Life and Annuity Index Fund began doing
business as the 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.
- - THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The 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. The Dreyfus Corporation serves as the Fund's investment advisor.
Tiffany Capital 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'S VARIABLE INSURANCE PRODUCTS FUND
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's
manager.
- - HIGH INCOME PORTFOLIO
Investment Objective: To obtain a high level of current income by
investing primarily in high-risk, high-yielding, lower rated fixed-income
securities, while also considering growth of capital. The Fund's manager
will seek high current income normally by investing the Fund's assets as
follows:
- at least 65% in income-producing debt securities and preferred
stocks, including convertible securities, zero coupon securities,
and mortgage-backed and asset-based securities;
- up to 20% in common stocks and other equity securities when
consistent with the Fund's primary objective or acquired as part
of a unit combining fixed-income and equity securities.
9
<PAGE> 13
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Fund may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Fund's prospectus.
- - EQUITY-INCOME PORTFOLIO
Investment Objective: To seek reasonable income by investing primarily
in income-producing equity securities. In choosing these securities FMR
also will consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield
on the securities comprising the Standard & Poor's 500 Composite Stock
Price Index.
- - GROWTH PORTFOLIO
Investment Objective: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and
established companies, and smaller, less well-known companies which may
have a narrow product line or whose securities are thinly traded. These
latter securities will often involve greater risk than may be found in
the ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and
investment in the Portfolio may involve greater risk than is inherent in
other underlying mutual funds. It is also important to point out that
the Portfolio makes most sense for you if you can afford to ride out
changes in the stock market, because it invests primarily in common
stocks. FMR also can make temporary investments in securities such as
investment-grade bonds, high-quality preferred stocks and short-term
notes, for defensive purposes when it believes market conditions warrant.
- - OVERSEAS PORTFOLIO
Investment Objective: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio
provides a means for investors to diversify their own portfolios by
participating in companies and economies outside of the United States.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on March 21, 1988. The fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. 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.
- - CONTRAFUND PORTFOLIO
Investment Objective: To seek capital appreciation by investing
primarily in companies that the fund manager believes to be undervalued
due to an overly pessimistic appraisal by the public. This strategy can
lead to investments in domestic or foreign companies, small and large,
many of which may not be well known. The fund primarily invests in
common stock and securities convertible into common stock, but it has the
flexibility to invest in any type of security that may produce capital
appreciation.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The
Trust offers shares in the five separate Mutual Funds listed below, each with
its own investment objectives. Currently, shares of the Trust will be sold
only to life insurance company separate accounts to fund the benefits under
variable life insurance policies or variable annuity contracts issued by life
insurance companies. The assets of the Trust are managed by Nationwide
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.
10
<PAGE> 14
- - 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.
- SMALL COMPANY FUND
Investment Objective: The Fund seeks long-term growth of capital by
investing primarily in equity securities of domestic and foreign
companies with market capitalizations of less than $1 billion at the time
of purchase. Nationwide Financial Services, Inc. ("NFS"), the Fund's
adviser, has employed a group of sub-advisers each of which will manage a
portion of the Fund's portfolio. These sub-advisers are the Dreyfus
Corporation, Neuberger & Berman, L.P., Pictet International Management
Limited, Van Eck Associates Corporation, Strong Capital Management, Inc.
and Warburg, Pincus Counsellors, Inc. These sub-advisers were chosen
because they utilize a number of different investment styles when
investing in small company stocks. By utilizing a number of different
investment styles, NFS hopes to increase prospects for investment return
and to reduce market risk and volatility.
- - TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return
(i.e., earnings growth plus potential dividend yield) on invested capital
from a flexible combination of current return and capital gains through
investments in common stocks, convertible issues, money market
instruments and bonds, with a primary emphasis on common stocks.
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 and secondarily,
total return. It seeks to achieve its objectives through investments
in a diversified portfolio of debt securities, and seeks to increase
income and preserve or enhance total return by actively managing average
portfolio maturity in light of market conditions and trends. The
portfolio invests in securities which are at least investment grade and
does not invest in junk bonds.
- - 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
11
<PAGE> 15
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
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 SPECIAL FUND II, INC.
The Strong Special Fund II, Inc. ("Special Fund II") is a diversified, open-end
management company commonly called a Mutual Fund. The Special Fund II was
incorporated in Wisconsin and may only be purchased by the separate accounts of
insurance companies for the purpose of funding variable annuity contracts and
variable life policies. Strong Capital Management, Inc. (the "Advisor") is the
investment advisor for the fund.
- - SPECIAL FUND II, INC.
Investment Objective: To seek capital appreciation through investments
in a diversified portfolio of equity securities.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Variable Insurance Funds, Inc. is a diversified, open-end management
company commonly called a mutual fund. The Strong Discovery Fund II, Inc.
("Discovery Fund II") and the Strong International Stock Fund II (the
"International Stock Fund II") were separately incorporated in Wisconsin and
may only be purchased by the separate accounts of insurance companies for the
purpose of funding variable annuity contracts and variable life insurance
policies. Strong Capital Management, Inc. is the investment advisor for each
of the Funds.
- - INTERNATIONAL STOCK FUND II
Investment Objective: To seek capital growth by investing primarily in
the equity securities of issuers located outside the United States.
- - DISCOVERY FUND II, INC.
Investment Objective: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The Fund normally
emphasizes investment in equity securities and may invest up to 100% of
its total assets in equity securities including common stocks, preferred
stocks and securities convertible into common or preferred stocks.
Although the fund normally emphasizes investment in equity securities,
the Fund has the flexibility to invest in any type of security that its
Advisor believes has the potential for capital appreciation including up
to 100% of its total assets in debt obligations, including intermediate
to long-term corporate or U.S. government debt securities.
TCI PORTFOLIOS, INC., MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS
TCI Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a
diversified, open-end management company, designed only to provide investment
vehicles for variable annuity and variable life insurance products of insurance
companies. A member of the Twentieth Century Family of Mutual Funds, TCI
Portfolios is managed by Investors Research Corporation.
- - TCI BALANCED
Investment Objective: Capital growth and current income. The fund will
seek to achieve its objective by maintaining approximately 60% of the
assets of the fund in common stocks (including securities convertible
into common stocks and other equity equivalents) that are considered by
management to have better-than-average prospects for appreciation and
approximately 40% in fixed income securities. There can be no assurance
that the Fund will achieve its investment objective.
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<PAGE> 16
- - 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.
- - 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
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
Investment Objective: To seek high total return through a flexible
policy of investing globally, primarily in debt securities. The debt
securities in which the Fund will invest will be primarily high grade;
the Fund will not invest in junk bonds.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end
diversified management investment company organized as a Massachusetts business
trust on June 3, 1985. The Trust offers shares in separate funds which are
sold only to insurance companies to provide funding for variable life insurance
policies and variable annuity contracts. Van Kampen American Capital Asset
Management, Inc. serves as the Fund's investment adviser.
-AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
Investment Objective: To seek long-term capital growth by investing in a
portfolio of securities of companies operating in the real estate
industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities,
including common stocks and convertible securities, as well as
non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate
investment trusts. The Fund may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of which may also be
Real Estate Securities. There can be no assurance that the Fund will
achieve its investment objective.
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<PAGE> 17
WARBURG PINCUS TRUST
The Warburg Pincus Trust ("Trust") is an open-end management investment company
organized in March 1995 as a business trust under the laws of The Commonwealth
of Massachusetts. The Trust offers its shares to insurance companies for
allocation to separate accounts for the purpose of funding variable annuity and
variable life contracts. Trust portfolios are managed by Warburg, Pincus
Counsellors, Inc. ("Counsellors.")
- - INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: To seek long-term capital appreciation by
investing primarily in a broadly diversified portfolio of equity
securities of companies, wherever organized, that in the judgment of
"Counsellors" have their principal business activities and interests
outside the United States. The Portfolio will ordinarily invest
substantially all of its assets, but no less than 65% of its total
assets, in common stocks, warrants and securities convertible into or
exchangeable for common stocks. The Portfolio intends to invest
principally in the securities of financially strong companies with
opportunities for growth within growing international economies and
markets through increased earning power and improved utilization or
recognition of assets.
- - SMALL COMPANY GROWTH PORTFOLIO
Investment Objective: To seek capital growth by investing in a portfolio
of equity securities of small-sized domestic companies. The Portfolio
ordinarily will invest at least 65% of its total assets in common stocks
or warrants of small-sized companies (i.e., companies having stock market
capitalizations of between $25 million and $1 billion at the time of
purchase) that represent attractive opportunities for capital growth.
The Portfolio intends to invest primarily in companies whose securities
are traded on domestic stock exchanges or in the over-the-counter market.
The Portfolio's investments will be made on the basis of their equity
characteristics and securities ratings generally will not be a factor in
the selection process.
REINVESTMENT
The Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the mutual funds. The
distribution of additional shares will not affect the number of Accumulation
Units attributable to a particular Policy. (See "Allocation of Cash Value.")
TRANSFERS
The Policy Owner may transfer Cash Value among the sub-accounts of the Variable
Account and the Fixed Account. A transfer will take effect on the date of
receipt of written notice at the Company's Home Office. Transfer requests must
be in a written form acceptable to the Company.
