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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
LAST SURVIVOR FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2
The Life Insurance Policies offered by this prospectus are last survivor
variable life insurance policies (collectively referred to as the "Policies").
The Policies are designed to provide life insurance coverage on two named
Insureds with a death benefit payable on the death of the last surviving
insured. The Policies afford flexibility to vary the amount and frequency of
premium payments. The Policies may also provide a Cash Surrender Value if the
Policy is surrendered during the lifetime of either Insured. Nationwide Life
Insurance Company (the "Company") guarantees to keep the Policy in force if
certain requirements defined within this prospectus are met. The death benefit
and Cash Value of the Policies may vary to reflect the experience of the
Nationwide VLI Separate Account-2 (the "Variable Account") or the Fixed Account
to which Cash Values are allocated.
The Policies described in this prospectus are designed to meet the definition
of "life insurance" under Section 7702 of the Internal Revenue Code.
The Policy Owner may allocate Net Premiums and Cash Value to the Fixed Account
and to one or more of the sub-accounts of the Variable 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:
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DREYFUS OPPENHEIMER VARIABLE ACCOUNT FUNDS:
-Dreyfus Stock Index Fund -Oppenheimer Bond Fund
-Dreyfus Socially Responsible Growth Fund -Oppenheimer Global Securities Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: -Oppenheimer Multiple Strategies Fund
-High Income Portfolio* STRONG SPECIAL FUND II, INC.
-Equity-Income Portfolio STRONG VARIABLE INSURANCE FUNDS, INC.:
-Growth Portfolio -Discovery Fund II, Inc.
-Overseas Portfolio -International Stock Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: TCI PORTFOLIOS, INC.; a member of the Twentieth Century Family of Mutual
-Asset Manager Portfolio Funds:
-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
-Total Return Fund -Worldwide Bond Fund
-Small Company Fund VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
NEUBERGER & BERMAN ADVISERS MANAGEMENT -Real Estate Securities Fund
TRUST: WARBURG PINCUS TRUST
-Limited Maturity Bond Portfolio -International Equity Portfolio
-Growth Portfolio -Small Company Growth Portfolio
-Partners Portfolio
</TABLE>
*The High Income Portfolio may invest in lower quality debt securities commonly
referred to as junk bonds.
The Company guarantees that the death benefit for a Policy will never be less
than the Specified Amount stated on the Policy data pages as long as the Policy
is in force. There is no guaranteed Cash Surrender Value. This prospectus
generally describes only that portion of the Cash Value allocated to the
Variable Account. For a brief summary of the Fixed Account Option, see "The
Fixed Account Option."
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL
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RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE
CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS
OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
The date of this Prospectus is June 18, 1996.
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GLOSSARY OF TERMS
ATTAINED AGE-The 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.
AVERAGE ISSUE AGE-Arithmetic average of the ages of the two Insureds at Policy
issuance.
BASIC COVERAGE-One of the two types of coverage of which the Specified Amount
is comprised; the other type is Supplemental Coverage (see "Underwriting and
Issuance").
BENEFICIARY-The person to whom the Death Proceeds are paid.
CASH SURRENDER VALUE-The Policy's Cash Value less Indebtedness and Surrender
Charge, if any.
CASH VALUE-The sum of the associated values in the Variable Account, the Fixed
Account and the Policy Loan Account.
CODE-The Internal Revenue Code of 1986, as amended.
COMPANY-Nationwide Life Insurance Company.
DEATH PROCEEDS-Amount of money payable to the Beneficiary if both Insureds die
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 of other separate accounts that have been or may be established by
the Company.
HOME OFFICE-The main office of the Company located in Columbus, Ohio.
INDEBTEDNESS-Amounts owed the Company as a result of Policy loans including
both principal and accrued interest.
INITIAL PREMIUM-The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy Data Page.
INSUREDS-The persons whose lives are covered by the Policy, and who are named
on the Policy Data Page.
IRS-The Internal Revenue Service.
IRS GUIDELINE LEVEL PREMIUM-The amount of level annual premium, calculated in
accordance with the provisions of the Internal Revenue Code of 1986, as
amended, guaranteed mortality and expense charges, and an interest rate of 4%.
ISSUE AGE-For each Insured, the Issue Age is the Insured's age on his or her
last birthday on or before the Policy Date.
LIFETIME DEATH BENEFIT GUARANTEE PREMIUM-The IRS Guideline Level Premium.
LIMITED DEATH BENEFIT GUARANTEE PERIOD-The period running from the Policy Date
to the Policy Anniversary on or next following the younger Insured's 75th
birthday.
LIMITED DEATH BENEFIT GUARANTEE PREMIUMS-The percentages as set forth in the
charts located in the "Grace Period" section of this prospectus of the IRS
Guideline Level Premium.
MATURITY DATE-The Policy Anniversary on or next following the younger Insured's
100th birthday.
MONTHLY ANNIVERSARY DAY-The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS-The underlying mutual funds which correspond to the sub-accounts
of the Variable Account.
NET AMOUNT AT RISK-The difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
NET ASSET VALUE-The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding
the value of all portfolio holdings plus other assets, deducting liabilities
and then dividing the result by the number of shares outstanding.
NET PREMIUMS-Net Premiums are equal to the actual premiums minus the percent of
premium charges. The percent of premium charges are shown on the Policy Data
Page.
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POLICY ANNIVERSARY-The same day and month as the Policy Date for succeeding
years.
POLICY CHARGES-All deductions made from the Cash Value.
POLICY DATE-The date the provisions of the Policy take effect, as shown on the
Policy Data Page.
POLICY LOAN ACCOUNT-The Portion of the Cash Value which results from Policy
Indebtedness.
POLICY OWNER-The person designated in the Policy application as the Owner. In
the State of New York, the variable life insurance Policies offered by the
Company are offered as "Certificates" for "Certificate Owners" under a group
contract rather than individual Policies. The provisions of both these
Certificates and the Policies are essentially the same and references to the
provisions of Policies and rights of Policy Owners in this prospectus include
Certificates and Certificate Owners.
POLICY YEAR-Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
SCHEDULED PREMIUM-The Scheduled Premium is shown on the Policy Data Page.
SEC-The United States Securities and Exchange Commission.
SEC GUIDELINE LEVEL PREMIUM-The amount of level annual premium, calculated in
accordance with the provisions of Rule 6e-3(T) under the Investment Company Act
of 1940, guaranteed mortality and expense charges, and an interest rate of 5%.
SPECIFIED AMOUNT-A dollar amount used to determine the death benefit of the
Policy. The Specified Amount is the sum of the Basic Coverage and any
Supplemental Coverage. The Specified Amount is shown on the Policy Data Page.
The minimum Specified Amount is $100,000.
SUPPLEMENTAL COVERAGE-One of two types of coverage of which the Specified
Amount is comprised; the other type is Basic Coverage. Supplemental Coverage,
if elected at issuance, can never exceed 90% of the Specified Amount (see
"Underwriting and Issuance").
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 are 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
Accumulation Units might be materially affected.
VALUATION PERIOD-A period commencing with the close of business on a Valuation
Date and ending at the close of business for the next succeeding Valuation
Date.
VARIABLE ACCOUNT-Nationwide VLI Separate Account-2, a separate investment
account of Nationwide Life Insurance Company.
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TABLE OF CONTENTS
<TABLE>
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GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Variable Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Variable Account and its Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Deductions and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Death Benefit Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-Lifetime Death Benefit Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-Limited Death Benefit Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
NATIONWIDE LIFE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investments of the Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dreyfus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Fidelity Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . . . . . . . 12
Fidelity Variable Insurance Products Fund II . . . . . . . . . . . . . . . . . . . . . . . . 13
Nationwide Separate Account Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Neuberger & Berman Advisers Management Trust . . . . . . . . . . . . . . . . . . . . . . . . 14
Oppenheimer Variable Account Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Strong Special Fund II, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Strong Variable Insurance Products Funds, Inc. . . . . . . . . . . . . . . . . . . . . . . . 15
TCI Portfolios, Inc., a member of the Twentieth Century Family of Mutual Funds . . . . . . . 15
Van Eck Worldwide Insurance Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Van Kampen American Capital Life Investment Trust . . . . . . . . . . . . . . . . . . . . . 16
Warburg Pincus Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Substitution of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
INFORMATION ABOUT THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Underwriting and Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-Minimum Requirements for Issuance of a Policy . . . . . . . . . . . . . . . . . . . . . . . 18
-Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Allocation of Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Short-Term Right to Cancel Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
POLICY CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Deductions from Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-Monthly Cost of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-Monthly Administrative Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-Monthly Mortality Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-Increase Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
HOW THE CASH VALUE VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
How the Investment Experience is Determined . . . . . . . . . . . . . . . . . . . . . . . . 23
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Determining the Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Valuation Periods and Valuation Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SURRENDERING THE POLICY FOR CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Right to Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Partial Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Maturity Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
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<TABLE>
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Taking a Policy Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Effect on Investment Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Effect on Death Benefit and Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
HOW THE DEATH BENEFIT VARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Calculation of the Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
THE CASH VALUE ACCUMULATION TEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Proceeds Payable on Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
RIGHT OF CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CHANGES OF INVESTMENT POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-Without Death Benefit Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-Lifetime Death Benefit Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-Limited Death Benefit Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
THE FIXED ACCOUNT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CHANGES IN EXISTING INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Specified Amount Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Specified Amount Decreases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Changes in the Death Benefit Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Policy Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Nonparticipating Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CUSTODIAN OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-Taxation of Policy Split Option Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-Estate and Generation Skipping Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-Taxation of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-Description of Cash Value Accumulation Test and Guideline Premium/Cash Value Corridor Test . 35
Taxation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
OTHER CONTRACTS ISSUED BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
REPORTS TO POLICY OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. THE PRIMARY PURPOSE OF THE POLICY IS TO PROVIDE LIFE
INSURANCE PROTECTION FOR THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS
MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC
INVESTMENT PLAN OF AN UNDERLYING MUTUAL FUND.
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are offered on a "last survivor" basis. The Policies
provide life insurance coverage on two Insureds named in the Policy, and the
death benefit is paid on the death of the last surviving Insured. The Policies
also may provide a Cash Surrender Value if the Policy is surrendered while the
Policy is in force. 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
(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, and neither Death Benefit Guarantee (see
"Grace Period") is in effect, the Policy will lapse without value. Under
certain conditions, a Policy may become a Modified Endowment Contract as a
result of a material change or a reduction in benefits as defined by the Code.
Excess premiums paid also may cause the Policy to become a Modified Endowment
Contract. A loan, distribution, or other amount received from a Modified
Endowment Contract during the life of the Insured will be taxed to the extent
of any accumulated income on the Contract. Subject to certain exceptions, any
amounts that are taxable withdrawals will be subject to a 10% tax penalty. The
Company will monitor premiums paid and other policy transactions and will
notify the Policy Owner when the Policy's non-Modified Endowment Contract
status is in jeopardy (see "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner chooses the
sub-accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated (see "Allocation of Cash Value"). Assets of each
sub-account are invested at net asset value in shares of a corresponding
underlying Mutual Fund. For a description of the underlying Mutual Fund
options and their investment objectives, see "Investments of the Variable
Account."
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account.
Cash Values allocated to the Fixed Account are credited with interest daily at
a rate declared by the Company. The interest rate declared is at the Company's
sole discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for sales expenses, tax
expenses, providing life insurance protection and assuming the mortality and
expense risks. For a discussion of any charges imposed by the underlying
Mutual Fund options, see the prospectuses of the respective underlying Mutual
Funds.
The Company deducts a sales load from each premium payment, which will not
exceed 5.0% during the first ten policy years or 1.5% thereafter. Currently,
the sales load is 5.0% during the first ten policy years and 0% thereafter. The
total sales load actually deducted from any Policy will be equal to the sum of
the front-end sales load plus any sales surrender charge that may be deducted
from Policies that are surrendered. In addition, the portion of the increase
charges attributable to an increase in Specified Amount that reimburse the
Company for expenses incurred during distribution will be added to the total
sales load deduction.
The Company also deducts a tax expense charge of 3.5%, both current and
guaranteed, from all premium payments. This charge compensates the Company for
premium taxes imposed by various state and local jurisdictions and for federal
taxes imposed under Section 848 of the Code. The charge includes a premium tax
deduction of 2.25% and a federal tax deduction of 1.25%.
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day reflecting the sum
of:
1. monthly cost of insurance;
7
<PAGE> 8
2. monthly cost of any additional benefits provided by riders to the
Policy;
3. monthly administrative expense,
4. an increase charge per $1000 applied to any increase in the
Specified Amount (see "Specified Amount Increase"). The increase
charge is $2.40 per year per $1000 currently but may be raised to
$3.60 per year per $1000 on a guaranteed basis at the Company's
discretion. These amounts are shown on the Policy data page.
This charge is designed to cover the costs associated with
increasing the Specified Amount (see "Policy Charges"). This
charge will be deducted on each Monthly Anniversary Date for no
more than 12 consecutive months after the increase becomes
effective. The increase charge is based upon the dollar amount by
which the Specified Amount is increased, and;
5. the monthly mortality and expense risk charges.
The current monthly administrative expense charge referenced to Item 3
above is the sum of the per policy charge and the per $1,000 Basic
Coverage charge as set forth below:
<TABLE>
<CAPTION>
Monthly Monthly Per $1,000 Basic
Policy Year(s) Per Policy Coverage
-------------- ---------- ------------------------
<S> <C> <C>
1-10 $10.00 $0.04 but not less than
$20.00 or more than $80 per
policy
11+ $5.00 $0.02 but not less than
$10.00 or more than $40 per
policy
</TABLE>
The charge for year 11+ may be increased at the sole discretion of the
Company but may not exceed the charge for years 1-10. After either an
increase or a decrease in Specified Amount, the per $1000 portion of the
monthly administrative expense charge is based on the new Basic Coverage
currently in effect.
The Company also deducts a charge to assume mortality and expense risks. The
Mortality and Expense Risk Charges will be assessed on a monthly basis at the
beginning of each policy month and will be calculated as a percentage of the
assets of the Variable Account only. This charge will be deducted
proportionally solely from the assets in the Variable Account sub-accounts.
The Mortality and Expense Risk Charge is equivalent to an annual effective rate
of 0.80% for policy years 1-10. This charge varies starting at the beginning
of policy year eleven, depending upon the amount of the Cash Value. If the
Cash Value is less than $25,000, the Mortality and Expense Risk Charge will
remain at 0.80%. If the Cash Value is between $25,000 and $99,999, then the
Mortality and Expense Risk Charge will be reduced to 0.50%. If the Cash Value
equals or exceeds $100,000, then the Mortality and Expense Risk Charge will be
0.30%. These charges are all guaranteed.
The Company deducts a Surrender Charge from the Cash Value for any Policy
surrendered during the first 14 Policy Years unless the average issue age is
greater than or equal to age 75, in which case there is a Surrender Charge for
only the first nine Policy Years. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The maximum
initial Surrender Charge varies by issue ages, sexes, and underwriting
classifications of the Insureds and is calculated based on the Basic Coverage
on the Policy Date. The following table illustrates the maximum initial
Surrender Charge per $1,000 of initial Basic Coverage for Policies which are
issued on a male non-tobacco preferred and a female non-tobacco other than
preferred basis. Tobacco, non-tobacco "other than preferred" and preferred are
risk classes determined at Policy issuance in accordance with the Company's
underwriting guidelines (see Appendix 1 for specific examples).
<TABLE>
<CAPTION>
Per $1,000 of
Average Issue Age Initial Basic Coverage
----------------- ----------------------
<S> <C>
35 $5.39
45 8.37
55 11.16
65 15.67
75 23.20
</TABLE>
This Surrender Charge does not apply to increases in Specified Amount (see
"Glossary"). For further discussion of the Surrender Charge, see "Surrender
Charges."
8
<PAGE> 9
Underlying Mutual Fund shares are purchased at Net Asset Value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each underlying Mutual Fund's investment adviser
for managing the underlying Mutual Fund and selecting its portfolio of
securities. Other underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the underlying Mutual Fund. The
management fees and other expenses for each underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the underlying
Mutual Fund's average assets, are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Management Other Total
Fees Expenses Expenses
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Stock Index Fund 0.27% 0.12% 0.39%
------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 0.69% 0.58% 1.27%
------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income Portfolio 0.51% 0.10% 0.61%
------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio 0.61% 0.09% 0.70%
------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income Portfolio 0.60% 0.11% 0.71%
------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas Portfolio 0.76% 0.15% 0.91%
------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Asset Manager 0.71% 0.08% 0.79%
Portfolio
------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund Portfolio 0.61% 0.11% 0.72%
------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.01% 0.51%
------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.50% 0.02% 0.52%
------------------------------------------------------------------------------------------
NSAT Small Company Fund 1.00% 0.25% 1.25%
------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.50% 0.01% 0.51%
------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.84% 0.10% 0.94%
Trust-Growth Portfolio
------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.65% 0.10% 0.75%
Trust-Limited Maturity Bond Portfolio
------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.85% 0.30% 1.15%
Trust-Partners Portfolio
------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Bond 0.75% 0.05% 0.80%
Fund
------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Global 0.74% 0.15% 0.89%
Securities Fund
------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Multiple 0.74% 0.03% 0.77%
Strategies Fund
------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 1.00% 0.20% 1.20%
------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - 1.00% 0.31% 1.31%
Discovery Fund II, Inc.
------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - 1.00% 0.97% 1.97%
International Stock Fund II
------------------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI Balanced 1.00% 0.00% 1.00%
------------------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI Growth 1.00% 0.00% 1.00%
------------------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI International 1.50% 0.00% 1.50%
------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust- 0.79% 0.15% 0.94%
Worldwide Bond Fund
------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Gold and 0.80% 0.16% 0.96%
Natural Resources Fund
------------------------------------------------------------------------------------------
Van Kampen American Capital Life 1.00% 1.90% 2.90%
Investment Trust - Real Estate Securities
Fund
------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity 1.00% 0.44% 1.44%
Portfolio
------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth 0.90% 0.35% 1.25%
Portfolio
------------------------------------------------------------------------------------------
</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 values. The management fees
and other expenses are more fully described in the prospectuses for
each individual underlying Mutual Fund. The management fees and
other expense, some of which are subject to fee waivers or expense
reimbursements, are more fully described in the
9
<PAGE> 10
prospectuses for each individual underlying Mutual Fund. The information
relating to the underlying Mutual Fund expenses was provided by the underlying
Mutual Fund and was not independently verified by the Company.
PREMIUMS
A policy may be issued to Insureds age 18-85.
For a limited time, the Policy Owner has the right to cancel the Policy and
receive a full refund of premiums paid (see "Short-term Right to Cancel
Policy").
The Initial Premium is due and will be credited on the Policy Date. Any due
and unpaid monthly deductions will be subtracted from the Cash Value on the
Policy Date. Insurance will not be effective until the Initial Premium is
paid. The Initial Premium is shown on the Policy Data Page. The Initial
Premium may be paid to the Company at its Home Office or to an authorized
agent. A premium receipt will be furnished upon request.
Premiums other than the Initial Premium may be paid at any time while the
Policy is in force. Each premium payment must be at least $50. All premiums
after the first are payable at the Home Office. The Company will send
Scheduled Premium payment reminder notices according to the premium mode shown
in the Policy Data Page. 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 Net Amount
at Risk is the difference between the Death Benefit and the Cash Value, each
calculated at the beginning of the policy month. Also, the Company will refund
any portion of any premium payment which is determined to be in excess of the
premium limit established by law to qualify the Policy as a contract of life
insurance. Where permitted by state law, the Company may also require that any
existing Policy Indebtedness be repaid prior to accepting any additional
premium payments.
DEATH BENEFIT GUARANTEES
LIFETIME DEATH BENEFIT GUARANTEE: The Policy will not lapse if cumulative
premiums, less any indebtedness and partial withdrawals are greater than or
equal to cumulative Lifetime Death Benefit Guarantee Premiums (see "Grace
Period").
LIMITED DEATH BENEFIT GUARANTEE: The Policy will not lapse during the Limited
Death Benefit Guarantee Period if cumulative premiums, less any indebtedness
and partial withdrawals, are greater than or equal to cumulative Limited Death
Benefit Guarantee Premiums. The Limited Death Benefit Guarantee Period runs
from the Policy Date to the Policy Anniversary on or next following the younger
Insured's 75th birthday (see "Grace Period").
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide Mutual Insurance Company,
Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Insurance Company, National Casualty Company, West Coast Life Insurance
Company, Scottsdale Indemnity Company and Nationwide General Insurance Company.
The Company's Home Office is at One Nationwide Plaza, Columbus, Ohio 43216.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states,
the District of Columbia, and Puerto Rico (for additional information, see "The
Company").
