<PAGE> 1
Registration No. 33-62795
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VLI SEPARATE ACCOUNT-2
(EXACT NAME OF TRUST)
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
GORDON E. MCCUTCHAN
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and the Financial Statements.
It is proposed that this filing will become effective (check appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on December 23, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable fee
in the amount of $500.00 has been paid to the Commission. Registrant filed its
24f-2 Notice for the fiscal year ended December 31, 1995, on February 15, 1996.
================================================================================
1 of 93
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
1....................................... Nationwide Life Insurance Company
The Variable Account
2....................................... Nationwide Life Insurance Company
3....................................... Custodian of Assets
4....................................... Distribution of The Policies
5....................................... The Variable Account
6....................................... Not Applicable
7....................................... Not Applicable
8....................................... Not Applicable
9....................................... Legal Proceedings
10....................................... Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11....................................... Investments of The Variable Account
12....................................... The Variable Account
13....................................... Policy Charges
Reinstatement
14....................................... Underwriting and Issuance - Premium
Payments
Minimum Requirements for Issuance
of a Policy
15....................................... Investments of the Variable Account;
Premium Payments
16....................................... Underwriting and Issuance -
Allocation of Cash Value
17....................................... Surrendering The Policy for Cash
18....................................... Reinvestment
19....................................... Not Applicable
20....................................... Not Applicable
21....................................... Policy Loans
22....................................... Not Applicable
23....................................... Not Applicable
24....................................... Not Applicable
25....................................... Nationwide Life Insurance Company
26....................................... Not Applicable
27....................................... Nationwide Life Insurance Company
28....................................... Company Management
29....................................... Company Management
30....................................... Not Applicable
31....................................... Not Applicable
32....................................... Not Applicable
33....................................... Not Applicable
34....................................... Not Applicable
35....................................... Nationwide Life Insurance Company
36....................................... Not Applicable
37....................................... Not Applicable
38....................................... Distribution of The Policies
39....................................... Distribution of The Policies
40....................................... Not Applicable
41(a).................................... Distribution of The Policies
42....................................... Not Applicable
43....................................... Not Applicable
44....................................... How The Cash Value Varies
45....................................... Not Applicable
<PAGE> 3
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
46....................................... How The Cash Value Varies
47....................................... Not Applicable
48....................................... Custodian of Assets
49....................................... Not Applicable
50....................................... Not Applicable
51....................................... Summary of The Policies; Information
About The Policies
52....................................... Substitution of Securities
53....................................... Taxation of The Company
54....................................... Not Applicable
55....................................... Not Applicable
56....................................... Not Applicable
57....................................... Not Applicable
58....................................... Not Applicable
59....................................... Financial Statements
<PAGE> 4
SUPPLEMENT DATED DECEMBER 23, 1996 TO
PROSPECTUS DATED MAY 1, 1996 FOR
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS
NATIONWIDE VLI SEPARATE ACCOUNT-2
This Supplement updates certain information contained in your Prospectus. Please
read it and keep it with your Prospectus for future reference.
1. Effective December 23, 1996, the underlying Mutual Fund Options located on
page 1 of the Prospectus are hereby amended to include the following
underlying Mutual Funds:
DREYFUS VARIABLE INVESTMENT FUND
- Growth & Income Portfolio*
TCI PORTFOLIOS, INC. AN AFFILIATE OF TWENTIETH CENTURY COMPANIES, INC.***
- TCI Value
VAN ECK WORLDWIDE INSURANCE TRUST (FORMERLY VAN ECK INVESTMENT TRUST)
- Worldwide Emerging Markets Fund
WARBURG PINCUS TRUST
- Post-Venture Capital Portfolio
*The Growth and Income Portfolio may invest in lower quality debt
securities commonly referred to as junk bonds
2. The expense table located on page 7 of the Prospectus is hereby amended to
include the following information:
<TABLE>
<CAPTION>
Management Fees Other Total
Expenses Expenses
- ------------------------------------------------------- --------------- -------- --------
<S> <C> <C> <C>
Dreyfus Variable Investment Fund - Growth & Income 0.75% 0.20% 0.95%
Portfolio
- ------------------------------------------------------- --------------- -------- --------
TCI Portfolios, Inc. - TCI Value 1.00% 0.00% 1.00%
- ------------------------------------------------------- --------------- -------- --------
Van Eck Worldwide Insurance Trust - Worldwide Emerging 1.00% 0.00% 1.00%
Markets Fund
- ------------------------------------------------------- --------------- -------- --------
Warburg Pincus Trust - Post-Venture Capital Portfolio** 0.65% 0.75% 1.40%
- ------------------------------------------------------- --------------- -------- --------
</TABLE>
**Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, Management Fees for the Portfolio would equal 1.25%;
other Expenses would equal .81%; and Total Portfolio Operating Expenses
would equal 2.06%. Other Expenses for the Portfolio are based on
annualized estimates of expenses for the fiscal year ending December
31, 1996, net of any fee waivers or expense reimbursements. The
investment adviser has undertaken to limit the Portfolio's Total
Portfolio Operating Expenses through December 31, 1996.
***Effective January 1, 1997, Twentieth Century Companies, Inc. will
change its name to American Century Companies, Inc. Also effective
January 1, 1997, Twentieth Century Mutual Funds is changing its name to
American Century(SM) Investments.
<PAGE> 5
3. The section entitled The Variable Account located on pages 8 through 16
of the Prospectus is also amended to include the following information
regarding the underlying Mutual Funds:
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund (the "Fund") is an open-end,
management investment company. It was organized as an unincorporated
business trust under the laws of the Commonwealth of Massachusetts on
October 29,1986 and commenced operations August 31, 1990. The Dreyfus
Corporation ("Dreyfus") serves as the Fund's manager. Dreyfus is a
wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned
subsidiary of Mellon Bank Corporation.
GROWTH AND INCOME PORTFOLIO
Investment Objective: To provide long-term capital growth, current
income and growth of income, consistent with reasonable investment
risk. The Portfolio invests in equity securities, debt securities and
money market instruments of domestic and foreign issuers. The
proportion of the Portfolio's assets invested in each type of security
will vary from time to time in accordance with Dreyfus' assessment of
economic conditions and investment opportunities. In purchasing equity
securities, Dreyfus will invest in common stocks, preferred stocks and
securities convertible into common stocks, particularly those which
offer opportunities for capital appreciation and growth of earnings,
while paying current dividends. The Portfolio will generally invest in
investment-grade debt obligations, except that it may invest up to 35%
of the value of its net assets in convertible debt securities rated not
lower than Caa by Moody's Investor Service, Inc. or CCC by Standard &
Poor's Ratings Group, Fitch Investors Service, L.P. or Duff & Phelps
Credit Rating Co., or if unrated, deemed to be of comparable quality by
Dreyfus. These securities are considered to have predominantly
speculative characteristics with respect to capacity to pay interest
and repay principal and are considered to be of poor standing. See
"Investment Considerations and Risks-Lower Rated Securities" in the
Portfolio's prospectuses.
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 investment 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, which is changing its
name to American Century(SM) Investments, effective January 1, 1997.
TCI Portfolios, Inc. is managed by Investors Research Corporation,
which is changing its name to American Century Investment Management,
Inc., effective January 1, 1997.
- TCI VALUE FUND
Investment Objective: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. Under normal market
conditions, the Fund expects to invest at least 80% of the value of its
total asset in equity securities, including common and preferred stock,
convertible preferred stock and convertible debt obligations. The
equity securities in which the Fund will invest will be primarily
securities of well-established companies with intermediate-to-large
market capitalizations that are believed by management to be
undervalued at the time of purchase.
VAN ECK WORLDWIDE INSURANCE TRUST (FORMERLY VAN ECK INVESTMENT TRUST)
Van Eck Worldwide Insurance Trust is an open-end management
investment company organized as a "Business Trust" under the laws of
the Commonwealth of Massachusetts on January 7, 1987. Trust shares are
offered only to separate accounts of various insurance companies to
fund the benefits of variable insurance and annuity policies. The
investment advisor and manager is Van Eck Associates Corporation.
- WORLDWIDE EMERGING MARKETS FUND
Investment Objective: Seeks long-term capital appreciation by investing
primarily in equity securities in emerging markets around the world.
The Fund specifically emphasizes investment in countries that, compared
to the world's major economies, exhibit relatively low gross national
product per capita, as
<PAGE> 6
well as the potential for rapid economic growth. Peregrine Asset
Management (Hong Kong) Limited serves as sub-investment adviser to this
Fund.
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")
- POST-VENTURE CAPITAL PORTFOLIO
Investment Objective: The Portfolio seeks long-term growth of capital
by investing primarily in equity securities of issuers in their
post-venture capital stage of development and pursues an aggressive
investment strategy. Under normal market conditions, the Portfolio will
invest at least 65% of its total assets in equity securities of
"post-venture capital companies." A post-venture capital company is one
that has received venture capital financing either (a) during the early
stages of the company's existence or the early stages of the
development of a new product or service or (b) as part of a
restructuring or recapitalization of the company. The Portfolio may
invest up to 10% of its assets in venture capital and other investment
funds.
4. The section entitled "TRANSFERS" located on pages 14 and 15 of the
Prospectus is hereby amended by adding the following information:
Policies described in this prospectus may in some cases be sold to
individuals who independently utilize the services of a firm or
individual engaged in market timing. Generally, such firms or
individuals obtain authorization from multiple Policy Owners to make
transfers and exchanges among the Sub-Accounts (the underlying Mutual
Funds) on the basis of perceived market trends. Because of the
unusually large transfers of funds associated with some of these
transactions, the ability of the Company or underlying Mutual Funds to
process such transactions may be compromised, and the execution of such
transactions may possibly disadvantage or work to the detriment of
other Policy Owners not utilizing market timing services.
Accordingly, the right to exchange Cash Surrender Values among the
Sub-Accounts may be subject to modification if such rights are
exercised by a market timing firm or any other third party authorized
to initiate transfer or exchange transactions on behalf of multiple
Policy Owners. THE RIGHTS OF INDIVIDUAL POLICY OWNERS TO EXCHANGE CASH
SURRENDER VALUES, WHEN INSTRUCTIONS ARE SUBMITTED DIRECTLY BY THE
POLICY OWNER, OR BY THE POLICY OWNER'S REPRESENTATIVE OF RECORD AS
AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF
ATTORNEY FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such
rights, the Company may, among other things, not accept (1) the
transfer or exchange instructions of any agent acting under a power of
attorney on behalf of more than one Policy Owner, or (2) the transfer
or exchange instructions of individual policy owners who have executed
pre-authorized transfer or exchange forms which are submitted by market
timing firms or other third parties on behalf of more than one Policy
Owner at the same time. The Company will not impose any such
restrictions or otherwise modify exchange rights unless such action is
reasonably intended to prevent the use of such rights in a manner that
will disadvantage or potentially impair the contract rights of other
Policy Owners.
5. Effective October 17, 1996, Nationwide Financial Services, Inc. has
changed its name to Nationwide Advisory Services, Inc. Accordingly, any
and all references to Nationwide Financial Services, Inc. in this
Prospectus are hereby amended to reflect this name change.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY
Home Office
P.O. Box 182150
One Nationwide Plaza
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES*
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
surrendered during the lifetime of the Insured. The Death Benefit and Cash Value
of the Policies may vary to reflect the experience of the Nationwide VLI
Separate Account-2 (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus may meet the definition of a "modified
endowment contract" under Section 7702A of the Internal Revenue Code (the
"Code"). The Code provides for taxation in the same manner as annuities for
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts. Any distribution is
taxable to the extent the Cash Value of the Policy exceeds, at the time of the
distribution, the premiums paid into the Policy. The Code also provides for a
10% tax penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is 1) paid after the Policy Owner is 59-1/2
or disabled; or 2) the distribution is part of an annuity to the Policy Owner as
defined in the Code. (See "Tax Matters.")
It may not be advantageous to replace existing insurance with Policies described
in this prospectus. It may also be disadvantageous to purchase a Policy to
obtain additional insurance protection if the purchaser already owns another
variable life insurance policy. The Policies may not be advantageous for persons
who may wish to make policy loans or withdrawals prior to attaining age 59-1/2.
(See "Tax Matters.")
*The contract is titled a "Flexible Premium Variable Life Insurance Policy" in
Texas.
The Policy Owner may allocate premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at net asset value, shares of a designated
underlying Mutual Fund in the following series of the underlying variable
account Mutual Fund options:
DREYFUS
-Dreyfus Stock Index Fund
-Dreyfus Socially Responsible Growth Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
-High Income Portfolio**
-Equity-Income Portfolio
-Growth Portfolio
-Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
-Asset Manager Portfolio
-Contrafund Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST:
-Capital Appreciation Fund
-Money Market Fund
-Government Bond Fund
-Small Company Fund
-Total Return Fund
NEUBERGER & BERMAN ADVISERS MANAGEMENT
TRUST:
-Limited Maturity Bond Portfolio
-Growth Portfolio
-Partners Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
-Bond Fund
-Global Securities Fund
-Multiple Strategies Fund
STRONG SPECIAL FUND II, INC.:
-Special Fund II
STRONG VARIABLE INSURANCE FUNDS, INC.:
-International Stock Fund II
-Discovery Fund II, Inc.
