<PAGE> 1
REGISTRATION NO. 33-35783
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
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 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 May 1, 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 Rule 24f-2 Notice for the fiscal year ended December 31, 1995, on February
15, 1996.
1 of 102
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
The Variable Account
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Custodian of Assets
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Variable Account
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information About The Policies;
How The Cash Value Varies;
Right to Exchange for a Fixed Benefit
Policy; Reinstatement; Other Policy
Provisions
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments of The Variable
Account
12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Variable Account
13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy Charges
Reinstatement
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Underwriting and Issuance -
Premium Payments Minimum
Requirements for Issuance of a Policy
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments of the Variable
Account; Premium Payments
16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Underwriting and Issuance -
Allocation of Cash Value
17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Surrendering The Policy for Cash
18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reinvestment
19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy Loans
22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company Management
29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company Management
30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nationwide Life Insurance Company
36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
41(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of The Policies
42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How The Cash Value Varies
45 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
2 of 102
<PAGE> 3
<TABLE>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How The Cash Value Varies
47 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Custodian of Assets
49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
51 Summary of The Policies; Information About The Policies
52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Substitution of Securities
53 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxation of The Company
54 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
55 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
57 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
MULTIPLE PAYMENT VARIABLE LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
terminated during the lifetime of the Insured. The death benefit and Cash
Value of the Policies may vary to reflect the experience of the Nationwide VLI
Separate Account-2 (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus, meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. The Policies are
designed to generally require the payment of the Guideline Single Premium in
five annual installments for death benefit Option 1 and five or more annual
Guideline Level Premiums under death benefit Option 2.
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at net asset value, shares of a
designated mutual fund of the following series of the underlying variable
account Mutual Fund options:
<TABLE>
<S> <C>
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: OPPENHEIMER VARIABLE ACCOUNT FUNDS:
-High Income Portfolio* -Bond Fund
-Equity Income Portfolio -Multiple Strategies Fund
-Growth Portfolio STRONG SPECIAL FUND II, INC.
-Overseas Portfolio STRONG VARIABLE INSURANCE FUNDS, INC.:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: -Discovery Fund II, Inc.
-Asset Manager Portfolio TCI PORTFOLIOS, INC.:
NATIONWIDE SEPARATE ACCOUNT TRUST: -TCI Growth
-Capital Appreciation Fund -TCI Balanced
-Money Market Fund VAN ECK WORLDWIDE INSURANCE TRUST:
-
-Government Bond Fund -Gold and Natural Resources Fund
-Total Return Fund -Worldwide Bond Fund
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
-Limited Maturity Bond Portfolio
-Growth Portfolio
</TABLE>
*The High Income Portfolio may invest in lower quality debt securities commonly
referred to as junk bonds.
Nationwide Life Insurance Company (the "Company") guarantees that the death
benefit for a Policy will never be less than the Specified Amount stated on the
Policy data pages as long as the Policy is in force. There is no guaranteed
Cash Surrender Value. If the Cash Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse without value. Also, during the
first five Policy Years, the total premium payments less any existing Policy
Indebtedness must be greater than or equal to the Minimum Premium requirement
in order for the Policy to continue in force.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option."
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS
IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE> 5
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
The date of this Prospectus is May 1, 1996
2
<PAGE> 6
GLOSSARY OF TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Cash Value.
BENEFICIARY- The person to whom the Death Proceeds are paid.
CASH VALUE- The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any Indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
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 in other separate accounts that have been or may be established by
the Company.
GUIDELINE LEVEL PREMIUM- The amount of level annual premium calculated in
accordance with the provisions of the Internal Revenue Code of 1986, as
amended. It represents the level annual premiums required to mature the Policy
under guaranteed mortality and expense charges, and an interest rate of 4%.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Internal Revenue Code of 1986, as amended. It
represents the single premium required to mature the Policy under guaranteed
mortality and expense charges, and an interest rate of 6%.
INDEBTEDNESS- Amounts owed the Company as a result of Policy loans including
both principal and accrued interest.
INITIAL PREMIUM- The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy Data Page.
INSURED- The person whose life is covered by the Policy, and who is named on
the Policy Data Page.