After the First Policy Anniversary, the Policy Owner may annually request a
transfer of up to 100% of the Cash Value from the Variable Account to the Fixed
Account. The Policy Owner's Cash Value in each Sub-Account will be determined
as of the date the transfer request is received in the Home Office in good
order. The Company reserves the right to restrict transfers to the Fixed
Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account without penalty or adjustment. The Company
reserves the right to limit the amount of Cash Value transferred out of the
Fixed Account each Policy Year. Transfers from the Fixed Account must be made
within 30 days after the termination date of the interest rate guarantee
period.
Transfers among the sub-accounts may be made once per Valuation Date and may be
made either in writing or, in states allowing such transfers, by telephone.
The Company will employ reasonable 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 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.
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<PAGE> 18
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the
Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio
sub-account to any other sub-account within the Variable Account on a monthly
basis. This service is intended to allow the Policy Owner to utilize Dollar
Cost Averaging, a long-term investment program which provides for regular,
level investments over time. The Company makes no guarantees that Dollar Cost
Averaging, will result in a profit or protect against loss in a declining
market. To qualify for Dollar Cost Averaging, there must be a minimum total
Cash Value, less policy indebtedness, of $15,000. Transfers for purposes of
Dollar Cost Averaging can only be made from the Money Market sub-account, Fixed
Account, or the Limited Maturity Bond Portfolio sub-account. The minimum
monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost
Averaging monthly transfers from the Fixed Account must be equal to or less
than 1/30th of the Fixed Account value when the Dollar Cost Averaging program
is requested. Transfers out of the Fixed Account, other than for Dollar Cost
Averaging, may be subject to certain additional restrictions. (See
"Transfers.") A written election of this service, on a form provided by the
Company, must be completed by the Policy Owner in order to begin transfers.
Once elected, transfers from the Money Market sub-account, Fixed Account, or
the Limited Maturity Bond Portfolio sub-account will be processed monthly until
either the value in the Money Market sub-account, Fixed Account, or the Limited
Maturity Bond Portfolio sub-account is completely depleted or the Policy Owner
instructs the Company in writing to cancel the monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Policy Owners however, any such discontinuation
would not affect Dollar Cost Averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
SUBSTITUTION OF SECURITIES
If shares of the underlying Mutual Fund options described in this prospectus
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 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 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.
Underlying Mutual Fund shares held in the Variable Account as to which no
timely instructions are received will be voted by the Company in the same
proportion as the voting instructions which are received.
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
15
<PAGE> 19
adviser or principal underwriter of any portfolio which may be initiated by
Policy Owners or the underlying Mutual Fund's Board of Directors, provided the
Company's disapproval of the change is reasonable and, in the case of a change
in the investment policies or investment adviser, based on a good faith
determination that such change would be contrary to state law or otherwise
inappropriate in light of the portfolio's objective and purposes; or (3) enter
into or refrain from entering into any advisory agreement or underwriting
contract, if required by any insurance regulatory authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
Underwriting for these Policies is designed to group applicants into
classifications which can be expected to produce mortality experience
consistent with the actuarial structure for that class. The Company uses the
following methods of underwriting: (a) simplified underwriting not routinely
requiring a physical examination, and (b) medical or paramedical underwriting
which requires such an examination. (See "How the Death Benefit Varies.")
The Company reserves the right to request a medical examination on any applicant
where an affirmative response to one of the medical questions of the
application requires additional underwriting by the Company.
The minimum amount of initial premium that will be accepted by the Company is
$10,000 for issue ages 0-70 and $50,000 for issue ages 71-80. Policies may be
issued to Insureds issue ages 80 or younger. Before issuing any Policy, the
Company requires evidence of insurability satisfactory to it, which may include
a medical examination.
- -Premium Payments
The initial premium for a Policy is payable in full at the Company's Home
Office. The minimum amount of initial premium required is $10,000 for issue
ages 0-70 and $50,000 for issue ages 71-80. The Specified Amount of Death
Benefit is determined by treating the initial premium as equal to 100% of the
Guideline Single Premium. The effective date of permanent insurance coverage
is dependent upon completion of all underwriting requirements, payment of the
initial premium, and delivery of the Policy while the insured is still living.
The Policy is primarily intended to be a single premium policy with a limited
ability to make additional payments. Subsequent premium payments under the
Policy are permitted under the following circumstances:
1. an additional premium payment is required to keep the Policy in
force (see "Grace Period"); or
2. except in Virginia, additional premium payments of at least $1,000
may be made at any time provided the premium limits prescribed by
the Internal Revenue Service to qualify the Policy as a life
insurance contract are not violated.
Payment of additional premiums if accepted, may increase the Specified Amount
of Insurance. 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. The Company may require that
any existing Policy indebtedness is repaid prior to accepting any additional
premium payments.
Additional Premium Payments, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise.
The Company will not accept a subsequent premium payment which would result in
total premiums paid exceeding the premium limitations prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance contract.
- -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 premium invested on the date the
premium was received in good order by the Company. When the Policy is issued,
the Cash Value will be allocated to the Nationwide Separate Account Trust Money
Market Fund sub-account (for any Cash Value allocated to a Sub-Account on the
Application) or the Fixed Account until the expiration of the period in which
the Policy Owner may exercise his or her short-term right to cancel the Policy.
At the 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
16
<PAGE> 20
sub-account(s). The Policy Owner may change the allocation of Cash Value 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. Cash Value 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 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 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
No deduction is made from any premium at the time of payment. 100% of each
premium payment is applied to the Cash Value.
MONTHLY DEDUCTIONS
On the Policy Date and on each Monthly Anniversary Date, the Company will
deduct an amount to cover charges and expenses incurred in connection with the
Policy. Generally, this Monthly Deduction will be deducted on a pro-rata basis
from the Cash Value in each Sub-account and the Fixed Account. The amount of
the Monthly Deductions will vary from month to month. If the Cash Surrender
Value is not sufficient to cover the Monthly Deduction which is due, the Policy
may lapse (see "Grace Period"). The Monthly Deductions are comprised of the
following charges:
-Cost of Insurance Charge
Immediately after the Policy is issued, the Death Benefit will be
substantially greater than the initial premium payment. While the Policy
is in force, prior to the Maturity Date, the Death Benefit will always be
greater than the Cash Value. To enable the Company to pay this excess of
the Death Benefit over the Cash Value, a monthly cost of insurance charge
is deducted.
Currently, this charge is deducted monthly and is equal to an annual rate
of 0.65% multiplied by the Cash Value. On a current basis, for policy
years 11 and later, this monthly charge is anticipated to be reduced to
the Cash Value multiplied by an annual rate of 0.30% if the Cash
Surrender Value is $100,000 or more. For substandard policies, these
annual rates are increased.
In no event will this current monthly deduction for the cost of insurance
exceed the guaranteed monthly cost of insurance charges. Guaranteed cost
of insurance charges will not exceed the cost based on the guaranteed
cost of insurance rate multiplied by the Policy's net amount at risk.
The net amount at risk is equal to the Death Benefit minus the Cash
Value. Guaranteed cost of insurance rates for standard issues are based
on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO). Guaranteed cost of insurance rates for substandard
issues are based on appropriate percentage multiples of the 1980 CSO.
These mortality tables are sex distinct.
-Administrative Expense Charge
The Company deducts a monthly Administrative Expense Charge to reimburse
it for expenses related to the issuance and maintenance of the Policies
including underwriting, establishing policy records, accounting and
record keeping, and periodic reporting to Policy Owners. This charge is
designed only to reimburse the Company for its actual administrative
expenses. In the aggregate, the Company expects that the charges for
administrative costs will be approximately equal to the related expenses.
This monthly charge is equal to an annual rate of 0.30% multiplied by the
Policy's Cash Value. On a current basis, for Policy Years 11 and later,
this monthly charge is anticipated to be reduced to an annual rate of
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<PAGE> 21
0.15% multiplied by the Cash Value, provided the Cash Surrender Value is
greater than or equal to $100,000. This Administrative Expense Charge is
subject to a $10 per month minimum.
-Tax Expense Charge
During the first ten policy years, the Company makes a Monthly Deduction
to compensate for certain taxes which are incurred by the Company
including premium taxes imposed by various states and local jurisdictions
and for federal taxes imposed under Section 848 of the Internal Revenue
Code. This monthly charge is equal to an annual rate of 0.50% multiplied
by the Policy's Cash Value.
This charge is deducted monthly and includes a premium tax component
equal to an annual rate of 0.30% and a federal tax component equal to an
annual rate of 0.20%. The Company expects to pay an average state
premium tax of approximately 2.5% of premiums for all states, although
such tax rates can generally range from 0% to 4%. The Company does not
anticipate to make a profit from this monthly Tax Expense Charge.
The Company does not currently assess any charge for income taxes
incurred by the Company as a result of the operations of the Sub-accounts
of the Variable Account. (See "Taxation of the Company.") The Company
reserves the right to assess a charge for such taxes against the Variable
Account if the Company determines that such taxes will be incurred.