TCI PORTFOLIOS, INC.:
-TCI Growth
-TCI Balanced
-TCI International
VAN ECK WORLDWIDE INSURANCE TRUST:
-Gold and Natural Resources Fund
-Worldwide Bond Fund
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
-American Capital Real Estate Securities Fund
WARBURG PINCUS TRUST
-International Equity Portfolio
-Small Company Growth Portfolio
** The High Income Portfolio may invest in lower quality debt securities
commonly referred to as junk bonds.
1
<PAGE> 8
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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
The Company (Nationwide Life Insurance Company) guarantees that the Death
Benefit for a Policy will never be less than the Specified Amount stated on the
Policy data pages as long as the Policy is in force. There is no guaranteed Cash
Surrender Value. If the Cash Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option."
The date of this Prospectus is May 1, 1996.
2
<PAGE> 9
GLOSSARY OF TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Cash Value.
BENEFICIARY- The person to whom the proceeds due on the Insured's death are
paid.
CASH VALUE- The sum of the value of Policy assets in the Variable Account, Fixed
Account and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or those of other separate accounts that have been or may be established
by the Company.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Code. It represents the single premium required to
mature the Policy under guaranteed mortality and expense charges, and an
interest rate of 6%.
INSURED- The person whose life is covered by the Policy, and who is named on the
Policy Data Page.
MATURITY DATE- The Policy Anniversary on or following the Insured's 100th
birthday.
MONTHLY ANNIVERSARY DATE- The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS- The underlying mutual funds which correspond to the sub-accounts
of the Variable Account.
NET ASSET VALUE- The worth of one share of a Mutual Fund as calculated at the
end of each business day. Net Asset Value is computed by adding the value of all
portfolio holdings, plus other assets, deducting liabilities and then dividing
the result by the number of shares outstanding.
POLICY ANNIVERSARY- An anniversary of the Policy Date.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy data page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy
Loans.
POLICY OWNER- The person designated in the Policy application as the Owner.
POLICY YEAR- Each year commencing with the Policy Date and each Policy Date
anniversary thereafter.
SPECIFIED AMOUNT- A dollar amount used to determine the Death Benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
VALUATION DATE- Each day both the New York Stock Exchange and the Company's Home
Office is open for business or any other day during which there is a sufficient
degree of trading such that the current net asset value of the Accumulated Units
might be materially affected.
VALUATION PERIOD- A period commencing with the close of business on the New York
Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT- Nationwide VLI Separate -2, a separate investment account of
Nationwide Life Insurance Company.
3
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GLOSSARY OF TERMS..................................................................................................... 3
SUMMARY OF THE POLICIES............................................................................................... 6
Variable Life Insurance...................................................................................... 6
The Variable Account and its Sub-Accounts.................................................................... 6
The Fixed Account............................................................................................ 6
Deductions and Charges....................................................................................... 6
Premiums..................................................................................................... 8
NATIONWIDE LIFE INSURANCE COMPANY..................................................................................... 8
THE VARIABLE ACCOUNT.................................................................................................. 8
Investments of the Variable Account.......................................................................... 8
Dreyfus...................................................................................................... 9
Fidelity's Variable Insurance Products Fund.................................................................. 10
Fidelity's Variable Insurance Products Fund II............................................................... 10
Nationwide Separate Account Trust............................................................................ 11
Neuberger & Berman Advisers Management Trust................................................................. 11
Oppenheimer Variable Account Funds........................................................................... 12
Strong Special Fund II, Inc.................................................................................. 12
Strong Variable Insurance Funds, Inc......................................................................... 12
TCI Portfolios, Inc., a member of the Twentieth Century Family of Mutual Funds............................... 13
Van Eck Worldwide Insurance Trust............................................................................ 13
Van Kampen American Capital Life Investment Trust............................................................ 14
Warburg Pincus Trust......................................................................................... 14
Reinvestment................................................................................................. 14
Transfers.................................................................................................... 14
Dollar Cost Averaging........................................................................................ 15
Substitution of Securities................................................................................... 15
Voting Rights................................................................................................ 16
INFORMATION ABOUT THE POLICIES........................................................................................ 16
Underwriting and Issuance.................................................................................... 16
-Minimum Requirements for Issuance of a Policy............................................................... 16
-Premium Payments............................................................................................ 16
-Allocation of Cash Value.................................................................................... 17
-Short-Term Right to Cancel Policy........................................................................... 17
POLICY CHARGES........................................................................................................ 17
Deductions from Premiums..................................................................................... 17
Monthly Deductions........................................................................................... 17
-Cost of Insurance Charge.................................................................................... 18
-Administrative Expense Charge............................................................................... 18
-Tax Expense Charge.......................................................................................... 18
-Mortality and Expense Risk Charge........................................................................... 18
Surrender Charges............................................................................................ 19
HOW THE CASH VALUE VARIES............................................................................................. 19
How the Investment Experience is Determined.................................................................. 19
Net Investment Factor........................................................................................ 20
Valuation of Assets.......................................................................................... 20
Determining the Cash Value................................................................................... 20
Valuation Periods and Valuation Dates........................................................................ 20
SURRENDERING THE POLICY FOR CASH...................................................................................... 20
Right to Surrender........................................................................................... 20
Cash Surrender Value......................................................................................... 21
Partial Surrenders........................................................................................... 21
Maturity Proceeds............................................................................................ 21
Income Tax Withholding....................................................................................... 21
POLICY LOANS.......................................................................................................... 22
Taking a Policy Loan......................................................................................... 22
Effect on Investment Performance............................................................................. 22
Interest..................................................................................................... 22
Effect on Death Benefit and Cash Value....................................................................... 22
Repayment.................................................................................................... 23
HOW THE DEATH BENEFIT VARIES.......................................................................................... 23
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
<S> <C>
-Calculation of the Death Benefit............................................................................ 23
-Proceeds Payable on Death................................................................................... 24
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY.......................................................................... 24
CHANGES OF INVESTMENT POLICY.......................................................................................... 24
GRACE PERIOD.......................................................................................................... 24
REINSTATEMENT......................................................................................................... 24
THE FIXED ACCOUNT OPTION.............................................................................................. 24
OTHER POLICY PROVISIONS............................................................................................... 25
Policy Owner................................................................................................. 25
Beneficiary.................................................................................................. 25
Assignment................................................................................................... 25
Incontestability............................................................................................. 25
Error in Age or Sex.......................................................................................... 25
Suicide...................................................................................................... 25
Nonparticipating Policies.................................................................................... 26
LEGAL CONSIDERATIONS.................................................................................................. 26
DISTRIBUTION OF THE POLICIES.......................................................................................... 26
CUSTODIAN OF ASSETS................................................................................................... 26
TAX MATTERS........................................................................................................... 26
Policy Proceeds.............................................................................................. 26
Taxation of the Company...................................................................................... 27
Other Considerations......................................................................................... 28
THE COMPANY........................................................................................................... 28
COMPANY MANAGEMENT.................................................................................................... 28
Directors of the Company..................................................................................... 29
Executive Officers of the Company............................................................................ 29
OTHER CONTRACTS ISSUED BY THE COMPANY................................................................................. 30
STATE REGULATION...................................................................................................... 30
REPORTS TO POLICY OWNERS.............................................................................................. 30
ADVERTISING........................................................................................................... 30
LEGAL PROCEEDINGS..................................................................................................... 31
EXPERTS............................................................................................................... 31
REGISTRATION STATEMENT................................................................................................ 31
LEGAL OPINIONS........................................................................................................ 31
APPENDIX.............................................................................................................. 32
FINANCIAL STATEMENTS.................................................................................................. 43
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
5
<PAGE> 12
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are similar in many ways to fixed-benefit whole life
insurance. As with fixed-benefit whole life insurance, the Owner of the Policy
pays a premium for life insurance coverage on the person insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. (As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.)
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the Death Benefit and Cash
Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated. (See "How the Death Benefit Varies.") There is no
guaranteed Cash Surrender Value. (See "How the Cash Value Varies.") If the Cash
Surrender Value is insufficient to pay Policy Charges, the Policy will lapse.
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Cash Value in the Nationwide VLI Separate
Account-2 and/or the Fixed Account (the "Variable Account") at the time the
Policy is issued. The Policy Owner selects the sub-accounts of the Variable
Account into which the Cash Value will be allocated. (See "Allocation of Cash
Value.") When the Policy is issued, the Cash Value will be allocated to the
Nationwide Separate Account Trust Money Market Fund Sub-Account (for any Cash
Value allocated to a Sub-Account on the application) or the Fixed Account until
the expiration of the period in which the Policy Owner may exercise his or her
short-term right to cancel the Policy. (See "Short-Term Right to Cancel
Policy.") Assets of each sub-account are invested at net asset value in shares
of a corresponding underlying Mutual Fund option. For a description of the
underlying Mutual Fund options and their investment objectives, see "Investments
of the Variable Account." The Policy Owner also can have Cash Value allocated to
the Fixed Account.
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 3%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the Cash Value of the Policy. These
charges are made for administrative expenses, state premium taxes, federal
taxes, providing life insurance protection and assuming the mortality and
expense risks.
The Company deducts a monthly charge for the cost of insurance, administrative
charges, premium tax, and federal tax from the Policy's Cash Value attributable
to the Variable Account and Fixed Account. The Company also deducts on a monthly
basis from the Cash Value attributable to the Variable Account, a charge to
provide for mortality and expense risks. For Policies which are surrendered in
the first 9 Policy Years, the Company deducts a Surrender Charge not to exceed
10% of the initial Premium Payment. This includes a charge for deferred sales
expenses and premium tax recovery. The sales surrender charge will never exceed
7.5% of the initial premium payments. For a complete discussion of all charges,
deductions and reductions of charges, see "Charges and Other Deductions."
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each underlying Mutual Fund's investment adviser
for managing the underlying Mutual Fund and selecting its portfolio of
securities. Other underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the underlying Mutual Fund. The
management fees and other expenses for each underlying Mutual Fund for its most
recently completed fiscal year, expressed as a percentage of the underlying
Mutual Fund's average assets, are as follows:
6
<PAGE> 13
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Management Fees Other Expenses Total 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 Portfolio 0.71% 0.08% 0.79%
- -------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund Portfolio 0.61% 0.11% 0.72%
- -------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.50% 0.04% 0.54%
- -------------------------------------------------------------------------------------------------------
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 Trust- 0.84% 0.10% 0.94%
Growth Portfolio
- -------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust- 0.65% 0.10% 0.75%
Limited Maturity Bond Portfolio
- -------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust- 0.85% 0.30% 1.15%
Partners Portfolio
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Bond Fund 0.75% 0.05% 0.80%
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Global 0.74% 0.15% 0.89%
Securities Fund
- -------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds-Multiple 0.74% 0.03% 0.77%
Strategies Fund
- -------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.-Discovery 1.00% 0.31% 1.31%
Fund II, Inc.
- -------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, 1.00% 0.97% 1.97%
Inc.-International Stock Fund II
- -------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 1.00% 0.20% 1.20%
- -------------------------------------------------------------------------------------------------------
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-Gold and Natural 0.80% 0.16% 0.96%
Resources
- -------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Bond 0.79% 0.15% 0.94%
Fund
- -------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment 1.00% 1.90% 2.90%
Trust-Real Estate Securities Portfolio
- -------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity Portfolio 1.00% 0.44% 1.44%
- -------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth Portfolio 0.90% 0.35% 1.25%
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Mutual Fund expenses shown above are assessed at the underlying Mutual Fund
level and are not direct charges against the Variable Account or reductions in
Cash Value. These underlying Mutual Fund expenses are taken into consideration
in computing each underlying Mutual Fund's Net Asset Value, which is the share
price used to calculate the Variable Account's unit value. The management fees
and other expenses, some of which are subject to fee waivers or expense
reimbursements. are more fully described in the prospectuses for each individual
underlying Mutual Fund. The management fees and other expenses, some of which
are subject to fee waivers or expense reimbursements, are more fully described
in the prospectus for each 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.
7
<PAGE> 14
PREMIUMS
The minimum premium for which a Policy may be issued is $10,000 for issue ages
0-70 and $50,000 for issue ages 71-80. A Policy may be issued to an insured up
to age 80.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid. (See "Short-Term Right to Cancel
Policy.")
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise of companies which includes Nationwide Mutual Insurance
Company, Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Insurance Company, National Casualty Company, West Coast Life Insurance Company,
Scottsdale Indemnity Company and Nationwide General Insurance Company and their
affiliated companies. The Company's home office is at One Nationwide Plaza,
Columbus, Ohio 43216.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in the District of
Columbia, Puerto Rico, and in all states. (For additional information, see "The
Company.")
THE VARIABLE ACCOUNT
The Nationwide VLI Separate Account-2 (the "Variable Account"), was established
by a resolution of the Company's Board of Directors on May 7, 1987, pursuant to
the provisions of Ohio law. The Company has caused the Variable Account to be
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940.
Nationwide Life Insurance Company Inc., One Nationwide Plaza, Columbus, Ohio
43216 serves as depositor for the Variable Account. Nationwide Financial
Services, Inc., of One Nationwide Plaza, Columbus, Ohio 43216 serves as
principal underwriter for the Variable Account. Such registration does not
involve supervision of the management of the Variable Account or the Company by
the Securities and Exchange Commission.
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The Death Benefit and Cash Value under the
Policy may vary with the investment performance of the investments in the
Variable Account. (See "How the Death Benefit Varies", and "How the Cash Value
Varies.")
Premium payments and Cash Value are allocated within the Variable Account among
one or more sub-accounts. The assets of each sub-account are used to purchase
shares of the underlying Mutual Fund options designated by the Policy Owner.