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on May 7, 1987, pursuant to the provisions of Ohio law. The Company
has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of
the Investment Company Act of 1940. Such registration does not involve
supervision of the management of the Variable Account or the Company by the
Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under
the Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
10
<PAGE> 11
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more sub-accounts (see "Tax Matters"). The assets of each
sub-account are used to purchase shares of the underlying Mutual Fund options
designated by the Policy Owner. Thus, the investment performance of a Policy
depends upon the investment performance of the underlying Mutual Fund options
designated by the Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account (see "Allocation of Cash Value"). During the period in which the
Policy Owner may exercise his or her short-term right to cancel the Policy, all
Net Premiums not allocated to the Fixed Account are placed in the Nationwide
Separate Account Trust Money Market Fund sub-account. At the expiration of the
period in which the Policy Owner may exercise his or her short-term right to
cancel the Policy, shares of the underlying Mutual Funds specified by the
Policy Owner are purchased at Net Asset Value for the respective sub-accounts.
Any subsequent Net Premiums received after this period will be allocated based
on the underlying Mutual Fund allocation factors.
No less than 5% of Net Premiums may be allocated to any one sub-account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or
may transfer Cash Value from one sub-account to another, subject to such terms
and conditions as may be imposed by each underlying Mutual Fund option and as
set forth in this prospectus (see "Transfers", "Allocation of Cash Value", and
"Short-Term Right to Cancel Policy").
These underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of life insurance companies which may or may not be
affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which is disclosed in each underlying
Mutual Funds' prospectus. A full description of the underlying Mutual Funds,
their investment policies and restrictions, risks and charges are contained in
the prospectuses of the respective underlying Mutual Funds.
Each of the underlying Mutual Fund options is a registered investment company
which receives investment advice from a registered investment adviser:
1) Dreyfus Stock Index Fund, managed by Dreyfus Corporation;
2) The Dreyfus Socially Responsible Growth Fund, Inc., managed by
Dreyfus Corporation;
3) Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company; and
4) Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company.
5) Nationwide Separate Account Trust, managed by Nationwide Financial
Services, Inc.;
6) Neuberger & Berman Advisers Management Trust, managed by Neuberger
& Berman Management Incorporated;
7) Oppenheimer Variable Account Funds, managed by Oppenheimer Funds,
Inc.;
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., a member of the Twentieth Century Family of
Mutual Funds, managed by TCI Portfolios, Investors Research
Corporation;
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 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. More detailed information may be found in the
current prospectus for each underlying Mutual Fund option. A prospectus for
the underlying Mutual Fund option(s) being considered must accompany this
prospectus and should be read in conjunction herewith.
11
<PAGE> 12
DREYFUS
- - DREYFUS STOCK INDEX FUND
The Dreyfus Stock Index Fund is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January
24, 1989 and commenced operations on September 29, 1989. The Dreyfus
Corporation ("Dreyfus") serves as the Fund's manager, while Mellon Equity
Associates, an affiliate of Dreyfus, serves as the Fund's index manager.
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.
- - DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Dreyfus Socially Responsible Growth Fund, Inc. is an open-end,
diversified, management investment company. It was incorporated under
Maryland law on July 20, 1992; the Fund commenced operations on October
7, 1993. Dreyfus Corporation serves as the Fund's investment advisor.
Tiffany Capitol Advisors, Inc. serves as the Fund's sub-investment
adviser and provides day-to-day management of the Fund's portfolio.
Investment Objective: The Fund's primary goal is to provide capital
growth through equity investment in companies that, in the opinion of the
Fund's management, not only meet traditional investment standards, but
which also show evidence that they conduct their business in a manner
that contributes to the enhancement of the quality of life in America.
Current income is secondary to the primary goal.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's
manager.
- - HIGH INCOME PORTFOLIO
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital. The
portfolio's manager will seek high current income normally by investing
the Portfolio's assets as follows:
- at least 65% in income-producing debt securities and preferred
stocks, including convertible securities, zero coupon securities,
and mortgage-backed and asset-backed securities.
- up to 20% in common stocks and other equity securities when
consistent with the Portfolio's primary objective or acquired as
part of a unit combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or
lower by Moody's; BB or lower by Standard & Poor's and may be deemed to
be of a speculative nature. The Portfolio may also purchase lower-
quality bonds such as those rated Ca3 by Moody's or C- by Standard &
Poor's which provide poor protection for payment of principal and
interest (commonly referred to as "junk bonds"). For a further
discussion of lower-rated securities, please see the "Risks of
Lower-Rated Debt Securities" section of the Portfolio's prospectus.
- - EQUITY-INCOME PORTFOLIO
Investment Objective: To seek reasonable income by investing primarily
in income-producing equity securities. In choosing these securities FMR
also will consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield
on the securities comprising the Standard & Poor's 500 Composite Stock
Price Index.
- - GROWTH PORTFOLIO
Investment Objective: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and
established companies, and smaller, less well-known companies which may
have a narrow product line or whose securities are thinly traded. These
latter securities will often involve greater risk than may be found in
the ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and
investment in the Portfolio may involve greater risk than is inherent in
other mutual funds. It is also important to point out that the Portfolio
makes most sense for you if you can afford to ride out changes in the
stock market, because it invests primarily in common stocks. FMR also
can make temporary investments in securities such as investment-grade
bonds, high-quality preferred stocks and short-term notes, for defensive
purposes when it believes market conditions warrant.
12
<PAGE> 13
- - OVERSEAS PORTFOLIO
Investment Objective: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio
provides a means for investors to diversify their own portfolios by
participating in companies and economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on March 21, 1988. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the Fund's manager.
- - ASSET MANAGER PORTFOLIO
Investment Objective: To seek to obtain high total return with reduced
risk over the long-term by allocating its assets among domestic and
foreign stocks, bonds and short-term fixed income instruments.
- - 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 organized 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 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.
- - 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. The sub-advisers were chosen
because they utilize a number of different investment styles when
investing in small company stocks. By utilizing a number of 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.
13
<PAGE> 14
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, its
total return. It seeks to achieve its objectives through investments in
a diversified portfolio of fixed and variable rate 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 under variable life insurance
policies and variable annuity contracts. Oppenheimer Funds, Inc. is the Funds'
investment advisor.
- - OPPENHEIMER 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.
- - OPPENHEIMER 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.
- - OPPENHEIMER 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. is a diversified, open-end management company
commonly called a mutual fund. The Special Fund II, Inc. 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 insurance policies. Strong Capital Management Inc. (the "Advisor") is the
investment advisor for the Fund.
Investment Objective: To seek capital appreciation through
investments in a diversified portfolio of equity securities.
14
<PAGE> 15
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, Inc.") and the Strong International Stock Fund II
("International Stock Fund II") were 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 the
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., A MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS
TCI Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a
diversified, open-end management company, designed only to provide investment
vehicles for variable annuity and variable life insurance products of insurance
companies. A member of the Twentieth Century Family of Mutual Funds, TCI
Portfolios is managed by Investors Research Corporation.
- - TCI BALANCED
Investment Objective: Capital growth and current income. The Fund will
seek to achieve its objective by maintaining approximately 60% of the
assets of the Fund in common stocks (including securities convertible
into common stocks and other equity equivalents) that are considered by
management to have better-than-average prospects for appreciation and
approximately 40% in fixed income securities. There can be no assurance
that the Fund will achieve its investment objective.
- - TCI GROWTH
Investment Objective: Capital growth. The Fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The Fund may invest in cash and cash equivalents temporarily or when it
is unable to find common stocks meeting its criteria of selection. It
may purchase securities only of companies that have a record of at least
three years continuous operation. There can be no assurance that the
Fund will achieve its investment objective.
- - 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.)
15
<PAGE> 16
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
Portfolio does 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 portfolios 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 Trust's investment adviser.
- - 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, 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.
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.
16
<PAGE> 17
REINVESTMENT
The Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the underlying Mutual
Funds. The distribution of additional shares will not affect the number of
Accumulation Units attributable to a particular Policy.
TRANSFERS
After the first Policy Anniversary, the Policy Owner may annually transfer a
portion of the value of the Variable Account to the Fixed Account, without
penalty or adjustment. The Policy Owner may request a transfer of up to 100%
of the Cash Value from the Variable Account to the Fixed Account. The Company
reserves the right to restrict transfers to the Fixed Account to 25% of the
Cash Value. The Policy Owner's Cash Value in each sub-account will be
determined as of the date the transfer request is received in the Home Office
in good order.
The Policy Owner may transfer a portion of the value of the Fixed Account to
the Variable Account once each Policy Year, without penalty or adjustment. The
Policy Owner may request a transfer of up to 100% of the Cash Value in the
Fixed Account to the Variable sub-accounts. The Company reserves the right to
restrict the amounts of such transfers to 25% of the Cash Value in the Fixed
Account.
Transfers may be made once per Valuation Date and may be made either in writing
or, in states allowing such transfers, by telephone. In states allowing
telephone transfers, and if the Owner so elects, the Company will also permit
the Policy Owner to utilize the Telephone Exchange Privilege for exchanging
amounts among sub-account options. The Company will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Such procedures may include any or all of the following, or such other
procedures as the Company may, from time to time, deem reasonable: requesting
identifying information, such as name, contract number, Social Security Number,
and/or personal identification number; tape recording all telephone
transactions; and providing written confirmation thereof to both the Policy
Owner and any agent of record at the last address of record. Although failure
to follow reasonable procedures may result in the Company's liability for any
losses due to unauthorized or fraudulent telephone transfers, the Company will
not be liable for following instructions communicated by telephone which it
reasonably believes to be genuine. Any losses incurred pursuant to actions
taken by the Company in reliance on telephone instructions reasonably believed
to be genuine shall be borne by the Contract Owner. The Company may determine
to withdraw the Telephone Exchange Privilege, upon 30 days written notice to
Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the
Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio
sub-account to any other sub-account within the Variable Account on a monthly
basis. This service is intended to allow the Policy Owner to utilize Dollar
Cost Averaging, a long-term investment program which provides for regular,
level investments over time. The Company makes no guarantees that Dollar Cost
Averaging, will result in a profit or protect against loss in a declining
market. To qualify for Dollar Cost Averaging, there must be a minimum total
Cash Value, less Policy Indebtedness, of $15,000. Transfers for purposes of
Dollar Cost Averaging can only be made from the Money Market sub-account, Fixed
Account, or the Limited Maturity Bond Portfolio sub-account. The minimum
monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost
Averaging monthly transfers from the Fixed Account must be equal to or less
than 1/30th of the Fixed Account value when the Dollar Cost Averaging program
is requested. Transfers out of the Fixed Account, other than for Dollar Cost
Averaging, may be subject to certain additional restrictions (see "Transfers").
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.
17
<PAGE> 18
SUBSTITUTION OF SECURITIES
If shares of the underlying Mutual Fund options should no longer be available
for investment by the Variable Account or, if in the judgment of the Company's
management further investment in such underlying Mutual Funds should become
inappropriate in view of the purposes of the Policy, the Company may substitute
shares of another underlying Mutual Fund for shares already purchased or to be
purchased in the future by Net Premium payments under the Policy. No
substitution of securities in the Variable Account may take place without prior
approval of the Securities and Exchange Commission, and under such requirements
as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value
allocated to the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote
the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Mutual
Funds. These shares will be voted in accordance with instructions received
from Policy Owners who have an interest in the Variable Account. 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
underlying Mutual Fund shares in each sub-account attributable to each Policy
Owner is determined by dividing any portion of the Policy's Cash Value derived
from participation in that underlying Mutual Fund by the net asset value of one
share of that underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as
of a date chosen by the Company, but not more than 90 days prior to the meeting
of the underlying Mutual Fund. Voting instructions will be solicited by
written communication prior to such meeting.
The Company will vote underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares
held by the Company or by the Variable Account as to which no timely
instructions are received will be voted by the Company in the same proportion
as the voting instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the
underlying Mutual Funds' proxy material and a form with which to give such
voting instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
underlying Mutual Fund shares in any manner necessary to enable the underlying
Mutual Fund to: (1) make or refrain from making any change in the investments
or investment policies for any of the underlying Mutual Funds, if required by
an insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or
investment adviser, based on a good faith determination that such change would
be contrary to state law or otherwise inappropriate in light of the portfolio's
objective and purposes; or (3) enter into or refrain from entering into any
advisory agreement or underwriting contract, if required by any insurance
regulatory authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies provide life insurance coverage and the flexibility to vary the
amount and frequency of premium payments, subject to applicable tax
requirements. At issue of the Policy, the Policy Owner selects the premium and
Specified Amount, which consists of the Basic Coverage and Supplemental
Coverage, if any. The proportion of Supplemental Coverage is irrevocably
elected by the Policy Owner at issue, and thus, once elected such proportion
cannot change. A Policy Owner can apply to increase or decrease the Specified
Amount no more than once per Policy Year.
18
<PAGE> 19
The minimum Specified Amount is $100,000. Supplemental Coverage cannot exceed
90% of the Specified Amount.
The Supplemental Coverage differs from the Basic Coverage in several respects;
(1) Supplemental Coverage has lower cost of insurance rates, on a current
basis, (2) has no Surrender charges, and (3) has no monthly per unit charge, on
a current basis.
Policies may be issued to Insureds with average issue ages 18 to 85. Before
issuing any Policy, the Company requires satisfactory evidence of insurability
which may include medical examinations.
- -Premium Payments
The Initial Premium for a Policy is payable in full to an authorized agent or
at the Company's Home Office. Upon payment of an initial premium, temporary
insurance may be provided, subject to a maximum amount. The effective date of
permanent insurance coverage is dependent upon completion of all underwriting
requirements, payment of the entire Initial Premium, and delivery of the policy
while both Insureds are still living.
Each premium payment must be at least $50. Additional premium payments may be
made at any time while the Policy is in force. However, the Company reserves
the right to require satisfactory evidence of insurability before accepting any
additional premium payment which results in an increase in the net amount at
risk. Also, the Company will refund any portion of any premium payment which
is determined to be in excess of the premium limit established by law to
qualify the Policy as a contract for life insurance. Where permitted by state
law, the Company may also require that any existing Policy Indebtedness be
repaid prior to accepting any additional premium payments. Additional premium
payments or other changes to the contract, may jeopardize the Policy's
non-modified endowment status. The Company will monitor premiums paid and
other policy transactions and will notify the Policy Owner when non-modified
endowment contract status is in jeopardy (see "Tax Matters").
ALLOCATION OF CASH VALUE
When the Policy is issued, the Net Premiums will be allocated to the Nationwide
Separate Account Trust Money Market Fund sub-account (for any Net Premiums
allocated to a sub-account on the application) or to 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 (see "Short-Time Right to Cancel
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 sub-account(s). The Policy Owner may change the
allocation of Net Premiums or may transfer Cash Value from one sub-account to
another, subject to such terms and conditions as may be imposed by each
underlying Mutual Fund and as set forth in the prospectus. Net Premiums
allocated to the Fixed Account at the time of application may not be
transferred prior to the first Policy Anniversary (see "Transfers" and
"Investments of the Variable Account").
The designation of investment allocations will be made by the prospective
Policy Owner at the time of application for a Policy. The Policy Owner may
change the way in which future Net Premiums are allocated by giving written
notice to the Company. All percentage allocations must be in whole numbers,
and must be at least 5%. The sum of allocations must equal 100%.
SHORT-TERM RIGHT TO CANCEL POLICY
A Policy may be returned for cancellation and a full refund of premium within
10 days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed
or delivered to the registered representative who sold it, or to the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the total premiums paid within seven
days after it receives the Policy.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
The Company deducts a sales load from each premium payment which will not
exceed 5.0% of such premium payment during the first ten policy years or 1.5%
of such premium payment thereafter. Currently, the sales load is 5.0% during
the first ten policy years and 0% thereafter. The total sales load actually
deducted from any Policy will be equal to the sum of this front-end sales load
plus any sales surrender charge that may be deducted from Policies that are
surrendered. In addition, the portion of the increase charges that reimburse
the Company for expenses incurred during distribution will be added to the
total sales load deduction.
19
<PAGE> 20
The Company also deducts a tax expense charge of 3.5%, both current and
guaranteed, from all premium payments. This charge reimburses the Company for
premium taxes imposed by various state and local jurisdictions and for federal
taxes imposed under Section 848 of the Code. This Charge includes a premium
tax deduction of 2.25% and a federal tax deduction of 1.25%.
The 2.25% premium tax deduction approximates the Company's average expense for
state and local premium tax. Premium taxes vary by jurisdiction ranging from
zero to more than 4%. The premium tax deduction is made whether or not any
premium tax applies and the deduction may be higher or lower than the premium
tax imposed. The 1.25% federal tax deduction is designed to reimburse the
Company for expenses incurred from federal taxes imposed under Section 848 of
the Code (enacted by the Omnibus Budget Reconciliation Act of 1990). The
federal tax deduction is a factor the Company must use when computing the
maximum sales load chargeable under SEC rules. The Company does not expect to
make a profit from the tax expense charge.
SURRENDER CHARGES
The Company deducts a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first fourteen Policy Years, unless the average
issue age is greater than or equal to age 75, in which case there is a
Surrender Charge for only the first nine Policy Years. The maximum Surrender
Charge varies by the issue ages, sexes, and underwriting classifications of the
Insureds and is calculated based on the initial Basic Coverage on the Policy
Date. The following table illustrates the maximum Surrender Charge per $1,000
of initial Basic Coverage for Policies which are issued on a male non-tobacco
preferred and a female non-tobacco other than preferred basis (see Appendix 1
for specific examples).
<TABLE>
<CAPTION>
Per $1,000 of
Average Issue Age Initial Basic Coverage
----------------- ----------------------
<S> <C>
35 $5.39
45 8.37
55 11.16
65 15.67
75 23.20
</TABLE>
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
average issue age in the following manner:
<TABLE>
<CAPTION>
Underwriting Surrender Charge
per $1,000 of Initial
Average Issue Age Basic Coverage
----------------- ---------------
<S> <C>
0-39 $4.00
40-49 6.00
50-59 7.00
60-85 8.00
</TABLE>
The remainder of the Surrender Charge which is not attributable to the
underwriting surrender charge component represents the sales surrender charge
component. In no event will this component exceed 23.75% of the lesser of the
SEC Guideline Level Premium in the first year or the premiums actually paid in
the first year. The maximum sales surrender charge per $1,000 of initial Basic
Coverage based upon a Policy issued on a male non-tobacco preferred and a
female non-tobacco other than preferred basis and is shown in the following
table.
<TABLE>
<CAPTION>
Sales Surrender Charge per
$1,000 of Initial
Average Issue Age Basic Coverage
----------------- --------------
<S> <C>
35 $1.39
45 2.37
55 4.16
65 7.67
75 15.20
</TABLE>
The purpose of the sales surrender charge is to reimburse the Company for some
of the expenses incurred in the distribution of the Policies.
20
<PAGE> 21
The underwriting surrender charge is designed to cover the administrative
expenses associated with underwriting and issuing the Policy, including the
costs of processing applications, conducting medical exams, determining
insurability and the Insured's underwriting class, and establishing policy
records. The Company does not expect to profit from the underwriting surrender
charges. The Surrender Charge may be insufficient to recover certain expenses
related to the sale of the Policies. Unrecovered expenses are born by the
Company's general assets which may include profits, if any, from mortality and
expense risk charges (see "Deductions from Cash Value"). Additional premiums
and/or income earned on assets in the Variable Account have no effect on these
charges. The Surrender Charge does not apply to increases or decreases in
Specified Amount.
The Surrender Charge is reduced in subsequent Policy Years in the following
manner:
FOR AN AVERAGE ISSUE AGE LESS THAN 75:
-------------------------------------
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge Surrender Charge
as a % of Initial as a % of Initial as a % of Initial
Policy Year Surrender Charge Policy Year Surrender Charges Policy Year Surrender Charge
----------- ---------------- ----------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
1 100% 6 85% 11 60%
2 100% 7 80% 12 45%
3 100% 8 75% 13 30%
4 95% 9 70% 14 15%
5 90% 10 65% 15+ 0%
</TABLE>
FOR AN AVERAGE ISSUE AGE GREATER THAN OR EQUAL TO 75:
----------------------------------------------------
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge
as a % of Initial as a % of Initial
Policy Year Surrender Charge Policy Year Surrender Charges
----------- ---------------- ----------- -----------------
<S> <C> <C> <C>
1 100% 6 60%
2 100% 7 45%
3 90% 8 30%
4 80% 9 15%
5 70% 10+ 0%
</TABLE>
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders; plus
3. monthly administrative expense; plus
4. an increase charge per $1000 applied to any increase in the
Specified Amount (see "Specified Amount Increases"). The increase
charge is $2.40 per year per $1000 currently but may be raised to
$3.60 per year per $1000 on a guaranteed basis at the Company's
discretion. These amounts are shown on the Policy data page.
This charge is designed to cover the costs associated with
increasing the Specified Amount (see "Policy Charges"). This
charge will be deducted on each Monthly Anniversary Date for no
more than 12 consecutive months after the increase becomes
effective. The increase charge is based upon the dollar amount by
which the Specified Amount is increased; plus
5. monthly mortality and expense risk charges
Items 1 through 4 above will be charged proportionately to the Cash Value in
each Variable Account sub-account and the Fixed Account. The monthly mortality
expense risk charges will be charged proportionately to the Cash Value in each
Variable Account sub-account.