-Mortality and Expense Risk Charge
The Company assumes certain risks for guaranteeing the mortality and
expense charges. The mortality risk assumed under the Policies is that
the Insured may not live as long as expected. The expense risk assumed
is that the actual expenses incurred in issuing and administering the
Policies may be greater than expected. In addition, the Company assumes
risks associated with the nonrecovery of policy issue, underwriting and
other administrative expenses due to Policies which lapse or are
surrendered during the early policy years.
To compensate the Company for assuming these risks, a monthly charge for
mortality and expense risks is deducted on a pro-rata basis from the Cash
Value in each Variable Account Sub-account. This monthly charge is equal
to an annual rate of 0.90% multiplied by the Cash Value attributable to
the Variable Account. To the extent that future levels of mortality and
expenses are less than or equal to those expected, the Company may
realize a profit from these charges.
SURRENDER CHARGES
The Company will deduct a surrender charge from the Policy's Cash Value for any
Policy which is surrendered during the first nine policy years. The surrender
charge is comprised of two components: a sales surrender charge and a premium
tax surrender charge.
The Company incurs certain sales and other distribution expenses at the time
the Policies are issued. The majority of these expenses consist of commissions
paid for the sale or these policies. Premium taxes are generally incurred by
the Company at the time the Policies are issued. These surrender charges are
designed to recover a portion of these expenses. The Company does not expect
to profit from these surrender charges. Unrecovered expenses are borne by the
Company's general assets which may include profits, if any, from the monthly
mortality and expense risk charges (see "Monthly Deductions"). Certain
surrenders may result in adverse tax consequences (see "Tax Matters").
Maximum surrender charges are shown in the following table:
<TABLE>
<CAPTION>
Surrender Charge
as a Percent of
Completed Policy Years Initial Premium Payment
---------------------- -----------------------
<S> <C>
0 10.0%
1 10.0
2 9.0
3 8.0
4 7.0
5 6.0
6 5.0
7 4.0
8 3.0
9+ 0.0
</TABLE>
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<PAGE> 22
Approximately 75% of the total surrender charges are for the recovery of sales
expenses and 25% for the recovery of premium taxes. In no event will the sales
surrender charge exceed 7.5% of the total premium payments.
The amount of the sales surrender charge may be eliminated when the Policies
are issued to an officer, director, former director, partner, employee, or
retired employee of the Company; an employee of the General Distributor of the
Policies, Nationwide Financial Services, Inc., or an employee of an affiliate
of the Company or the General Distributor, or, a duly appointed representative
of the Company who receives no commission as a result of the purchase.
Elimination of the sales surrender charge will be permitted by the Company only
in those situations where the Company does not incur sales expenses normally
associated with sales of a Policy. In no event will the elimination of any
sales surrender charge be permitted where such elimination will be unfairly
discriminatory to any person.
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 premium applied since the previous Valuation
Date, 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) where:
(a) is the net of:
(1) the Net Asset Value per share of the underlying Mutual Fund option
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 option held in the sub-account
if the "ex-dividend" date occurs during the current Valuation
Period.
(b) is the net of:
(1) the Net Asset Value per share of the Mutual Fund held in the
sub-account determined at the end of the immediately preceding
Valuation Period, plus or minus
(2) the per share charge or credit for any taxes reserved for in the
immediately preceding Valuation Period. (See "Charge for Tax
Provisions.")
For underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to
changes in the net asset value of underlying Mutual Fund shares because of any
charge or credit for tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy, amounts credited to the Fixed Account, and any associated value in
the Policy Loan Account is the Cash Value. The number of
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<PAGE> 23
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, generally 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 credited to the Fixed Account will never
be less than 3%. The annual effective rate credited to the Policy Loan Account
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 is 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 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 of the Policy, minus any charges, indebtedness or
other deductions due on that date, which may also include a Surrender Charge.
PARTIAL SURRENDERS
Partial surrenders are permitted after the fifth policy year. Partial
surrenders will be permitted only if they satisfy the following requirements:
1. The partial surrender request is in writing and the request is
signed by the Policy Owner or an authorized party of the Policy
Owner; and
2. The maximum partial surrender in any Policy Year is limited to the
maximum of:
(i) 10% of the total premium payments; and
(ii) 100% of cumulative earnings (Cash Value less total premium
payments less any existing policy indebtedness);
3. Partial surrenders must not result in a reduction of the Cash
Surrender Value below $10,000; and
4. After the partial surrender, the Policy continues to qualify as
life insurance.
All partial surrenders will be next computed after the date the Company
receives a proper written request. When a partial surrender is made, the Cash
Value is reduced by the amount of the partial surrender. Also, the Specified
Amount is reduced by the amount of the partial surrender unless the Death
Benefit is based on the applicable percentage of the Cash Value. In such a
case, a Partial Surrender will decrease the Specified Amount by the amount by
which the Partial Surrender exceeds the difference between the Death Benefit
and the Specified Amount. Partial surrender amounts must be first deducted from
the values in the Variable sub-accounts. Partial surrenders will be deducted
from the Fixed Account only to the extent that insufficient values are
available in the Variable sub-accounts.
20
<PAGE> 24
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
100th birthday. The maturity proceeds will be payable to the Policy Owner on
the Maturity Date provided the Policy is still in force. The Maturity Proceeds
will be equal to the amount of the Policy's Cash Value, less any indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
POLICY LOANS
TAKING A POLICY LOAN
The Policy Owner may take a loan using the Policy as security. During the
first year, maximum Policy indebtedness is limited to 50% of the Cash Value
less any Surrender Charge. Thereafter, maximum policy indebtedness is limited
to 90% of the Cash Value less any Surrender Charge. The Company will not grant
a loan for an amount less than $1,000 ($200 in Connecticut, $250 in Oregon,
$500 in New Jersey and $500 in New York). Should the Death Benefit 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.
Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Value less
any Surrender Charge in the sub-accounts and 100% of the Cash Value less any
Surrender Charge in the Fixed Account.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings
and Loan which is a member of the Federal Deposit Insurance Corporation.
Certain Policy loans may result in currently taxable income and tax penalties.
(See "Tax Matters.")
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating
to a Policy are held in more than one sub-account, withdrawals from
sub-accounts will be made in proportion to the assets in each Variable
Sub-account at the time of the loan. Policy Loans will be transferred from the
Fixed Account only when insufficient amounts are available in the Variable
Sub-accounts. The amount taken out of the Variable Account will not be
affected by the Variable Account's investment experience while the loan is
outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from
the date of transfer.
Total policy indebtedness is comprised of two components: (i) Preferred Loans
and (ii) Regular Loans. The amount of the loan account that is less than or
equal to the Cash Value less the total premium payments will be treated as a
Preferred Loan. Any additional loaned amounts will be treated as Regular
Loans. Preferred and Regular Loan amounts will be determined once a year, as
well as at any time a new loan is requested. All loaned amounts in year 1 will
be treated as Regular Loans. On a current basis, preferred indebtedness will
be credited interest daily at an annual effective rate of 6%, and Regular
indebtedness will be credited interest daily at an annual effective rate of 4%.
The credited rate for all policy indebtedness is guaranteed never to be lower
than 4%. This earned interest is transferred from the Policy Loan Account to a
Variable Account or the Fixed Account on each Policy Anniversary as well as at
any time a new loan is requested. It will be allocated according to the Fund
Allocation Factors in effect at the time of the transfer.
The loan interest rate is 6% per year for all policy indebtedness. Interest is
charged daily and is payable at the end of each Policy Year as well as at any
time a new loan is requested. 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.
21
<PAGE> 25
Whenever the total loan indebtedness plus accrued interest 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 loan indebtedness plus accrued interest 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 a loan 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 Premium allocation in effect at the time of
the repayment. Each repayment may not be less than $1,000. 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 Specified Amount is determined by treating the initial premium as
equal to 100% of the Guideline Single Premium. Guideline Single Premiums vary
by attained age, sex, underwriting classification, and total premium payments.
The following table illustrates representative initial Specified Amounts.
<TABLE>
<CAPTION>
$10,000 Single Premium $25,000 Single Premium $50,000 Single Premium
Issue
Age Male Female Male Female Male Female
- ----- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
35 $62,031 $76,231 $155,077 $190,577 $310,154 $381,154
40 49,883 61,337 124,707 153,343 249,413 306,685
45 40,437 49,825 101,903 124,562 202,186 249,124
50 33,079 40,742 82,698 101,854 165,397 203,708
55 27,358 33,531 68,396 83,828 136,791 167,655
60 22,964 27,734 57,410 69,335 114,821 138,671
65 19,579 23,052 48,948 57,631 97,895 115,261
</TABLE>
Generally, for a given premium payment, the initial Specified Amount is greater
for females than males. The Specified Amount is shown in the Policy.
While the Policy is in force, the Death Benefit will never be less than the
Specified Amount or the Applicable Percentage of Cash Value. The Death Benefit
may vary with the Cash Value of the Policy, which depends on investment
performance. The amount of Death Benefit will ordinarily not change for several
years to reflect investment performance and may not change at all. If
investment performance is favorable, the amount of Death Benefit may increase.
The Applicable Percentage of Cash Value varies by attained age.