Thus, the investment performance of a Policy depends upon the investment
performance of the underlying Mutual Fund options designated by the Policy
Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Cash Value
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account. (See "Allocation of Cash Value.") When the policy is issued, the
Policy's Cash Value not allocated to the Fixed Account is placed in the
Nationwide Separate Account Trust Money Market sub-account until expiration of
the period in which the Policy Owner may exercise his or her short-term right to
cancel the Policy. (See "Short-Term Right to Cancel Policy.") At the expiration
of this period, shares of the underlying Mutual Funds specified by the Policy
Owner are purchased at net asset value for the respective sub-account(s). Such
election is subject to any minimum premium limitations which may be imposed by
the underlying Mutual Fund option(s). In addition, no less than 5% of premium
may be allocated to any one sub-account or the Fixed Account. The Policy Owner
may change the allocation of Cash Value or may transfer Cash Value from one
sub-account to another, subject to such terms and conditions as may be imposed
by each underlying Mutual Fund option and as set forth in this prospectus. (See
"Transfers", "Allocation of Cash Value" and "Short-Term Right to Cancel
Policy.")
Additional Premium Deposits, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise. (See "Premium Deposits.") Premium Deposits will be held
only while the Company obtains information necessary to evaluate the risk.
Following the underwriting process, the Company will either issue the policy or
refund deposits within 5 days from the date thereof.
8
<PAGE> 15
Each of the underlying Mutual Fund options is a series of registered investment
companies which receive investment advice from a registered investment adviser:
1) Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment
Advisors;
2) Dreyfus Socially Responsible Growth Fund, Inc., managed by Dreyfus
Corporation;
3) Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company; and,
4) Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company.
5) The Nationwide Separate Account Trust, managed by Nationwide Financial
Services, Inc.;
6) Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
7) Oppenheimer Variable Account Funds, managed by Oppenheimer Management
Corporation;
8) Strong Special Fund II, Inc., managed by Strong Capital Management,
Inc.;
9) Strong Variable Insurance Funds, Inc., managed by Strong Capital
Management, Inc.;
10) TCI Portfolios, Inc., managed by Investors Research Corporation, an
affiliate of Twentieth Century Companies;
11) Van Eck Worldwide Insurance Trust, managed by Van Eck Associates
Corporation;
12) Van Kampen American Capital Life Investment Trust managed by Van Kampen
American Capital Asset Management, Inc.
13) Warburg Pincus Trust, managed by Warburg Pincus Counsellors, Inc.
A summary of investment objectives is contained in the description of each
underlying Mutual Fund below. These underlying Mutual Fund options are available
only to serve as the underlying investment for variable annuity and variable
life contracts issued through separate accounts of life insurance companies
which may or may not be affiliated, also known as "mixed and shared funding."
There are certain risks associated with mixed and shared funding, which is
disclosed in the underlying Mutual Funds' prospectuses. A full description of
the underlying Mutual Funds, their investment policies and restrictions, risks
and charges are contained in the prospectuses of the respective underlying
Mutual Funds. A prospectus for the underlying Mutual Fund option(s) being
considered must accompany this prospectus and should be read in conjunction
herewith.
DREYFUS
- - DREYFUS STOCK INDEX FUND
The Dreyfus Stock Index Fund, Inc. is an open-end, non-diversified,
management investment company. It was incorporated under Maryland law
on January 24, 1989, and commenced operations on September 29, 1989.
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.
- - THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end,
diversified, management investment company. It was incorporated under
Maryland law on July 20, 1992, and commenced operations on October 7,
1993. The Dreyfus Corporation serves as the Fund's investment advisor.
Tiffany Capital Advisors, Inc. serves as the Fund's sub-investment
adviser and provides day-to-day management of the Fund's portfolio.
Investment Objective: The Fund's primary goal is to provide capital
growth through equity investment in companies that, in the opinion of
the Fund's management, not only meet traditional investment standards,
but which also show evidence that they conduct their business in a
manner that contributes to the enhancement of the quality of life in
America. Current income is secondary to the primary goal.
9
<PAGE> 16
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
The Fund is an open-end, diversified, management investment company organized as
a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's
manager.
- - HIGH INCOME PORTFOLIO
Investment Objective: To obtain a high level of current income by
investing primarily in high-risk, high-yielding, lower rated fixed-income
securities, while also considering growth of capital. The Fund's manager
will seek high current income normally by investing the Fund's assets as
follows:
- at least 65% in income-producing debt securities and preferred
stocks, including convertible securities, zero coupon securities,
and mortgage-backed and asset-based securities;
- up to 20% in common stocks and other equity securities when
consistent with the Fund's primary objective or acquired as part
of a unit combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or
that are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Fund may also purchase lower-quality bonds such as those
rated Ca3 by Moody's or C- by Standard & Poor's which provide poor protection
for payment of principal and interest (commonly referred to as "junk bonds").
For a further discussion of lower-rated securities, please see the "Risks of
Lower-Rated Debt Securities" section of the Fund's prospectus.
- - EQUITY-INCOME PORTFOLIO
Investment Objective: To seek reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's 500 Composite Stock Price
Index.
- - GROWTH PORTFOLIO
Investment Objective: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and
established companies, and smaller, less well-known companies which may
have a narrow product line or whose securities are thinly traded. These
latter securities will often involve greater risk than may be found in
the ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and
investment in the Portfolio may involve greater risk than is inherent in
other underlying mutual funds. It is also important to point out that the
Portfolio makes most sense for you if you can afford to ride out changes
in the stock market, because it invests primarily in common stocks. FMR
also can make temporary investments in securities such as
investment-grade bonds, high-quality preferred stocks and short-term
notes, for defensive purposes when it believes market conditions warrant.
- - OVERSEAS PORTFOLIO
Investment Objective: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio
provides a means for investors to diversify their own portfolios by
participating in companies and economies outside of the United States.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
The Fund is an open-end, diversified, management investment company organized as
a Massachusetts business trust on March 21, 1988. The fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the Fund's manager.
- - ASSET MANAGER PORTFOLIO
Investment Objective: To seek to obtain high total return with reduced
risk over the long-term by allocating its assets among domestic and
foreign stocks, bonds and short-term fixed income instruments.
- - CONTRAFUND PORTFOLIO
Investment Objective: To seek capital appreciation by investing primarily
in companies that the fund manager believes to be undervalued due to an
overly pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be
10
<PAGE> 17
well known. The fund primarily invests in common stock and securities
convertible into common stock, but it has the flexibility to invest in
any type of security that may produce capital appreciation.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The Trust
offers shares in the five separate Mutual Funds listed below, each with its own
investment objectives. Currently, shares of the Trust will be sold only to life
insurance company separate accounts to fund the benefits under variable life
insurance policies or variable annuity contracts issued by life insurance
companies. The assets of the Trust are managed by Nationwide Financial Services,
Inc., of One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary
of Nationwide Life Insurance Company.
- - CAPITAL APPRECIATION FUND
Investment Objective: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of
companies which the investment manager determines have a
better-than-average potential for sustained capital growth over the long
term.
- - MONEY MARKET FUND
Investment Objective: To seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity by
investing primarily in money market instruments.
- - GOVERNMENT BOND FUND
Investment Objective: To provide as high a level of income as is
consistent with capital preservation through investing primarily in bonds
and securities issued or backed by the U.S. Government, its agencies or
instrumentalities.
- - SMALL COMPANY FUND
Investment Objective: The Fund seeks long-term growth of capital by
investing primarily in equity securities of domestic and foreign
companies with market capitalizations of less than $1 billion at the time
of purchase. Nationwide Financial Services, Inc. ("NFS"), the Fund's
adviser, has employed a group of sub-advisers each of which will manage a
portion of the Fund's portfolio. These sub-advisers are the Dreyfus
Corporation, Neuberger & Berman, L.P., Pictet International Management
Limited, Van Eck Associates Corporation, Strong Capital Management, Inc.
and Warburg, Pincus Counsellors, Inc. These sub-advisers were chosen
because they utilize a number of different investment styles when
investing in small company stocks. By utilizing a number of different
investment styles, NFS hopes to increase prospects for investment return
and to reduce market risk and volatility.
- - TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return
(i.e., earnings growth plus potential dividend yield) on invested capital
from a flexible combination of current return and capital gains through
investments in common stocks, convertible issues, money market
instruments and bonds, with a primary emphasis on common stocks.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered directly to
qualified pension and retirement plans outside of the separate account context.
The investment adviser is Neuberger & Berman Management Incorporated.
- - LIMITED MATURITY BOND PORTFOLIO
Investment Objective: To provide the high level of current income,
consistent with low risk to principal and liquidity, and secondarily, 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 lease investment
grade and does not invest in junk bonds.
11
<PAGE> 18
- - GROWTH PORTFOLIO
Investment Objective: The Portfolio seeks capital growth through
investments in common stocks of companies that the investment adviser
believes will have above average earnings or otherwise provide investors
with above average potential for capital appreciation. To maximize this
potential, the investment adviser may also utilize, from time to time,
securities convertible into common stocks, warrants and options to
purchase such stocks.
- - PARTNERS PORTFOLIO
Investment Objective: To seek capital growth. This portfolio will seek to
achieve its objective by investing primarily in the common stock of
established companies. Its investment program seeks securities believed
to be undervalued based on fundamentals such as low price-to-earnings
ratios, consistent cash flows, and support from asset values. The
objective of the Partners Portfolio is not fundamental and can be changed
by the Trustees of the Trust without shareholder approval. Shareholders
will, however, receive at least 30 days prior notice thereof. There is no
assurance the investment objective will be met.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-ended, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. Oppenheimer Management Corporation is
the Funds' investment advisor.
- - BOND FUND
Investment Objective: Primarily to seek a high level of current income
from investment in high yield fixed-income securities rated "Baa" or
better by Moody's or "BBB" or better by Standard & Poor's. Secondarily,
the fund seeks capital growth when consistent with its primary
objective.
- - GLOBAL SECURITIES FUND
Investment Objective: To seek long-term capital appreciation by investing
a substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which
are considered to have appreciation possibilities. Current income is not
an objective. These securities may be considered to be speculative.
- - MULTIPLE STRATEGIES FUND
Investment Objective: To seek a total investment return (which includes
current income and capital appreciation in the value of its shares) from
investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
STRONG SPECIAL FUND II, INC.
The Strong Special Fund II, Inc. ("Special Fund II") is a diversified, open-end
management company commonly called a Mutual Fund. The Special Fund II was
incorporated in Wisconsin and may only be purchased by the separate accounts of
insurance companies for the purpose of funding variable annuity contracts and
variable life policies. Strong Capital Management, Inc. (the "Advisor") is the
investment advisor for the fund.
- - SPECIAL FUND II, INC.
Investment Objective: To seek capital appreciation through investments
in a diversified portfolio of equity securities.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Variable Insurance Funds, Inc. is a diversified, open-end
management company commonly called a mutual fund. The Strong Discovery
Fund II, Inc. ("Discovery Fund II") and the Strong International Stock
Fund II (the "International Stock Fund II") were separately incorporated
in Wisconsin and may only be purchased by the separate accounts of
insurance companies for the purpose of funding variable annuity contracts
and variable life insurance policies. Strong Capital Management, Inc. is
the investment advisor for each of the Funds.
- - INTERNATIONAL STOCK FUND II
Investment Objective: To seek capital growth by investing primarily in
the equity securities of issuers located outside the United States.
12
<PAGE> 19
- - DISCOVERY FUND II, INC.
Investment Objective: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The fund normally
emphasizes investment in equity securities and may invest up to 100% of
its total assets in equity securities including common stocks, preferred
stocks and securities convertible into common or preferred stocks.
Although the Fund normally emphasizes investment in equity securities,
the fund has the flexibility to invest in any type of security that its
advisor believes has the potential for capital appreciation including up
to 100% of its total assets in debt obligations, including intermediate
to long-term corporate or U.S. government debt securities.
TCI PORTFOLIOS, INC., MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS
TCI Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a
diversified, open-end management company, designed only to provide investment
vehicles for variable annuity and variable life insurance products of insurance
companies. A member of the Twentieth Century Family of Mutual Funds, TCI
Portfolios is managed by Investors Research Corporation.
- - TCI BALANCED
Investment Objective: Capital growth and current income. The fund will
seek to achieve its objective by maintaining approximately 60% of the
assets of the fund in common stocks (including securities convertible
into common stocks and other equity equivalents) that are considered by
management to have better-than-average prospects for appreciation and
approximately 40% in fixed income securities. There can be no assurance
that the Fund will achieve its investment objective.
- - TCI GROWTH
Investment Objective: Capital growth. The fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the fund's investment manager, better than average potential for
appreciation. The fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The fund may invest in cash and cash equivalents temporarily or when it
is unable to find common stocks meeting its criteria of selection. It may
purchase securities only of companies that have a record of at least
three years continuous operation. There can be no assurance that the Fund
will achieve its investment objective.
- - TCI INTERNATIONAL
Investment Objective: To seek capital growth. The fund will seek to
achieve its investment objective by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards
of selection and, in the opinion of the investment manager, have
potential for appreciation. Under normal conditions, the fund will invest
at least 65% of its assets in common stocks or other equity securities of
issuers from at least three countries outside the United States.
Securities of United States issuers may be included in the portfolio from
time to time. Although the primary investment of the fund will be common
stocks (defined to include depository receipts for common stocks), the
fund may also invest in other types of securities consistent with the
fund's objective. When the manager believes that the total return
potential of other securities equals or exceeds the potential return of
common stocks, the fund may invest up to 35% of its assets in such other
securities. There can be no assurance that the fund will achieve its
objectives.