- -Monthly Cost of Insurance
The monthly cost of insurance charge is determined in a manner that reflects
the anticipated mortality of the two Insureds and the fact that the death
benefit is not payable until the death of the second Insured to die.
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<PAGE> 22
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates are based on the 1980 Commissioners Standard
Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of
insurance rates for Policies issued on a substandard basis are based on
appropriate multiples of the 1980 CSO. These mortality tables are sex
distinct. In addition, separate mortality tables will be used for standard and
non-tobacco.
The rate class of an Insured may affect the cost of insurance rate. The
Company currently places Insureds into both standard rate classes and
substandard classes that involve a higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will have a lower cost
of insurance than an Insured in a rate class with higher mortality risks.
- -Monthly Administrative Expense Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only
to reimburse the Company for certain actual administrative expenses. The
Company does not expect to recover from this charge any amount in excess of
aggregate maintenance expenses. Currently, this charge is the sum of the per
policy charge and the per $1,000 Basic Coverage charge as set forth below:
<TABLE>
<CAPTION>
Policy Year(s) Per Policy Per $1,000 Basic Coverage
-------------- ---------- -------------------------
<S> <C> <C>
1-10 $10.00 $0.04 but not less than
$20.00 or more than $80 per
policy
11+ $5.00 $0.02 but not less than
$10.00 or more than $40 per
policy
</TABLE>
The charge for year 11+ may be increased at the sole discretion of the Company
but may not exceed the charge for years 1-10. After a change in Specified
Amount, the per $1000 portion of the monthly administrative Expense Charge is
based on the new Basic Coverage in effect.
- -Monthly Mortality Expense Risk Charge
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that both Insureds
may die sooner than expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses
due to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the
Policies, the Company deducts a mortality and expense risk charge at the
beginning of each policy month. The Mortality and Expense Risk Charge will
apply solely to the assets in the Variable Account. This charge will be
deducted proportionately from the assets in the Variable Account sub-accounts.
The Mortality and Expense Risk Charge is equivalent to an annual effective rate
of 0.80% for policy years 1-10. This charge varies starting at the beginning of
policy year eleven depending upon the amount of the Cash Value. If the Cash
Value is less than $25,000, the Mortality and Expense Risk Charge will remain
at 0.80%. If the Cash Value is between $25,000 and $99,999, then the Mortality
and Expense Risk Charge will be reduced to 0.50%. If the Cash Value equals or
exceeds $100,000, then the Mortality and Expense Risk Charge will be 0.30%.
These charges are all guaranteed.
- -Increase Charge
For any increases in Specified Amount after issue, an additional monthly charge
is made at the beginning of each month. This additional charge will be made
for the first 12 months following the effective date of the increase. The
additional amount charged is $2.40 per $1000 of increase per year currently but
may be raised to $3.60 per $1000 per year on a guaranteed basis at the
Company's discretion.
22
<PAGE> 23
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the
investment experience of the Variable Account and/or the daily crediting of
interest in the Fixed Account and Policy Loan Account depending on the
allocation of Cash Value by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash
Value allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the underlying Mutual Fund shares in that sub-account
were available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each sub-account for
the immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing
(a) by (b) where:
(a) is the net of:
(1) the net asset value per share of the underlying Mutual Fund held
in the sub-account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the underlying Mutual Fund held in the sub-account if the
"ex-dividend" date occurs during the current Valuation Period,
plus or minus.
(3) a per share charge or credit for taxes reserved for, if any, which
is determined by the Company to have resulted from the investment
operations of the sub-account.
(b) is the net asset value per share of the underlying Mutual Fund held in
the sub-account determined at the end of the immediately preceding
Valuation Period, plus or minus the per share charge or credit for taxes
reserved for in the immediately preceding Valuation Period.
For underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to
changes in the net asset value of underlying Mutual Fund shares, because of the
deduction of any charge or credit for tax reserves.
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.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account and the Policy Loan
Account is the Cash Value. The number of Accumulation Units credited per each
sub-account are determined by dividing the net amount allocated to the
sub-account by the Accumulation Unit Value for the sub-account for the
Valuation Period during which the premium is received by the Company. In the
event part or all of the Cash Value is surrendered or charges or deductions are
made against the Cash Value,
23
<PAGE> 24
an appropriate number of Accumulation Units from the Variable Account and an
appropriate amount from the Fixed Account will be deducted in the same
proportion that the Policy Owner's interest in the Variable Account and the
Fixed Account bears to the total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited
with interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office are open for business or any other day during
which there is sufficient degree of trading that the current Net Asset Value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the policy
is in force and receive its Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a Commercial
Bank or a Savings and Loan, which is a member of the Federal Deposit Insurance
Corporation. In some cases, the Company may require additional documentation
of a customary nature.
CASH SURRENDER VALUE
The 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 Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, Indebtedness
or other deductions due on that date, minus any Surrender Charge.
PARTIAL SURRENDERS
Partial Surrenders may be made at any time after the first Policy Anniversary.
Partial surrenders will be permitted only if they satisfy the following
requirements:
1. The minimum partial surrender is $500;
2. The partial surrender may not reduce the Specified Amount to less
than the Minimum Issue Amount ($100,000);
3. After the partial surrender, the Policy continues to qualify as
life insurance.
4. The maximum partial surrender is equal to the available Cash
Surrender Value less the greater of $500 and three monthly
deductions.
The Company reserves the right to limit the number of partial surrenders in
each Policy Year.
When a partial surrender is made, the Cash Value is reduced by the amount of
the partial surrender. Also, under death benefit Option 1, the Specified
Amount is reduced by the amount of the partial surrender. The Basic and
Supplemental Specified amounts are reduced proportionally. Partial surrender
amounts must be first deducted from the values in the Variable Account
sub-accounts. Partial surrenders will be deducted from the Fixed Account only
to the extent that insufficient values are available in the Variable Account
sub-accounts. The Company reserves the right to deduct a fee for each partial
surrender of not more than the lesser of $25 and 2% of the amount of the
partial surrender.
On a current basis, the Company does not deduct the above fee. Certain partial
surrenders may result in currently taxable income and tax penalties (see "Tax
Matters").
24
<PAGE> 25
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the younger
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
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Value less any Surrender Charge. Maximum Policy Indebtedness, in Texas, is
limited to 90% of the Cash Value in the sub-accounts and 100% of the Cash Value
in the Fixed Account less any Surrender Charge less interest due on the next
Policy Anniversary. The Cash Value less Surrender Charge is determined as of
the loan date. The Company will not grant a loan for an amount less than
$1,000. Should the Death Proceeds become payable, the Policy be surrendered,
or the Policy mature while a loan is outstanding, the amount of Policy
Indebtedness will be deducted from the Death Benefit, Surrender Value or the
Maturity Value, respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings
and Loan which is a member of the Federal Deposit Insurance Corporation.
Certain policy loans may result in currently taxable income and tax penalties
(see "Tax Matters").
A Policy Owner considering the use of policy loans in connection with his or
her retirement income plan should consult his or her personal tax adviser
regarding potential tax consequences that may arise if necessary payments are
not made to keep the Policy from lapsing. The amount of such payments
necessary to prevent the Policy from lapsing would increase with age (see "Tax
Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating
to a Policy are held in more than one sub-account, withdrawals from
sub-accounts will be made in proportion to the assets in each Variable
sub-account at the time of the loan. Policy loans will be transferred from the
Fixed Account only when insufficient amounts are available in the Variable
sub-accounts. The amount taken out of the Variable Account will not be
affected by the Variable Account's investment experience while the loan is
outstanding.
INTEREST
On a current basis, policy loans are credited with an annual effective rate of
5.1% during policy years 2 through 10 and an annual effective rate of 6% during
the 11th and subsequent policy years. The rate is guaranteed never to be lower
than 4%. The Company may change the current interest crediting rate on policy
loans at any time at its sole discretion. The loan interest rate is 6% per
year for all Policy loans. In the event that it is determined that such loans
will be treated, as a result of the differential between the interest crediting
rate and the loan interest rate, as taxable distributions under any applicable
ruling, regulation, or court decision, the Company retains the right to
increase the net cost (by decreasing the interest crediting rate) on all
subsequent policy loans to an amount that would result in the transaction being
treated as a loan under Federal tax law. If this amount is not prescribed by
such ruling, regulation, or court decision, the amount will be that which the
Company considers to be more likely to result in the transaction being treated
as a loan under Federal tax law.
25
<PAGE> 26
Amounts transferred to the Policy Loan Account will earn interest daily from
the date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary
or at the time of loan repayment. The earned interest will be allocated
according to the underlying Mutual Fund allocation factors in effect at the
time of the transfer.
Interest is charged daily and is payable at the end of each Policy Year or at
the time of loan repayment. Unpaid interest will be added to the existing
Policy Indebtedness as of the due date and will be charged interest at the same
rate as the rest of the Indebtedness.
Whenever the total Policy Indebtedness exceeds the Cash Value less any
Surrender Charges, the Company will send a notice to the Policy Owner and the
assignee, if any. The Policy will terminate without value 61 days after the
mailing of the notice unless a sufficient repayment is made during that period.
A repayment is sufficient if it is large enough to reduce the total Policy
Indebtedness to an amount equal to the total Cash Value less any Surrender
Charges plus an amount sufficient to continue the Policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account
or the Fixed Account will apply only to the non-loaned portion of the Cash
Value. The longer the loan is outstanding, the greater the effect is likely to
be. Depending on the investment results of the Variable Account or the Fixed
Account while the loan is outstanding, the effect could be favorable or
unfavorable.
REPAYMENT
All or part of the Indebtedness may be repaid at any time while the Policy is
in force during either Insured's lifetime. Any payment intended as a loan
repayment, rather than a premium payment, must be identified as such. Loan
repayments will be credited to the Variable sub-accounts and the Fixed Account
in proportion to the Policy Owner's underlying Mutual Fund allocation factors
in effect at the time of the repayment. Each repayment may not be less than
$50. The Company reserves the right to require that any loan repayments
resulting from Policy loans transferred from the Fixed Account must be first
allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects premium and the Specified Amount which
consists of the Basic Coverage and the Supplemental Coverage, if any (see
"Underwriting and Insurance").
While the Policy is in force, the death benefit will never be less than the
Specified Amount. The death benefit may vary with the Cash Value of the
Policy, which depends on investment performance.
The Policy Owner chooses one of two death benefit options. Under Option 1, the
death benefit will be the greater of the Specified Amount or the Applicable
Percentage of Cash Value (see below). Under Option 1, the amount of the death
benefit will ordinarily not change for several years to reflect the investment
performance and may not change at all. If investment performance is favorable,
the amount of death benefit may increase. To see how and when investment
performance will begin to affect death benefits, please see the illustrations.
Under Option 2, the death benefit will be the greater of the Specified Amount
plus the Cash Value, or the Applicable Percentage of Cash Value. Under "Option
2," the amount of the Death Benefit will vary directly with the investment
performance.
The term "Applicable Percentage" means the percentage shown in the
"Applicable Percentage of Cash Value Table." The Applicable Percentage depends
on whether the Policy Owner elected the Guideline Premium/Cash Value Corridor
Test or the Cash Value Accumulation Test. The following tables illustrate
applicable percentages:
26
<PAGE> 27
TABLE OF APPLICABLE PERCENTAGES OF CASH VALUE FOR GUIDELINE PREMIUM/CASH VALUE
CORRIDOR TEST
<TABLE>
<CAPTION>
Attained Age Percentage Attained Age Percentage Attained Age Percentage
of Younger of Cash of Younger of Cash of Younger of Cash
Insured Value Insured Value Insured Value
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 101%
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>
THE CASH VALUE ACCUMULATION TEST
This test also requires the Death Benefit to exceed an applicable percentage of
the Cash Value. These applicable percentages are the net inverses of net
single premiums based on an interest rate of 4% and 1980 CSO guaranteed
mortality as prescribed in Code Section 7702 for the Cash Value Accumulation
Test. These premiums vary with the ages, sexes, and risk classifications of
the Insureds.
The table below provides an example of applicable percentages for the Cash
Value Accumulation Test. This example is for a male non-tobacco preferred
issue age 55 and a female non-tobacco preferred issue age 55.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
POLICY YEAR CASH VALUE POLICY YEAR CASH VALUE POLICY YEAR CASH VALUE
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1 302% 16 174% 31 121%
2 290% 17 169% 32 119%
3 279% 18 164% 33 118%
4 269% 19 159% 34 116%
5 259% 20 154% 35 115%
6 249% 21 150% 36 113%
7 240% 22 146% 37 112%
8 231% 23 142% 38 111%
9 223% 24 139% 39 110%
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
POLICY YEAR CASH VALUE POLICY YEAR CASH VALUE POLICY YEAR CASH VALUE
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
10 215% 25 136% 40 108%
11 207% 26 133% 41 107%
12 200% 27 130% 42 106%
13 193% 28 127% 43 104%
14 186% 29 125% 44 103%
15 180% 30 123% 45 102%
</TABLE>
PROCEEDS PAYABLE ON DEATH
The actual Death Proceeds payable on the death of the last surviving Insured
will be the death benefit as described above, less any Policy Indebtedness, and
less any unpaid Policy Charges. Under certain circumstances, the Death
Proceeds may be adjusted (see "Incontestability", "Error in Age or Sex", and
"Suicide").
RIGHT OF CONVERSION
The Policy Owner may at any time, upon written request within 24 months of the
Policy Date, transfer all sub-account Cash Values to the Fixed Account. No
transfer charge will be assessed.
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of the Variable
Account. The Company must inform the Policy Owners and obtain all necessary
regulatory approvals. Any change must be submitted to the various state
insurance departments which may disapprove it if deemed detrimental to the
interests of the Policy Owners or if it renders the Company's operations
hazardous to the public. A Policy Owner who objects may, upon written request,
transfer all sub-account Cash Values 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. No transfer charge will be
assessed.
GRACE PERIOD
- -Without Death Benefit Guarantees
If the Surrender Value on a Monthly Anniversary Day is not sufficient to cover
the current monthly deduction, and no Death Benefit Guarantee is in effect, a
Grace Period will be allowed for the payment of a premium of at least 4 times
the current monthly deduction. The Company will send you a notice at the start
of the Grace Period at the last known address stating the amount of premium
required. The Grace Period will end 61 days after the later of the day the
Company mails the notice and the Monthly Anniversary Date when the Surrender
Value was insufficient. If the required amount is not paid by the end of the
Grace Period, this Policy will terminate without value. The Company will pay
the Death Proceeds if the Death Proceeds become payable during the Grace
Period.
- - Lifetime Death Benefit Guarantee
The Policy will not lapse if on each Monthly Anniversary Date, (1) is greater
than or equal to (2), where:
1. is the sum of all premiums paid to date less any Indebtedness and
less any previous partial surrenders, and
2. is the sum of the Lifetime Death Benefit Guarantee Premiums due since
the Policy Date including such premium for the current Monthly
Anniversary Date.
The Lifetime Death Benefit Guarantee is not permanently lost when premium
payments fall below those required to maintain this benefit. Payment of enough
premium to make (1) greater than or equal to (2) restores the benefit. Any
increase or decrease in Specified Amount would increase or decrease the minimum
guaranteed amount, respectively.
The Lifetime Death Benefit Guarantee Premium is shown on the Policy Data Page.
The Lifetime Death Benefit Guarantee Premium is the same as the IRS Guideline
Level Premium.
28
<PAGE> 29
- - Limited Death Benefit Guarantee
During the Limited Death Benefit Guarantee Period, the Policy will not lapse if
on each Monthly Anniversary Date (1) is greater than or equal to (2), where:
1. is the sum of all premiums paid to date less any Indebtedness and
less any previous partial surrenders, and
2. is the sum of the Limited Death Benefit Guarantee Premiums due since
the Policy Date including such premium for the current Monthly
Anniversary Date.
The Limited Death Benefit Guarantee is not permanently lost when premium
payments fall below those required to maintain this benefit. Payment of enough
premium to make (1) greater than or equal to (2) restores the benefit. Any
increase or decrease in Specified Amount would increase or decrease the minimum
guaranteed amount, respectively.
The Limited Death Benefit Guarantee Period runs from the Policy Date to the
Policy Anniversary on or next following the younger Insured's 75th birthday.
The Limited Death Benefit Guarantee Premium is shown on the Policy Data Page.
It is the percentage of the IRS Guideline Level Premium shown below. The first
percentage in each cell is for the first three policy years, or to the end of
the Limited Death Benefit Guarantee Period, if less than three years; the
second percentage is for the remainder of the Limited Death Benefit Guarantee
period, if any.
AVERAGE OF INSUREDS ISSUE AGES UNDER OPTION 1
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
POLICY SIZE 0-39 40-45 46 47 48 49 50-59 60+
(000) ------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 249 90,50 70,50 70,52 70,54 70,56 70,58 70,60 40,60
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
250-499 50,50 45,50 45,52 45,54 45,56 45,58 35,60 30,60
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
500+ 45,50 35,50 35,52 35,54 35,56 35,58 30,60 25,60
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE OF INSUREDS ISSUE AGES UNDER OPTION 2*
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
POLICY SIZE 0-39 40-45 46 47 48 49 50-59 60+
(000) ------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 249 30,17 24,17 24,18 24,19 24,20 24,21 25,22 15,23
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
250-499 16,16 15,17 15,18 15,19 15,20 15,21 13,22 11,23
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
500+ 13,16 12,17 12,18 12,19 12,20 12,21 11,22 10,23
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Shown as a percentage of the Option 2 IRS Guideline Level Premium.
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
lapses. The Policy Owner may reinstate the Policy provided both Insureds are
alive on the date of reinstatement 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 of both Insureds satisfactory
to the Company;
3. paying sufficient premium to cover all policy charges that were
due and unpaid during the Grace Period if the Policy terminated in
the fourth or later policy year;
4. paying sufficient premium to keep the Policy in force for 3 months
from the date of reinstatement; and
5. paying or reinstating any Indebtedness against the Policy which
existed at the end of the Grace Period.
29
<PAGE> 30
The effective date of a reinstated Policy will be the Monthly Anniversary Day
on or next following the date the application for reinstatement is approved by
the Company. If your Policy is reinstated, the Cash Value on the date of
reinstatement, but prior to applying any premiums or loan repayments received,
will be set equal to the lesser of:
1. the Cash Value at the end of the Grace Period; or
2. the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the underlying Mutual Fund allocation factors in effect at the start
of the Grace Period.
THE FIXED ACCOUNT OPTION
Because of exemptive and exclusionary provisions, interests in the Company's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor
any interests therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus relating to the
Fixed Account option. Disclosures regarding the General Account may, however,
be subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of the Company's General Account. The Company's
General Account consist of all assets of the Company other than those in the
Variable Account and in other separate accounts that have been or may be
established by the Company. Subject to applicable law, the Company has sole
discretion over the investment of the assets of the General Account, and Policy
Owners do not share in the investment experience of those assets. The Company
guarantees that the part of the Cash Value invested under the Fixed Account
option will accrue interest daily at an effective annual rate that the Company
declares periodically. The Fixed Account crediting rate will not be less than
an effective annual rate of 4%. Upon request the Company will inform a Policy
Owner of the then applicable rate. The Company is not obligated to credit
interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under
the Policy. Any request must be in writing and received at the Company's Home
Office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months. Any
approved change will have an effective date of the Monthly Anniversary Day on
or next following the date the Company approves the application for the change.
Basic Coverage and Supplemental Coverage will change proportionally. The
Company reserves the right to limit the number of Specified Amount changes to
one each Policy Year.
SPECIFIED AMOUNT INCREASES
After the first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
1. satisfactory evidence of insurability of both Insureds is
provided;
2. the increase is for a minimum of $10,000; and
3. age limits are the same as for a new issue.
SPECIFIED AMOUNT DECREASES
After the first Policy Year, the Policy Owner may also request a decrease to
the Specified Amount. Any such decrease shall reduce insurance in the
following order:
1. insurance provided by the most recent increase;
2. the next most recent increases successively; and
3. insurance provided under the original application.
30
<PAGE> 31
The Company will refuse a request for a decrease which would:
1. reduce the Specified Amount to less than the minimum issue amount;
or
2. disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the first Policy Year, the Policy Owner may change the death benefit
option under the Policy. If the change is from Option 1 to Option 2, the
Specified Amount will be decreased by the amount of the Cash Value. Basic
Coverage and Supplemental Coverage will be decreased proportionally. If the
change is from Option 2 to Option 1, the Specified Amount will be increased by
the amount of the Cash Value. Basic Coverage and Supplemental Coverage will be
increased proportionally. Evidence of insurability is not required for a
change from Option 2 to Option 1. The Company reserves the right to require
evidence of insurability for a change from Option 1 to Option 2. The effective
date of the change will be the Monthly Anniversary Date on or next following
the date the Company approves the request for change. Only one change of
option is permitted per Policy Year. A change in death benefit option will not
be permitted if it results in the total premiums paid exceeding the then
current maximum premium limitations prescribed by the Internal Revenue Service
to qualify the Policy as a life insurance contract.