MATURITY DATE- The Policy Anniversary on or following the Insured's 95th
birthday.
MINIMUM PREMIUM- The Minimum Premium is shown on the Policy Data Page. It is
used to measure the total amount that must be paid during the first five Policy
Years to continue the Policy in force.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
MUTUAL FUNDS- The underlying mutual funds which correspond to the sub-accounts
of the Variable Account.
NET ASSET VALUE- The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding
the value of all portfolio holdings plus other assets, deducting liabilities
and then dividing the result by the number of shares outstanding.
NET PREMIUMS- Net Premiums are equal to the actual premiums minus the percent
of premium charge. The percent of premium charges are shown on the Policy Data
Page.
POLICY ANNIVERSARY- The same day and month as the Policy Date for succeeding
years.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy Data Page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy
Indebtedness.
POLICY OWNER- The person designated in the Policy application as the Owner. In
the State of New York, the variable life insurance Policies offered by the
Company are offered as "Certificates" for "Certificate Owners" under a group
contract rather than individual Policies. The provisions of both these
Certificates and the Policies are essentially the same and references to the
provisions of Policies and rights of Policy Owners in this prospectus include
Certificates and Certificate Owners.
POLICY YEAR- Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
3
<PAGE> 7
SCHEDULED PREMIUM- The Scheduled Premium is shown on the Policy Data Page. It
is used to calculate the initial Specified Amount.
SPECIFIED AMOUNT- A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
UNSCHEDULED PREMIUM- Additional premium payments which may be allowed under
certain conditions
VALUATION DATE- Each day the New York Stock Exchange and the Company's home
office are open for business or any other day during which there is sufficient
degree of trading that the current net asset value of the Accumulation Units
might be materially affected.
VALUATION PERIOD- A period commencing with the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT- A separate investment account of Nationwide Life Insurance
Company.
4
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GLOSSARY OF TERMS.................................................................................................... 3
SUMMARY OF THE POLICIES.............................................................................................. 7
Variable Life Insurance...................................................................................... 7
The Variable Account and its Sub-Accounts.................................................................... 7
The Fixed Account............................................................................................ 7
Deductions and Charges....................................................................................... 7
Premiums..................................................................................................... 9
NATIONWIDE LIFE INSURANCE COMPANY.................................................................................... 9
THE VARIABLE ACCOUNT................................................................................................. 9
Investments of the Variable Account.......................................................................... 10
Fidelity's Variable Insurance Products Fund.................................................................. 11
Fidelity's Variable Insurance Products Fund II............................................................... 11
Nationwide Separate Account Trust............................................................................ 11
Neuberger & Berman Advisers Management Trust................................................................. 12
Oppenheimer Variable Account Funds........................................................................... 12
Strong Special Fund II, Inc.................................................................................. 13
Strong Variable Insurance Funds, Inc......................................................................... 13
TCI Portfolios, Inc., member of the Twentieth Century Family of Mutual Funds................................. 13
Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust)........................................ 13
Reinvestment................................................................................................. 14
Transfers.................................................................................................... 14
Dollar Cost Averaging........................................................................................ 14
Substitution of Securities................................................................................... 15
Voting Rights................................................................................................ 15
INFORMATION ABOUT THE POLICIES....................................................................................... 15
Underwriting and Issuance.................................................................................... 15
-Minimum Requirements for Issuance of a Policy............................................................... 15
-Premium Payments............................................................................................ 16
Allocation of Cash Value..................................................................................... 16
Short-Term Right to Cancel Policy............................................................................ 16
POLICY CHARGES....................................................................................................... 16
Deductions from Premiums..................................................................................... 16
Surrender Charges............................................................................................ 17
-Reductions to Surrender Charges............................................................................. 17
Deductions from Cash Value................................................................................... 18
-Monthly Cost of Insurance................................................................................... 18
-Monthly Administrative Charge............................................................................... 18
Deductions from the Sub-Accounts............................................................................. 18
HOW THE CASH VALUE VARIES............................................................................................ 19
How the Investment Experience is Determined.................................................................. 19
Net Investment Factor........................................................................................ 19
Valuation of Assets.......................................................................................... 19
Determining the Cash Value................................................................................... 20
Valuation Periods and Valuation Dates........................................................................ 20
SURRENDERING THE POLICY FOR CASH..................................................................................... 20
Right to Surrender........................................................................................... 20