(Although the Statement of Additional Information concerning TCI
Portfolios, Inc., refers to redemptions of securities in kind under
certain conditions, all surrendering or redeeming Contract Owners will
receive cash from the Company.)
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a "business trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Shares of the Trust are offered only to
separate accounts of various insurance companies to fund benefits of variable
insurance and annuity policies. The assets of the Trust are managed by Van Eck
Associates Corporation.
- - GOLD AND NATURAL RESOURCES FUND
Investment Objective: To seek long-term capital appreciation by investing
in equity and debt securities of companies engaged in the exploration,
development, production and distribution of gold and other natural
resources, such as strategic and other metals, minerals, forest products,
oil, natural gas and coal. Current income is not an objective.
13
<PAGE> 20
- - WORLDWIDE BOND FUND
Investment Objective: To seek high total return through a flexible policy
of investing globally, primarily in debt securities. The debt securities
in which the fund will invest will be primarily high grade; the fund will
not invest in junk bonds.
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
The Van Kampen American Capital Life Investment Trust is an open-end
diversified management investment company organized as a Massachusetts business
trust on June 3, 1985. The Trust offers shares in separate funds which are sold
only to insurance companies to provide funding for variable life insurance
policies and variable annuity contracts. Van Kampen American Capital Asset
Management, Inc. serves as the Fund's investment adviser.
- - REAL ESTATE SECURITIES FUND
Investment Objective: To seek long-term capital growth by investing in a
portfolio of securities of companies operating in the real estate
industry ("Real Estate Securities"). Current income is a secondary
consideration. Real Estate Securities include equity securities,
including common stocks and convertible securities, as well as
non-convertible preferred stocks and debt securities of real estate
industry companies. A "real estate industry company" is a company that
derives at least 50% of its assets (marked to market), gross income or
net profits from the ownership, construction, management or sale of
residential, commercial or industrial real estate. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
Real Estate Securities, primarily equity securities of real estate
investment trusts. The Fund may invest up to 25% of its total assets in
securities issued by foreign issuers, some or all of which may also be
Real Estate Securities. There can be no assurance that the Fund will
achieve its investment objective.
WARBURG PINCUS TRUST
The Warburg Pincus Trust ("Trust") is an open-end management investment company
organized in March 1995 as a business trust under the laws of The Commonwealth
of Massachusetts. The Trust offers its shares to insurance companies for
allocation to separate accounts for the purpose of funding variable annuity and
variable life contracts. Trust portfolios are managed by Warburg, Pincus
Counsellors, Inc. ("Counsellors.")
- - INTERNATIONAL EQUITY PORTFOLIO
Investment Objective: To seek long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of "Counsellors" have
their principal business activities and interests outside the United
States. The Portfolio will ordinarily invest substantially all of its
assets, but no less than 65% of its total assets, in common stocks,
warrants and securities convertible into or exchangeable for common
stocks. The Portfolio intends to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earning power and
improved utilization or recognition of assets.
- - SMALL COMPANY GROWTH PORTFOLIO
Investment Objective: To seek capital growth by investing in a portfolio
of equity securities of small-sized domestic companies. The Portfolio
ordinarily will invest at least 65% of its total assets in common stocks
or warrants of small-sized companies (i.e., companies having stock market
capitalizations of between $25 million and $1 billion at the time of
purchase) that represent attractive opportunities for capital growth. The
Portfolio intends to invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market. The
Portfolio's investments will be made on the basis of their equity
characteristics and securities ratings generally will not be a factor in
the selection process.
REINVESTMENT
The Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the mutual funds. The
distribution of additional shares will not affect the number of Accumulation
Units attributable to a particular Policy. (See "Allocation of Cash Value.")
TRANSFERS
The Policy Owner may transfer Cash Value among the sub-accounts of the Variable
Account and the Fixed Account. A transfer will take effect on the date of
receipt of written notice at the Company's Home Office. Transfer requests must
be in a written form acceptable to the Company.
14
<PAGE> 21
After the First Policy Anniversary, the Policy Owner may annually request a
transfer of up to 100% of the Cash Value from the Variable Account to the Fixed
Account. The Policy Owner's Cash Value in each Sub-Account will be determined as
of the date the transfer request is received in the Home Office in good order.
The Company reserves the right to restrict transfers to the Fixed Account to 25%
of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account without penalty or adjustment. The Company
reserves the right to limit the amount of Cash Value transferred out of the
Fixed Account each Policy Year. Transfers from the Fixed Account must be made
within 30 days after the termination date of the interest rate guarantee period.
Transfers among the sub-accounts may be made once per Valuation Date and may be
made either in writing or, in states allowing such transfers, by telephone. The
Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include any or all of
the following, or such other procedures as the Company may, from time to time,
deem reasonable: requesting identifying information, such as name, contract
number, Social Security number, and/or personal identification number; tape
recording all telephone transactions; and providing written confirmation thereof
to both the Policy Owner and any agent of record at the last address of record.
Although failure to follow reasonable procedures may result in the Company's
liability for any losses due to unauthorized or fraudulent telephone transfers,
the Company will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine. Any losses incurred
pursuant to actions taken by the Company in reliance on telephone instructions
reasonably believed to be genuine shall be borne by the Contract Owner. The
Company may withdraw the telephone exchange privilege upon 30 days written
notice to Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the Money
Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio
sub-account to any other sub-account within the Variable Account on a monthly
basis. This service is intended to allow the Policy Owner to utilize Dollar Cost
Averaging, a long-term investment program which provides for regular, level
investments over time. The Company makes no guarantees that Dollar Cost
Averaging, will result in a profit or protect against loss in a declining
market. To qualify for Dollar Cost Averaging, there must be a minimum total Cash
Value, less policy indebtedness, of $15,000. Transfers for purposes of Dollar
Cost Averaging can only be made from the Money Market sub-account, Fixed
Account, or the Limited Maturity Bond Portfolio sub-account. The minimum monthly
Dollar Cost Averaging transfer is $100. In addition, Dollar Cost Averaging
monthly transfers from the Fixed Account must be equal to or less than 1/30th of
the Fixed Account value when the Dollar Cost Averaging program is requested.
Transfers out of the Fixed Account, other than for Dollar Cost Averaging, may be
subject to certain additional restrictions. (See "Transfers.") A written
election of this service, on a form provided by the Company, must be completed
by the Policy Owner in order to begin transfers. Once elected, transfers from
the Money Market sub-account, Fixed Account, or the Limited Maturity Bond
Portfolio sub-account will be processed monthly until either the value in the
Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio
sub-account is completely depleted or the Policy Owner instructs the Company in
writing to cancel the monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Policy Owners however, any such discontinuation
would not affect Dollar Cost Averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
SUBSTITUTION OF SECURITIES
If shares of the underlying Mutual Fund options described in this prospectus
should no longer be available for investment by the Variable Account or, if in
the judgment of the Company's management further investment in such underlying
Mutual Funds should become inappropriate in view of the purposes of the Policy,
the Company may substitute shares of another underlying Mutual Fund for shares
already purchased or to be purchased in the future by premium payments under the
Policy. No substitution of securities in the Variable Account may take place
without prior approval of the Securities and Exchange Commission, and under such
requirements as it and any state insurance department may impose.
15
<PAGE> 22
VOTING RIGHTS
Voting rights under the Policies apply with respect to Cash Value allocated to
the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote the
shares of the underlying Mutual Funds held in the Variable Account at regular
and special meetings of the shareholders of the underlying Mutual Funds in
accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result the Company
determines that it is permitted to vote the shares of the underlying Mutual
Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that underlying Mutual Fund by the net asset value
of one share of that underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as of
a date chosen by the Company, but not more than 90 days prior to the meeting of
the underlying Mutual Fund. Voting instructions will be solicited by written
communication prior to such meeting.
Underlying Mutual Fund shares held in the Variable Account as to which no timely
instructions are received will be voted by the Company in the same proportion as
the voting instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the underlying
Mutual Funds' proxy material and a form with which to give such voting
instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
underlying Mutual Fund shares in any manner necessary to enable the underlying
Mutual Fund to (1) make or refrain from making any change in the investments or
investment policies for any of the underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance regulatory
authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
Underwriting for these Policies is designed to group applicants into
classifications which can be expected to produce mortality experience consistent
with the actuarial structure for that class. The Company uses the following
methods of underwriting: (a) simplified underwriting not routinely requiring a
physical examination, and (b) medical or paramedical underwriting which requires
such an examination. (See "How the Death Benefit Varies.")
The Company reserves the right to request a medical examination on any applicant
where an affirmative response to one of the medical questions of the application
requires additional underwriting by the Company.
The minimum amount of initial premium that will be accepted by the Company is
$10,000 for issue ages 0-70 and $50,000 for issue ages 71-80. Policies may be
issued to Insureds issue ages 80 or younger. Before issuing any Policy, the
Company requires evidence of insurability satisfactory to it, which may include
a medical examination.
- -Premium Deposits
The initial premium for a Policy is payable in full at the Company's Home
Office. The minimum amount of initial premium required is $10,000 for issue ages
0-70 and $50,000 for issue ages 71-80. The Specified Amount of Death Benefit is
determined by treating the initial premium as equal to 100% of the Guideline
Single Premium. The effective date of permanent insurance coverage is dependent
upon completion of all
16
<PAGE> 23
underwriting requirements, payment of the initial premium, and delivery of the
Policy while the insured is still living.
The Policy is primarily intended to be a single premium policy with a limited
ability to make additional payments. Subsequent premium payments under the
Policy are permitted under the following circumstances:
1. an additional premium payment is required to keep the Policy
in force (see "Grace Period"); or
2. except in Virginia, additional premium payments of at least
$1,000 may be made at any time provided the premium limits
prescribed by the Internal Revenue Service to qualify the
Policy as a life insurance contract are not violated.
Deposits of additional premiums if accepted, may increase the Specified Amount
of Insurance. However, the Company reserves the right to require satisfactory
evidence of insurability before accepting any additional premium payment which
results in an increase in the net amount at risk. The Company may require that
any existing Policy indebtedness is repaid prior to accepting any additional
premium payments.
Additional Premium Deposits, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise.
The Company will not accept a subsequent premium deposit which would result in
total premiums paid exceeding the premium limitations prescribed by the Internal
Revenue Service to qualify the Policy as a life insurance contract.
- -Allocation of Cash Value
At the time a Policy is issued, its Cash Value will be based on the Nationwide
Separate Account Trust Money Market Fund sub-account value or the Fixed Account
as if the Policy had been issued and the premium invested on the date the
premium was received in good order by the Company. When the Policy is issued,
the Cash Value will be allocated to the Nationwide Separate Account Trust Money
Market Fund sub-account (for any Cash Value allocated to a Sub-Account on the
Application) or the Fixed Account until the expiration of the period in which
the Policy Owner may exercise his or her short-term right to cancel the Policy.
At the expiration of the period in which the Policy Owner may exercise his or
her short term right to cancel the Policy, shares of the underlying Mutual Funds
specified by the Policy Owner are purchased at net asset value for the
respective sub-account(s). The Policy Owner may change the allocation of Cash
Value or may transfer Cash Value from one sub-account to another, subject to
such terms and conditions as may be imposed by each underlying Mutual Fund and
as set forth in the prospectus. Cash Value allocated to the Fixed Account at the
time of application may not be transferred prior to the first Policy
Anniversary. (See "Transfers" and "Investments of the Variable Account.")
The designation of investment allocations will be made by the prospective Policy
Owner at the time of application for a Policy. The Policy Owner may change the
way in which future premiums are allocated by giving written notice to the
Company. All percentage allocations must be in whole numbers, and must be at
least 5%. The sum of allocations must equal 100%.
- -Short-Term Right to Cancel Policy
A Policy may be returned for cancellation and a full refund of premium within 10
days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or
delivered to the registered representative who sold it, or the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the total premiums paid within seven days
after it receives the Policy.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
No deduction is made from any premium at the time of payment. 100% of each
premium payment is applied to the Cash Value.
MONTHLY DEDUCTIONS
On the Policy Date and on each Monthly Anniversary Date, the Company will deduct
an amount to cover charges and expenses incurred in connection with the Policy.
Generally, this Monthly Deduction will be deducted on a pro-rata basis from the
Cash Value in each Sub-account and the Fixed Account. The amount of the Monthly
Deductions will vary from month to month. If the Cash Surrender Value is not
sufficient to cover
17
<PAGE> 24
the Monthly Deduction which is due, the Policy may lapse (see "Grace Period").
The Monthly Deductions are comprised of the following charges:
-Cost of Insurance Charge
Immediately after the Policy is issued, the Death Benefit will be
substantially greater than the initial premium payment. While the Policy
is in force, prior to the Maturity Date, the Death Benefit will always be
greater than the Cash Value. To enable the Company to pay this excess of
the Death Benefit over the Cash Value, a monthly cost of insurance charge
is deducted.
Currently, this charge is deducted monthly and is equal to an annual rate
of 0.65% multiplied by the Cash Value. On a current basis, for policy
years 11 and later, this monthly charge is anticipated to be reduced to
the Cash Value multiplied by an annual rate of 0.30% if the Cash
Surrender Value is $100,000 or more. For substandard policies, these
annual rates are increased.
In no event will this current monthly deduction for the cost of insurance
exceed the guaranteed monthly cost of insurance charges. Guaranteed cost
of insurance charges will not exceed the cost based on the guaranteed
cost of insurance rate multiplied by the Policy's net amount at risk. The
net amount at risk is equal to the Death Benefit minus the Cash Value.