OTHER POLICY PROVISIONS
POLICY OWNER
While either 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
either 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 dies before both Insureds have died, and there is no
contingent Policy Owner, 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 either Insured is living.
Any change must be in a written form satisfactory to the Company and recorded
at the Company's Home Office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by the
Company before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary is living when Death Proceeds become payable, the Death
Proceeds shall be paid to the Policy Owner or the Policy Owner's estate.
ASSIGNMENT
While either Insured is living, the Policy Owner may assign his or her rights
in the Policy. The assignment must be in writing, signed by the Policy Owner
and recorded by the Company at its Home Office. Any assignment will not affect
any payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness.
INCONTESTABILITY
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the lifetimes of
both Insureds for 2 years from the Policy Date. For any increase in Specified
Amount requiring evidence of insurability, the Company will not contest payment
of the Death Proceeds based on such an increase after it has been in force
during the lifetimes of both Insureds for 2 years from its effective date.
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<PAGE> 32
ERROR IN AGE OR SEX
If the age or sex of either Insured has been misstated, the affected benefits
will be adjusted by the ratio of the last monthly cost of insurance deducted to
the monthly cost of insurance that would have been deducted based on the true
age and sex of each Insured.
SUICIDE
If either Insured dies by suicide, while sane or insane, within two years from
the Policy Date, the Company will pay no more than the sum of the premiums
paid, less any Indebtedness and less any partial surrenders. If either Insured
dies by suicide, while sane or insane, within two years from the date an
application is accepted for an increase in the Specified Amount, the Company
will pay no more than the amount paid for such additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums paid on or after
August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with
legal counsel, the impact of Norris on any employment related insurance or
benefit program before purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where
the Policies may lawfully be sold. Such agents will be registered
representatives of broker dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
(NASD). The Policies will be distributed by the General Distributor,
Nationwide Financial Services, Inc.
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 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.
NFS acts as general distributor for the Nationwide Multi-Flex Variable Account,
Nationwide DC Variable Account, Nationwide Variable Account - II, Nationwide
Variable Account - 5, Nationwide Variable Account - 6, Nationwide Variable
Account - 8, Nationwide VA Separate Account - A, Nationwide VA Separate Account
- - B, Nationwide VA Separate Account - C, Nationwide VL Separate Account - A,
Nationwide VLI Separate Account - 2, Nationwide VLI Separate Account - 3, NACo
Variable Account and the Nationwide Variable Account, all of which are separate
investment accounts of the Company or its affiliates. NFS is a wholly owned
subsidiary of the Company.
NFS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust, and
Nationwide Investing Foundation II, which are open-end management investment
companies.
Gross first year commissions plus any expense allowance payments paid by the
Company on the sale of these policies provided by the General Distributor will
not exceed 80% of first year premiums up to the target premium plus 4% of any
excess premium payments. Gross renewal commissions in years 2-10 paid by the
Company will not exceed 4% of actual premium payment, and will not exceed 1% in
years 11+.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
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<PAGE> 33
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company
will monitor compliance with these tests. The Policy should thus receive the
same federal income tax treatment as fixed benefit life insurance. As a
result, the Death Proceeds payable under a Policy are excludable from gross
income of the beneficiary under Section 101 of the Code.
Although the Company believes that the Policy is in compliance with Section
7702 of the Code, the manner in which Section 7702 should be applied to certain
features of a last survivor variable life insurance contract is not directly
addressed by Section 7702. In the absence of final regulations or other
guidance issued under Section 7702, there is some uncertainty whether a last
survivor variable life insurance contract will satisfy the Section 7702
definition of a life insurance contract.
Section 7702A of the Code defines Modified Endowment Contracts as those
policies issued or materially changed on or after June 21, 1988 on which the
total premiums paid during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits after seven level
annual premiums (see "Information about the Policies"). The Code provides for
taxation of surrenders, partial surrenders, loans, collateral assignments and
other pre-death distributions from Modified Endowment Contracts in the same way
annuities are taxed. Modified Endowment Contract distributions are defined by
the Code as amounts not received as an annuity and are taxable to the extent
the Cash Value of the policy exceeds, at the time of distribution, the premiums
paid into the policy. A 10% tax penalty generally applies to the taxable
portion of such distributions unless the Policy Owner is over age 59 1/2 or
disabled.
The Policies offered by this prospectus may or may not be issued as Modified
Endowment Contracts. The Company will monitor premiums paid and will notify
the Policy Owner when the policy's non-modified endowment status is in
jeopardy. If a policy is not a Modified Endowment Contract, a cash
distribution during the first 15 years after a policy is issued which causes a
reduction in death benefits may still become fully or partially taxable to the
Owner pursuant to Section 7702(f)(7) of the Code. The Policy Owner should
carefully consider this potential effect and seek further information before
initiating any changes in the terms of the policy. Under certain conditions, a
policy may become a Modified Endowment as a result of a material change or a
reduction in benefits as defined by Section 7702A(c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h)
of the Code requires that the investments of separate accounts such as the
Variable Account be adequately diversified. Regulations issued by the
Secretary of the Treasury, set the standards for measuring the adequacy of this
diversification. To be adequately diversified, each sub-account of the
Variable Account must meet certain tests. The Company believes that the
investments of the Variable Account meet the applicable diversification
standards. The regulations provide that a variable life policy which does not
satisfy the diversification standards will not be treated as life insurance
under Section 7702 of the Internal Revenue Code, unless the failure to satisfy
regulations was inadvertent, the failure is corrected, and the Policy Owner or
the Company pays an amount to the Internal Revenue Service. The amount will be
based on the tax that would have been paid by the Policy Owner if the income,
for the period the policy was not diversified, had been received by the Policy
Owner. If the failure to diversify is not corrected in this manner, the Policy
Owner of the life policy will be deemed the owner of the underlying securities
and will be taxed on the earnings of his or her account.
Representatives of the Internal Revenue Service have suggested, from time to
time, that the number of underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of
underlying Mutual Funds, transfers between underlying Mutual Funds, exchanges
of underlying Mutual Funds or changes in investment objectives of underlying
Mutual Funds such that the Policy would no longer qualify as life insurance
under Section 7702 of the Code, the Company will take whatever steps are
available to remain in compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse or the maturity of the
Policy on its Maturity Date may have adverse tax consequences. If the amount
received by the Policy Owner plus total Policy Indebtedness exceeds the
premiums paid into the Policy, the excess generally will be treated as taxable
income, regardless of whether or not the Policy is a modified endowment
contract.
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<PAGE> 34
Federal estate tax is integrated with federal gift tax under a unified rate
schedule. In general, estates less than $600,000 will not incur a federal
estate tax liability. In addition, an unlimited marital deduction may be
available for federal estate and gift tax purposes. The unlimited marital
deduction permits the deferral of taxes until the death of the surviving
spouse, when the death benefit would be available to pay taxes due and other
expenses incurred.
Generally the taxable portion of any Distribution from a Contract to a
nonresident alien of the United States is subject to tax withholding at a rate
equal to thirty percent (30%) of such amount or, if applicable, a lower treaty
rate. A payment may not be subject to withholding where the recipient
sufficiently establishes that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and such
payment is includable in the recipient's gross income.
If the Policy Owner (whether or not he or she is an Insured) transfers
ownership of the Contract to someone two or more generations younger, the
transfer may be subject to the generation-skipping transfer tax ("GSTT"), the
taxable amount being the value of the Policy. The GSTT provisions generally
apply to transfers subject to estate and gift tax rules. Individuals generally
are permitted an aggregate exemption of $1 million. Since these rules are
complex, the Policy Owner should consult with a tax adviser for specific
information on the transfer of benefits to younger generations.
- -Taxation of Policy Split Option Rider
The Policy Split Option Rider permits a Policy to be split into two other
single life insurance contracts upon the occurrence of a divorce of the joint
Insureds or other certain changes in the federal estate tax law (see "Rider"
section).
A policy split could have adverse tax consequences. It is not clear whether a
policy split will be treated as a nontaxable exchange under Section 1035 of the
Internal Revenue Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an
amount up to any gain in the Policy at the time of the split. Additionally, it
is not clear whether, in all circumstances, the resulting individual contracts
would be treated as life insurance contracts for federal income tax purposes
and, if so treated, whether the individual contracts would be classified as
Modified Endowment Contracts. Before the Policy Owner exercised rights
provided by the policy split option rider, it is important that a competent tax
adviser be consulted regarding the possible consequences of a policy split.
- -Estate and Generation Skipping Taxes
Ownership of this Policy may have federal estate tax consequences for the
insured taxpayers. When the surviving Insured dies, the death benefit will
generally be included in the Insured's gross estate if (1) the proceeds were
payable to or for the benefit of the Insured's estate, or (2) the Insured held
incidents of ownership in the policy at death or within three years of death.
If the Policy Owner was not the last surviving Insured, the value of the Policy
would be included in the Policy Owner's estate.
Additionally, the transfer of the Policy or the designation of a beneficiary
may also have federal, state and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation skipping
transfer taxes. For example, the transfer of the Policy to, the designation as
beneficiary, or the payment of proceeds to a person who is assigned to a
generation which is two or more generations below the generation of the Policy
Owner, may have generation skipping transfer tax considerations under Section
2601 of the Internal Revenue Code.
Federal estate, 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. A Policy Owner should consult with a competent
tax adviser for specific information regarding the applicability of such taxes.
TAXATION OF THE POLICY
Section 7702 of the Code provides that, if one of two alternative qualification
tests is met, a Policy will be treated as life insurance for federal tax
purposes. The two tests are referred to as the Cash Value Accumulation Test
and the Guideline Premium/Cash Value Corridor Test.
Under the Cash Value Accumulation Test, the terms of the Policy must,
generally, provide that the cash surrender value of the Policy, as defined in
Section 7702 of the Code, cannot at any time exceed the net single premium
required to fund the future benefits under the Policy. The net single premium
under the Policy will vary according to the age, sex and underwriting
classification of the Insureds. Under this test, premiums may be paid as long
as the death benefits is at least equal to the benefit that could be purchased
with a net single premium equal to the
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<PAGE> 35
Cash Value. A table showing an example of the relationship between the Cash
Value and death benefit under this test is found in the "How the Death Benefit
Varies" section.
Under the Guideline Premium/Cash Value Corridor Test, the sum of the premiums
paid into the Policy cannot, at any time, exceed the guideline premium
limitation described in Section 7702 of the Code. Additionally, a minimum
death benefit must be provided, based on the Cash Value. A table showing the
required relationship between the Cash Value and the Death Benefit under this
test is found in the "How the Death Benefit Varies" section. Policy Owners
selecting this test may also select either an Option 1 or Option 2 death
benefit. A detailed explanation of the two options is found under the heading
"How the Death Benefit Varies."
The Policy Owners must choose one of these two qualifications tests on the
application. Once elected, the qualification test cannot be changed for the
duration of the Policy. If neither test is designated on the application, the
Guideline Premium/Cash Value Corridor Test with and Option 1 Death Benefit will
be assumed by the Company to have been selected.
The Policy should receive the same federal tax treatment as a fixed benefit
life insurance policy. The Death Benefit paid under the Policy that satisfies
the statutory definition of life insurance is excludable from the gross income
of the beneficiary under Section 101 of the Code.
Regardless of which test is selected, the Company will monitor compliance with
statutory definition of life insurance for federal tax purposes.
DESCRIPTION OF CASH VALUE ACCUMULATION TEST AND GUIDELINE PREMIUM/CASH VALUE
CORRIDOR TEST
Section 7702(b)(1) of the Code provides that if one of two alternate tests are
met, a Policy will be treated as a life insurance for federal tax purposes.
The two tests are referred to as the Cash Value Accumulation Test and the
Guideline Premium/Cash Value Corridor Test.
The Cash Value Accumulation Test generally requires that under the terms of a
life insurance policy, the death benefit must be sufficient so that the cash
surrender value, as defined in Section 7702(f)(2), does not at any time exceed
the net single premium required to fund the future benefits under the policy.
The net single premium under the Policy will vary according to the age, sex and
underwriting classification of the Insureds.
Under the Cash Value Accumulation Test, there is no limit to the amount that
may be paid in premiums as long as there is sufficient death benefit in
relation to the Account Value at all times. A table containing the applicable
percentage of Cash Value can be found in the "How the Death Benefit Varies"
section.
The Guideline Premium/Cash Value Corridor Test requires that the sum of the
premiums paid into the Contract does not at any time exceed the guideline
premium limitation. Additionally, a minimum corridor of Death Benefit in
relation to Account Value must be maintained.
Policy Owners who elect this test are given the option of electing either an
Option 1 or Option 2 death benefit. Please refer to "How The Death Benefit
Varies" for a detailed explanation.
The Policy Owners must make the election of death benefit qualification tests
on the application. Once elected, the Death Benefit qualification test cannot
be changed for the duration of the Policy. If no option is designated, the
guideline premium test Option 1 will be assumed by the Company to have been
selected.
Regardless of which test is selected, the Company will monitor compliance to
assure that the Policy meets the statutory definition of life insurance for
federal tax purposes. The Policy should thus receive the same federal income
tax treatment as fixed benefit life insurance. As a result, the Death Proceeds
payable under a Policy are excludable from gross income of the beneficiary
under Section 101 of the Code.
The Policy Owner elects either the Cash Value Accumulation Test or the
Guideline Premium/Cash Value Corridor Test in the application. This election
is irrevocable.
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.
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<PAGE> 36
The Company does not initially expect to incur any Federal income tax liability
that would be chargeable to the Variable Account. Based upon these
expectations, no charge is currently being made against the Variable Account
for federal income taxes. If, however, the Company determines that on a
separate company basis such taxes may be incurred, it reserves the right to
assess a charge for such taxes against the Variable Account.
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as tax advice. Counsel
and other competent advisors should be consulted for more complete information.
This discussion is based on the Company's understanding of Federal income tax
laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of continuation of these current
laws and interpretations.
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In
general, all states have statutory administrative powers. Such regulation
relates, among other things, 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 serves as depositor for the Nationwide Variable Account, Nationwide
Variable Account - II, Nationwide Variable Account - 3, Nationwide Variable
Account - 4, Nationwide Variable Account - 5, Nationwide Variable Account - 6,
Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account - 8,
MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI
Separate Account, Nationwide VLI Separate Account - 2, Nationwide VLI Separate
Account - 3, the NACo Variable Account and the DC Variable Account, each of
which is a registered investment 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 the Home Office, other facilities and equipment
with Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Indemnity Company, Nationwide Mutual Fire Insurance
Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, West Coast Life
Insurance Company, Scottsdale Indemnity Company and Nationwide General
Insurance Company and their affiliate companies comprise the Nationwide
Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Corporation is the sole
shareholder of Nationwide Life.
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<PAGE> 37
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Director
Name Since Principal Occupation
---- ----- --------------------
<S> <C> <C>
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner and Manager, Fred W. Eckel Sons and Eckel Farms, Inc.
(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)
Charles L. Fuellgraf, Jr. * + 1969 Chief Executive Officer, Fuellgraf Electric Company, Electrical
Construction and Engineering Services (1)
Joseph J. Gasper*+ 1996 President and Chief Operating Officer, Nationwide Life Insurance
Company and Nationwide Life and Annuity Insurance Company
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
D. Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide Insurance
Enterprise (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)
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)
</TABLE>
*Member, Executive Committee +Member, Investment Committee
1) Principal occupation for last five years.
2) Prior to assuming this current position, Messrs. McFerson and Gasper held
other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only
of the Company and Nationwide Life Insurance Company. Messrs. McFerson and
Gasper are directors of Nationwide Financial Services, Inc., a registered
broker-dealer.
Messrs. Holloway, McFerson, Miller, Patterson and Shisler are directors of
Nationwide Corporation. Messrs. Fuellgraf, McFerson, Ms. Thomas and Mr. Weihl
are trustees of Nationwide Investing Foundation, a registered investment
company. Mr. McFerson is trustee of Nationwide Separate Account Trust,
Financial Horizons Investment Trust and Nationwide Investing Foundation II,
registered investment companies. Mr. Engel is a director of Western
Cooperative Transport.
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<PAGE> 38
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME OFFICE HELD
---- -----------
<S> <C>
D. Richard McFerson Chairman and Chief Executive Officer-Nationwide Insurance
Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate Services and
Secretary
Robert A. Oakley Executive Vice President-Chief Financial Officer
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
James E. Brock Senior Vice President - Life Company Operations
W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
Richard A. Karas Senior Vice President - Sales and Financial Services
Mark A. Folk Vice President and Treasurer
</TABLE>
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life and
Annuity Insurance Company. Mr. Galloway is also an officer of Nationwide
Mutual Insurance Company and Nationwide Life and Annuity Insurance Company.
Each of the other officers listed above is also an officer of each of the
companies comprising the Nationwide Insurance Enterprise. Each of the
executive officers listed above has been associated with the registrant in an
executive capacity for more than the past five years, except Mr. Folk who
joined the Registrant in 1993. From 1983-1993, Mr. Folk served as a partner in
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 the amount of the current death benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each sub-account of the Variable Account, and any
Policy Indebtedness.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes
in future premium allocation, transfers among sub-accounts, premium payments,
loans, loan repayments, reinstatement and termination.
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<PAGE> 39
ADVERTISING
The Company is also ranked and rated by independent financial rating services,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements, endorsements in the form of a list of organizations,
individuals or other parties which recommend the Company or the Contracts.
Furthermore, the Company may occasionally include in advertisements comparisons
of currently taxable and tax deferred investment programs, based on selected
tax brackets, or discussions of alternative investment vehicles and general
economic conditions.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business to which the Company and the Variable Account are
parties or to which any of their property is the subject.
The General Distributor, Nationwide Financial Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
The financial statements and schedules have been included herein in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Account, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement
of the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216.
All the members of such firm are employed by the Nationwide Mutual Insurance
Company.
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<PAGE> 40
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 Polices change with investment performance. The illustrations
demonstrate how Cash Values, Cash Surrender Values and Death Benefits under a
Policy would vary over time if the hypothetical gross investment rates of
return were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values,, Cash Surrender Values and Death Benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is not Policy Indebtedness, no additional
premium payments are made, no Cash Values are allocated to the Fixed Account,
and there are no changes in the Specified Amount or Death Benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the Variable Account sub-accounts is lower than the gross
return. This is due to the charges made against the assets of the Variable
Account sub-accounts for assuming mortality and expense risks, recovering
premium taxes and providing for administration expenses. On a current and
guaranteed basis, these charges are equivalent to an annual effective rate of
0.80% in the first ten policy years. This charge varies starting at the
beginning of policy year eleven, depending upon the size of the cash value. If
the cash value is less than $25,000, this charge remains at 0.80%. If the cash
value is between $25,000 and $99,999, then this charge will be reduced to
0.50%. If the cash value equals or exceeds $100,000, this charge is 0.30%. In
addition, the net investment returns also reflect the deduction of underlying
Mutual Fund investment advisory fees and other expenses which are equivalent to
an annual effective rate of 1.00%. This effective rate is based on the average
of the fund expenses for the preceding year for all mutual fund options
available under the policy as of April 30, 1996.
Taking account of the current charges for mortality and expense risks,
recovering premium taxes and providing for administrative an underlying Mutual
Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net
investment experience at constant annual rates of -1.80%, 4.20% and 10.20%,
respectively, in policy years one through ten, and varying thereafter. Taking
account of guaranteed charges, gross annual rates of return of 0%, 6% and 12%
correspond to net investment experience at constant annual rate of -1.80%,
4.20% and 10.20%, respectively, in policy years one through ten, and varying
thereafter.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for policies which are
issued as standard. Policies issued on a substandard basis would result in
lower Cash Values and Death Benefits than those illustrated. Death Benefit
Option 1 has been assumed in all the illustrations.