<TABLE>
<CAPTION>
Applicable Percentage of Cash Value Factors
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%
</TABLE>
22
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C>
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% 95 101%
56 146% 76 105% 96 101%
57 142% 77 105% 97 101%
58 138% 78 105% 98 101%
59 134% 79 105% 99 101%
100 100%
</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 outstanding Policy loans and less any
unpaid Policy Charges. Under certain circumstances, the Proceeds may be
adjusted. (See "Incontestability", "Error in Age or Sex", and "Suicide.")
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
During the first 24 months following policy issue, there is an unconditional
right to transfer all of the Cash Value in the Variable Account to the Fixed
Account.
CHANGES OF INVESTMENT POLICY
The Company may materially change the Investment Policy of the Variable
Account. The Company must inform the Policy Owner 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 holders or if it renders the Company's operations
hazardous to the public. If a Policy Owner objects, there is an unconditional
right to transfer all of the Cash Value in the Variable Account to the Fixed
Account. 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 transfer.
GRACE PERIOD
If the Cash Surrender Value in the Policy is insufficient to pay the monthly
deductions, Policy loan interest, or other charges which become due but are
unpaid, a grace period of 61 days will be allowed for payment of sufficient
premium to continue the Policy in force. The Company will notify the Policy
Owner of the amount required to continue the Policy in force. If the required
amount is not received within 61 days of the notice, the Policy will terminate
without value. If the Insured dies during the Grace Period, the Company will
pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end of
the Grace Period and prior to the Maturity Date:
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all policy charges that were due and
unpaid during the Grace Period;
4. paying additional premiums at least equal to 3 times the guaranteed cost
of insurance charges; and
5. repaying any indebtedness against the Policy which existed at the end of
the Grace Period.
23
<PAGE> 27
The effective date of a reinstated Policy will be the Monthly Anniversary Day
on or next following the date the application for reinstatement is approved by
us. If your Policy is reinstated, the Cash Value on the date of reinstatement,
but prior to applying any premiums or loan repayments received, will be set
equal to the appropriate Surrender Charge. Such Surrender Charge will be based
on the length of time from the date of premium payments to the effective date
of the reinstatement. Unless the Policy Owner has provided otherwise, the
allocation of the amount of the Surrender Charge, additional premium payments,
and any loan repayments will be 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 Nationwide'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
Nationwide 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 Nationwide's general assets (General Account).
Nationwide's General Account consists of all assets of the Company other than
those in the Variable Account and in other separate accounts that have been or
may be established by the Company. Subject to applicable law, the Company has
sole discretion over the investment of the assets of the General Account, and
Policy Owners do not share in the investment experience of those assets. The
Company guarantees that the part of the Cash Value invested under the Fixed
Account option will accrue interest daily at an effective annual rate that the
Company declares periodically. The Fixed Account crediting rate will not be
less than an effective annual rate of 3%. Upon request and in the annual
statement the Company will inform a Policy Owner of the then applicable rate.
The Company is not obligated to credit interest at a higher rate.
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 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, unless otherwise provided. Multiple
beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insureds, the 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. 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.
24
<PAGE> 28
The assignment will be subject to any Indebtedness owed to the Company before
it was recorded.
INCONTESTABILITY
The Company will not contest a Death Benefit based on representations in any
written application when such benefit has been in force, during the lifetime of
the Insured, for two years.
ERROR IN AGE OR SEX
If the Insured's age, sex or both, as stated in the application, are incorrect,
the affected benefits will be adjusted to reflect the correct age, sex, or
both.
SUICIDE
If the Insured dies by suicide within two years from the Policy Date, the
Company will pay no more than the sum of the premiums, less any unpaid loan.
If the Insured dies by suicide 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
The Policies are nonparticipating. This means that they do not participate in
any dividend distribution of the Company's surplus.
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 ("NFS"), Inc., One Nationwide Plaza, Columbus,
Ohio 43216.
NFS is a corporation which was organized under the laws of the State of Ohio on
April 8, 1965. NFS is both a broker-dealer and a registered investment
adviser. As such, it is the principal underwriter for several open-end
investment companies and for a number of separate accounts issued by the
Company and Nationwide Life and Annuity Insurance Company ("NLAIC") to fund
the benefits of variable insurance and annuity policies. NFS also currently
acts as the investment adviser and/or administrator for the mutual fund
portfolios sold through NFS's registered representatives and for some of the
mutual fund portfolios which act as underlying investment options for the
variable insurance and annuity policies issued by the Company or NLAIC.
Gross commissions paid by the Company on the sale of these Policies plus fees
for marketing services are not more than 6.75% of the premiums paid.
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 life insurance proceeds payable under
a Policy are excludable from gross income of the beneficiary under Section 101
of the Code.
The Policies described in this prospectus, meet the definition of "modified
endowment contracts" under Section 7702A of the Code. The Code defines
modified endowment contracts as those policies issued or materially changed
after June 21, 1988 on which the total premiums paid during the first seven
years exceed the amount that would have been paid if the policy provided for
paid up benefits after seven level annual premiums. The policies offered in
this prospectus typically fall within this definition. 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. Any distribution is taxable to the extent the Cash Value
of the Policy exceeds, at the time of the distribution, the premiums paid into
the Policy. The Code
25
<PAGE> 29
generally provides for a 10% tax penalty on the taxable portion of such
distributions. That penalty is applicable unless the distribution is 1) paid
after the Policy Owner is 59 1/2 or disabled; or 2) the distribution is part of
an annuity to the Policy Owner as defined in the Code.
Even though exchanges under Section 1035 of the Code qualify as material
changes, certain exchanges of pre-June 22, 1988 policies may retain their
non-modified endowment status. Therefore, 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 fifteen 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 certain material changes 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. 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.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfers between funds, exchanges of funds or
changes in investment objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code, the Company will take
whatever steps are available to remain in compliance.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances. If the amount received by the
Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the
Policy, the excess 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
26
<PAGE> 30
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 Company is a life insurance company writing life, accident and health
insurance, and annuities in all states and the District of Columbia. The
Company issues variable annuity contracts through other segregated investment
accounts. This 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, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves, the form and
content of statutory financial statements, the amount of policyholders' and
stockholders' dividends, and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete
with the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the
other insurance companies in the group. In addition to its direct salaried
employees, the Company shares employees with Nationwide Mutual Insurance
Company and Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity
Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, West Coast Life
Insurance Company, Scottsdale Indemnity Company and Nationwide General
Insurance Company and their affiliated companies comprise the Nationwide
Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Corporation is the sole
shareholder of Nationwide Life.
27
<PAGE> 31
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 (1)
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)
D. Richard McFerson *+ 1988 President and Chief Executive Officer, Nationwide Mutual,
Nationwide Mutual Fire, Nationwide General, and Nationwide
Property and Casualty Insurance Companies; Chief Executive
Officer, Nationwide Life Insurance Company and Nationwide
Life and Annuity Insurance Company (2)
David O. Miller *+ 1985 Farm Owner and Land Developer; President, Owen Potato
Farm, Inc.; Partner, M&M Enterprises (1)
C. Ray Noecker 1994 Farm Owner and Operator (1)
James F. Patterson+ 1989 Vice President, Pattersons, Inc. ; President, Patterson Farms,
Inc. (1)
Robert H. Rickel 1984 Rancher (1)
Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and
Chief Executive Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Farm Owner and Operator; Owner, Sunnydale Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farms (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
<FN>
- -----------------
*Member, Executive Committee +Member, Investment Committee
(1) Principal occupation for last five years.
(2) Prior to assuming his current position, Mr. McFerson held other executive
management positions with the companies.
</TABLE>
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.
28
<PAGE> 32
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE COMPANY
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
W. Sidney Druen Senior Vice President and General Counsel and Assistant
Secretary
Harvey S. Galloway, Jr. Senior Vice President - Chief Actuary - Life, Health and Annuity
Richard A. Karas Senior Vice President - Sales - Financial Services
Robert A. Oakley Executive 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 who joined the Registrant in 1993. From
1983-1993, Mr. Folk served as a partner at the accounting firm KPMG Peat
Marwick LLP.
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 current policy values, transactions since the last
statement, policy loan information, and any other information required by
federal or state laws or regulations.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as change in Specified Amount, changes in future premium allocation,
transfers among sub-accounts, premium payments, loans, increase in loan
principal, loan repayments, unpaid loan interest added to principal,
reinstatement and termination.
29
<PAGE> 33
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore,
the Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
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.
30
<PAGE> 34
APPENDIX
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 Cash Surrender Values falls to zero, 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 and no Cash Values are allocated to the Fixed
Account.
The amounts shown for the Cash Value, Cash Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is
due to the deduction of underlying Mutual Fund investment advisory fees and
other expenses which are equivalent to an annual effective rate of 0.90%. This
effective rate is based on the average of the fund expenses for the preceding
year for all underlying mutual fund options available under the policy as of
January 1, 1996.
Taking account of the underlying Mutual Fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -0.90%, 5.1%, and 11.1% respectively.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection, recovering taxes, providing for
administrative expenses, and assuming mortality and expense risks. Current
values reflect current charges and guaranteed values reflect the maximum
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.