Cash Surrender Value......................................................................................... 20
Partial Surrenders........................................................................................... 20
Maturity Proceeds............................................................................................ 20
Income Tax Withholding....................................................................................... 21
POLICY LOANS......................................................................................................... 21
Taking a Policy Loan......................................................................................... 21
Effect on Investment Performance............................................................................. 21
Interest..................................................................................................... 21
Effect on Death Benefit and Cash Value....................................................................... 21
Repayment..................................................................................................... 22
HOW THE DEATH BENEFIT VARIES.......................................................................................... 22
Calculation of the Death Benefit.............................................................................. 22
Proceeds Payable on Death..................................................................................... 23
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY ......................................................................... 23
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C>
CHANGES OF INVESTMENT POLICY.......................................................................................... 23
GRACE PERIOD.......................................................................................................... 24
-First Five Policy Years...................................................................................... 24
-Policy Years Six and After................................................................................... 24
-All Policy Years............................................................................................. 24
REINSTATEMENT......................................................................................................... 24
THE FIXED ACCOUNT OPTION.............................................................................................. 24
CHANGES IN EXISTING INSURANCE COVERAGE................................................................................ 25
Specified Amount Increases.................................................................................... 25
Specified Amount Decreases.................................................................................... 25
Changes in the Death Benefit Option........................................................................... 25
OTHER POLICY PROVISIONS............................................................................................... 26
Policy Owner.................................................................................................. 26
Beneficiary................................................................................................... 26
Assignment.................................................................................................... 26
Incontestability.............................................................................................. 26
Error in Age or Sex........................................................................................... 26
Suicide....................................................................................................... 26
Nonparticipating Policies..................................................................................... 27
LEGAL CONSIDERATIONS.................................................................................................. 27
DISTRIBUTION OF THE POLICIES.......................................................................................... 27
CUSTODIAN OF ASSETS................................................................................................... 27
TAX MATTERS........................................................................................................... 27
Policy Proceeds............................................................................................... 27
Taxation of the Company....................................................................................... 28
Other Considerations.......................................................................................... 28
THE COMPANY........................................................................................................... 29
COMPANY MANAGEMENT.................................................................................................... 29
Directors of the Company...................................................................................... 29
Executive Officers of the Company............................................................................. 30
OTHER CONTRACTS ISSUED BY THE COMPANY................................................................................. 30
STATE REGULATION...................................................................................................... 31
REPORTS TO POLICY OWNERS.............................................................................................. 31
ADVERTISING........................................................................................................... 31
LEGAL PROCEEDINGS..................................................................................................... 31
EXPERTS............................................................................................................... 31
REGISTRATION STATEMENT................................................................................................ 31
LEGAL OPINIONS........................................................................................................ 32
APPENDIX 1............................................................................................................ 33
APPENDIX 2............................................................................................................ 34
FINANCIAL STATEMENTS.................................................................................................. 51
</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.
6
<PAGE> 10
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL
FUND.
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are similar in many ways to fixed-benefit whole life
insurance. As with fixed-benefit whole life insurance, the Owner of the Policy
pays a premium for life insurance coverage on the person insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the death benefit and
Cash Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated (see "How the Death Benefit Varies"). There is no
guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the Cash
Surrender Value is insufficient to pay the Policy Charges, the Policy will
lapse without value. Also, during the first five Policy Years, the total
premium payments less any existing Policy Indebtedness must be greater than or
equal to the Minimum Premium requirement in order for the Policy to continue in
force. The Policies are designed to generally permit the payment of the
Guideline Single Premium in five annual installments for death benefit Option 1
and five annual Guideline Level Premiums under death benefit Option 2.