In addition, the illustrations reflect the fact that the Company deducts an
annual administrative charge at the beginning of each Policy Year after the
first. The illustrations also reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account. If such a
charge is made in the future, it will require a higher gross investment return
than illustrated in order to produce the net after-tax returns shown in the
illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
40
<PAGE> 41
$12,150 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
FEMALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
OPTION 1 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 12,758 10,279 393 1,000,000 10,913 1,028 1,000,000 11,548 1,663 1,000,000
2 26,153 20,271 10,385 1,000,000 22,169 12,283 1,000,000 24,143 14,257 1,000,000
3 40,218 29,966 20,080 1,000,000 33,765 23,879 1,000,000 37,871 27,986 1,000,000
4 54,986 39,351 29,960 1,000,000 45,697 36,306 1,000,000 52,831 43,439 1,000,000
5 70,493 48,410 39,513 1,000,000 57,959 49,062 1,000,000 69,124 60,227 1,000,000
6 86,775 57,127 48,725 1,000,000 70,544 62,141 1,000,000 86,866 78,463 1,000,000
7 103,872 65,480 57,571 1,000,000 83,437 75,528 1,000,000 106,178 98,269 1,000,000
8 121,823 73,434 66,019 1,000,000 96,613 89,199 1,000,000 127,182 119,768 1,000,000
9 140,671 80,946 74,026 1,000,000 110,039 103,119 1,000,000 150,012 143,092 1,000,000
10 160,462 87,974 81,549 1,000,000 123,678 117,253 1,000,000 174,814 168,388 1,000,000
11 181,243 95,394 89,463 1,000,000 138,461 132,530 1,000,000 202,767 196,836 1,000,000
12 203,063 102,270 97,821 1,000,000 153,469 149,021 1,000,000 233,196 228,748 1,000,000
13 225,973 108,579 107,097 1,000,000 168,693 167,210 1,000,000 266,357 264,874 1,000,000
14 250,030 114,303 112,820 1,000,000 184,124 182,642 1,000,000 302,540 301,057 1,000,000
15 275,289 119,405 119,405 1,000,000 199,744 199,744 1,000,000 342,063 342,063 1,000,000
16 301,810 124,081 124,081 1,000,000 215,749 215,749 1,000,000 385,469 385,469 1,000,000
17 329,658 128,364 128,364 1,000,000 232,191 232,191 1,000,000 433,223 433,223 1,000,000
18 358,899 132,293 132,293 1,000,000 249,134 249,134 1,000,000 485,847 485,847 1,000,000
19 389,601 135,941 135,941 1,000,000 266,671 266,671 1,000,000 543,938 543,938 1,000,000
20 421,839 139,433 139,433 1,000,000 284,942 284,942 1,000,000 608,175 608,175 1,000,000
21 455,688 141,916 141,916 1,000,000 303,264 303,264 1,000,000 678,856 678,856 1,000,000
22 491,230 143,254 143,254 1,000,000 321,556 321,556 1,000,000 756,794 756,794 1,000,000
23 528,549 143,297 143,297 1,000,000 339,734 339,734 1,000,000 842,964 842,964 1,000,000
24 567,734 141,863 141,863 1,000,000 357,697 357,697 1,000,000 938,531 938,531 1,000,000
25 608,878 138,711 138,711 1,000,000 375,313 375,313 1,000,000 1,044,300 1,044,300 1,096,515
26 652,080 133,520 133,520 1,000,000 392,403 392,403 1,000,000 1,160,438 1,160,438 1,218,460
27 697,441 125,870 125,870 1,000,000 408,739 408,739 1,000,000 1,287,910 1,287,910 1,352,305
28 745,071 115,223 115,223 1,000,000 424,034 424,034 1,000,000 1,427,758 1,427,758 1,499,146
29 795,082 100,946 100,946 1,000,000 437,972 437,972 1,000,000 1,581,108 1,581,108 1,660,164
30 847,594 82,319 82,319 1,000,000 450,212 450,212 1,000,000 1,749,171 1,749,171 1,836,630
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 42
$12,150 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
FEMALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
OPTION 1 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 12,758 10,274 388 1,000,000 10,908 1,022 1,000,000 11,543 1,657 1,000,000
2 26,153 20,247 10,361 1,000,000 22,144 12,258 1,000,000 24,116 14,231 1,000,000
3 40,218 29,902 20,016 1,000,000 33,697 23,812 1,000,000 37,800 27,914 1,000,000
4 54,986 39,218 29,827 1,000,000 45,555 36,164 1,000,000 52,678 43,287 1,000,000
5 70,493 48,169 39,272 1,000,000 57,698 48,801 1,000,000 68,841 59,944 1,000,000
6 86,775 56,720 48,317 1,000,000 70,097 61,695 1,000,000 86,377 77,975 1,000,000
7 103,872 64,826 56,918 1,000,000 82,715 74,806 1,000,000 105,380 97,472 1,000,000
8 121,823 72,426 65,012 1,000,000 95,492 88,078 1,000,000 125,936 118,522 1,000,000
9 140,671 79,439 72,519 1,000,000 108,352 101,432 1,000,000 148,126 141,206 1,000,000
10 160,462 85,776 79,350 1,000,000 121,207 114,781 1,000,000 172,038 165,612 1,000,000
11 181,243 91,756 85,825 1,000,000 134,400 128,468 1,000,000 198,240 192,308 1,000,000
12 203,063 96,851 92,402 1,000,000 147,401 142,953 1,000,000 226,427 221,978 1,000,000
13 225,973 100,950 99,467 1,000,000 160,100 158,617 1,000,000 256,743 255,260 1,000,000
14 250,030 103,926 102,443 1,000,000 172,366 170,883 1,000,000 289,355 287,872 1,000,000
15 275,289 105,608 105,608 1,000,000 184,029 184,029 1,000,000 324,434 324,434 1,000,000
16 301,810 105,765 105,765 1,000,000 194,861 194,861 1,000,000 362,161 362,161 1,000,000
17 329,658 104,079 104,079 1,000,000 204,550 204,550 1,000,000 402,723 402,723 1,000,000
18 358,899 100,126 100,126 1,000,000 212,689 212,689 1,000,000 446,328 446,328 1,000,000
19 389,601 93,387 93,387 1,000,000 218,779 218,779 1,000,000 493,249 493,249 1,000,000
20 421,839 83,268 83,268 1,000,000 222,248 222,248 1,000,000 543,882 543,882 1,000,000
21 455,688 69,102 69,102 1,000,000 222,455 222,455 1,000,000 598,804 598,804 1,000,000
22 491,230 50,147 50,147 1,000,000 218,675 218,675 1,000,000 658,831 658,831 1,000,000
23 528,549 25,541 25,541 1,000,000 210,064 210,064 1,000,000 725,081 725,081 1,000,000
24 567,734 (*) (*) 1,000,000 195,569 195,569 1,000,000 799,054 799,054 1,000,000
25 608,878 (*) (*) 1,000,000 173,771 173,771 1,000,000 882,752 882,752 1,000,000
26 652,080 (*) (*) 1,000,000 142,711 142,711 1,000,000 978,740 978,740 1,027,677
27 697,441 (*) (*) 1,000,000 99,684 99,684 1,000,000 1,085,069 1,085,069 1,139,323
28 745,071 (*) (*) 1,000,000 40,930 40,930 1,000,000 1,200,974 1,200,974 1,261,022
29 795,082 (*) (*) 1,000,000 (*) (*) 1,000,000 1,327,126 1,327,126 1,393,483
30 847,594 (*) (*) 1,000,000 (*) (*) 1,000,000 1,464,218 1,464,218 1,537,428
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 43
$14,000 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
FEMALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
OPTION 2 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 14,700 11,941 1,616 1,011,941 12,675 2,350 1,012,675 13,410 3,085 1,013,410
2 30,135 23,563 13,238 1,023,563 25,762 15,437 1,025,762 28,049 17,724 1,028,049
3 46,342 34,853 24,528 1,034,853 39,259 28,934 1,039,259 44,020 33,695 1,044,020
4 63,359 45,797 35,988 1,045,797 53,160 43,351 1,053,160 61,434 51,625 1,061,434
5 81,227 56,375 47,082 1,056,375 67,456 58,164 1,067,456 80,408 71,116 1,080,408
6 99,988 66,567 57,791 1,066,567 82,137 73,361 1,082,137 101,072 92,296 1,101,072
7 119,688 76,345 68,085 1,076,345 97,182 88,922 1,097,182 123,557 115,297 1,123,557
8 140,372 85,671 77,927 1,085,671 112,558 104,814 1,112,558 147,994 140,250 1,147,994
9 162,090 94,492 87,265 1,094,492 128,218 120,990 1,128,218 174,518 167,291 1,174,518
10 184,895 102,758 96,047 1,102,758 144,110 137,399 1,144,110 203,273 196,561 1,203,273
11 208,840 111,427 105,232 1,111,427 161,243 155,048 1,161,243 235,528 229,333 1,235,528
12 233,982 119,461 114,814 1,119,461 178,585 173,939 1,178,585 270,500 265,854 1,270,500
13 260,381 126,831 125,282 1,126,831 196,103 194,554 1,196,103 308,418 306,869 1,308,418
14 288,100 133,509 131,960 1,133,509 213,762 212,214 1,213,762 349,534 347,985 1,349,534
15 317,205 139,451 139,451 1,139,451 231,512 231,512 1,231,512 394,109 394,109 1,394,109
16 347,765 144,877 144,877 1,144,877 249,568 249,568 1,249,568 442,707 442,707 1,442,707
17 379,853 149,822 149,822 1,149,822 267,969 267,969 1,267,969 495,760 495,760 1,495,760
18 413,546 154,332 154,332 1,154,332 286,770 286,770 1,286,770 553,753 553,753 1,553,753
19 448,923 158,492 158,492 1,158,492 306,066 306,066 1,306,066 617,263 617,263 1,617,263
20 486,070 162,444 162,444 1,162,444 326,018 326,018 1,326,018 686,987 686,987 1,686,987
21 525,073 165,195 165,195 1,165,195 345,623 345,623 1,345,623 762,485 762,485 1,762,485
22 566,027 166,588 166,588 1,166,588 364,683 364,683 1,364,683 844,146 844,146 1,844,146
23 609,028 166,452 166,452 1,166,452 382,976 382,976 1,382,976 932,380 932,380 1,932,380
24 654,179 164,593 164,593 1,164,593 400,240 400,240 1,400,240 1,027,608 1,027,608 2,027,608
25 701,588 160,756 160,756 1,160,756 416,138 416,138 1,416,138 1,130,226 1,130,226 2,130,226
26 751,368 154,608 154,608 1,154,608 430,236 430,236 1,430,236 1,240,585 1,240,585 2,240,585
27 803,636 145,735 145,735 1,145,735 441,987 441,987 1,441,987 1,358,971 1,358,971 2,358,971
28 858,518 133,627 133,627 1,133,627 450,720 450,720 1,450,720 1,485,597 1,485,597 2,485,597
29 916,144 117,733 117,733 1,117,733 455,683 455,683 1,455,683 1,620,638 1,620,638 2,620,638
30 976,651 97,490 97,490 1,097,490 456,069 456,069 1,456,069 1,764,267 1,764,267 2,764,267
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 44
$14,000 ANNUAL PREMIUM: $1,000,000 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
FEMALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
OPTION 2 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 14,700 11,936 1,611 1,011,936 12,670 2,345 1,012,670 13,404 3,079 1,013,404
2 30,135 23,539 13,214 1,023,539 25,737 15,412 1,025,737 28,022 17,697 1,028,022
3 46,342 34,788 24,463 1,034,788 39,189 28,864 1,039,189 43,946 33,621 1,043,946
4 63,359 45,660 35,851 1,045,660 53,012 43,204 1,053,012 61,275 51,467 1,061,275
5 81,227 56,123 46,831 1,056,123 67,182 57,890 1,067,182 80,110 70,818 1,080,110
6 99,988 66,139 57,363 1,066,139 81,665 72,889 1,081,665 100,551 91,775 1,100,551
7 119,688 75,654 67,394 1,075,654 96,411 88,151 1,096,411 122,696 114,436 1,122,696
8 140,372 84,598 76,854 1,084,598 111,349 103,605 1,111,349 146,629 138,885 1,146,629
9 162,090 92,878 85,650 1,092,878 126,380 119,152 1,126,380 172,419 165,192 1,172,419
10 184,895 100,389 93,678 1,100,389 141,388 134,677 1,141,388 200,130 193,419 1,200,130
11 208,840 107,497 101,302 1,107,497 156,750 150,555 1,156,750 230,355 224,160 1,230,355
12 233,982 113,591 108,945 1,113,591 171,826 167,180 1,171,826 262,659 258,013 1,262,659
13 260,381 118,542 116,993 1,118,542 186,455 184,906 1,186,455 297,096 295,548 1,297,096
14 288,100 122,205 120,656 1,122,205 200,448 198,899 1,200,448 333,704 332,155 1,333,704
15 317,205 124,390 124,390 1,124,390 213,558 213,558 1,213,558 372,472 372,472 1,372,472
16 347,765 124,843 124,843 1,124,843 225,461 225,461 1,225,461 413,319 413,319 1,413,319
17 379,853 123,226 123,226 1,123,226 235,724 235,724 1,235,724 456,060 456,060 1,456,060
18 413,546 119,097 119,097 1,119,097 243,788 243,788 1,243,788 500,377 500,377 1,500,377
19 448,923 111,942 111,942 1,111,942 248,984 248,984 1,248,984 545,830 545,830 1,545,830
20 486,070 101,206 101,206 1,101,206 250,567 250,567 1,250,567 591,889 591,889 1,591,889
21 525,073 86,330 86,330 1,086,330 247,744 247,744 1,247,744 637,950 637,950 1,637,950
22 566,027 66,764 66,764 1,066,764 239,692 239,692 1,239,692 683,350 683,350 1,683,350
23 609,028 41,964 41,964 1,041,964 225,546 225,546 1,225,546 727,356 727,356 1,727,356
24 654,179 11,337 11,337 1,011,337 204,349 204,349 1,204,349 769,098 769,098 1,769,098
25 701,588 (*) (*) (*) 174,940 174,940 1,174,940 807,453 807,453 1,807,453
26 751,368 (*) (*) (*) 135,876 135,876 1,135,876 840,942 840,942 1,840,942
27 803,636 (*) (*) (*) 85,404 85,404 1,085,404 867,682 867,682 1,867,682
28 858,518 (*) (*) (*) 21,450 21,450 1,021,450 885,344 885,344 1,885,344
29 916,144 (*) (*) (*) (*) (*) (*) 891,298 891,298 1,891,298
30 976,651 (*) (*) (*) (*) (*) (*) 882,728 882,728 1,882,728
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY NATIONWIDE LIFE OR
THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE> 45
<PAGE> 1
- --------------------------------------------------------------------------------
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,
1995, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value 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 and schedules of
changes in unit value 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, 1995, 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 and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VLI Separate Account-2 as of December 31, 1995, and the
results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
ASSETS:
Investments at market value:
<S> <C>
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
62,614 shares (cost $1,038,589) ............................................ $ 1,083,848
Dreyfus Stock Index Fund (DryStkIx)
271,861 shares (cost $4,342,422) ........................................... 4,676,009
Fidelity VIP - Equity-Income Portfolio (FidEqInc)
1,479,252 shares (cost $24,428,367) ........................................ 28,505,182
Fidelity VIP - Growth Portfolio (FidGro)
1,134,365 shares (cost $33,508,734) ........................................ 33,123,460
Fidelity VIP - High Income Portfolio (FidHiInc)
825,519 shares (cost $9,365,281) ........................................... 9,947,503
Fidelity VIP - Overseas Portfolio (FidOSeas)
676,060 shares (cost $10,850,506) .......................................... 11,526,815
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
1,172,533 shares (cost $16,833,524) ........................................ 18,514,290
Fidelity VIP-II - Contrafund Portfolio (FidContP)
195,404 shares (cost $2,668,754) ........................................... 2,692,665
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
212,307 shares (cost $2,582,301) ........................................... 2,861,899
Nationwide SAT - Government Bond Fund (NWGvtBd)
467,280 shares (cost $4,984,922) ........................................... 5,308,298
Nationwide SAT - Money Market Fund (NWMyMkt)
25,831,056 shares (cost $25,831,056) ....................................... 25,831,056
Nationwide SAT - Small Company Fund (NWSmCoFd)
30,450 shares (cost $339,903) .............................................. 347,742
Nationwide SAT - Total Return Fund (NWTotRet)
1,926,298 shares (cost $20,615,292) ........................................ 22,229,482
Neuberger & Berman - Growth Portfolio (NBGro)
351,272 shares (cost $8,083,142) ........................................... 9,083,899
Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat)
211,743 shares (cost $2,994,517) ........................................... 3,114,733
Neuberger & Berman - Partners Portfolio (NBPart)
216,170 shares (cost $2,643,081) ........................................... 2,859,928
Oppenheimer - Bond Fund (OppBdFd)
342,871 shares (cost $3,867,584) ........................................... 4,059,588
Oppenheimer - Global Securities Fund (OppGlSec)
397,052 shares (cost $5,971,306) ........................................... 5,955,777
Oppenheimer - Multiple Strategies Fund (OppMult)
349,048 shares (cost $4,730,069) ........................................... 5,078,650
Strong VIP - Strong Discovery Fund II, Inc. (StDisc2)
403,468 shares (cost $4,727,581) ........................................... 5,422,616
Strong VIP - Strong International Stock Fund II, Inc. (StIntStk2)
9,631 shares (cost $97,747) ................................................ 98,431
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
672,585 shares (cost $10,088,689) .......................................... 11,460,850
TCI Portfolios - TCI Balanced (TCIBal)
217,142 shares (cost $1,372,140) ........................................... 1,528,680
TCI Portfolios - TCI Growth (TCIGro)
868,667 shares (cost $8,887,302) ........................................... 10,476,124
TCI Portfolios - TCI International (TCIInt)
208,270 shares (cost $1,082,648) ........................................... 1,110,078
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
244,680 shares (cost $3,489,920) ........................................... 3,528,286
Van Eck - Worldwide Bond Fund (VEWrldBd)
182,821 shares (cost $1,985,685) ........................................... 2,036,622
Van Kampen American Capital - Real Estate Securities Fund (VKACRESec)
28,825 shares (cost $299,720) .............................................. 309,583
Warburg Pincus - International Equity Portfolio (WPIntEq)
158,334 shares (cost $1,656,897) ........................................... 1,686,256
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
273,996 shares (cost $3,188,845) ........................................... 3,427,686
------------
Total assets ........................................................... 237,886,036
ACCOUNTS PAYABLE ................................................................ 816,393
------------
CONTRACT OWNERS' EQUITY ......................................................... $237,069,643
============
</TABLE>
<PAGE> 3
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 ....................................... 13,681 $26.373971 $ 360,822
Fidelity VIP - Growth Portfolio .............................................. 9,046 30.259267 273,725
Fidelity VIP - High Income Portfolio ......................................... 3,417 21.685282 74,099
Fidelity VIP - Overseas Portfolio ............................................ 9,048 17.526172 158,577
Fidelity VIP-II - Asset Manager Portfolio .................................... 1,075 18.081878 19,438
Nationwide SAT - Government Bond Fund ........................................ 2,984 19.357639 57,763
Nationwide SAT - Money Market Fund ........................................... 9,556 14.287454 136,531
Nationwide SAT - Total Return Fund ........................................... 1,195 22.138653 26,456
Neuberger & Berman - Growth Portfolio ........................................ 5,776 22.976381 132,712
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 4,610 15.906671 73,330
Oppenheimer - Global Securities Fund ......................................... 1,656 11.503363 19,050
Strong VIP - Strong Special Fund II, Inc. .................................... 319 18.309087 5,841
TCI Portfolios - TCI Growth .................................................. 8,480 25.381408 215,234
Van Eck - Gold and Natural Resources Fund .................................... 4,617 12.839256 59,279
Van Eck - Worldwide Bond Fund ................................................ 23 14.458585 333
Van Kampen American Capital - Real Estate Securities Fund .................... 4,203 10.784280 45,326
Single Premium contracts issued on or after April 16, 1990:
The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 10,235 14.242220 145,769
Dreyfus Stock Index Fund ..................................................... 57,341 13.621789 781,087
Fidelity VIP - Equity-Income Portfolio ....................................... 508,482 21.648958 11,008,105
Fidelity VIP - Growth Portfolio .............................................. 435,011 20.999607 9,135,060
Fidelity VIP - High Income Portfolio ......................................... 124,646 22.388295 2,790,611
Fidelity VIP - Overseas Portfolio ............................................ 299,548 12.667544 3,794,537
Fidelity VIP-II - Asset Manager Portfolio .................................... 354,042 17.721708 6,274,229
Fidelity VIP-II - Contrafund Portfolio ....................................... 63,736 11.071965 705,683
Nationwide SAT - Capital Appreciation Fund ................................... 16,446 14.444672 237,557
Nationwide SAT - Government Bond Fund ........................................ 221,416 16.104612 3,565,819
Nationwide SAT - Money Market Fund ........................................... 1,202,213 12.028786 14,461,163
Nationwide SAT - Small Company Fund .......................................... 18,120 11.410311 206,755
Nationwide SAT - Total Return Fund ........................................... 136,950 19.154939 2,623,269
Neuberger & Berman - Growth Portfolio ........................................ 167,819 16.264834 2,729,548
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 80,410 13.684722 1,100,388
Neuberger & Berman - Partners Portfolio ...................................... 59,329 13.495873 800,697
Oppenheimer - Bond Fund ...................................................... 91,827 16.056725 1,474,441
Oppenheimer - Global Securities Fund ......................................... 103,965 11.413379 1,186,592
Oppenheimer - Multiple Strategies Fund ....................................... 124,127 16.404926 2,036,294
Strong VIP - Strong Discovery Fund II, Inc. .................................. 130,968 16.214896 2,123,632
Strong VIP - Strong International Stock Fund II, Inc. ........................ 2,862 10.226632 29,269
Strong VIP - Strong Special Fund II, Inc. .................................... 162,203 18.074367 2,931,717
TCI Portfolios - TCI Balanced ................................................ 38,974 12.914886 503,345
TCI Portfolios - TCI Growth .................................................. 229,772 17.116040 3,932,787
TCI Portfolios - TCI International ........................................... 41,356 10.403803 430,260
Van Eck - Gold and Natural Resources Fund .................................... 118,139 14.230388 1,681,164
Van Eck - Worldwide Bond Fund ................................................ 55,939 14.170551 792,686
Van Kampen American Capital - Real Estate Securities Fund .................... 12,834 10.765797 138,168
Warburg Pincus - International Equity Portfolio .............................. 68,691 10.661502 732,349
Warburg Pincus - Small Company Growth Portfolio .............................. 93,602 12.430586 1,163,528
Multiple Payment contracts and Flexible Premium contracts:
The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 65,138 14.401809 938,105
Dreyfus Stock Index Fund ..................................................... 282,759 13.775382 3,895,113
Fidelity VIP - Equity-Income Portfolio ....................................... 771,429 22.215745 17,137,870
Fidelity VIP - Growth Portfolio .............................................. 1,116,041 21.256059 23,722,633
Fidelity VIP - High Income Portfolio ......................................... 339,950 20.852993 7,088,975
Fidelity VIP - Overseas Portfolio ............................................ 554,741 13.645033 7,569,459
Fidelity VIP-II - Asset Manager Portfolio .................................... 764,633 15.982529 12,220,769
Fidelity VIP-II - Contrafund Portfolio ....................................... 179,024 11.099135 1,987,012
Nationwide SAT - Capital Appreciation Fund ................................... 178,373 14.713230 2,624,443
Nationwide SAT - Government Bond Fund ........................................ 112,463 14.984933 1,685,251
Nationwide SAT - Money Market Fund ........................................... 887,531 11.714295 10,396,800
Nationwide SAT - Small Company Fund .......................................... 12,345 11.420759 140,989
Nationwide SAT - Total Return Fund ........................................... 1,076,286 18.192762 19,580,615
Neuberger & Berman - Growth Portfolio ........................................ 389,800 15.962482 6,222,175
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 148,223 13.096811 1,941,249
Neuberger & Berman - Partners Portfolio ...................................... 151,517 13.591346 2,059,320
Oppenheimer - Bond Fund ...................................................... 170,613 15.164813 2,587,314
Oppenheimer - Global Securities Fund ......................................... 411,619 11.542134 4,750,962
Oppenheimer - Multiple Strategies Fund ....................................... 188,985 16.100377 3,042,730
Strong VIP - Strong Discovery Fund II, Inc. .................................. 199,781 16.514850 3,299,353
Strong VIP - Strong International Stock Fund II, Inc. ........................ 6,756 10.236021 69,155
Strong VIP - Strong Special Fund II, Inc. .................................... 463,043 18.408627 8,523,986
TCI Portfolios - TCI Balanced ................................................ 77,950 13.155049 1,025,436
TCI Portfolios - TCI Growth .................................................. 391,898 16.149061 6,328,785
TCI Portfolios - TCI International ........................................... 64,755 10.477472 678,469
Van Eck - Gold and Natural Resources Fund .................................... 114,539 15.612002 1,788,183
Van Eck - Worldwide Bond Fund ................................................ 93,956 13.253457 1,245,242
Van Kampen American Capital - Real Estate Securities Fund .................... 11,685 10.792212 126,107
Warburg Pincus - International Equity Portfolio .............................. 89,255 10.687672 953,928
Warburg Pincus - Small Company Growth Portfolio .............................. 181,701 12.461074 2,264,190
====== ========== ------------
$237,069,643
============
</TABLE>
See accompanying notes to financial statements.