In addition, the illustrations 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, rating classification and Premium Payment
requested.
31
<PAGE> 35
$100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,804 86,804 195,791 102,612 92,612 195,791 108,421 98,421 195,791
2 110,250 93,710 83,710 195,791 105,293 95,293 195,791 117,550 107,550 195,791
3 115,762 90,715 81,715 195,791 108,043 99,043 195,791 127,449 118,449 195,791
4 121,551 87,816 79,816 195,791 110,866 102,866 195,791 138,181 130,181 195,791
5 127,628 85,009 78,009 195,791 113,762 106,762 195,791 149,817 142,817 195,791
6 134,010 82,292 76,292 195,791 116,734 110,734 195,791 162,432 156,432 195,791
7 140,710 79,662 74,662 195,791 119,783 114,783 195,791 176,127 171,127 199,023
8 147,746 77,116 73,116 195,791 122,912 118,912 195,791 191,122 187,122 212,145
9 155,133 74,651 71,651 195,791 126,123 123,123 195,791 207,505 204,505 226,181
10 162,889 72,265 72,265 195,791 129,417 129,417 195,791 225,453 225,453 241,235
15 207,893 62,990 62,990 195,791 154,788 154,788 195,791 355,112 355,112 372,868
20 265,330 54,905 54,905 195,791 185,132 185,132 195,791 559,337 559,337 587,304
25 338,635 47,828 47,828 195,791 221,425 221,425 232,497 881,013 881,013 925,064
30 432,194 41,551 41,551 195,791 264,833 264,833 267,481 1,387,685 1,387,685 1,401,562
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS
APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
32
<PAGE> 36
$100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 94,820 84,820 195,791 100,656 90,656 195,791 106,495 96,495 195,791
2 110,250 89,368 79,368 195,791 101,099 91,099 195,791 113,539 103,539 195,791
3 115,762 83,598 74,598 195,791 101,302 92,302 195,791 121,226 112,226 195,791
4 121,551 77,451 69,451 195,791 101,230 93,230 195,791 129,666 121,666 195,791
5 127,628 70,850 63,850 195,791 100,832 93,832 195,791 138,989 131,989 195,791
6 134,010 63,689 57,689 195,791 100,039 94,039 195,791 149,354 143,354 195,791
7 140,710 55,834 50,834 195,791 98,761 93,761 195,791 160,964 155,964 195,791
8 147,746 47,111 43,111 195,791 96,882 92,882 195,791 174,080 170,080 195,791
9 155,133 37,309 34,309 195,791 94,261 91,261 195,791 188,908 185,908 205,909
10 162,889 26,170 26,170 195,791 90,739 90,739 195,791 205,247 205,247 219,615
15 207,893 (*) (*) (*) 54,139 54,139 195,791 318,961 318,961 334,900
20 265,330 (*) (*) (*) (*) (*) (*) 489,843 489,843 514,335
25 338,635 (*) (*) (*) (*) (*) (*) 738,638 738,638 775,570
30 432,194 (*) (*) (*) (*) (*) (*) 1,122,773 1,122,773 1,134,001
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
33
<PAGE> 37
$10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<Captions>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,591 8,591 19,579 10,170 9,170 19,579 10,749 9,749 19,579
2 11,025 9,194 8,194 19,579 10,345 9,345 19,579 11,563 10,563 19,579
3 11,576 8,809 7,909 19,579 10,525 9,625 19,579 12,449 11,549 19,579
4 12,155 8,435 7,635 19,579 10,710 9,910 19,579 13,412 12,612 19,579
5 12,763 8,071 7,371 19,579 10,901 10,201 19,579 14,459 13,759 19,579
6 13,401 7,719 7,119 19,579 11,098 10,498 19,579 15,598 14,998 19,579
7 14,071 7,376 6,876 19,579 11,300 10,800 19,579 16,837 16,337 19,579
8 14,775 7,044 6,644 19,579 11,508 11,108 19,579 18,190 17,790 20,191
9 15,513 6,721 6,421 19,579 11,722 11,422 19,579 19,683 19,383 21,455
10 16,289 6,407 6,407 19,579 11,942 11,942 19,579 21,324 21,324 22,817
15 20,789 5,104 5,104 19,579 13,485 13,845 19,579 32,877 32,877 34,521
20 26,533 3,952 3,952 19,579 15,313 15,313 19,579 50,553 50,553 53,080
25 33,864 2,792 2,792 19,579 17,310 17,310 19,579 77,657 77,657 81,540
30 43,219 1,766 1,766 19,579 19,709 19,709 19,906 120,494 120,494 121,699
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
34
<PAGE> 38
<TABLE>
$10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
GUARANTEED VALUES
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- ----------------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----- -------- ----- ----- ------- ----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,391 8,391 19,579 9,972 8,972 19,579 10,554 9,554 19,579
2 11,025 8,752 7,752 19,579 9,917 8,917 19,579 11,153 10,153 19,579
3 11,576 8,079 7,179 19,579 9,831 8,931 19,579 11,805 10,905 19,579
4 12,155 7,365 6,565 19,579 9,709 8,909 19,579 12,518 11,718 19,579
5 12,763 6,600 5,900 19,579 9,544 8,844 19,579 13,303 12,603 19,579
6 13,401 5,774 5,174 19,579 9,327 8,727 19,579 14,172 13,572 19,579
7 14,071 4,871 4,371 19,579 9,048 8,548 19,579 15,142 14,642 19,579
8 14,775 3,872 3,472 19,579 8,690 8,290 19,579 16,233 15,833 19,579
9 15,513 2,754 2,454 19,579 8,236 7,936 19,579 17,473 17,173 19,579
10 16,289 1,490 1,490 19,579 7,663 7,663 19,579 18,893 18,893 20,216
15 20,789 (*) (*) (*) 2,111 2,111 19,579 29,042 29,042 30,494
20 26,533 (*) (*) (*) (*) (*) (*) 44,509 44,509 46,735
25 33,864 (*) (*) (*) (*) (*) (*) 67,029 67,029 70,380
30 43,219 (*) (*) (*) (*) (*) (*) 101,888 101,888 102,907
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
35
<PAGE> 39
$100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT
MALE: REGULAR ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,804 86,804 273,583 102,612 92,612 273,583 108,421 98,421 273,583
2 110,250 93,710 83,710 273,583 105,293 95,293 273,583 117,550 107,550 273,583
3 115,762 90,715 81,715 273,583 108,043 99,043 273,583 127,449 118,449 273,583
4 121,551 87,816 79,816 273,583 110,866 102,866 273,583 138,181 130,181 273,583
5 127,628 85,009 78,009 273,583 113,762 106,762 273,583 149,817 142,817 273,583
6 134,010 82,292 76,292 273,583 116,734 110,734 273,583 162,432 156,432 273,583
7 140,710 79,662 74,662 273,583 119,783 114,783 273,583 176,110 171,110 273,583
8 147,746 77,116 73,116 273,583 122,912 118,912 273,583 190,940 186,940 273,583
9 155,133 74,651 71,651 273,583 126,123 123,123 273,583 207,018 204,018 273,583
10 162,889 72,265 72,265 273,583 129,417 129,417 273,583 224,496 224,496 273,885
15 207,893 62,990 62,990 273,583 154,788 154,788 273,583 353,603 353,603 410,180
20 265,330 54,905 54,905 273,583 185,132 185,132 273,583 556,961 556,961 595,948
25 338,635 47,828 47,828 273,583 221,425 221,425 273,583 877,270 877,270 921,133
30 432,194 41,551 41,551 273,583 264,833 264,833 278,075 1,381,789 1,381,789 1,450,878
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
36
<PAGE> 40
$100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT
MALE: REGULAR ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------------- ------------------------------- --------------------------------
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------- ------- ------ ------ ------- ------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,524 85,524 273,583 101,339 91,339 273,583 107,156 97,156 273,583
2 110,250 90,932 80,932 273,583 102,558 92,558 273,583 114,875 104,875 273,583
3 115,762 86,205 77,205 273,583 103,642 94,642 273,583 123,224 114,224 273,583
4 121,551 81,320 73,320 273,583 104,576 96,576 273,583 132,276 124,276 273,583
5 127,628 76,250 69,250 273,583 105,337 98,337 273,583 142,115 135,115 273,583
6 134,010 70,953 64,953 273,583 105,894 99,894 273,583 152,831 146,831 273,583
7 140,710 65,380 60,380 273,583 106,205 101,205 273,583 164,531 159,531 273,583
8 147,746 59,473 55,473 273,583 106,225 102,225 273,583 177,340 173,340 273,583
9 155,133 53,164 50,164 273,583 105,898 102,898 273,583 191,413 188,413 273,583
10 162,889 46,381 46,381 273,583 105,168 105,168 273,583 206,939 206,939 273,583
15 207,893 3,056 3,056 273,583 96,167 96,167 273,583 318,361 318,361 369,299
20 265,330 (*) (*) (*) 61,320 61,320 273,583 491,517 491,517 525,923
25 338,635 (*) (*) (*) (*) (*) (*) 763,834 763,834 802,026
30 432,194 (*) (*) (*) (*) (*) (*) 1,173,054 1,173,054 1,231,706
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
37
<PAGE> 41
$25,000 INITIAL PREMIUM: $101,093 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,156 21,656 101,093 25,608 23,108 101,093 27,061 24,561 101,093
2 27,562 23,336 20,836 101,093 26,234 23,734 101,093 29,302 26,802 101,093
3 28,941 22,539 20,289 101,093 26,878 24,628 101,093 31,739 29,489 101,093
4 30,388 21,766 19,766 101,093 27,541 25,541 101,093 34,390 32,390 101,093
5 31,907 21,016 19,266 101,093 28,224 26,474 101,093 37,272 35,522 101,093
6 33,502 20,287 18,787 101,093 28,926 27,426 101,093 40,406 38,906 101,093
7 35,178 19,579 18,329 101,093 29,649 28,399 101,093 43,809 42,559 101,093
8 36,936 18,892 17,892 101,093 30,393 29,393 101,093 47,498 46,498 101,093
9 38,783 18,225 17,475 101,093 31,159 30,409 101,093 51,497 50,747 101,093
10 40,722 17,578 17,578 101,093 31,947 31,947 101,093 55,834 55,834 101,093
15 51,973 14,989 14,989 101,093 37,174 37,174 101,093 86,002 86,002 115,242
20 66,332 12,698 12,698 101,093 43,350 43,350 101,093 134,605 134,605 164,218
25 84,659 10,531 10,531 101,093 50,401 50,401 101,093 212,016 212,016 245,939
30 108,049 8,613 8,613 101,093 58,791 58,791 101,093 333,947 333,947 357,324
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
38
<PAGE> 42