The Policies are designed to avoid classification as modified endowment
contracts under Section 7702A of the Internal Revenue Code (the "Code"), which
provides for taxation of surrenders, partial surrenders, loans, collateral
assignments and other pre-death distributions in the same way as annuities are
taxed. Under certain conditions, a Policy may become a modified endowment
contract as a result of a material change or a reduction in benefits as defined
by the Code. Excess premiums paid may also cause the Policy to become a
modified endowment contract. The Company will monitor premiums paid and other
policy transactions and will notify the Policy Owner when the Policy's
non-modified endowment contract status is in jeopardy (see "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner selects the
sub-accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated (see "Allocation of Cash Value"). When the Policy is
issued, the Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund sub-account (for any Net Premiums allocated to a
sub-account on the application) or 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. Assets of each sub-account are invested at net asset
value in shares of a corresponding underlying Mutual Fund option. For a
description of the underlying Mutual Fund option and its investment objectives,
see the "Investments of the Variable Account" located in this prospectus.
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account.
Cash Values allocated to the Fixed Account are credited with interest daily at
a rate declared by the Company. The interest rate declared is at the Company's
sole discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks. For a discussion of any charges
imposed by the underlying Mutual Fund options, see the prospectuses of the
respective underlying mutual funds.
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. (The Company may reduce this sales
loading at its sole discretion.) The total sales load actually deducted from
any Policy will be equal to the sum of the 3.5% front-end sales load plus any
sales surrender charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
7
<PAGE> 11
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the Policy;
plus
3. a current administrative expense charge of $5. This charge may be
increased at the sole discretion of the Company but may not exceed $7.50.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equal on an annual basis to 0.80% of the Variable Account assets.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The initial
Surrender Charge varies by issue age, sex and underwriting classification and
is calculated based on the initial Specified Amount. The following table
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a Standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each underlying Mutual Fund's investment adviser
for managing the underlying Mutual Fund and selecting its portfolio of
securities. Other underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the underlying Mutual Fund. The
management fees and other expenses for each underlying Mutual Fund, for its
most recently completed fiscal year, expressed as a percentage of the
underlying Mutual Fund's average assets, are as follows:
<TABLE>
<CAPTION>
Management Total
Fees Other Expenses Expenses
<S> <C> <C> <C>
Fidelity VIP-Equity-Income 0.51% 0.10% 0.61%
Portfolio
Fidelity VIP-Growth Portfolio 0.61% 0.09% 0.70%
Fidelity VIP-High Income Portfolio 0.60% 0.11% 0.71%
Fidelity VIP-Overseas Portfolio 0.76% 0.15% 0.91%
Fidelity VIP-Asset Manager 0.71% 0.08% 0.79%
Portfolio
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-Total Return Fund 0.50% 0.01% 0.51%
Neuberger & Berman Advisers 0.84% 0.10% 0.94%
Management Trust-Growth Portfolio
Neuberger & Berman Advisers 0.65% 0.10% 0.75%
Management Trust-Limited Maturity
Bond Portfolio
Oppenheimer-Bond Fund 0.75% 0.05% 0.80%
Oppenheimer-Multiple Strategies 0.74% 0.03% 0.77%
Strong Discovery Fund II, Inc. 1.00% 0.31% 1.31%
Strong Special Fund II, Inc. 1.00% 0.20% 1.20%
TCI Portfolios-TCI Balanced 1.00% 0.00% 1.00%
TCI Portfolios-TCI Growth 1.00% 0.00% 1.00%
Van Eck-Worldwide Bond Fund 0.79% 0.15% 0.94%
Van Eck-Gold and Natural Resources 0.80% 0.16% 0.96%
</TABLE>
8
<PAGE> 12
The underlying Mutual Fund expenses shown above are assessed at the underlying
Mutual Fund level and are not direct charges against the Variable Account or
reductions in Cash value. These underlying Mutual Fund expenses are taken into
consideration in computing each underlying Mutual Fund's net asset value, which
is the share price used to calculate the Variable Account's unit value. The
management fees and other expenses are more fully described in the prospectuses
for each individual underlying Mutual Fund. The management fees and other
expenses, some of which may be subject to fee waivers or expense reimbursement,
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 was not independently verified by the Company.