===============================================================================
<PAGE> 4
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ......................... $ 6,764,208 3,376,057 974,676
------------- ------------ ------------
Gain (loss) on investments:
Proceeds from redemption of mutual fund shares ............ 163,574,836 184,340,809 115,961,691
Cost of mutual fund shares sold ........................... (154,208,870) (184,441,475) (113,135,035)
------------- ------------ ------------
Realized gain (loss) on investments ....................... 9,365,966 (100,666) 2,826,656
Change in unrealized gain (loss) on investments ........... 17,134,325 (3,604,010) 1,224,589
------------- ------------ ------------
Net gain (loss) on investments ....................... 26,500,291 (3,704,676) 4,051,245
------------- ------------ ------------
Net investment activity ......................... 33,264,499 (328,619) 5,025,921
------------- ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ................ 106,694,208 77,172,455 31,008,045
Surrenders (note 2d) ........................................... (4,970,867) (1,308,994) (559,275)
Death benefits (note 4) ........................................ (143,265) (15,398) (360,580)
Policy loans (net of repayments) (note 5) ...................... (2,529,830) (2,980,396) (1,781,013)
------------- ------------ ------------
Net equity transactions ......................... 99,050,246 72,867,667 28,307,177
------------- ------------ ------------
EXPENSES:
Deductions for surrender charges (note 2d) ..................... (364,725) (116,899) (24,490)
Redemptions to pay cost of insurance charges
and administrative charges (notes 2b and 2c) .............. (14,110,656) (5,382,393) (1,539,443)
Deductions for asset charges (note 3) .......................... (1,747,342) (879,737) (430,173)
------------- ------------ ------------
Total expenses .................................. (16,222,723) (6,379,029) (1,994,106)
------------- ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .............................. 116,092,022 66,160,019 31,338,992
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........................ 120,977,621 54,817,602 23,478,610
------------- ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD .............................. $ 237,069,643 120,977,621 54,817,602
============= =========== ==========
</TABLE>
See accompanying notes to financial statements.
===============================================================================
<PAGE> 5
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
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.
The Company offers Modified Single Premium and Flexible Premium Variable
Life Insurance Policies through the Account. The primary distribution for the
contracts is through the brokerage community; however, other distributors may be
utilized.
(b) The Contracts
Prior to December 31, 1990, only 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, 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, and note 3
for asset 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)
Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity
VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
Fidelity VIP-II - Contrafund Portfolio (FidContP)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
Nationwide SAT - Government Bond Fund (NWGvtBd)
Nationwide SAT - Money Market Fund (NWMyMkt)
Nationwide SAT - Small Company Fund (NWSmCoFd)
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 International Stock Fund II, Inc. (StIntStk2)
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
<PAGE> 6
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 Worldwide Insurance Trust (Van Eck) (formerly Van Eck
Investment Trust);
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
Van Eck - Worldwide Bond Fund (VEWrldBd) (formerly Van Eck - Global
Bond Fund (VEGlobBd))
Fund of the Van Kampen American Capital Life Investment Trust (Van Kampen
American Capital);
Van Kampen American Capital - Real Estate Securities Fund
(VKACRESec)
Portfolios of the Warburg Pincus Trust (Warburg Pincus);
Warburg Pincus - International Equity Portfolio (WPIntEq)
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1995, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of each
fund, equity transactions by contract owners and certain policy charges (see
notes 2 and 3). 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 the underlying mutual funds is based on the closing net
asset value per share at December 31, 1995. 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.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(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
<PAGE> 7
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.
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.
<PAGE> 8
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 funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- 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.
===============================================================================
<PAGE> 9
===============================================================================
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
FIDEQINC FIDGRO FIDHIINC FIDOSEAS
-------- ------ -------- --------
1995
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $19.708533 22.566466 18.151674 16.131866
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.542607 .124738 1.314664 .123427
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.341041 7.828480 2.410020 1.428229
- ------------------------------------------------------------------------------------------------------------
Asset charges (.218210) (.260417) (.191076) (.157350)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $26.373971 30.259267 21.685282 17.526172
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 34% 34% 19% 9%
============================================================================================================
1994
Beginning unit value - Jan. 1 $18.583057 22.785679 18.612185 16.009316
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.395798 1.371061 1.706032 .082663
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.087894) (1.381165) (1.991707) .196908
- ------------------------------------------------------------------------------------------------------------
Asset charges (.182428) (.209109) (.174836) (.157021)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.708533 22.566466 18.151674 16.131866
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 6% (1)% (2)% 1%
============================================================================================================
1993
Beginning unit value - Jan. 1 $15.870837 19.270345 15.591886 11.777024
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .463717 .428707 1.282532 .275295
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.415095 3.287237 1.901458 4.091447
- ------------------------------------------------------------------------------------------------------------
Asset charges (.166592) (.200610) (.163691) (.134450)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.583057 22.785679 18.612185 16.009316
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 17% 18% 19% 36%
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDASMGR NWGVTBD NWMYMKT NWTOTRET
-------- ------- ------- --------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 15.607540 16.457035 13.652006 17.312690
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .327932 1.167149 .768745 1.720678
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.304058 1.903991 .000000 3.293404
- ----------------------------------------------------------------------------------------------------------
Asset charges (.157652) (.170536) (.133297) (.188119)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 18.081878 19.357639 14.287454 22.138653
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 18% 5% 28%
==========================================================================================================
1994
Beginning unit value - Jan. 1 16.778042 17.168348 13.267517 17.291720
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .815806 1.079469 .512535 .875020
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.832732) (1.633239) .000000 (.688478)
- ----------------------------------------------------------------------------------------------------------
Asset charges (.153576) (.157543) (.128046) (.165572)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.607540 16.457035 13.652006 17.312690
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (7)% (4)% 3% 0%
==========================================================================================================
1993
Beginning unit value - Jan. 1 13.992516 15.826033 13.035884 15.738275
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .649736 1.013212 .357335 .643850
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.280467 .488744 .000000 1.067081
- ----------------------------------------------------------------------------------------------------------
Asset charges (.144677) (.159641) (.125702) (.157486)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 16.778042 17.168348 13.267517 17.291720
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 20% 8% 2% 10%
==========================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
<PAGE> 10
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NBGRO NBLTDMAT OPPGLSEC STSPEC2 TCIGRO
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $17.608267 14.475203 11.358489 14.690448 19.544976
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .623265 .804090 .298934 .761035 .022491
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 4.945641 .771696 (.045712) 3.013032 6.032555
- -------------------------------------------------------------------------------------------------------
Asset charges (.200792) (.144318) (.108348) (.155428) (.218614)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $22.976381 15.906671 11.503363 18.309087 25.381408
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
unit value*(a) 30% 10% 1% 25% 30%
=======================================================================================================
1994
Beginning unit value - Jan. 1 $18.709214 14.635617 12.162716 14.315226 19.964524
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 2.255334 .618309 .214436 .411358 .002137
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (3.185612) (.641424) (.903773) .103258 (.236035)
- -------------------------------------------------------------------------------------------------------
Asset charges (.170669) (.137299) (.114890) (.139394) (.185650)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.608267 14.475203 11.358489 14.690448 19.544976
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (6)% (1)% (7)% 3% (2)%
=======================================================================================================
1993
Beginning unit value - Jan. 1 $17.686598 13.856975 ** ** 18.270571
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .409995 .569917 .049805
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .782366 .345457 1.825395
- -------------------------------------------------------------------------------------------------------
Asset charges (.169745) (.136732) (.181247)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.709214 14.635617 19.964524
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 6% 6% 9%
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGOLDNR VEWRLDBD VKACRESEC
--------- --------- ---------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 11.677805 12.443161 10.000000
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .115292 1.008475 .092106
- ----------------------------------------------------------------------------
Unrealized gain (loss) 1.160549 1.138120 .740132
- ----------------------------------------------------------------------------
Asset charges (.114390) (.131171) (.047958)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 12.839256 14.458585 10.784280
- ----------------------------------------------------------------------------
Percentage increase (decrease)
unit value*(a) 10% 16% 8%(b)
============================================================================
1994
Beginning unit value - Jan. 1 12.382561 12.729709 **
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .062321 .051271
- ----------------------------------------------------------------------------
Unrealized gain (loss) (.652194) (.220753)
- ----------------------------------------------------------------------------
Asset charges (.114883) (.117066)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.677805 12.443161
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (6)% (2)%
============================================================================
1993
Beginning unit value - Jan. 1 7.583732 ** **
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .035765
- ----------------------------------------------------------------------------
Unrealized gain (loss) 4.857738
- ----------------------------------------------------------------------------
Asset charges (.094674)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 12.382561
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 63%
============================================================================
</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 or was not utilized.
<PAGE> 11
===============================================================================
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKLX FIDEQINC FIDGRO FIDHIINC FIDOSEAS FIDASMGR
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .392053 .36133 1.269479 .086841 1.361583 .089493 .322418
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.289798 3.326196 4.390826 5.444880 2.491513 1.033414 2.260958
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.161906) (.154595) (.245506) (.247716) (.270417) (.155890) (.211783)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.242220 13.621789 21.648958 20.999607 22.388295 12.667544 17.721708
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 35% 33% 34% 19% 8% 15%
==================================================================================================================================
1994
Beginning unit value - Jan. 1 $10.702403 10.131165 15.360584 15.923752 19.350153 11.652241 16.559029
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .276372 .283260 1.152726 .957853 1.773098 .060146 .804872
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.117327) (.195255) (.073161) (.966373) (2.069306) .144272 (1.806726)
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.139173) (.130321) (.205990) (.199630) (.248329) (.156132) (.207060)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% 0% 6% (1)% (3)% 0% (7)%
==================================================================================================================================
1993
Beginning unit value - Jan. 1 ** $10.000000 13.165400 13.515048 16.267831 8.602313 13.859040
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.497818 .383884 .300564 1.337665 .201014 .643313
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.334006) 2.000061 2.300317 1.977956 2.983042 2.252405
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.032647) (.188761) (.192177) (.233299) (.134128) (.195729)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.131165 15.360584 15.923752 19.350153 11.652241 16.559029
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1%(b) 17% 18% 19% 35% 19%
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDCONTP NWCAPAPP NWGVTBD
--------- --------- ---------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 10.000000 11.312336 13.739287
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .142783 .642275 .972265
- ----------------------------------------------------------------------------
Unrealized gain (loss) .998389 2.653961 1.587542
- ----------------------------------------------------------------------------
Asset charges (.069207) (.163900) (.194482)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.071965 14.444672 16.104612
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 11%(b) 28% 17%
============================================================================
1994
Beginning unit value - Jan. 1 ** 11.563943 14.383265
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .182742 .902346
- ----------------------------------------------------------------------------
Unrealized gain (loss) (.286826) (1.366016)
- ----------------------------------------------------------------------------
Asset charges (.147523) (.180308)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.312336 13.739287
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% (4)%
============================================================================
1993
Beginning unit value - Jan. 1 ** 10.688742 13.305926
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .260088 .849957
- ----------------------------------------------------------------------------
Unrealized gain (loss) .755302 .410720
- ----------------------------------------------------------------------------
Asset charges (.140189) (.183338)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.563943 14.383265
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% 8%
============================================================================
</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 or was not utilized.
===============================================================================
<PAGE> 12
===============================================================================
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NWMYMKT NWSMCOFD NWTOTRET NBGRO NBLTDMAT NBPART OPPBDFD
----------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $11.534440 10.000000 15.031721 12.508337 12.496729 10.018146 13.903136
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .648458 .017459 1.489410 .442496 .693794 .081860 .956955
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418328 2.856936 3.508824 .664378 3.550382 1.391543
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.154112) (.025476) (.223128) (.194823) (.170179) (.154515) (.194909)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.028786 11.410311 19.154939 16.264834 13.684722 13.495873 16.056725
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 14%(b) 27% 30% 10% 35% 15%
=================================================================================================================================
1994
Beginning unit value - Jan. 1 $11.249231 ** 15.066007 13.336899 12.679406 10.000000 14.362878
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .433762 .760244 1.607088 .535454 .000000 .809172
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.597472) (2.269450) (.555628) .072562 (1.086058)
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.148553) (.197058) (.166200) (.162503) (.054416) (.182856)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.534440 15.031721 12.508337 12.496729 10.018146 13.903136
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)% 0%(b) (3)%
=================================================================================================================================
1993
Beginning unit value - Jan. 1 $11.092030 ** 13.761364 12.652864 12.047601 ** 12.872824
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .303567 .561430 .293188 .495297 .894915
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .931322 .556715 .298894 .774891
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.146366) (.188109) (.165868) (.162386) (.179752)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.249231 15.066007 13.336899 12.679406 14.362878
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 9% 5% 5% 12%
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
OPPGLSEC OPPMULT STDISC2
---------- ---------- ----------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 11.309050 13.693997 12.144445
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .297396 1.103154 .211667
- -------------------------------------------------------------------------------
Unrealized gain (loss) (.045694) 1.805769 4.042004
- -------------------------------------------------------------------------------
Asset charges (.147373) (.197994) (.183220)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.413379 16.404926 16.214896
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 20% 34%
===============================================================================
1994
Beginning unit value - Jan. 1 12.152136 14.148115 13.003547
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .214078 .720350 .971167
- -------------------------------------------------------------------------------
Unrealized gain (loss) (.900362) (.993926) (1.670283)
- -------------------------------------------------------------------------------
Asset charges (.156802) (.180542) (.159986)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.309050 13.693997 12.144445
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (7)% (3)% (7)%
===============================================================================
1993
Beginning unit value - Jan. 1 10.000000 12.362293 10.796269
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .000000 .546245 .809234
- -------------------------------------------------------------------------------
Unrealized gain (loss) 2.187580 1.411883 1.546688
- -------------------------------------------------------------------------------
Asset charges (.035444) (.172306) (.148644)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.152136 14.148115 13.003547
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 22%(b) 14% 20%
===============================================================================
</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 or was not utilized.
<PAGE> 13
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
STINTSTK2 STSPEC2 TCIBAL TCIGRO TCIINT VEGOLDNR VEWRLDBD
----------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.000000 14.552799 10.801955 13.226279 9.392654 12.988341 12.237880
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .041085 .753037 .305779 .015219 .000000 .127947 .990055
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .209467 2.978850 1.961461 4.076606 1.136602 1.287916 1.118852
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.023920) (.210319) (.154309) (.202064) (.125453) (.173816) (.176236)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.226632 18.074367 12.914886 17.116040 10.403803 14.230388 14.170551
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 2%(b) 24% 20% 29% 11% 10% 16%
================================================================================================================================
1994
Beginning unit value - Jan. 1 ** $14.230663 10.876445 13.557427 10.000000 13.820369 12.563474
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .407898 .260556 .001450 .000000 .069418 .050533
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .103521 (.194370) (.160376) (.554327) (.726294) (.218292)
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.189283) (.140676) (.172222) (.053019) (.175152) (.157835)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.552799 10.801955 13.226279 9.392654 12.988341 12.237880
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 2% (1)% (2)% (6)%(b) (6)% (3)%
================================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.518529 10.232336 12.451309 ** 8.494453 11.809827
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .057229 .193813 .033826 .039957 .949184
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.823424 .587650 1.241015 5.430795 (.037350)
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.168519) (.137354) (.168723) (.144836) (.158187)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.230663 10.876445 13.557427 13.820369 12.563474
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 24% 6% 9% 63% 6%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VKACRESEC WPINTEQ WPSMCOGR
---------- ---------- ----------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 10.000000 10.000000 10.000000
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains .091962 .077347 .000000
- ------------------------------------------------------------------------------
Unrealized gain (loss) .739397 .650501 2.501606
- ------------------------------------------------------------------------------
Asset charges (.065562) (.066346) (.071020)
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31 10.765797 10.661502 12.430586
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 8%(b) 7%(b) 24%(b)
==============================================================================
1994
Beginning unit value - Jan. 1 ** ** **
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains
- ------------------------------------------------------------------------------
Unrealized gain (loss)
- ------------------------------------------------------------------------------
Asset charges
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a)
==============================================================================
1993
Beginning unit value - Jan. 1 ** ** **
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains
- ------------------------------------------------------------------------------
Unrealized gain (loss)
- ------------------------------------------------------------------------------
Asset charges
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a)
==============================================================================
</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 or was not utilized.