Guaranteed cost of insurance rates for standard issues are based on the
1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday
(1980 CSO). Guaranteed cost of insurance rates for substandard issues are
based on appropriate percentage multiples of the 1980 CSO. These
mortality tables are sex distinct.
-Administrative Expense Charge
The Company deducts a monthly Administrative Expense Charge to reimburse
it for expenses related to the issuance and maintenance of the Policies
including underwriting, establishing policy records, accounting and
record keeping, and periodic reporting to Policy Owners. This charge is
designed only to reimburse the Company for its actual administrative
expenses. In the aggregate, the Company expects that the charges for
administrative costs will be approximately equal to the related expenses.
This monthly charge is equal to an annual rate of 0.30% multiplied by the
Policy's Cash Value. On a current basis, for Policy Years 11 and later,
this monthly charge is anticipated to be reduced to an annual rate of
0.15% multiplied by the Cash Value, provided the Cash Surrender Value is
greater than or equal to $100,000. This Administrative Expense Charge is
subject to a $10 per month minimum.
-Tax Expense Charge
During the first ten policy years, the Company makes a Monthly Deduction
to compensate for certain taxes which are incurred by the Company
including premium taxes imposed by various states and local jurisdictions
and for federal taxes imposed under Section 848 of the Internal Revenue
Code. This monthly charge is equal to an annual rate of 0.50% multiplied
by the Policy's Cash Value.
This charge is deducted monthly and includes a premium tax component
equal to an annual rate of 0.30% and a federal tax component equal to an
annual rate of 0.20%. The Company expects to pay an average state premium
tax of approximately 2.5% of premiums for all states, although such tax
rates can generally range from 0% to 4%. The Company does not anticipate
to make a profit from this monthly Tax Expense Charge.
The Company does not currently assess any charge for income taxes
incurred by the Company as a result of the operations of the Sub-accounts
of the Variable Account. (See "Taxation of the Company.") The Company
reserves the right to assess a charge for such taxes against the Variable
Account if the Company determines that such taxes will be incurred.
-Mortality and Expense Risk Charge
The Company assumes certain risks for guaranteeing the mortality and
expense charges. The mortality risk assumed under the Policies is that
the Insured may not live as long as expected. The expense risk assumed is
that the actual expenses incurred in issuing and administering the
Policies may be greater than expected. In addition, the Company assumes
risks associated with the nonrecovery of policy issue, underwriting and
other administrative expenses due to Policies which lapse or are
surrendered during the early policy years.
To compensate the Company for assuming these risks, a monthly charge for
mortality and expense risks is deducted on a pro-rata basis from the Cash
Value in each Variable Account Sub-account. This monthly charge is equal
to an annual rate of 0.90% multiplied by the Cash Value attributable to
the
18
<PAGE> 25
Variable Account. To the extent that future levels of mortality and
expenses are less than or equal to those expected, the Company may
realize a profit from these charges.
SURRENDER CHARGES
The Company will deduct a surrender charge from the Policy's Cash Value for any
Policy which is surrendered during the first nine policy years. The surrender
charge is comprised of two components: a sales surrender charge and a premium
tax surrender charge.
The Company incurs certain sales and other distribution expenses at the time the
Policies are issued. The majority of these expenses consist of commissions paid
for the sale or these policies. Premium taxes are generally incurred by the
Company at the time the Policies are issued. These surrender charges are
designed to recover a portion of these expenses. The Company does not expect to
profit from these surrender charges. Unrecovered expenses are borne by the
Company's general assets which may include profits, if any, from the monthly
mortality and expense risk charges (see "Monthly Deductions"). Certain
surrenders may result in adverse tax consequences (see "Tax Matters"). Maximum
surrender charges are shown in the following table:
<TABLE>
<CAPTION>
Surrender Charge
as a Percent of
Completed Policy Years Initial Premium Payment
---------------------- -----------------------
<S> <C>
0 10.0%
1 10.0
2 9.0
3 8.0
4 7.0
5 6.0
6 5.0
7 4.0
8 3.0
9+ 0.0
</TABLE>
Approximately 75% of the total surrender charges are for the recovery of sales
expenses and 25% for the recovery of premium taxes. In no event will the sales
surrender charge exceed 7.5% of the total premium payments.
The amount of the sales surrender charge may be eliminated when the Policies are
issued to an officer, director, former director, partner, employee, or retired
employee of the Company; an employee of the General Distributor of the Policies,
Nationwide Financial Services, Inc., or an employee of an affiliate of the
Company or the General Distributor, or, a duly appointed representative of the
Company who receives no commission as a result of the purchase. Elimination of
the sales surrender charge will be permitted by the Company only in those
situations where the Company does not incur sales expenses normally associated
with sales of a Policy. In no event will the elimination of any sales surrender
charge be permitted where such elimination will be unfairly discriminatory to
any person.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any premium applied since the previous Valuation
Date, plus or minus any investment results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash Value
allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the underlying Mutual Fund shares in that sub-account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each sub-account for
the immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation
19
<PAGE> 26
Period. The value of an Accumulation Unit may increase or decrease from
Valuation Period to Valuation Period. The number of Accumulation Units will not
change as a result of investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing (a)
by (b) where:
(a) is the net of:
(1) the Net Asset Value per share of the underlying Mutual Fund option
held in the sub-account determined at the end of the current
Valuation Period, plus
(2) the per share amount of any dividend or capital gain distributions
made by the underlying Mutual Fund option held in the sub-account
if the "ex-dividend" date occurs during the current Valuation
Period.
(b) is the net of:
(1) The Net Asset Value per share of the underlying Mutual Fund held
in the Sub-Account determined at the end of the immediately
preceding Valuation Period, plus or minus,
(2) the per share charge or credit, if any, for any taxes reserved for
in the immediately preceding Valuation Period. (See "Charge for
Tax Provisions.")
For underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to changes
in the net asset value of underlying Mutual Fund shares because of any charge or
credit for tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
Net Asset Value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy, amounts credited to the Fixed Account, and any associated value in
the Policy Loan Account is the Cash Value. The number of Accumulation Units
credited per each sub-account are determined by dividing the net amount
allocated to the sub-account by the Accumulation Unit Value for the sub-account
for the Valuation Period during which the premium is received by the Company. In
the event part or all of the Cash Value is surrendered or charges or deductions
are made against the Cash Value, generally an appropriate number of Accumulation
Units from the Variable Account and an appropriate amount from the Fixed Account
will be deducted in the same proportion that the Policy Owner's interest in the
Variable Account and the Fixed Account bears to the total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited with
interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate credited to the Fixed Account will never be
less than 3%. The annual effective rate credited to the Policy Loan Account will
never be less than 4%. Upon request, the Company will inform the Policy Owner of
the then applicable rates for each account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's home office is open for business or any other day during which
there is sufficient degree of trading that the current net asset value of the
Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific
20
<PAGE> 27
Stock Exchange, or by a Commercial Bank or Savings and Loan, which is a member
of the Federal Deposit Insurance Corporation. In some cases, the Company may
require additional documentation of a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender of the Policy, minus any charges, indebtedness or
other deductions due on that date, which may also include a Surrender Charge.
PARTIAL SURRENDERS
Partial surrenders are permitted after the fifth policy year. Partial surrenders
will be permitted only if they satisfy the following requirements:
1. The partial surrender request is in writing and the request is
signed by the Policy Owner or an authorized party of the
Policy Owner; and
2. The maximum partial surrender in any Policy Year, not subject
to Surrender Charges, is limited to the maximum of:
(i) 10% of the total premium payments; and
(ii) 100% of cumulative earnings (Cash Value less total
premium payments less any existing policy
indebtedness);
3. Such partial surrenders must not result in a reduction of the
Cash Surrender Value below $10,000; and
4. After such partial surrender, the Policy continues to qualify
as life insurance.
All partial surrenders will be next computed after the date the Company receives
a proper written request. When a partial surrender is made, the Cash Value is
reduced by the amount of the partial surrender. Also, the Specified Amount is
reduced by the amount of the partial surrender unless the Death Benefit is based
on the applicable percentage of the Cash Value. In such a case, a Partial
Surrender will decrease the Specified Amount by the amount by which the Partial
Surrender exceeds the difference between the Death Benefit and the Specified
Amount. Partial surrender amounts must be first deducted from the values in the
Variable sub-accounts. Partial surrenders will be deducted from the Fixed
Account only to the extent that insufficient values are available in the
Variable sub-accounts.
No Surrender Charges will be assessed against any such eligible partial
surrenders. Certain partial surrenders may result in currently taxable income
and tax penalties.
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
100th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any indebtedness.
INCOME TAX WITHHOLDING
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, Participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided; (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value of the
Contract exceeds the employer's interest in the contract. Participants should
consult with the sponsor or the administrator of the Plan, and/or with their
personal tax or legal advisers, to determine the tax consequences, if any, of
their employer-sponsored life insurance arrangements.
21
<PAGE> 28
POLICY LOANS
TAKING A POLICY LOAN
The Policy Owner may take a loan using the Policy as security. During the first
year, maximum Policy indebtedness is limited to 50% of the Cash Value less any
Surrender Charge. Thereafter, maximum policy indebtedness is limited to 90% of
the Cash Value less any Surrender Charge. The Company will not grant a loan for
an amount less than $1,000 ($200 in Connecticut, $250 in Oregon, $500 in New
Jersey and $500 in New York). Should the Death Benefit become payable, the
Policy be surrendered, or the Policy mature while a loan is outstanding, the
amount of Policy indebtedness will be deducted from the Death Benefit, Cash
Surrender Value or the Maturity Value, respectively.
Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Value less
any Surrender Charge in the sub-accounts and 100% of the Cash Value less any
Surrender Charge in the Fixed Account.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings and
Loan which is a member of the Federal Deposit Insurance Corporation. Certain
Policy loans may result in currently taxable income and tax penalties. (See "Tax
Matters.")
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each Variable Sub-account at the
time of the loan. Policy Loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable Sub-accounts. The amount
taken out of the Variable Account will not be affected by the Variable Account's
investment experience while the loan is outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer.
Total policy indebtedness is comprised of two components: (i) Preferred Loans
and (ii) Regular Loans. The amount of the loan account that is less than or
equal to the Cash Value less the total premium payments will be treated as a
Preferred Loan. Any additional loaned amounts will be treated as Regular Loans.
Preferred and Regular Loan amounts will be determined once a year, as well as at
any time a new loan is requested. All loaned amounts in year 1 will be treated
as Regular Loans. On a current basis, preferred indebtedness will be credited
interest daily at an annual effective rate of 6%, and Regular indebtedness will
be credited interest daily at an annual effective rate of 4%. The credited rate
for all policy indebtedness is guaranteed never to be lower than 4%. This earned
interest is transferred from the Policy Loan Account to a Variable Account or
the Fixed Account on each Policy Anniversary as well as at any time a new loan
is requested. It will be allocated according to the Fund Allocation Factors in
effect at the time of the transfer.
The loan interest rate is 6% per year for all policy indebtedness. Interest is
charged daily and is payable at the end of each Policy Year as well as at any
time a new loan is requested. Unpaid interest will be added to the existing
policy indebtedness as of the due date and will be charged interest at the same
rate as the rest of the indebtedness.
Whenever the total loan indebtedness plus accrued interest exceeds the Cash
Value less any Surrender Charges, the Company will send a notice to the Policy
Owner and the assignee, if any. The Policy will terminate without value 61 days
after the mailing of the notice unless a sufficient repayment is made during
that period. A repayment is sufficient if it is large enough to reduce the total
loan indebtedness plus accrued interest to an amount equal to the total Cash
Value less any Surrender Charges plus an amount sufficient to continue the
Policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
22
<PAGE> 29
REPAYMENT
All or part of a loan may be repaid at any time while the Policy is in force
during the insured's lifetime. Any payment intended as a loan repayment, rather
than a premium payment, must be identified as such. Loan repayments will be
credited to the Variable Sub-accounts and the Fixed Account in proportion to the
Policy Owner's Premium allocation in effect at the time of the repayment. Each
repayment may not be less than $1,000. The Company reserves the right to require
that any loan repayments resulting from Policy Loans transferred from the Fixed
Account must be first allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
- -Calculation of the Death Benefit
At issue, the Specified Amount is determined by treating the initial premium as
equal to 100% of the Guideline Single Premium. Guideline Single Premiums vary by
attained age, sex, underwriting classification, and total premium payments.
The following table illustrates representative initial Specified Amounts.
<TABLE>
<CAPTION>
$10,000 Single Premium $25,000 Single Premium $50,000 Single Premium
Issue
Age Male Female Male Female Male Female
--- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
35 $62,031 $76,231 $155,077 $190,577 $310,154 $381,154
40 49,883 61,337 124,707 153,343 249,413 306,685
45 40,437 49,825 101,903 124,562 202,186 249,124
50 33,079 40,742 82,698 101,854 165,397 203,708
55 27,358 33,531 68,396 83,828 136,791 167,655
60 22,964 27,734 57,410 69,335 114,821 138,671
65 19,579 23,052 48,948 57,631 97,895 115,261
</TABLE>
Generally, for a given premium payment, the initial Specified Amount is greater
for females than males. The Specified Amount is shown in the Policy.