$25,000 INITIAL PREMIUM: $101,093 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 23,955 21,455 101,093 25,408 22,908 101,093 26,863 24,363 101,093
2 27,562 22,898 20,398 101,093 25,803 23,303 101,093 28,881 26,381 101,093
3 28,941 21,828 19,578 101,093 26,183 23,933 101,093 31,070 28,820 101,093
4 30,388 20,741 18,741 101,093 26,544 24,544 101,093 33,448 31,448 101,093
5 31,907 19,633 17,883 101,093 26,883 25,133 101,093 36,031 34,281 101,093
6 33,502 18,499 16,999 101,093 27,196 25,696 101,093 38,841 37,341 101,093
7 35,178 17,331 16,081 101,093 27,474 26,224 101,093 41,896 40,646 101,093
8 36,936 16,121 15,121 101,093 27,711 26,711 101,093 45,213 44,213 101,093
9 38,783 14,861 14,111 101,093 27,898 27,148 101,093 48,187 48,067 101,093
10 40,722 13,541 13,541 101,093 28,027 28,027 101,093 52,739 52,739 101,093
15 51,973 6,020 6,020 101,093 28,322 28,322 101,093 80,678 80,678 108,109
20 66,332 (*) (*) (*) 25,627 25,627 101,093 124,710 124,710 152,146
25 84,659 (*) (*) (*) 16,266 16,266 101,093 192,262 192,262 223,024
30 108,049 (*) (*) (*) (*) (*) (*) 296,833 296,833 317,611
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE> 43
$10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,591 8,591 40,437 10,170 9,170 40,437 10,749 9,749 40,437
2 11,025 9,194 8,194 40,437 10,345 9,345 40,437 11,563 10,563 40,437
3 11,576 8,809 7,909 40,437 10,525 9,625 40,437 12,449 11,549 40,437
4 12,155 8,435 7,635 40,437 10,710 9,910 40,437 13,412 12,612 40,437
5 12,763 8,071 7,371 40,437 10,901 10,201 40,437 14,459 13,759 40,437
6 13,401 7,719 7,119 40,437 11,098 10,498 40,437 15,598 14,998 40,437
7 14,071 7,376 6,876 40,437 11,300 10,800 40,437 16,837 16,337 40,437
8 14,775 7,044 6,644 40,437 11,508 11,108 40,437 18,184 17,784 40,437
9 15,513 6,721 6,421 40,437 11,722 11,422 40,437 19,648 19,348 40,437
10 16,289 6,407 6,407 40,437 11,942 11,942 40,437 21,241 21,241 40,437
15 20,789 5,104 5,104 40,437 13,485 13,485 40,437 32,418 32,418 43,441
20 26,533 3,952 3,952 40,437 15,313 15,313 40,437 50,069 50,069 61,084
25 33,864 2,792 2,792 40,437 17,310 17,310 40,437 77,190 77,190 89,540
30 43,219 1,766 1,766 40,437 19,676 19,676 40,437 119,951 119,951 128,348
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE> 44
$10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,510 8,510 40,437 10,090 9,090 40,437 10,669 9,669 40,437
2 11,025 9,018 8,018 40,437 10,171 9,171 40,437 11,393 10,393 40,437
3 11,576 8,521 7,621 40,437 10,243 9,343 40,437 12,177 11,277 40,437
4 12,155 8,018 7,218 40,437 10,304 9,504 40,437 13,026 12,226 40,437
5 12,763 7,508 6,808 40,437 10,352 9,652 40,437 13,948 13,248 40,437
6 13,401 6,988 6,388 40,437 10,386 9,786 40,437 14,948 14,348 40,437
7 14,071 6,456 5,956 40,437 10,402 9,902 40,437 16,034 15,534 40,437
8 14,775 5,907 5,507 40,437 10,397 9,997 40,437 17,214 16,814 40,437
9 15,513 5,339 5,039 40,437 10,367 10,067 40,437 18,497 18,197 40,437
10 16,289 4,747 4,747 40,437 10,307 10,307 40,437 19,894 19,894 40,437
15 20,789 1,398 1,398 40,437 9,734 9,734 40,437 29,930 29,930 40,437
20 26,533 (*) (*) (*) 7,665 7,665 40,437 46,178 46,178 56,337
25 33,864 (*) (*) (*) 2,235 2,235 40,437 71,145 71,145 82,528
30 43,219 (*) (*) (*) (*) (*) (*) 109,840 109,840 117,529
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 45
================================================================================
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
================================================================================
42
<PAGE> 46
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>
43
<PAGE> 47
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
44
<PAGE> 48
================================================================================
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.
================================================================================
45
<PAGE> 49
================================================================================
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)
46
<PAGE> 50
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.
47
<PAGE> 51
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.
================================================================================
48
<PAGE> 52
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.
49
<PAGE> 53
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.
50
<PAGE> 54
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.
51
<PAGE> 55
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.
52
<PAGE> 56
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.
53
<PAGE> 57
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.
54
<PAGE> 58
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.
55
<PAGE> 59
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.
56
<PAGE> 60
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
57
<PAGE> 61
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.
58
<PAGE> 62
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.
59
<PAGE> 63
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.
60
<PAGE> 64
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.
61
<PAGE> 65
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.
62
<PAGE> 66
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.
63
<PAGE> 67
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.
64
<PAGE> 68
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.
65
<PAGE> 69
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>
66
<PAGE> 70
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>
67
<PAGE> 71
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>
68
<PAGE> 72
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.
69
<PAGE> 73
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>
70
<PAGE> 74
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.
71
<PAGE> 75
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.
72
<PAGE> 76
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>
73
<PAGE> 77
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>
74
<PAGE> 78
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>
75
<PAGE> 79
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>
76
<PAGE> 80
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.
77
<PAGE> 81
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.
78
<PAGE> 82
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.
79
<PAGE> 83
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.
80
<PAGE> 84
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Form S-6 Registration Statement comprises the following papers and
documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 80 pages.
Representations and Undertakings.
Accountants' Consent
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<CAPTION>
<S> <C>
1. Power of Attorney dated April 5, 1995 An original Power of Attorney dated April 5, 1995 is
included with the Post-Effective Amendment No. 6 to the
Registration Statement on Form N-4 of NACo Variable
Account (File No. 33-33425, 811-5999).
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for
authorizing the establishment of the Registrant, the Nationwide VLI Separate Account-2, and hereby
adopted incorporated herein by reference.
3. Distribution Contracts Included with the Registration Statement on Form N-8B-2
for the Nationwide VLI Separate Account-2, and hereby
incorporated herein by reference.
4. Form of Security
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2
for the Nationwide VLI Separate Account-2, and hereby
incorporated herein by reference.
6. Application form of Security
7. Opinion of Counsel
</TABLE>
<PAGE> 85
REPRESENTATIONS AND UNDERTAKINGS
- --------------------------------
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "Act"). The Registrant and the Company
elect to be governed by Rule 6e-3(T)(b)(13)(i)(B) under the Act with respect to
the Policies described in the prospectus. The Policies have been designed in
such a way as to qualify for the exemptive relief from various provisions of
the Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
the Company under the Policies. The Company represents that the risk charges
are within the range of industry practice for comparable policies and
reasonable in relation to all of the risks assumed by the issuer under the
Policies. Actuarial memoranda demonstrating the reasonableness of these
charges are maintained by the Company, and will be made available to the
Securities and Exchange Commission (the "Commission") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to
the Commission on request a memorandum setting forth the basis for this
representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
<PAGE> 86
ACCOUNTANTS' CONSENT
The Board of Directors
Nationwide Life Insurance Company and
Contract Owners of Nationwide VLI Separate Account-2:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
December 5, 1995
<PAGE> 87
SIGNATURES
As required by the Securities Act of 1933, the Registrant, Nationwide VLI
Separate Account-2, has caused this Pre-Effective Amendment No. 1 to be signed
on its behalf in the City of Columbus, and State of Ohio, on this 5th day of
December 1995.