<PAGE> 14
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DrySRGro DryStkIx FidEqInc FidGro FidHiInc
-------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.788547 10.151919 16.576413 15.828463 17.428943
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .396430 .364933 1.297971 .087506 1.262495
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.317353 3.354508 4.496038 5.494030 2.316172
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.100521) (.095978) (.154677) (.153940) (.154617)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.401809 13.775382 22.215745 21.256059 20.852993
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 36% 34% 34% 20%
====================================================================================================================================
1994
Beginning unit value - Jan. 1 $10.715005 10.143796 15.606442 15.958341 17.844401
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .278073 .284601 1.172669 .960381 1.635883
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.118575) (.195976) (.073581) (.966828) (1.910067)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.085956) (.080502) (.129117) (.123431) (.141274)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.788547 10.151919 16.576413 15.828463 17.428943
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 0% 6% (1)% (2)%
====================================================================================================================================
1993
Beginning unit value - Jan. 1 $10.000000 10.000000 13.308899 13.476298 14.926526
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .031142 1.499665 .389191 .299849 1.227974
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .703426 (1.335764) 2.026087 2.300419 1.821967
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.019563) (.020105) (.117735) (.118225) (.132066)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.715005 10.143796 15.606442 15.958341 17.844401
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 7%(b) 1%(b) 17% 18% 20%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FidOSeas FidAsMgr FidContP NWCapApp NWGvtBd
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 12.540728 13.774855 10.000000 11.465403 12.720514
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .095965 .289466 .143118 .653781 .903001
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.111417 2.035460 .998657 2.696528 1.472503
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.103077) (.117252) (.042640) (.102482) (.111085)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.645033 15.982529 11.099135 14.713230 14.984933
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 9% 16% 11%(b) 28% 18%
========================================================================================================================
1994
Beginning unit value - Jan. 1 12.426854 14.785784 ** 11.662121 13.250482
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .064174 .719044 .184927 .833925
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .152413 (1.615920) (.289863) (1.261429)
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.102713) (.114053) (.091782) (.102464)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.540728 13.774855 11.465403 12.720514
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% (7)% (2)% (4)%
========================================================================================================================
1993
Beginning unit value - Jan. 1 9.128094 12.312732 ** 10.725293 12.196370
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .213405 .571816 .261975 .781559
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.173177 2.008516 .761628 .376228
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.087822) (.107280) (.086775) (.103675)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.426854 14.785784 11.662121 13.250482
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 36% 20% 9% 9%
========================================================================================================================
</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 or was not utilized.
<PAGE> 15
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NWMyMkt NWSmCoFd NWTotRet NBGro NBLtdMat
------- -------- -------- ----- --------
1995
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $11.176411 10.000000 14.205723 12.214794 11.900389
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .629782 .017475 1.413734 .432461 .661221
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418968 2.703396 3.432609 .635177
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.091898) (.015684) (.130091) (.117382) (.099976)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.714295 11.420759 18.192762 15.962482 13.096811
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 5% 14%(b) 28% 31% 10%
=============================================================================================================================
1994
Beginning unit value - Jan. 1 $10.845265 ** 14.167308 12.959107 12.014277
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .419275 .717782 1.562441 .507651
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.565055) (2.207122) (.526553)
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.088129) (.114312) (.099632) (.094986)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.176411 14.205723 12.214794 11.900389
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)%
=============================================================================================================================
1993
Beginning unit value - Jan. 1 $10.639809 ** 12.875439 12.232618 11.358230
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .291848 .527331 .283612 .467224
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .873117 .541815 .283278
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.086392) (.108579) (.098938) (.094455)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.845265 14.167308 12.959107 12.014277
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2% 10% 6% 6%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NBPart OppBdFd OppGlSec OppMult StDisc2
------ ------- -------- ------- -------
1995
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $10.038887 13.065574 11.379737 13.372968 12.307607
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .082096 .902009 .299595 1.079776 .215562
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.565899 1.310232 (.045711) 1.766931 4.106245
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.095536) (.113002) (.091487) (.119298) (.114564)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.591346 15.164813 11.542134 16.100377 16.514850
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 35% 16% 1% 20% 34%
=========================================================================================================================
1994
Beginning unit value - Jan. 1 $10.000000 13.430475 12.167250 13.747705 13.112678
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .000000 .759284 .214589 .702216 .983647
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .072401 (1.018698) (.905246) (.968729) (1.689193)
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.033514) (.105487) (.096856) (.108224) (.099525)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.038887 13.065574 11.379737 13.372968 12.307607
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% (3)% (6)% (3)% (6)%
=========================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.976650 10.000000 11.952042 10.832134
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .835328 .000000 .529802 .814568
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .721678 2.189077 1.368631 1.557980
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.103181) (.021827) (.102770) (.092004)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.430475 12.167250 13.747705 13.112678
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 12% 22%(b) 15% 21%
=========================================================================================================================
</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 or was not utilized.
<PAGE> 16
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, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
StIntStk2 StSpec2 TCIBal TCIGro TCIInt
--------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.000000 14.748256 10.948128 12.417011 9.412116
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .041121 .764407 .310910 .014289 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .209625 3.027469 1.992508 3.834812 1.142911
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.014725) (.131505) (.096497) (.117051) (.077555)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.236021 18.408627 13.155049 16.149061 10.477472
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2%(b) 25% 20% 30% 11%
=======================================================================================================================
1994
Beginning unit value - Jan. 1 ** $14.350073 10.968814 12.664593 10.000000
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .412806 .263602 .001356 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .103139 (.196764) (.149703) (.555221)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117762) (.087524) (.099235) (.032663)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.748256 10.948128 12.417011 9.412116
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (2)% (6)%(b)
=======================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.556788 10.267347 11.572833 **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .057587 .195102 .031592
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.840017 .591395 1.156915
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.104319) (.085030) (.096747)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.350073 10.968814 12.664593
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 24% 7% 9%
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGoldNR VEWrldBd VKACRESec WPIntEq WPSmCoGr
-------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 14.178501 11.388987 10.000000 10.000000 10.000000
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .140115 .923751 .092168 .077521 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.410450 1.041904 .740443 .651025 2.504833
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117064) (.101185) (.040399) (.040874) (.043759)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.612002 13.253457 10.792212 10.687672 12.461074
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 10% 16% 8%(b) 7%(b) 25%(b)
=======================================================================================================================
1994
Beginning unit value - Jan. 1 15.011706 11.633841 ** ** **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .075618 .046884
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.791458) (.201583)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117365) (.090155)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.178501 11.388987
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (6)% (2)%
=======================================================================================================================
1993
Beginning unit value - Jan. 1 9.180337 10.880964 ** ** **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .043340 .876895
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.884613 (.034094)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.096584) (.089924)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.011706 11.633841
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 64% 7%
=======================================================================================================================
</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.
See note 6.
- --------------------------------------------------------------------------------
<PAGE> 46
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the consolidated financial statements of Nationwide Life
Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules 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 12. 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
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 26, 1996
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Balance Sheets
December 31, 1995 and 1994
(000's omitted)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturities (cost $13,438,630 in 1995; $8,318,865 in 1994) $ 14,167,377 8,045,906
Equity securities (cost $27,362 in 1995; $18,372 in 1994) 33,718 24,713
Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310 in 1994) - 3,688,787
Mortgage loans on real estate 4,786,599 4,222,284
Real estate 239,089 252,681
Policy loans 370,908 340,491
Other long-term investments 67,280 63,914
Short-term investments (note 13) 45,732 131,643
----------- -----------
19,710,703 16,770,419
----------- -----------
Cash 10,485 7,436
Accrued investment income 239,881 220,540
Deferred policy acquisition costs 1,094,195 1,064,159
Deferred Federal income tax -- 36,515
Other assets 795,169 790,603
Assets held in Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
$40,614,111 31,112,133
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Future policy benefits and claims (notes 6 and 8) 18,200,128 16,321,461
Policyholders' dividend accumulations 353,554 338,058
Other policyholder funds 71,155 72,770
Accrued Federal income tax (note 7):
Current 34,064 13,126
Deferred 238,877 -
----------- -----------
272,941 13,126
----------- -----------
Other liabilities 284,143 235,778
Liabilities related to Separate Accounts (note 8) 18,763,678 12,222,461
----------- -----------
37,945,599 29,203,654
----------- -----------
Shareholder's equity (notes 3, 4, 5, 7, 12 and 13):
Capital shares, $1 par value. Authorized 5,000 shares, issued and
outstanding 3,815 shares 3,815 3,815
Additional paid-in capital 673,782 622,753
Retained earnings 1,606,607 1,401,579
Unrealized gains (losses) on securities available-for-sale, net 384,308 (119,668)
----------- -----------
2,668,512 1,908,479
----------- -----------
Commitments and contingencies (notes 9 and 15)
$40,614,111 31,112,133
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Traditional life insurance premiums $ 274,957 209,538 215,715
Accident and health insurance premiums 509,658 324,524 312,655
Universal life and investment product policy charges 307,676 239,021 188,057
Net investment income (note 5) 1,482,980 1,289,501 1,204,426
Realized gains (losses) on investments (notes 5 and 13) 836 (16,384) 113,673
---------- ---------- ----------
2,576,107 2,046,200 2,034,526
---------- ---------- ----------
Benefits and expenses:
Benefits and claims 1,656,287 1,279,763 1,236,906
Provision for policyholders' dividends on participating policies (note 12) 48,074 46,061 53,189
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Other operating costs and expenses 458,970 352,402 329,396
---------- ---------- ----------
2,256,375 1,772,970 1,721,625
---------- ---------- ----------
Income before Federal income tax expense and cumulative effect of
changes in accounting principles 319,732 273,230 312,901
---------- ---------- ----------
Federal income tax expense (note 7):
Current 103,464 79,847 75,124
Deferred 3,790 9,657 31,634
---------- ---------- ----------
107,254 89,504 106,758
---------- ---------- ----------
Income before cumulative effect of changes in accounting principles 212,478 183,726 206,143
Cumulative effect of changes in accounting principles, net (note 3) -- -- 5,365
---------- ---------- ----------
Net income $ 212,478 183,726 211,508
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
----------- ----------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
1993:
Balance, beginning of year $ 3,815 311,753 1,024,150 90,524 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 -- -- -- (83,777) (83,777)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 422,753 1,217,853 6,747 1,651,168
========== ========== ========= ========== ==========
1994:
Balance, beginning of year 3,815 422,753 1,217,853 6,747 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 (note 3) -- -- -- 216,915 216,915
Unrealized losses on securities available-
for-sale, net -- -- -- (343,330) (343,330)
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 622,753 1,401,579 (119,668) 1,908,479
========== ========== ========== ========== ==========
1995:
Balance, beginning of year 3,815 622,753 1,401,579 (119,668) 1,908,479
Capital contribution (note 13) -- 51,029 -- (4,111) 46,918
Dividends paid to shareholder -- -- (7,450) -- (7,450)
Net income -- -- 212,478 -- 212,478
Unrealized gains on securities available-
for-sale, net -- -- -- 508,087 508,087
---------- ---------- ---------- ---------- ----------
Balance, end of year $ 3,815 673,782 1,606,607 384,308 2,668,512
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 212,478 183,726 211,508
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (349,456) (264,434) (191,994)
Amortization of deferred policy acquisition costs 93,044 94,744 102,134
Amortization and depreciation 10,319 6,207 11,156
Realized losses (gains) on invested assets, net 717 15,949 (113,648)
Deferred Federal income tax expense (benefit) 4,023 (2,166) (6,006)
Increase in accrued investment income (19,341) (29,654) (4,218)
Increase in other assets (3,227) (112,566) (549,277)
Increase in policy liabilities 198,200 1,038,641 509,370
Increase in policyholders' dividend accumulations 15,496 15,372 17,316
Increase in accrued Federal income tax payable 20,938 832 16,838
Increase in other liabilities 48,365 17,826 26,958
Other, net (20,556) (19,303) (11,745)
----------- ----------- ------------
Net cash provided by operating activities 211,000 945,174 18,392
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 706,442 579,067 --
Proceeds from sale of securities available-for-sale 131,420 247,876 247,502
Proceeds from maturity of fixed maturities held-to-maturity 633,173 516,003 1,192,093
Proceeds from sale of fixed maturities -- -- 33,959
Proceeds from repayments of mortgage loans on real estate 215,134 220,744 146,047
Proceeds from sale of real estate 48,477 46,713 23,587
Proceeds from repayments of policy loans and sale of other invested assets 79,620 134,998 59,643
Cost of securities available-for-sale acquired (2,232,047) (2,569,672) (12,550)
Cost of fixed maturities held-to-maturity acquired (669,449) (675,835) (2,016,831)
Cost of mortgage loans on real estate acquired (821,078) (627,025) (475,336)
Cost of real estate acquired (10,970) (15,962) (8,827)
Policy loans issued and other invested assets acquired (92,904) (118,012) (76,491)
----------- ----------- ------------
Net cash used in investing activities (2,012,182) (2,261,105) (887,204)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from capital contributions 46,918 200,000 111,000
Dividends paid to shareholder (7,450) -- (17,805)
Increase in universal life and investment product account balances 3,202,135 3,640,958 2,249,740
Decrease in universal life and investment product account balances (1,523,283) (2,449,580) (1,458,504)
----------- ----------- -----------
Net cash provided by financing activities 1,718,320 1,391,378 884,431
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (82,862) 75,447 15,619
Cash and cash equivalents, beginning of year 139,079 63,632 48,013
----------- ----------- -----------
Cash and cash equivalents, end of year $ 56,217 139,079 63,632
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(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
Nationwide Life and Annuity Insurance Company (NLAIC) (formerly known as
Financial Horizons Life Insurance Company), West Coast Life Insurance
Company (WCLIC), Employers Life Insurance Company of Wausau and
subsidiaries (ELICW), National Casualty Company (NCC) and Nationwide
Financial Services, Inc. (NFS). NLIC and its subsidiaries are
collectively referred to as "the Company."
NLIC, NLAIC, 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 insurance, health insurance
and annuity products through exclusive agents, brokers 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 currently recorded in the consolidated financial statements. The
Company mitigates this risk by offering a wide range of products and
by operating throughout the United States, thus reducing its exposure
to any single product or jurisdiction, and also by employing
underwriting practices which identify and minimize the adverse impact
of this risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes this
risk by adhering to a conservative investment strategy, by maintaining
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.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy benefits
and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
(a) CONSOLIDATION POLICY
The December 31, 1995 consolidated financial statements include the
accounts of NLIC and its wholly owned subsidiaries NLAIC, WCLIC, ELICW, NCC
and NFS. The December 31, 1994 and 1993 consolidated financial statements
include the accounts of NLIC, NLAIC, 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 13. All
significant intercompany balances and transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities and
equity securities as either held-to-maturity, available-for-sale or
trading. Fixed maturity securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity and are stated at amortized cost. Fixed maturity securities not
classified as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the unrealized gains
and losses, net of adjustments to deferred policy acquisition costs and
deferred Federal income tax, reported as a separate component of
shareholder's equity. The adjustment to deferred policy acquisition costs
represents the change in amortization of deferred policy acquisition costs
that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed maturity
securities classified as held-to-maturity or trading as of
December 31, 1995.
Mortgage loans on real estate are carried at the unpaid principal balance
less valuation allowances. The Company provides valuation allowances for
impairments of mortgage loans on real estate based on a review by portfolio
managers. The measurement of impaired loans is based on the present value
of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the fair value of the collateral, if
the loan is collateral dependent. Loans in foreclosure and loans considered
to be impaired are placed on non-accrual status. Interest received on
non-accrual status mortgage loans on real estate are included in interest
income in the period received.
Real estate is carried at cost less accumulated depreciation and valuation
allowances. Other long-term investments are carried on the equity basis,
adjusted for valuation allowances.
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 March, 1995, the Financial Accounting Standards Board (FASB) issued
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 - ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS 121). SFAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses
the accounting for long-lived assets that are expected to be disposed of.
The statement is effective for fiscal years beginning after December 15,
1995 and earlier application is permitted. Previously issued consolidated
financial statements shall not be restated. The Company will adopt SFAS 121
in 1996 and the impact on the consolidated financial statements is not
expected to be material.
<PAGE> 8
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.
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 asset fees, cost of insurance, policy administration
and surrender charges that have been earned and assessed against policy
account balances during the period. Policy benefits and claims that are
charged to expense include 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 policy acquisition
costs are predominantly being amortized with interest over the premium
paying period of the related policies in proportion to the ratio of actual
annual premium revenue to the anticipated total premium revenue. Such
anticipated premium revenue was estimated using the same assumptions as
were used for computing liabilities for future policy benefits. 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, asset fees, cost of insurance, policy
administration and surrender charges. For years in which gross profits are
negative, deferred policy acquisition costs are amortized based on the
present value of gross revenues. Deferred policy acquisition costs are
adjusted to reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 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
insurance policies have been calculated using a net level premium method
based on estimates of mortality, morbidity, investment yields and
withdrawals which were used or which were being experienced at the time the
policies were issued, rather than the assumptions prescribed by state
regulatory authorities. See note 6.
Future policy benefits 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.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Future policy benefits and claims for collectively renewable long-term
disability policies (primarily discounted at 5.2%) and group long-term
disability policies (primarily discounted at 5.5%) are the present value of
amounts not yet due on reported claims and an estimate of amounts to be
paid on incurred but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on other
group health insurance policies are not discounted.
(g) PARTICIPATING BUSINESS
Participating business represents approximately 45% (45% in 1994 and
48% in 1993) of the Company's ordinary life insurance in force, 72% (72% in
1994 and 1993) of the number of policies in force, and 39% (41% in 1994 and
45% in 1993) 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 12.
(h) FEDERAL INCOME TAX
NLIC, NLAIC, 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 files 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.
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.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(k) RECLASSIFICATION
Certain items in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995
presentation.
(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 STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. As of January 1, 1994, the Company classified fixed
maturity securities with amortized cost and fair value of $6,593,844
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>
<CAPTION>
<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
=========
During 1993, the Company adopted accounting principles in connection
with the issuance of two accounting standards by the FASB. The effect
as of January 1, 1993, the date of adoption, has been recognized in
the 1993 consolidated statement of income as the cumulative effect of
changes in accounting principles, as follows:
Asset/liability method of recognizing income tax (note 2(h)) $ 26,344
Accrual method of recognizing postretirement benefits other
than pensions (net of tax benefit of $11,296) (note 11) (20,979)
--------
$ 5,365
========
</TABLE>
(4) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance
with GAAP. Annual Statements for NLIC and NLAIC, WCLIC, ELICW and NCC,
filed with the Department of Insurance of the State of Ohio (the
Department), 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 statutory capital shares and surplus of NLIC as reported to
regulatory authorities as of December 31, 1995, 1994 and 1993 was
$1,363,031, $1,262,861 and $992,631, respectively. The statutory net
income of NLIC as reported to regulatory authorities for the years
ended December 31, 1995, 1994 and 1993 was $86,529, $76,532 and
$185,943, respectively.
<PAGE> 11
LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(5) INVESTMENTS
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturities $ 772,589 674,346 --
Equity securities 1,436 550 7,230
Fixed maturities held-to-maturity 232,692 193,009 800,255
Mortgage loans on real estate 410,965 376,783 364,810
Real estate 39,222 40,280 39,684
Short-term investments 12,249 6,990 5,080
Other 61,701 42,831 33,832
---------- ---------- ----------
Total investment income 1,530,854 1,334,789 1,250,891
Less investment expenses 47,874 45,288 46,465
---------- ---------- ----------
Net investment income $1,482,980 1,289,501 1,204,426
========== ========== ==========
</TABLE>
An analysis of realized gains (losses) on investments, net of
valuation allowances, by investment type follows for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 6,792 (7,120) --
Equity securities 3,435 1,427 129,728
Fixed maturities -- -- 20,225
Mortgage loans on real estate (7,312) (20,462) (28,241)
Real estate and other (2,079) 9,771 (8,039)
-------- -------- --------
$ 836 (16,384) 113,673
======== ======== ========
</TABLE>
The components of unrealized gains (losses) on securities
available-for-sale, net, were as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- -------------
<S> <C> <C>
Gross unrealized gains (losses) $ 735,103 (266,618)
Adjustment to deferred policy acquisition costs (143,851) 82,525
Deferred Federal income tax (206,944) 64,425
--------- ---------
$ 384,308 (119,668)
========= =========
</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>
1995 1994 1993
--------------- ------------- -------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturities $ 1,001,706 (703,851) --
Equity securities 15 (1,990) (128,837)
Fixed maturities held-to-maturity 86,477 (421,427) 223,392
----------- ----------- -----------
$ 1,088,198 (1,127,268) 94,555
=========== =========== ===========
</TABLE>
<PAGE> 12
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 securities available-for-sale
were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 438,109 36,714 (53) 474,770
Obligations of states and political subdivisions 9,742 1,252 (1) 10,993
Debt securities issued by foreign governments 162,442 9,641 (66) 172,017
Corporate securities 8,902,494 524,796 (30,561) 9,396,729
Mortgage-backed securities 3,925,843 196,645 (9,620) 4,112,868
--------- ----------- ----------- -----------
Total fixed maturities 13,438,630 769,048 (40,301) 14,167,377
Equity securities 27,362 6,441 (85) 33,718
---------- ----------- ----------- -----------
$13,465,992 775,489 (40,386) 14,201,095
=========== =========== ============ ===========
</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:
U.S. Treasury securities and obligations of U.S.