While the Policy is in force, the Death Benefit will never be less than the
Specified Amount or the Applicable Percentage of Cash Value. The Death Benefit
may vary with the Cash Value of the Policy, which depends on investment
performance. The amount of Death Benefit will ordinarily not change for several
years to reflect investment performance and may not change at all. If investment
performance is favorable, the amount of Death Benefit may increase. The
Applicable Percentage of Cash Value varies by attained age.
Applicable Percentage of Cash Value Factors
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 101%
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>
23
<PAGE> 30
- -Proceeds Payable on Death
The actual Death Proceeds payable on the Insured's death will be the Death
Benefit as described above, less any outstanding Policy loans and less any
unpaid Policy Charges. Under certain circumstances, the Proceeds may be
adjusted. (See "Incontestability", "Error in Age or Sex", and "Suicide.")
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
During the first 24 months following policy issue, there is an unconditional
right to transfer all of the Cash Value in the Variable Account to the Fixed
Account.
CHANGES OF INVESTMENT POLICY
The Company may materially change the Investment Policy of the Variable Account.
The Company must inform the Policy Owner and obtain all necessary regulatory
approvals. Any change must be submitted to the various state insurance
departments which may disapprove it if deemed detrimental to the interests of
the policy holders or if it renders the Company's operations hazardous to the
public. If a Policy Owner objects, there is an unconditional right to transfer
all of the Cash Value in the Variable Account to the Fixed Account. The Policy
Owner has the later of 60 days (6 months in Pennsylvania) from the date of the
Investment Policy change or 60 days (6 months in Pennsylvania) from being
informed of such change to make this transfer.
GRACE PERIOD
If the Cash Surrender Value in the Policy is insufficient to pay the monthly
deductions, Policy loan interest, or other charges which become due but are
unpaid, a grace period of 61 days will be allowed for payment of sufficient
premium to continue the Policy in force. The Company will notify the Policy
Owner of the amount required to continue the Policy in force. If the required
amount is not received within 61 days of the notice, the Policy will terminate
without value. If the Insured dies during the Grace Period, the Company will pay
the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end
of the Grace Period and prior to the Maturity Date:
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all policy charges that were due and
unpaid during the Grace Period;
4. paying additional premiums at least equal to 3 times the guaranteed
cost of insurance charges; and
5. repaying any indebtedness against the Policy which existed at the end
of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day on
or next following the date the application for reinstatement is approved by us.
If your Policy is reinstated, the Cash Value on the date of reinstatement, but
prior to applying any premiums or loan repayments received, will be set equal to
the appropriate Surrender Charge. Such Surrender Charge will be based on the
length of time from the date of premium payments to the effective date of the
reinstatement. Unless the Policy Owner has provided otherwise, the allocation of
the amount of the Surrender Charge, additional premium payments, and any loan
repayments will be based on the underlying Mutual Fund Allocation factors in
effect at the start of the Grace Period.
THE FIXED ACCOUNT OPTION
Because of exemptive and exclusionary provisions, interests in Nationwide's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor any
interests therein are subject to the provisions of these Acts, and Nationwide
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this prospectus relating to the Fixed Account
option. Disclosures regarding the General Account may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses.
24
<PAGE> 31
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of Nationwide's general assets (General Account).
Nationwide's General Account consists of all assets of the Company other than
those in the Variable Account and in other separate accounts that have been or
may be established by the Company. Subject to applicable law, the Company has
sole discretion over the investment of the assets of the General Account, and
Policy Owners do not share in the investment experience of those assets. The
Company guarantees that the part of the Cash Value invested under the Fixed
Account option will accrue interest daily at an effective annual rate that the
Company declares periodically. The Fixed Account crediting rate will not be less
than an effective annual rate of 3%. Upon request and in the annual statement
the Company will inform a Policy Owner of the then applicable rate. The Company
is not obligated to credit interest at a higher rate.
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a Contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to the
Company and recorded at the Company's Home Office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by the Company before it was recorded. The Company may require that
the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent owner, and
dies before the Insured, the Policy Owner's rights in this Policy belong to the
Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at the
Company's Home Office. Once recorded, the change will be effective when signed.
The change will not affect any payment made or action taken by the Company
before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving beneficiary, unless otherwise provided. Multiple beneficiaries
will be paid in equal shares, unless otherwise provided. If no named Beneficiary
survives the Insureds, the proceeds shall be paid to the Policy Owner or the
Policy Owner's estate.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its Home Office. The Company is not responsible for
any assignment not submitted for recording, nor is the Company responsible for
the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before it
was recorded.
INCONTESTABILITY
The Company will not contest a Death Benefit based on representations in any
written application when such benefit has been in force, during the lifetime of
the Insured, for two years.
ERROR IN AGE OR SEX
If the Insured's age, sex or both, as stated in the application, are incorrect,
the affected benefits will be adjusted to reflect the correct age, sex, or both.
SUICIDE
If the Insured dies by suicide within two years from the Policy Date, the
Company will pay no more than the sum of the premiums, less any unpaid loan. If
the Insured dies by suicide within two years from the date an application is
accepted for an increase in the Specified Amount, the Company will pay no more
than the amount paid for such additional benefit.
25
<PAGE> 32
NONPARTICIPATING POLICIES
The Policies are nonparticipating. This means that they do not participate in
any dividend distribution of the Company's surplus.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The Policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women and thus the Policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives of
broker dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. (NASD). The
Policies will be distributed by the General Distributor, Nationwide Financial
Services, Inc. ("NFS"), One Nationwide Plaza, Columbus, Ohio 43216.
NFS is a corporation which was organized under the laws of the State of Ohio on
April 8, 1965. NFS is both a broker-dealer and 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 polices. 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 commissions paid by the Company on the sale of these Policies plus fees
for marketing services are not more than 6.75% of the premiums paid.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company will
monitor compliance with these tests. The Policy should thus receive the same
Federal income tax treatment as fixed benefit life insurance. As a result, the
life insurance proceeds payable under a Policy are excludable from gross income
of the beneficiary under Section 101 of the Code.
The Policies described in this prospectus, meet the definition of "modified
endowment contracts" under Section 7702A of the Code. The Code defines modified
endowment contracts as those policies issued or materially changed after June
21, 1988 on which the total premiums paid during the first seven years exceed
the amount that would have been paid if the policy provided for paid up benefits
after seven level annual premiums. The policies offered in this prospectus
typically fall within this definition. The Code provides for taxation of
surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified
26
<PAGE> 33
endowment contracts in the same way annuities are taxed. Any distribution is
taxable to the extent the Cash Value of the Policy exceeds, at the time of the
distribution, the premiums paid into the Policy. The Code generally provides for
a 10% tax penalty on the taxable portion of such distributions. That penalty is
applicable unless the distribution is 1) paid after the Policy Owner is 59-1/2
or disabled; or 2) the distribution is part of an annuity to the Policy Owner as
defined in the Code.
Even though exchanges under Section 1035 of the Code qualify as material
changes, certain exchanges of pre-June 22, 1988 policies may retain their
non-modified endowment status. Therefore, the policies offered by this
prospectus may or may not be issued as modified endowment contracts. The Company
will monitor premiums paid and will notify the Policy Owner when the policy's
non-modified endowment status is in jeopardy. If a policy is not a modified
endowment contract, a cash distribution during the first fifteen years after a
policy is issued which causes a reduction in death benefits may still become
fully or partially taxable to the Owner pursuant to Section 7702(f)(7) of the
Code. The Policy Owner should carefully consider this potential effect and seek
further information before initiating any changes in the terms of the policy.
Under certain conditions, a policy may become a modified endowment as a result
of certain material changes or a reduction in benefits as defined by Section
7702A(c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the Secretary of the
Treasury, set the standards for measuring the adequacy of this diversification.
To be adequately diversified, each sub-account of the Variable Account must meet
certain tests. The Company believes that the investments of the Variable Account
meet the applicable diversification standards. The regulations provide that a
variable life policy which does not satisfy the diversification standards will
not be treated as life insurance under Section 7702 of the Internal Revenue
Code, unless the failure to satisfy regulations was inadvertent, the failure is
corrected, and the Policy Owner or the Company pays an amount to the Internal
Revenue Service. The amount will be based on the tax that would have been paid
by the Policy Owner if the income, for the period the policy was not
diversified, had been received by the Policy Owner. If the failure to diversify
is not corrected in this manner, the Policy Owner of the life policy will be
deemed the owner of the underlying securities and will be taxed on the earnings
of his or her account. The Company will monitor compliance with these
regulations and, to the extent necessary, will change the objectives or assets
of the sub-account investments to remain in compliance.
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.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances. If the amount received by the
Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the
Policy, the excess generally will be treated as taxable income, regardless of
whether or not the Policy is a modified endowment contract.
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.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the value of Accumulation Units. As a result,
such investment income and realized capital gains are automatically applied to
increase reserves under the Policies.
27
<PAGE> 34
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 Company is a life insurance company writing life, accident and health
insurance, and annuities in all states and the District of Columbia. The Company
issues variable annuity contracts through other segregated investment accounts.
This is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In general,
all states have statutory administrative powers. Such regulation relates, among
other things, to licensing of insurers and their agents, the approval of policy
forms, the methods of computing reserves, the form and content of statutory
financial statements, the amount of policyholders' and stockholders' dividends,
and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
the Company shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
The Company 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 home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Insurance Company, National Casualty Company, West Coast Life Insurance Company,
Scottsdale Indemnity Company and Nationwide General Insurance Company and their
affiliated companies comprise the Nationwide Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Corporation is the sole
shareholder of the Company.
28
<PAGE> 35
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)
*Member, Executive +Member, Investment Committee
Committee
</TABLE>
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.
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
</TABLE>
29
<PAGE> 36
<TABLE>
<CAPTION>
NAME OFFICE HELD
- ---- -----------
<S> <C>
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 current policy values, transactions since the last
statement, policy loan information, and any other information required by
federal or state laws or regulations.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as change in Specified Amount, changes in future premium allocation,
transfers among sub-accounts, premium payments, loans, increase in loan
principal, loan repayments, unpaid loan interest added to principal,
reinstatement and termination.
ADVERTISING
The Company is ranked and rated by independent financial rating services, among
which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of the
Company. The ratings are not intended to reflect the investment experience or
financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs based on selected tax brackets or
discussions of alternative investment vehicles and general economic conditions.
30
<PAGE> 37
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 included herein have been included herein
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Account, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216. All
the members of such firm are employed by the Nationwide Mutual Insurance
Company.
31
<PAGE> 38
APPENDIX
ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and Death Benefits under a
Policy would vary over time if the hypothetical gross investment rates of return
were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6%, or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and Death Benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Cash Surrender Values falls to zero, at which time
additional Premium Payments would be required to continue the Policy in force.
The illustrations also assume there is no Policy Indebtedness, no additional
Premium Payments are made and no Cash Values are allocated to the Fixed Account.
The amounts shown for the Cash Value, Cash Surrender Value and Death Benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the deduction of underlying Mutual Fund investment advisory fees and other
expenses which are equivalent to an annual effective rate of 0.90%. This
effective rate is based on the average of the fund expenses for the preceding
year for all underlying mutual fund options available under the policy as of
January 1, 1996.
Taking account of the underlying Mutual Fund expenses, gross annual rates of
return of 0%, 6% and 12% correspond to net investment experience at constant
annual rates of -0.90%, 5.1%, and 11.1% respectively.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection, recovering taxes, providing for
administrative expenses, and assuming mortality and expense risks. Current
values reflect current charges and guaranteed values reflect the maximum charges
guaranteed in the Policy. The values shown are for policies which are issued as
standard. Policies issued on a substandard basis would result in lower Cash
Values and Death Benefits than those illustrated.
In addition, the illustrations reflect the fact that no charges for federal or
state income taxes are currently made against the Variable Account. If such a
charge is made in the future, it will require a higher gross investment return
than illustrated in order to produce the net after-tax returns shown in the
illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, rating classification and Premium Payment
requested.