NATIONWIDE VLI SEPARATE ACCOUNT-2
---------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
(Sponsor)
(Seal)
Attest:
/s/ DENNIS W. CLICK By: /s/ JOSEPH P. RATH
- ------------------------ ------------------------------
Dennis W. Click Joseph P. Rath
Assistant Secretary Vice President and Associate
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 5th day of December 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
LEWIS J. ALPHIN Director
- -------------------------
Lewis J. Alphin
WILLARD J. ENGEL Director
- -------------------------
Willard J. Engel
FRED C. FINNEY Director
- -------------------------
Fred C. Finney
PETER F. FRENZER President/Chief Operating
- ------------------------- Officer and Director
Peter F. Frenzer
CHARLES L. FUELLGRAF, JR. Director
- -------------------------
Charles L. Fuellgraf, Jr.
HENRY S. HOLLOWAY Chairman of the Board
- ------------------------- and Director
Henry S. Holloway
D. RICHARD McFERSON Chief Executive Officer
- ------------------------- and Director
D. Richard McFerson
DAVID O. MILLER Director
- -------------------------
David O. Miller
C. RAY NOECKER Director
- -------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By: JOSEPH P. RATH
- ------------------------- ------------------------------------
James F. Patterson Joseph P. Rath, Attorney-in-Fact
ROBERT H. RICKEL Director
- -------------------------
Robert H. Rickel
ARDEN L. SHISLER Director
- -------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------
Harold W. Weihl
</TABLE>
<PAGE> 1
Exhibit 10
ACTUARIAL MEMORANDUM: SECURITIES & EXCHANGE COMMISSION
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
POLICY FORM VLO 430, ET.AL.
NATIONWIDE LIFE INSURANCE COMPANY
SECTION I: GENERAL DESCRIPTION OF CHARGES
A. Deductions from Premium Payments
No front-end charges, sales or administrative, are assessed against
premium payments. 100% of the premium payments are applied to the
Cash Value.
B. Monthly Deductions
1. Administrative Expense Charges
An administrative expense charge will be deducted at the
beginning of each policy month. This monthly charge is equal
to an annual rate of 0.30% multiplied by the Cash Value. On a
current basis, for policy years 11 and later, this monthly
charge is anticipated to be reduced to an annual rate of 0.15%
multiplied by the Cash Value, provided the Cash Surrender
Value is greater than or equal to $100,000. This
administrative expense charge is subject to a $10 per month
minimum. This charge will be deducted proportionately from
the Cash Values in each Variable subaccount and the Fixed
Account.
This charge is designed to: (i) amortize the initial
underwriting and other policy issue expenses and (ii) provide
for ongoing administrative expenses required to support these
policies. In the aggregate, the Company does not anticipate
that the sum of administrative expense charges assessed
against the policies will exceed the aggregate expenses
incurred in underwriting, issuing and maintaining these
policies. In addition, the Company does not anticipate making
a profit on the administration of these policies. See Section
III. for further detail.
2. Monthly Cost of Insurance charges
The current cost of insurance charge is deducted at the
beginning of each policy month and is equal to an annual rate
of 0.65% multiplied by the Cash Value. For policy years 11
and later, this monthly charge is anticipated to be reduced to
0.30% multiplied by the Cash Value, provided the Cash
Surrender Value is $100,000 or more. For substandard
policies, these annual rates are increased. This charge will
be deducted proportionately from the Cash Values in each
Variable subaccount and the Fixed Account.
In no event will this current monthly deduction for the cost
of insurance exceed the guaranteed monthly cost of insurance
charge. Guaranteed monthly cost of insurance charges are
based on the net amount at risk. The net amount at risk is
calculated as the difference between the death benefit and the
policy Cash Value. Guaranteed cost of insurance charges vary
by sex and underwriting classification. Guaranteed cost of
insurance charges are based on the 1980 CSO Mortality Table,
Age Last Birthday.
<PAGE> 2
Page 2
3. Tax Expense Charge
During the first ten policy years, a tax expense charge is
deducted at the beginning of each policy month and is equal to
an annual rate of 0.50% multiplied by the Cash Value. This
charge includes a state premium tax component equal to an
annual rate of 0.30% and a federal tax component equal to an
annual rate of 0.20%. This charge will be deducted
proportionately from the Cash Values in each Variable
subaccount and the Fixed Account.
Exhibit I illustrates the amount of Federal DAC taxes the
Company will recover under various persistency and investment
return scenarios. Under combined scenarios of high long term
investment returns and favorable policy persistency, the
Company may realize a profit from this charge.
4. Mortality & Expense Risk Charge
The Company deducts a monthly charge for mortality and expense
risks on a pro-rata basis from the Cash Value in each Variable
subaccount. This monthly charge is equal to an annual rate of
0.90% multiplied by the Cash Value attributable to the
Variable Account.
The Company assumes the mortality and expense risks associated
with these policies. The mortality risk is that insureds may
not live as long as expected. In addition, future levels of
mortality could exceed those supported by the guaranteed
mortality charges contained in the policy.
The expense risks assumed are that actual administrative costs
in the future will exceed the costs assumed in product
pricing. The Company is also exposed to substantial risks of
the non-recoverability of underwriting and other issue
expenses for policies which lapse in the early policy years.
The Company asserts that the level of the mortality and
expense risk premium is reasonable in comparison to industry
practice for similar products.
C. Surrender Charge
A surrender charge is imposed for contracts which are surrendered
during the first nine policy years. The surrender charge is
calculated as a percentage of the initial premium as follows:
<TABLE>
<CAPTION>
Policy % of Initial Policy % of Initial
Year Premium Year Premium
<S> <C> <C> <C>
1 10.0% 6 6.0%
2 10.0% 7 5.0%
3 9.0% 8 4.0%
4 8.0% 9 3.0%
5 7.0% 10+ 0.0%
</TABLE>
Under some circumstances, the surrender charge will be reduced in
order to conform with the limitations imposed by the Standard
Nonforfeiture Law. This only occurs for policies issued at more
advanced ages.
Subsequent premium payments will not result in any additional
surrender charges.
<PAGE> 3
Page 3
This charge is designed to recover commissions, other distribution
expenses, and state premium taxes incurred by the Company in the event
of policies surrendered in the early policy years. Approximately 75%
of the total surrender charges are for recovery of sales expenses and
25% for the recovery of state premium taxes.
In addition to the portion of the total surrender charge attributable
to recovery of state premium taxes, a charge is made during the first
10 policy years, at an annual rate of 0.30% of Cash Value, to recover
state premium taxes estimated to equal 2.35% of all premiums received.
Exhibit II illustrates the amount of state premium taxes the Company
will recover under various persistency and investment return
scenarios. Under scenarios of high long term investment returns, the
Company may realize a profit from this charge.
SECTION II: SALES LOAD COMPLIANCE
A. Explicit Sales Load vs. Expected Distribution Expenses
1. Expected Distribution Expenses
The majority of distribution expenses incurred by the Company
consist of commissions paid for sales of the policies. In
addition, the Company will incur other expenses associated
with conducting marketing seminars, printing of prospectuses,
and other marketing and sales promotional activities. In
addition, the Company is responsible for the majority of
marketing and promotional activities including: development
of selling agreements with broker/dealers, providing marketing
support, development and printing of sales literature, etc.
These expenses are anticipated to be 0.75% of premium.
In addition, commissions of 6.75% of initial premiums received
are paid to the Broker/Dealer for distribution of these
policies.
Therefore, the total distribution expenses which are expected
to be incurred by the Company are 7.50% of premium.
2. Explicit Sales Loads
This policy contains an explicit charge for Sales Load in the
form of a contingent deferred surrender charge for policies
which are surrendered during the first nine policy years.
This charge is described in paragraph C. of Section I of this
memorandum. Approximately 75% of the total surrender charges
are for recovery of sales expenses. In all cases, this charge
will be less than or equal to 7.5% of the actual premiums
paid.
3. Relationship between Sales Loads & Distribution Expenses
The explicit sales loadings are not sufficient to recover the
expected costs of distributing these contracts. However, the
Company has concluded that the distribution financing
arrangement of the separate account will benefit the separate
account and the contract owners.
<PAGE> 4
Page 4
In order to provide the best possible value to our
contractowners, it is necessary to achieve a sufficient
"critical mass" of inforce policies. This requirement is
necessary in order to: (i) obtain a sufficient policy base in
order to adequately diversify the mortality and persistency
exposure and (ii) to provide a sufficient policy base over
which to spread the associated policy costs. The larger the
policy base, the greater the spread of risks and the lower the
per policy expenses that will result.
However, in order to develop a sufficient policy base, it is
necessary to provide compensation to producers that are
comparable to those which are paid for other competing product
alternatives, both fixed and variable. This competitive
environment requires distribution allowances which are
provided by these policies.