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 18,372 6,637 (296) 24,713
---------- ---------- ---------- ---------
$8,337,237 77,888 (344,506) 8,070,619
========== ========= ========== =========
FIXED MATURITY SECURITIES HELD-TO-MATURITY
Obligations of states and political subdivisions $ 11,613 92 (255) 11,450
Debt securities issued by foreign governments 16,131 111 (39) 16,203
Corporate securities 3,661,043 34,180 (120,566) 3,574,657
---------- ---------- ---------- ---------
$3,688,787 34,383 (120,860) 3,602,310
========== ========== ========== =========
</TABLE>
<PAGE> 13
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 fixed maturity securities
available-for-sale as of December 31, 1995, 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 $ 641,490 647,639
Due after one year through five years 5,365,703 5,623,126
Due after five years through ten years 2,477,457 2,609,262
Due after ten years 1,028,137 1,174,482
----------- -----------
9,512,787 10,054,509
Mortgage-backed securities 3,925,843 4,112,868
----------- -----------
$13,438,630 14,167,377
=========== ===========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1995 and 1994
were $131,420 and $247,876, respectively, while proceeds from sales of
investments in fixed maturity securities during 1993 were $33,959. Gross gains
of $7,197 ($3,406 in 1994 and $2,413 in 1993) and gross losses of $2,309
($21,866 in 1994 and $39 in 1993) were realized on those sales.
During 1995, the Company transferred fixed maturity securities classified as
held-to-maturity with amortized cost of $27,929 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted in
a gross unrealized loss of $4,285.
As permitted by the FASB's Special Report, A GUIDE TO IMPLEMENTATION OF
STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, issued in November, 1995, the Company transferred all of its fixed
maturity securities previously classified as held-to-maturity to
available-for-sale. As of December 14, 1995, the date of transfer, the fixed
maturity securities had amortized cost of $3,705,644, resulting in a gross
unrealized gain of $171,531.
Investments that were non-income producing for the twelve month period
preceding December 31, 1995 amounted to $28,958 ($11,513 for 1994) and
consisted of $8,228 (none in 1994) in fixed maturity securities, $14,740
($11,111 in 1994) in real estate and $5,990 ($402 in 1994) in other long-term
investments.
Real estate is presented at cost less accumulated depreciation of $30,931 in
1995 ($29,275 in 1994) and valuation allowances of $26,250 in 1995 ($27,330 in
1994).
Other long-term investments are presented net of valuation allowances of $457
as of December 31, 1995. There were no such valuation allowances as of December
31, 1994.
As of December 31, 1995, the recorded investment of mortgage loans on real
estate considered to be impaired (under STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as amended
by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 118, ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURE) was $44,995,
which includes $23,975 of impaired mortgage loans on real estate for which the
related valuation allowance was $5,276 and $21,020 of impaired mortgage loans
on real estate for which there was no valuation allowance. During 1995, the
average recorded investment in impaired mortgage loans on real estate was
approximately $22,621 and interest income recognized on those loans was $416,
which is equal to interest income recognized using a cash-basis method of
income recognition.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the year ended December 31, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Allowance, beginning year $ 47,892
Additions charged to operations 7,653
Direct write-downs charged against the allowance (4,850)
--------
Allowance, end of year $ 50,695
========
</TABLE>
Foresclosures of mortgage loans on real estate were $37,187 in 1994 and
mortgage loans on real estate in process of foreclosure or in-substance
foreclosed as of December 31, 1994 totaled $19,878, which approximated fair
value.
Fixed maturity securities with an amortized cost of $13,982 and $11,137 as
of December 31, 1995 and 1994, respectively, were on deposit with various
regulatory agencies as required by law.
(6) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts represents
approximately 82% and 81% of the total liability for future policy benefits
as of December 31, 1995 and 1994, respectively. The average interest rate
credited on investment product policies was approximately 6.5%, 6.5% and
7.0% for the years ended December 31, 1995, 1994 and 1993, respectively.
The liability for future policy benefits for traditional life insurance and
individual health insurance policies has been established based upon the
following assumptions:
INTEREST RATES: Interest rates vary as follows:
<TABLE>
<CAPTION>
Health
Year of issue Life Insurance insurance
-------------- ------------------------------------------------------------ ---------------
<S> <C> <C>
1995 7.6%, not graded - permanent contracts with loan provisions 4.5%
7.7%, not graded - all other contracts
1984-1994 6.0% to 10.5%, not graded 5.0% to 6.0%
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6% 3.5% to 6.0%
1965 and prior generally lower than post 1965 issues 3.5% to 4.0%
</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.
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Activity in the liability for unpaid claims and claim adjustment expenses is
summarized for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 637,998 592,180 760,209
Less reinsurance recoverables 438,761 430,720 547,683
--------- --------- ---------
Net balance, beginning of year 199,237 161,460 212,526
--------- --------- ---------
Incurred related to:
Current year 425,907 273,299 309,721
Prior years (17,203) (26,156) (26,248)
--------- --------- ---------
Total incurred 408,704 247,143 283,473
--------- --------- ---------
Paid related to:
Current year 290,605 175,700 208,978
Prior years 111,353 73,889 125,561
--------- --------- ---------
Total paid 401,958 249,589 334,539
--------- --------- ---------
Unpaid claims of acquired companies 2,542 40,223 --
--------- --------- ---------
Net balance, end of year 208,525 199,237 161,460
Plus reinsurance recoverables 491,321 438,761 430,720
--------- --------- ---------
Balance, end of year $ 699,846 637,998 592,180
========= ========= =========
</TABLE>
Reinsurance recoverables include amounts from affiliates, as discussed in
note 13, of $477,912, $430,936, $430,278 and $534,983 as of December 31,
1995, 1994, 1993 and 1992, respectively.
The provision for claims and claim adjustment expenses for prior years
decreased in each of the three years ended December 31, 1995 due to
lower-than-anticipated costs to settle accident and health insurance claims.
(7) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to significant
components of the net deferred tax asset (liability) as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 179,916 124,044
Fixed maturity securities available-for-sale -- 95,536
Liabilities in Separate Accounts 129,120 94,783
Mortgage loans on real estate and real estate 26,062 25,632
Other policyholder funds 7,752 7,137
Other assets and other liabilities 47,215 57,528
--------- ---------
Total gross deferred tax assets 390,065 404,660
--------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs 312,616 317,224
Fixed maturity securities available-for-sale 266,184 --
Equity securities available-for-sale and other
long-term investments 3,431 3,620
Other 46,711 47,301
--------- ---------
Total gross deferred tax liabilities 628,942 368,145
--------- ---------
$(238,877) 36,515
========= =========
</TABLE>
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company has determined that valuation allowances are not necessary as
of December 31, 1995, 1994 and 1993 based on its analysis of future
deductible amounts. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
of the total gross deferred tax assets will not be realized. 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.
<TABLE>
Total Federal income tax expense for the years ended December 31, 1995,
1994 and 1993 differs from the amount computed by applying the U.S.
Federal income tax rate to income before tax as follows:
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
--------------- ----- -------------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $ 111,906 35.0 $ 95,631 35.0 $ 109,515 35.0
Tax exempt interest and dividends
received deduction (137) (0.1) (194) (0.1) (2,322) (0.7)
Current year increase in U.S. Federal
income tax rate -- -- -- -- 1,704 0.5
Other, net (4,515) (1.4) (5,933) (2.1) (2,139) (0.7)
--------- ---- --------- ---- --------- ----
Total (effective rate of each year) $ 107,254 33.5 $ 89,504 32.8 $ 106,758 34.1
========= ==== ========= ==== ========= ====
</TABLE>
Total Federal income tax paid was $75,309, $87,576 and $58,286 during the
years ended December 31, 1995, 1994 and 1993, respectively.
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 was approximately $35,344 as of December 31, 1995.
(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. SFAS 107 defines the fair value of a financial instrument as
the amount at which the financial instrument could be exchanged in a
current transaction between willing parties. In cases where quoted market
prices are not available, fair value is based on estimates using present
value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets
and,in many cases, could not be realized in the immediate settlement of
the instruments. SFAS 107 excludes certain assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from SFAS 107 disclosures, estimated fair value of policy reserves on
life insurance contracts 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 consolidated balance sheets for these
instruments approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where available.
For fixed maturity securities not actively traded, fair value is
estimated using values obtained from independent pricing services or,
in the case of private placements, is estimated by discounting
expected future cash flows using a current market rate applicable to
the yield, credit quality and maturity of the investments. The fair
value for equity securities is based on quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of
assets held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand.
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage
loans on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations. Fair
value for mortgages in default is the estimated fair value of the
underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For
investment contracts without defined maturities, fair value is the
amount payable on demand. For investment contracts with known or
determined maturities, fair value is estimated using discounted cash
flow analysis. Interest rates used are similar to currently offered
contracts with maturities consistent with those remaining for the
contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures
for individual life, 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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts were
as follow as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments:
Securities available-for-sale:
Fixed maturities $14,167,377 14,167,377 8,045,906 8,045,906
Equity securities 33,718 33,718 24,713 24,713
Fixed maturities held-to-maturity -- -- 3,688,787 3,602,310
Mortgage loans on real estate 4,786,599 5,169,805 4,222,284 4,173,284
Policy loans 370,908 370,908 340,491 340,491
Short-term investments 45,732 45,732 131,643 131,643
Cash 10,485 10,485 7,436 7,436
Assets held in Separate Accounts 18,763,678 18,763,678 12,222,461 12,222,461
LIABILITIES
- -----------
Investment contracts 13,561,943 13,221,724 12,189,894 11,657,556
Policy reserves on life insurance contacts 3,695,814 3,659,074 3,170,085 2,934,384
Policyholders' dividend accumulations 353,554 353,554 338,058 338,058
Other policyholder funds 71,155 71,155 72,770 72,770
Liabilities related to Separate Accounts 18,763,678 18,224,933 12,222,461 11,807,331
</TABLE>
(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 $361,974 extending into 1996 were
outstanding as of December 31, 1995.
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 20% (22%
in 1994) in any geographic area and no more than 2% (2% in 1994) with any
one borrower.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The summary below depicts loans by remaining principal balance as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995:
East North Central $ 140,732 110,361 534,814 184,201 970,108
East South Central 23,978 15,653 183,790 84,588 308,009
Mountain -- 18,940 144,156 48,727 211,823
Middle Atlantic 124,079 72,201 183,562 18,383 398,225
New England 9,594 39,526 153,644 1 202,765
Pacific 190,628 239,687 395,914 107,650 933,879
South Atlantic 101,904 74,731 458,355 279,692 914,682
West North Central 134,866 14,205 81,521 37,586 268,178
West South Central 69,143 99,618 194,717 272,323 635,801
--------- --------- --------- --------- ---------
$ 794,924 684,922 2,330,473 1,033,151 4,843,470
========= ========= ========= =========
Less valuation allowances and unamortized discount 56,871
---------
Total mortgage loans on real estate, net $4,786,599
=========
</TABLE>
<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
=========
</TABLE>
(10) PENSION PLAN
------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least one
thousand hours of service within a twelve-month period and who have met
certain age requirements. Benefits are based upon the highest average
annual salary of a specified number of consecutive years of the last ten
years of service. The Company funds pension costs accrued for direct
employees plus an allocation of pension costs accrued for employees of
affiliates whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements and
elected early retirement no later than March 15, 1995. The entire cost of
the enhanced benefit was borne by NMIC and certain of its property and
casualty insurance company affiliates.
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies
Pension Plan to form the Nationwide Insurance Enterprise Retirement
Plan. Immediately prior to the merger, the plans were amended to provide
consistent benefits for service after January 1, 1996. These amendments had
no significant impact on the accumulated benefit obligation or projected
benefit obligation as of December 31, 1995.
Pension costs charged to operations by the Company during the years ended
December 31, 1995, 1994 and 1993 were $14,105, $10,451 and $6,702,
respectively.
The Company's net accrued pension expense as of December 31, 1995 and
1994 was $1,376 and $1,836, respectively.
The net periodic pension cost for the Nationwide Insurance Companies and
Affiliates Retirement Plan as a whole for the years ended December 31,
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 64,524 64,740 47,694
Interest cost on projected benefit obligation 95,283 73,951 70,543
Actual return on plan assets (249,294) (21,495) (105,002)
Net amortization and deferral 143,353 (62,150) 20,832
--------- --------- ---------
$ 53,866 55,046 34,067
========= ========= =========
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate 7.50% 5.75% 6.75%
Rate of increase in future compensation levels 6.25% 4.50% 4.75%
Expected long-term rate of return on plan assets 8.75% 7.00% 7.50%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1995
(post-merger) and the Nationwide Insurance Companies and Affiliates
Retirement Plan as of December 31, 1995 (pre-merger) and 1994 follows:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 1,236,730 1,002,079 914,850
Nonvested 26,503 8,998 7,570
----------- ----------- -----------
$ 1,263,233 1,011,077 922,420
=========== =========== ===========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date $ 1,780,616 1,447,522 1,305,547
Plan assets at fair value 1,738,004 1,508,781 1,241,771
----------- ----------- -----------
Plan assets (less than) in excess of projected
benefit obligation (42,612) 61,259 (63,776)
Unrecognized prior service cost 42,845 42,850 46,201
Unrecognized net (gains) losses (63,130) (86,195) 39,408
Unrecognized net obligation (asset) at transition 41,305 (19,841) (21,994)
----------- ----------- -----------
$ (21,592) (1,927) (161)
=========== =========== ===========
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
Post-merger Pre-merger
1995 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighed average discount rate 6.00% 6.00% 7.50%
Rate of increase in future compensation levels 4.25% 4.25% 6.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and ELICW. Prior to the merger, the
assets of the Nationwide Insurance Companies and Affiliates Retirement
Plan were invested in a group annuity contract of NLIC.
(11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
-------------------------------------------
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years of
service with the Company after reaching age 40. Postretirement health
care benefit contributions are adjusted annually and contain cost-sharing
features such as deductibles and coinsurance. In addition, there are caps
on the Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not more than
three percent. The Company's policy is to fund the cost of health care
benefits in amounts determined at the discretion of management. Plan
assets are invested primarily in group annuity contracts of NLIC.
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.
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 1993 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. Certain affiliated companies elected to amortize their
initial transition obligation over periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of
December 31, 1995 and 1994 was $51,490 and $36,001, respectively, and the
net periodic postretirement benefit cost (NPPBC) for 1995 and 1994 was
$8,269 and $4,627, respectively.
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits attributed to employee service during the year $ 6,235 8,586 7,090
Interest cost on accumulated postretirement benefit obligation 14,151 14,011 13,928
Actual return on plan assets (2,657) (1,622) --
Amortization of unrecognized transition obligation of affiliates 2,966 568 568
Net amortization and deferral (1,619) 1,622 --
-------- -------- --------
$ 19,076 23,165 21,586
======== ======== ========
</TABLE>
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the plan as a whole as of
December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 88,680 76,677
Fully eligible, active plan participants 28,793 22,013
Other active plan participants 90,375 59,089
--------- ---------
Accumulated postretirement benefit obligation (APBO) 207,848 157,779
Plan assets at fair value 54,325 49,012
--------- ---------
Plan assets less than accumulated postretirement benefit obligation (153,523) (108,767)
Unrecognized transition obligation of affiliates 1,827 6,577
Unrecognized net gains (1,038) (41,497)
--------- ---------
$(152,734) (143,687)
========= =========
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1995 and 1994 and the NPPBC for 1995, 1994 and 1993 were
as follows:
<TABLE>
<CAPTION>
1995 1995 1994 1994 1993
APBO NPPBC APBO NPPBC NPPBC
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Discount rate 6.75% 8% 8% 7% 8%
Assumed health care cost trend rate:
Initial rate 11% 10% 11% 12% 14%
Ultimate rate 6% 6% 6% 6% 6%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1995 by $641 and the NPPBC for the year ended December 31,
1995 by $107.
(12) 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, as of the year-end shall
inure to the benefit of the shareholder. 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.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
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.
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
$2,664,697, $1,904,664 and $1,647,353 as of December 31, 1995, 1994 and
1993, respectively. The amount thereof not presently available for
dividends to the shareholder due to the New York restrictions was
$1,503,241, $929,934 and $954,037 as of December 31, 1995, 1994 and 1993,
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 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, $2,468,687
of shareholder's equity, as presented in the accompanying consolidated
financial statements, is so restricted as to dividend payments in 1996.
Each of NLIC's insurance company subsidiaries are limited in their
payment of dividends by the state insurance department of their
respective state of domicile. As of December 31, 1995, the maximum amount
of shareholder's equity available for dividend payment to NLIC in 1996 by
its insurance company subsidiaries without prior approval are:
<TABLE>
<S> <C>
Nationwide Life and Annuity Insurance Company $10,143
West Coast Life Insurance Company 13,153
Employers Life Insurance Company of Wausau 10,132
National Casualty Company --
-------
$33,428
=======
</TABLE>
(13) TRANSACTIONS WITH AFFILIATES
----------------------------
On March 1, 1995, Corp. contributed all of the outstanding shares of
Farmland Life Insurance Company (Farmland) to NLIC, which then merged
Farmland into WCLIC effective June 30, 1995. The contribution resulted in
a direct increase to consolidated shareholder's equity of $46,918. The
contribution of Farmland has been accounted for in a manner similar to a
pooling of interests and accordingly, Farmland's results are included in
the consolidated statements of income beginning January 1, 1995. However,
prior period consolidated financial statements have not been restated due
to the impact of Farmland being immaterial.
Effective December 31, 1994, NLIC purchased all of the outstanding shares
of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC
transferred fixed maturity securities and cash with a fair value of
$155,000 to WSC on December 28, 1994, which resulted in a realized loss
of $19,239 on the disposition of the securities. The purchase price
approximated both the historical cost basis and fair value of net assets
of ELICW. ELICW has and will continue to share home office, other
facilities, equipment and common management and administrative services
with WSC.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Corp. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1995 were
$57,969, $50,470 and $44,577, respectively.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
The Company shares home office, other facilities, equipment and common
management and administrative services with affiliates.
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 1995 and
1994 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, 1995. These contracts are immaterial to the consolidated financial
statements.
NCC participates in several 100% quota share reinsurance agreements with
NMIC and Nationwide Mutual Fire Insurance Company, the minority
shareholder of Corp. As a result of these agreements, the following
assets and (liabilities) are included in the consolidated financial
statements as of December 31, 1995 and 1994 for reinsurance ceded:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Reinsurance recoverable $ 590,379 541,289
Unearned premium reserves (112,467) (110,353)
Liability for unpaid claims and claim adjustment expense (477,912) (430,936)
</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.
ELICW assumes certain accident and health insurance business from
Employers Insurance of Wausau A Mutual Company, an affiliate. During
1995, total premiums assumed by ELICW under the reinsurance
agreement were $150,622.
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 $21,644 and $92,531 as of December 31, 1995 and 1994,
respectively, and are included in short-term investments on the
accompanying consolidated balance sheets.
(14) BANK LINES OF CREDIT
--------------------
As of December 31, 1995 and 1994, NLIC had $120,000 of confirmed but
unused bank lines of credit which support a $100,000 commercial paper
borrowing authorization.
(15) CONTINGENCIES
-------------
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to be
material to the Company's financial position or results of operations.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Corporation)
Notes to Consolidated Financial Statements, Continued
(16) SEGMENT INFORMATION
-------------------
The Company operates in the long-term savings, life insurance and
accident and health insurance lines of business in the life insurance and
property and casualty insurance industries. Long-term savings operations
include both qualified and non-qualified annuity contracts issued to both
individuals and groups. Life insurance operations include whole life,
universal life, variable universal life and endowment and term life
insurance issued to individuals and groups. Accident and health insurance
operations also provide coverage to individuals and groups. Corporate
primarily includes investments, and the related investment income, which
are not specifically allocated to one of the three operating segments. In
addition, realized gains and losses on all general account investments
are reported as a component of the corporate segment.
During 1995, the Company changed its reporting segments to better reflect
the way the businesses are managed. Prior periods have been restated to
reflect these changes.
The following table summarizes the revenues and income (loss) before
Federal income tax expense and cumulative effect of changes in accounting
principles for the years ended December 31, 1995, 1994 and 1993 and
assets as of December 31, 1995, 1994 and 1993, by business segment.
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Long-term savings $ 1,406,241 1,125,013 1,048,045
Life insurance 502,885 452,795 432,343
Accident and health insurance 532,383 345,545 339,764
Corporate 134,598 122,847 214,374
------------ ------------ ------------
$ 2,576,107 2,046,200 2,034,526
============ ============ ============
Income (loss) before Federal income tax expense and
cumulative effect of changes in accounting principles:
Long-term savings 129,475 95,530 47,966
Life insurance 63,169 46,119 36,383
Accident and health insurance (12,521) 13,221 15,041
Corporate 139,609 118,360 213,511
------------ ------------ ------------
$ 319,732 273,230 312,901
============ ============ ============
Assets:
Long-term savings 34,634,892 25,815,273 20,695,598
Life insurance 3,675,581 3,231,651 2,897,574
Accident and health insurance 307,643 291,296 297,200
Corporate 1,995,995 1,773,913 1,515,989
------------ ------------ ------------
$ 40,614,111 31,112,133 25,406,361
============ ============ ============
</TABLE>