32
<PAGE> 39
$10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,582 8,582 19,579 10,160 9,160 19,579 10,738 9,738 19,579
2 11,025 9,176 8,176 19,579 10,324 9,324 19,579 11,540 10,540 19,579
3 11,576 8,782 7,882 19,579 10,493 9,593 19,579 12,411 11,511 19,579
4 12,155 8,401 7,601 19,579 10,667 9,867 19,579 13,358 12,558 19,579
5 12,763 8,030 7,330 19,579 10,846 10,146 19,579 14,386 13,686 19,579
6 13,401 7,671 7,071 19,579 11,030 10,430 19,579 15,503 14,903 19,579
7 14,071 7,323 6,823 19,579 11,218 10,718 19,579 16,717 16,217 19,579
8 14,775 6,985 6,585 19,579 11,413 11,013 19,579 18,041 17,641 20,025
9 15,513 6,657 6,357 19,579 11,612 11,312 19,579 19,501 19,201 21,256
10 16,289 6,339 6,339 19,579 11,818 11,818 19,579 21,104 21,104 22,582
15 20,789 5,018 5,018 19,579 13,271 13,271 19,579 32,367 32,367 33,986
20 26,533 3,854 3,854 19,579 14,983 14,983 19,579 49,517 49,517 51,993
25 33,864 2,830 2,830 19,579 17,000 17,000 19,579 75,690 75,690 79,475
30 43,219 1,928 1,928 19,579 19,380 19,380 19,579 116,668 116,668 117,834
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
33
<PAGE> 40
$10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,381 8,381 19,579 9,962 8,962 19,579 10,544 9,544 19,579
2 11,025 8,734 7,734 19,579 9,896 8,896 19,579 11,130 10,130 19,579
3 11,576 8,052 7,152 19,579 9,799 8,899 19,579 11,767 10,867 19,579
4 12,155 7,329 6,529 19,579 9,664 8,864 19,579 12,462 11,662 19,579
5 12,763 6,557 5,857 19,579 9,486 8,786 19,579 13,225 12,525 19,579
6 13,401 5,724 5,124 19,579 9,255 8,655 19,579 14,069 13,469 19,579
7 14,071 4,815 4,315 19,579 8,960 8,460 19,579 15,008 14,508 19,579
8 14,775 3,810 3,410 19,579 8,585 8,185 19,579 16,063 15,663 19,579
9 15,513 2,686 2,386 19,579 8,112 7,812 19,579 17,258 16,958 19,579
10 16,289 1,418 1,418 19,579 7,519 7,519 19,579 18,628 18,628 19,932
15 20,789 (*) (*) (*) 1,805 1,805 19,579 28,480 28,480 29,904
20 26,533 (*) (*) (*) (*) (*) (*) 43,419 43,419 45,590
25 33,864 (*) (*) (*) (*) (*) (*) 65,149 65,149 68,407
30 43,219 (*) (*) (*) (*) (*) (*) 98,541 98,541 99,527
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE
PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
34
<PAGE> 41
$10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,582 8,582 40,437 10,160 9,160 40,437 10,738 9,738 40,437
2 11,025 9,176 8,176 40,437 10,324 9,324 40,437 11,540 10,540 40,437
3 11,576 8,782 7,882 40,437 10,493 9,593 40,437 12,411 11,511 40,437
4 12,155 8,401 7,601 40,437 10,667 9,867 40,437 13,358 12,558 40,437
5 12,763 8,030 7,330 40,437 10,846 10,146 40,437 14,386 13,686 40,437
6 13,401 7,671 7,071 40,437 11,030 10,430 40,437 15,503 14,903 40,437
7 14,071 7,323 6,823 40,437 11,218 10,718 40,437 16,717 16,217 40,437
8 14,775 6,985 6,585 40,437 11,413 11,013 40,437 18,035 17,635 40,437
9 15,513 6,657 6,357 40,437 11,612 11,312 40,437 19,468 19,168 40,437
10 16,289 6,339 6,339 40,437 11,818 11,818 40,437 21,024 21,024 40,437
15 20,789 5,018 5,018 40,437 13,271 13,271 40,437 31,910 31,910 42,759
20 26,533 3,854 3,854 40,437 14,983 14,983 40,437 49,033 49,033 59,820
25 33,864 2,830 2,830 40,437 17,000 17,000 40,437 75,219 75,219 87,254
30 43,219 1,928 1,928 40,437 19,377 19,377 40,437 116,172 116,172 124,304
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
35
<PAGE> 42
$10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,501 8,501 40,437 10,080 9,080 40,437 10,658 9,658 40,437
2 11,025 8,999 7,999 40,437 10,150 9,150 40,437 11,370 10,370 40,437
3 11,576 8,494 7,594 40,437 10,211 9,311 40,437 12,139 11,239 40,437
4 12,155 7,984 7,184 40,437 10,260 9,460 40,437 12,972 12,172 40,437
5 12,763 7,467 6,767 40,437 10,297 9,597 40,437 13,874 13,174 40,437
6 13,401 6,941 6,341 40,437 10,318 9,718 40,437 14,852 14,252 40,437
7 14,071 6,402 5,902 40,437 10,320 9,820 40,437 15,911 15,411 40,437
8 14,775 5,849 5,449 40,437 10,301 9,901 40,437 17,062 16,662 40,437
9 15,513 5,276 4,976 40,437 10,256 9,956 40,437 18,310 18,010 40,437
10 16,289 4,680 4,680 40,437 10,181 10,181 40,437 19,668 19,668 40,437
15 20,789 1,317 1,317 40,437 9,512 9,512 40,437 29,386 29,386 40,437
20 26,533 (*) (*) (*) 7,315 7,315 40,437 45,090 45,090 55,010
25 33,864 (*) (*) (*) 1,889 1,889 40,437 69,171 69,171 80,238
30 43,219 (*) (*) (*) (*) (*) (*) 106,265 106,265 113,704
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE
PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
36
<PAGE> 43
$25,000 INITIAL PREMIUM: $101,093 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,132 21,632 101,093 25,583 23,083 101,093 27,034 24,534 101,093
2 27,562 23,289 20,789 101,093 26,182 23,682 101,093 29,244 26,744 101,093
3 28,941 22,472 20,222 101,093 26,798 24,548 101,093 31,645 29,395 101,093
4 30,388 21,679 19,679 101,093 27,432 25,432 101,093 34,253 32,253 101,093
5 31,907 20,911 19,161 101,093 28,083 26,333 101,093 37,086 35,336 101,093
6 33,502 20,165 18,665 101,093 28,753 27,253 101,093 40,164 38,664 101,093
7 35,178 19,442 18,192 101,093 29,441 28,191 101,093 43,503 42,253 101,093
8 36,936 18,740 17,740 101,093 30,149 29,149 101,093 47,120 46,120 101,093
9 38,783 18,059 17,309 101,093 30,877 30,127 101,093 51,037 50,287 101,093
10 40,722 17,399 17,399 101,093 31,626 31,626 101,093 55,280 55,280 101,093
15 51,973 14,756 14,756 101,093 36,610 36,610 101,093 84,709 84,709 113,510
20 66,332 12,428 12,428 101,093 42,475 42,475 101,093 131,806 131,806 160,803
25 84,659 10,379 10,379 101,093 49,301 49,301 101,093 206,582 206,582 239,635
30 108,049 8,575 8,575 101,093 57,224 57,224 101,093 323,780 323,780 346,445
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
37
<PAGE> 44
$100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,708 86,708 195,791 102,511 92,511 195,791 108,313 98,313 195,791
2 110,250 93,524 83,524 195,791 105,084 95,084 195,791 117,318 107,318 195,791
3 115,762 90,446 81,446 195,791 107,723 98,723 195,791 127,071 118,071 195,791
4 121,551 87,468 79,468 195,791 110,427 102,427 195,791 137,635 129,635 195,791
5 127,628 84,589 77,589 195,791 113,200 106,200 195,791 149,077 142,077 195,791
6 134,010 81,804 75,804 195,791 116,042 110,042 195,791 161,470 155,470 195,791
7 140,710 79,111 74,111 195,791 118,955 113,955 195,791 174,903 169,903 197,641
8 147,746 76,507 72,507 195,791 121,942 117,942 195,791 189,597 185,597 210,452
9 155,133 73,988 70,988 195,791 125,004 122,004 195,791 205,646 202,646 224,154
10 162,889 71,553 71,553 195,791 128,142 128,142 195,791 223,212 223,212 238,837
15 207,893 62,060 62,060 195,791 152,505 152,505 195,791 349,845 349,845 367,337
20 265,330 53,828 53,828 195,791 181,501 181,501 195,791 548,319 548,319 575,735
25 338,635 46,687 46,687 195,791 216,010 216,010 226,810 859,393 859,393 902,362
30 432,194 40,493 40,493 195,791 257,079 257,079 259,650 1,346,944 1,346,944 1,360,414
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE
PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
38
<PAGE> 45
$100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,708 86,708 195,791 102,511 92,511 195,791 108,313 98,313 195,791
2 110,250 93,524 83,524 195,791 105,084 95,084 195,791 117,318 107,318 195,791
3 115,762 90,446 81,446 195,791 107,723 98,723 195,791 127,071 118,071 195,791
4 121,551 87,468 79,468 195,791 110,427 102,427 195,791 137,635 129,635 195,791
5 127,628 84,589 77,589 195,791 113,200 106,200 195,791 149,077 142,077 195,791
6 134,010 81,804 75,804 195,791 116,042 110,042 195,791 161,470 155,470 195,791
7 140,710 79,111 74,111 195,791 118,955 113,955 195,791 174,903 169,903 197,641
8 147,746 76,507 72,507 195,791 121,942 117,942 195,791 189,597 185,597 210,452
9 155,133 73,988 70,988 195,791 125,004 122,004 195,791 205,646 202,646 224,154
10 162,889 71,553 71,553 195,791 128,142 128,142 195,791 223,212 223,212 238,837
15 207,893 62,060 62,060 195,791 152,505 152,505 195,791 349,845 349,845 367,337
20 265,330 53,828 53,828 195,791 181,501 181,501 195,791 548,319 548,319 575,735
25 338,635 46,687 46,687 195,791 216,010 216,010 226,810 859,393 859,393 902,362
30 432,194 40,493 40,493 195,791 257,079 257,079 259,650 1,346,944 1,346,944 1,360,414
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
39
<PAGE> 46
$100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT
MALE: SIMPLIFIED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 94,724 84,724 195,791 100,554 90,554 195,791 106,387 96,387 195,791
2 110,250 89,180 79,180 195,791 100,888 90,888 195,791 113,303 103,303 195,791
3 115,762 83,324 74,324 195,791 100,974 91,974 195,791 120,837 111,837 195,791
4 121,551 77,095 69,095 195,791 100,776 92,776 195,791 129,095 121,095 195,791
5 127,628 70,416 63,416 195,791 100,242 93,242 195,791 138,201 131,201 195,791
6 134,010 63,182 57,182 195,791 99,301 93,301 195,791 148,306 142,306 195,791
7 140,710 55,257 50,257 195,791 97,861 92,861 195,791 159,604 154,604 195,791
8 147,746 46,469 42,469 195,791 95,804 91,804 195,791 172,343 168,343 195,791
9 155,133 36,605 33,605 195,791 92,985 89,985 195,791 186,774 183,774 203,583
10 162,889 25,406 25,406 195,791 89,242 89,242 195,791 202,728 202,728 216,919
15 207,893 (*) (*) (*) 50,882 50,882 195,791 313,490 313,490 329,165
20 265,330 (*) (*) (*) (*) (*) (*) 479,062 479,062 503,016
25 338,635 (*) (*) (*) (*) (*) (*) 718,814 718,814 754,755
30 432,194 (*) (*) (*) (*) (*) (*) 1,087,242 1,087,242 1,098,114
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE
PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
40
<PAGE> 47
$100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT
MALE: REGULAR ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 96,708 86,708 273,583 102,511 92,511 273,583 108,313 98,313 273,583
2 110,250 93,524 83,524 273,583 105,084 95,084 273,583 117,318 107,318 273,583
3 115,762 90,446 81,446 273,583 107,723 98,723 273,583 127,071 118,071 273,583
4 121,551 87,468 79,468 273,583 110,427 102,427 273,583 137,635 129,635 273,583
5 127,628 84,589 77,589 273,583 113,200 106,200 273,583 149,077 142,077 273,583
6 134,010 81,804 75,804 273,583 116,042 110,042 273,583 161,470 155,470 273,583
7 140,710 79,111 74,111 273,583 118,955 113,955 273,583 174,893 169,893 273,583
8 147,746 76,507 72,507 273,583 121,942 117,942 273,583 189,433 185,433 273,583
9 155,133 73,988 70,988 273,583 125,004 122,004 273,583 205,181 202,181 273,583
10 162,889 71,553 71,553 273,583 128,142 128,142 273,583 222,260 222,260 273,583
15 207,893 62,060 62,060 273,583 152,505 152,505 273,583 348,353 348,353 404,090
20 265,330 53,828 53,828 273,583 181,501 181,501 273,583 545,981 545,981 584,200
25 338,635 46,687 46,687 273,583 216,010 216,010 273,583 855,728 855,728 898,515
30 432,194 40,493 40,493 273,583 257,079 257,079 273,583 1,341,201 1,341,201 1,408,261
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY
DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
41
<PAGE> 48
$100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT
MALE: REGULAR ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
PREMIUMS
PAID PLUS CASH CASH CASH
POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 95,428 85,428 273,583 101,237 91,237 273,583 107,048 97,048 273,583
2 110,250 90,746 80,746 273,583 102,348 92,348 273,583 114,641 104,641 273,583
3 115,762 85,934 76,934 273,583 103,319 94,319 273,583 122,842 113,842 273,583
4 121,551 80,971 72,971 273,583 104,133 96,133 273,583 131,721 123,721 273,583
5 127,628 75,827 68,827 273,583 104,766 97,766 273,583 141,357 134,357 273,583
6 134,010 70,462 64,462 273,583 105,188 99,188 273,583 151,838 145,838 273,583
7 140,710 64,827 59,827 273,583 105,356 100,356 273,583 163,262 158,262 273,583
8 147,746 58,861 54,861 273,583 105,222 101,222 273,583 175,751 171,751 273,583
9 155,133 52,500 49,500 273,583 104,733 101,733 273,583 189,449 186,449 273,583
10 162,889 45,670 45,670 273,583 103,829 103,829 273,583 204,536 204,536 273,583
15 207,893 2,162 2,162 273,583 93,673 93,673 273,583 312,923 312,923 362,991
20 265,330 (*) (*) (*) 56,926 56,926 273,583 480,735 480,735 514,386
25 338,635 (*) (*) (*) (*) (*) (*) 743,388 743,388 780,557
30 432,194 (*) (*) (*) (*) (*) (*) 1,136,014 1,136,014 1,192,815
</TABLE>
ASSUMPTIONS:
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE
"MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE
PROSPECTUS.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
42
<PAGE> 49
- --------------------------------------------------------------------------------
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> 50
<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>
<PAGE> 26
Schedule I
-----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Summary of Investments - Other Than Investments in Related Parties
December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
----------------- --------------- ------------------
Column B Column C Column D
----------------- --------------- ---------------
Amount at which
shown in the
consolidated
Cost Market value balance sheet
----------------- ---------------- -------------------
<S> <C> <C> <C>
Fixed maturities available-for-sale:
Bonds and notes:
U.S. Government and government agencies and authorities $ 3,913,961 4,116,744 4,116,744
States, municipalities and political subdivisions 9,742 10,993 10,993
Foreign governments 162,442 172,016 172,016
Public utilities 2,053,701 2,146,000 2,146,000
All other corporate 7,298,784 7,721,624 7,721,624
----------------- ---------------- -------------------
Total fixed maturities available-for-sale 13,438,630 14,167,377 14,167,377
----------------- ---------------- -------------------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all other 26,037 32,474 32,474
Non-redeemable preferred stock 1,325 1,244 1,244
----------------- ---------------- -------------------
Total equity securities available-for-sale 27,362 33,718 33,718
----------------- ---------------- -------------------
Mortgage loans on real estate 4,838,432 4,786,599*
Real estate:
Investment properties 213,340 171,739*
Acquired in satisfaction of debt 82,930 67,350*
Policy loans 370,908 370,908
Other long-term investments 73,190 67,280#
Short-term investments 45,732 45,732
----------------- -------------------
Total investments $19,090,524 19,710,703
================= ===================
</TABLE>
* Difference from Column B is primarily due to accumulated depreciation
and valuation allowances due to impairments on real estate and
valuation allowances due to impairments on mortgage loans on real
estate. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and note 5 to the consolidated
financial statements.