This separate account will invest only in management
investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of
the company, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
B. Compliance with Paragraph (b)(13)(i) of Rule 6e-3(T)
Section (b)(13)(i) of Rule 6e-3(T) specifies that the total
sales load deducted does not exceed that permitted by either
(A) or (B), where:
(A) 9% of the sum of the guideline annual premiums
payable over 20 years or life expectancy, if less; and
(B) 9% of premium payments.
The Company has elected to be governed under paragraph
(b)(13)(i)(B).
SECTION III: ADMINISTRATIVE EXPENSES
A. Administrative Expenses incurred by the Company consist of:
1. Acquisition expenses associated with policy issue include
underwriting, establishing permanent policy records,
determining insurance risk classification, etc. The amount of
actual expenses incurred is a function of such variables as
age, amount of insurance, and degree of required underwriting.
The following table summarizes the acquisition expenses
assumed in product pricing:
Per Policy Expense - Acquisitions:
Simplified Issue: $100
Regular Issue:
Age 25: $342 Age 55: $488
Age 35: $342 Age 65: $579
Age 45: $342 Age 75: $579
<PAGE> 5
Page 5
Per $1000 of Death Benefit Expense - Acquisitions:
$1.03 per $1000, subject to a maximum of 40 units.
2. Annual maintenance expenses are those incurred in connection
with premium processing, processing policy changes, accounting
and record keeping, reporting to policyowners, etc.
Per Policy Expense - Maintenance:
$40 per year increasing at an annual inflation rate
of 3%.
Per $1000 of Death Benefit Expense - Maintenance:
$0.75 per 1000, subject to a maximum of 40 units,
increasing at an annual inflation rate of 3%.
Simplified Issue Limits are as follows:
<TABLE>
<CAPTION>
Issue Age Maximum Premium
--------- ---------------
<S> <C>
0-34 Not Available
35-44 $ 15,000
45-54 $ 30,000
55-64 $ 50,000
65-80 $100,000
</TABLE>
Both the acquisition expenses and annual maintenance expenses are
derived from annual expense analysis which is conducted by the Life
Actuarial Department. Appropriate adjustments to these results are
made to recognize any unique features of the product. For example,
this policy has less underwriting expenses (due to the "relaxed"
underwriting standards) but greater administrative expenses (due to
the product complexity compared to general account-based life
insurance products).
B. Administration Charges vs. Expected Administrative Costs
Exhibit III illustrates the relationship between the policy
administrative charges and the expected administrative costs the
Company expects to incur. The administrative expenses assumed in
pricing (described above) are those expected to be incurred once a
sufficiently large policy base has been established. The Company does
not expect to achieve these ultimate expense levels which are assumed
for several years. Currently, the ongoing administrative expenses per
policy are in excess of 150% of the expected administrative expenses.
Based on our proforma models, the Company expects to reach pricing
levels after 10 years. Therefore, Exhibit III illustrates that under
various scenarios of persistency and investment returns, the actual
administrative expenses incurred will be in excess of those collected
from the explicit administrative policy charges.
<PAGE> 6
Page 6
Exhibit I
Modified Single Premium Variable Life
Federal DAC Tax Recovery
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Present Value of Present Value of Percent
Investment Level Fed DAC Tax Fed DAC Tax Recovered
Return Persistency Incurred Recovered (4)/(3)
<S> <C> <C> <C> <C>
0.0% 90.0% $ 562.14 $ 451.94 80.4%
0.0% 87.5% 562.14 418.42 74.4%
0.0% 85.0% 562.14 388.52 69.1%
0.0% 82.5% 562.14 361.81 64.4%
0.0% 80.0% 562.14 337.90 60.1%
6.0% 90.0% 562.14 539.05 95.9%
6.0% 87.5% 562.14 493.56 87.8%
6.0% 85.0% 562.14 453.36 80.6%
6.0% 82.5% 562.14 417.79 74.3%
6.0% 80.0% 562.14 386.27 68.7%
9.0% 90.0% 562.14 591.61 105.2%
9.0% 87.5% 562.14 538.59 95.8%
9.0% 85.0% 562.14 491.95 87.5%
9.0% 82.5% 562.14 450.88 80.2%
9.0% 80.0% 562.14 414.65 73.8%
12.0% 90.0% 562.14 651.32 115.9%
12.0% 87.5% 562.14 589.54 104.9%
12.0% 85.0% 562.14 535.42 95.2%
12.0% 82.5% 562.14 487.96 86.8%
12.0% 80.0% 562.14 446.31 79.4%
</TABLE>
Footnotes:
(1) Effective annual growth rate of policy cash value AFTER DEDUCTION OF ALL
POLICY CHARGES (thus, these net rates correspond to gross investment
returns that are approximately 3% higher).
(2) Level annual policy persistency.
(3) Total Federal DAC tax incurred over a 10 year period.
(4) Total Federal DAC tax charges over a 10 year period (0.20% of Cash Value
annually).
(*) Present Values based on 12% ROTC profit objective.
<PAGE> 7
Page 7
Exhibit II
Modified Single Premium Variable Life
State Premium Tax Recovery
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Present Value of Present Value of Percent
Investment Level State Prem Tax State Prem Tax Recovered
Return Persistency Incurred Recovered (4)/(3)
<S> <C> <C> <C> <C>
0.0% 90.0% $ 1175.00 $ 1035.21 88.1%
0.0% 87.5% 1175.00 1053.11 89.6%
0.0% 85.0% 1175.00 1069.81 91.0%
0.0% 82.5% 1175.00 1085.41 92.4%
0.0% 80.0% 1175.00 1100.00 93.6%
6.0% 90.0% 1175.00 1165.88 99.2%
6.0% 87.5% 1175.00 1165.82 99.2%
6.0% 85.0% 1175.00 1167.07 99.3%
6.0% 82.5% 1175.00 1169.39 99.5%
6.0% 80.0% 1175.00 1172.56 99.8%
9.0% 90.0% 1175.00 1224.71 105.9%
9.0% 87.5% 1175.00 1233.37 105.0%
9.0% 85.0% 1175.00 1224.96 104.3%
9.0% 82.5% 1175.00 1219.01 103.7%
9.0% 80.0% 1175.00 1215.13 103.4%
12.0% 90.0% 1175.00 1334.28 113.6%
12.0% 87.5% 1175.00 1309.78 111.5%
12.0% 85.0% 1175.00 1290.15 109.8%
12.0% 82.5% 1175.00 1274.65 108.5%
12.0% 80.0% 1175.00 1262.62 107.5%
</TABLE>
Footnotes:
(1) Effective annual growth rate of policy cash value AFTER DEDUCTION OF ALL
POLICY CHARGES (thus, these net rates correspond to gross investment
returns that are approximately 3% higher).
(2) Level annual policy persistency.
(3) Total State Premium tax incurred over a 10 year period (assumed to be
2.35% of Premium).
(4) Total State Premium tax charges over a 10 year period
(0.30% of Cash Value annually plus State Premium tax recovery portion of
surrender charge).
(*) Present Values based on 12% ROTC profit objective.
<PAGE> 8
Page 8
Exhibit III
Modified Single Premium Variable Life
Administrative Expense Analysis
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Present Value of Present Value of Percent
Investment Level Adm Exp Adm Exp Recovered
Return Persistency Incurred Recovered (4)/(3)
<S> <C> <C> <C> <C>
0.0% 90.0% $ 977.00 $ 677.91 69.4%
0.0% 87.5% 943.18 627.63 66.5%
0.0% 85.0% 912.95 582.78 63.8%
0.0% 82.5% 885.89 542.71 61.3%
0.0% 80.0% 861.64 506.85 58.8%
6.0% 90.0% 977.00 808.58 82.8%
6.0% 87.5% 943.18 740.34 78.5%
6.0% 85.0% 912.95 680.04 74.5%
6.0% 82.5% 885.89 626.68 70.7%
6.0% 80.0% 861.64 579.41 67.2%
9.0% 90.0% 977.00 887.41 90.8%
9.0% 87.5% 943.18 807.89 85.7%
9.0% 85.0% 912.95 737.93 80.8%
9.0% 82.5% 885.89 676.31 76.3%
9.0% 80.0% 861.64 621.98 72.2%
12.0% 90.0% 977.00 976.98 100.0%
12.0% 87.5% 943.18 884.31 93.8%
12.0% 85.0% 912.95 803.13 88.0%
12.0% 82.5% 885.89 731.95 82.6%
12.0% 80.0% 861.64 669.47 77.7%
</TABLE>
Footnotes:
(1) Effective annual growth rate of policy cash value AFTER DEDUCTION OF ALL
POLICY CHARGES (thus, these net rates correspond to gross investment
returns that are approximately 3% higher).
(2) Level annual policy persistency.
(3) Total Administrative expenses incurred over a 10 year period (150% of
pricing, grading down to 100% over 10 years, where pricing assumptions
are: $341.20 acquisition, $70 maintenance, annually increasing by 3%
inflation).
(4) Total Administrative charges over a 10 year period (0.30% of Cash Value
annually).
(*) Present Values based on 12% ROTC profit objective.