# Difference from Column B is primarily due to operating losses of
investments in limited partnerships.
See accompanying independent auditors' report.
<PAGE> 27
Schedule III
------------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Supplementary Insurance Information
December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Deferred Future policy Other policy
policy benefits, losses, claims and
Segment acquisition claims and Unearned premiums benefits payable Premium
costs loss expenses (1) (2) revenue
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
1995: Long-term savings $ 668,784 14,847,449 455 -
Life insurance 416,209 2,494,344 408,990 274,957
Accident and health
insurance 9,202 858,335 15,264 509,658
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $1,094,195 18,200,128 424,709 784,615
============== ===================== ================== ===============
1994: Long-term savings 663,696 13,300,015 240 -
Life insurance 387,486 2,245,375 397,174 209,538
Accident and health
insurance 12,977 776,071 13,414 324,524
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $1,064,159 16,321,461 410,828 534,062
============== ===================== ================== ===============
1993: Long-term savings 506,243 11,308,024 1,262 -
Life insurance 291,683 2,047,844 378,788 215,715
Accident and health
insurance 14,018 736,387 14,595 312,655
Corporate - - - -
-------------- --------------------- ------------------ ---------------
Total $ 811,944 14,092,255 394,645 528,370
============== ===================== ================== ===============
- ----------------------------------- -------------- -------------------- ------------------ ----------------- --------------
Column A Column G Column H Column I Column J Column K
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
Net Amortization Other
investment Benefits, claims, of deferred operating
Segment income losses and policy expenses Premiums
(3) settlement expenses acquisition costs (3) written
- ----------------------------------- -------------- -------------------- ------------------- ------------------ ---------------
1995: Long-term savings $1,124,207 1,009,632 51,998 210,525
Life insurance 202,285 267,123 34,124 94,461
Accident and health
insurance 22,725 379,532 6,922 153,984 473,513
Corporate 133,763 - - -
-------------- -------------------- ------------------- ------------------
Total $1,482,980 1,656,287 93,044 458,970
============== ==================== =================== ==================
1994: Long-term savings 945,318 807,756 56,236 171,038
Life insurance 183,933 237,125 33,394 90,535
Accident and health
insurance 21,020 234,882 5,114 90,829 315,688
Corporate 139,230 - - -
-------------- -------------------- ------------------- ------------------
Total $1,289,501 1,279,763 94,744 352,402
============== ==================== =================== ==================
1993: Long-term savings 897,639 800,385 43,291 157,046
Life insurance 178,978 227,786 35,220 89,496
Accident and health
insurance 27,108 208,735 23,623 82,854 263,117
Corporate 100,701 - - -
-------------- -------------------- ------------------- ------------------
Total $1,204,426 1,236,906 102,134 329,396
============== ==================== =================== ==================
<FN>
(1) Unearned premiums are included in Column C amounts. (3) Allocations of net investment income and certain general
(2) Column E agrees to the sum of the consolidated balance expenses are based on a number of assumptions and
sheet captions, "Policyholders' dividend estimates, and reported operating results would
accumulations" and "Other policyholder funds". change by segment if different methods were applied.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 28
Schedule IV
-----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Reinsurance
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed from of amount
Gross amount other companies other companies Net amount assumed to net
------------------- ------------------ ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1995:
Life insurance in force $51,613,116 6,865,011 742,451 45,490,556 1.6%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 281,687 12,817 6,087 274,957 2.2%
Accident and health
insurance 427,943 73,131 154,846 509,658 30.4%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 709,630 85,948 160,933 784,615 20.5%
=================== ================== ================= ================== ===============
1994:
Life insurance in force $46,262,595 5,289,259 819,799 41,793,135 2.0%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 209,918 7,551 7,171 209,538 3.4%
Accident and health
insurance 389,573 69,095 4,046 324,524 1.2%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 599,491 76,646 11,217 534,062 2.1%
=================== ================== ================= ================== ===============
1993:
Life insurance in force $39,417,116 4,352,071 180,739 35,245,784 0.5%
=================== ================== ================= ================== ===============
Premiums:
Life insurance 218,764 6,161 3,112 215,715 1.4%
Accident and health
insurance 398,289 88,506 2,872 312,655 0.9%
------------------- ------------------ ----------------- ------------------ ---------------
Total $ 617,053 94,667 5,984 528,370 1.1%
=================== ================== ================= ================== ===============
</TABLE>
See accompanying independent auditors' report.
<PAGE> 29
Schedule V
----------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
(000's omitted)
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------------- ----------------------------- ------------- -------------
Column A Column B Column C Column D Column E
- ------------------------------------------------- ---------------- ----------------------------- ------------- -------------
Balance at Charged to Balance at
beginning of costs and Charged to Deductions end of
Description period expenses other accounts (1) period
- ------------------------------------------------- ---------------------------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1995:
Valuation allowances - fixed maturity securities $ - 10,153 - 10,153 -
Valuation allowances - mortgage loans on real
estate 47,892 7,653 - 4,850 50,695
Valuation allowances - real estate 27,330 (1,080) - - 26,250
Valuation allowances - other long-term
investments - 457 - - 457
1994:
Valuation allowances - fixed maturity securities 6,680 (6,680) - - -
Valuation allowances - mortgage loans on real
estate 42,350 21,672 - 16,130 47,892
Valuation allowances - real estate 31,357 (4,027) - - 27,330
1993:
Valuation allowances - fixed maturity securities 5,746 934 - - 6,680
Valuation allowances - mortgage loans on real
estate 31,872 28,241 - 17,763 42,350
Valuation allowances - real estate 35,471 (4,114) - - 31,357
Valuation allowances - other long-term
investments 700 (700) - - -
<FN>
(1) Amounts represent direct write-downs charged against the valuation
allowance.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 51
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Form S-6 Registration Statement comprises the following papers and
documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 83 pages.
Representations and Undertakings.
Accountants' Consent
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<CAPTION>
<S> <C>
1. Power of Attorney dated April 4, 1996. Filed previously with initial registration (File No. 33-62795)
and is hereby incorporated by reference.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for the
authorizing the establishment of the Registrant, Nationwide VLI Separate Account-2, and hereby incorporated
adopted herein by reference.
3. Distribution Contracts Filed previously with initial registration (File No. 33-62795)
and is hereby incorporated by reference.
4. Form of Security Filed previously with initial registration (File No. 33-62795)
and is hereby incorporated by reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for the
Nationwide VLI Separate Account-2, and hereby incorporated
herein by reference.
6. Application form of Security Filed previously with initial registration (File No. 33-62795)
and is hereby incorporated by reference.
7. Opinion of Counsel Filed previously with initial registration (File No. 33-62795)
and is hereby incorporated by reference.
</TABLE>
<PAGE> 52
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940 (the "Act"). The Registrant and the Company elect to be
governed by Rule 6e-3(T)(b)(13)(i)(B) under the Act with respect to the Policies
described in the prospectus. The Policies have been designed in such a way as to
qualify for the exemptive relief from various provisions of the Act afforded by
Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
the Company under the Policies. The Company represents that the risk charges are
within the range of industry practice for comparable policies and reasonable in
relation to all of the risks assumed by the issuer under the Policies. Actuarial
memoranda demonstrating the reasonableness of these charges are maintained by
the Company, and will be made available to the Securities and Exchange
Commission (the "Commission") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to the
Commission on request a memorandum setting forth the basis for this
representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(f) That the fees and charges deducted under the Policy in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the Company.
<PAGE> 53
ACCOUNTANTS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide VLI Separate Account-2:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 23, 1996
<PAGE> 54
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NATIONWIDE VLI SEPARATE ACCOUNT-2, certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment No. 1 and has duly caused this Post-Effective Amendment
No. 1 to be signed on its behalf by the undersigned thereunto duly authorized,
and its seal to be hereunto affixed and attested, all in the City of Columbus,
and State of Ohio, on this 20th day of December, 1996.
NATIONWIDE VLI SEPARATE ACCOUNT-2
---------------------------------
(Registrant)
NATIONWIDE LIFE INSURANCE COMPANY
---------------------------------
(Sponsor)
(Seal)
Attest:
W. SIDNEY DRUEN By: JOSEPH P. RATH
- --------------------------------- -----------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President and Associate
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 1 has been signed below by the following persons in the capacities
indicated on the 20th day of December, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- -------------------------
Lewis J. Alphin
KEITH W. ECKEL Director
- -------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -------------------------
Willard J. Engel
FRED C. FINNEY Director
- -------------------------
Fred C. Finney
CHARLES L. FUELLGRAF, JR. Director
- -------------------------
Charles L. Fuellgraf, Jr.
JOSEPH J. GASPER President/Chief Operating
- ------------------------- Officer and Director
Joseph J. Gasper
HENRY S. HOLLOWAY Chairman of the Board
- ------------------------- and Director
Henry S. Holloway
D. RICHARD McFERSON Chairman and Chief Executive
- ------------------------- Officer-Nationwide Insurance
Enterprise and Director
D. Richard McFerson
DAVID O. MILLER Director
- -------------------------
David O. Miller
C. RAY NOECKER Director
- -------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-
- ------------------------- Chief Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By: JOSEPH P. RATH
- ------------------------- --------------------------------
James F. Patterson Joseph P. Rath, Attorney-in-Fact
ARDEN L. SHISLER Director
- -------------------------
Arden L. Shisler
ROBERT L. STEWART Director
- -------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -------------------------
Nancy C. Thomas
HAROLD W. WEIHL Director
- -------------------------
Harold W. Weihl
</TABLE>
<PAGE> 55
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, an Ohio
corporation, which has filed or will file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended,
various Registration Statements and amendments thereto for the registration
under said Act of Individual Deferred Variable Annuity Contracts in connection
with the MFS Variable Account, 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 Multi-Flex Variable Account and
Nationwide Variable Account-8; and the registration of fixed interest rate
options subject to a market value adjustment offered under some or all of the
aforementioned individual Variable Annuity Contracts in connection with the
Nationwide Multiple Maturity Separate Account, and the registration of Group
Flexible Fund Retirement Contracts in connection with the Nationwide DC
Variable Account, Nationwide DCVA-II, and the NACo Variable Account; and the
registration of Group Common Stock Variable Annuity Contracts in connection
with Separate Account No. 1; and the registration of variable life insurance
policies in connection with the Nationwide VLI Separate Account, Nationwide
VLI Separate Account-2 and Nationwide VLI Separate Account-3 of Nationwide Life
Insurance Company, hereby constitutes and appoints D. Richard McFerson, Joseph
J. Gasper, Gordon E. McCutchan, W. Sidney Druen, and Joseph P. Rath, and each
of them with power to act without the others, his/her attorney, with full power
of substitution and resubstitution, for and in his/her name, place and stead,
in any and all capacities, to approve, and sign such Registration Statements
and any and all amendments thereto, with power to affix the corporate seal of
said corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys, and
each of them, full power and authority to do and perform all and every act and
thing requisite to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming that which said attorneys, or any of
them, may lawfully do or cause to be done by virtue hereof. This instrument
may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and
seals as of this 9th day of August, 1996.
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
- ------------------------------------- -------------------------------------
Willard J. Engel, Director Robert A. Oakley, Executive Vice
President and Chief Financial Officer
- -------------------------------------
Fred C. Finney, Director -------------------------------------
James F. Patterson, Director
- -------------------------------------
Charles F. Fuellgraf, Jr., Director -------------------------------------
Arden L. Shisler, Director
- -------------------------------------
Joseph J. Gasper, President and Chief -------------------------------------
Operating Officer and Director Robert L. Stewart, Director
- ------------------------------------- -------------------------------------
Henry S. Holloway, Chairman of the Nancy C. Thomas, Director
Board, Director
-------------------------------------
- ------------------------------------- Harold W. Weihl, Director
D. Richard McFerson, Chairman and
Chief Executive Officer-Nationwide
Insurance Enterprise and Director