PREMIUMS
The minimum Initial Premium for which a Policy may be issued is $2,000. A
Policy may be issued to an insured up to age 75.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid (see "Short-Term Right to Cancel
Policy").
The Initial Premium is due on the Policy Date. It will be credited on the
initial investment date. Any due and unpaid monthly deductions will be
subtracted from the Cash Value at this time. Insurance will not be effective
until the Initial Premium is paid. The Initial Premium is shown on the Policy
data page.
Premiums, other than the Initial Premium may be made at any time while your
Policy is in force subject to the limits described below. During the first
five Policy Years, the total premium payments less any Policy Indebtedness must
be greater than or equal to the Minimum Premium in order for the Policy to
continue in force. The Minimum Premium is equal to the monthly Minimum Premium
multiplied by the number of completed policy months. The monthly Minimum
Premium is shown on the Policy data page.
The Company will send Scheduled Premium payment reminder notices to you. The
Company will send them according to the premium mode shown on the Policy data
page.
You may pay the Initial Premium to us at the Company's home office or to an
authorized agent. All premiums after the first are payable at our home office.
Premium receipts will be furnished upon request.
Each premium must be at least equal to the monthly Minimum Premium. The
Company reserves the right to require satisfactory evidence of insurability
before accepting any additional premium payment which results in any increase
in the net amount at risk. Also, the Company will refund any portion of any
premium payment which is determined to be in excess of the premium limit
established by law to qualify your Policy as a contract for life insurance. The
Company may also require that any existing Policy Indebtedness is repaid prior
to accepting any additional premium payments.
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide Mutual Insurance Company,
Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Company, National Casualty Company, West Coast Life Insurance Company,
Scottsdale Indemnity Company and Nationwide General Insurance Company. The
Company's home office is at One Nationwide Plaza, Columbus, Ohio 43216.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states,
the District of Columbia, and Puerto Rico (for additional information, see "The
Company").
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on May 7,1987, pursuant to the provisions of Ohio law. The Company
has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of
the Investment Company Act of 1940. Nationwide Life Insurance Company, One
Nationwide Plaza, Columbus, Ohio 43216 serves as Trustee for the Trust.
Nationwide Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216
serves as principal underwriter for the Trust. Such registration does not
involve supervision of the management of the Variable Account or the Company by
the Securities and Exchange Commission.
9
<PAGE> 13
The Variable Account is a separate investment account of the Company and as
such, is not chargeable with the liabilities arising out of any other business
the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The death benefit and Cash Value under
the Policy may vary with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more sub-accounts (see "Tax Matters"). The assets of each
sub-account are used to purchase shares of the underlying Mutual Funds
designated by the Policy Owner. Thus, the investment performance of a Policy
depends upon the investment performance of the underlying Mutual Funds
designated by the Policy Owner.
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account (see "Allocation of Cash Value"). During the period in which the Policy
Owner may exercise his or her short-term right to cancel the Policy, all Net
Premiums not allocated to the Fixed Account are placed in the Nationwide
Separate Account Trust Money Market Fund sub-account. At the end of this
period, the Cash Value in that sub-account will be transferred to the Variable
Account sub-accounts based on the underlying Mutual Fund allocation factors.
Any subsequent Net Premiums received after this period will be allocated based
on the underlying Mutual Fund allocation factors.
No less than 5% of Net Premiums may be allocated to any one sub-account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or
may transfer Cash Value from one sub-account to another, subject to such terms
and conditions as may be imposed by each underlying Mutual Fund option and as
set forth in this prospectus (see "Transfers", "Allocation of Cash Value" and
"Short-Term Right to Cancel Policy").
These underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of life insurance companies which may or may not be
affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which are disclosed in the underlying
Mutual Funds' prospectuses. A full description of the underlying Mutual Fund
options, their investment policies and restrictions, risks and charges are
contained in the prospectuses of the respective underlying Mutual Funds.
Additional Premium payments, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise (see "Premium Payments").
Each of the underlying Mutual Funds is a registered investment company which
receives investment advice from a registered investment adviser:
1) Fidelity Variable Insurance Products Fund, managed by Fidelity Management
& Research Company;
2) Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company;
3) The Nationwide Separate Account Trust, managed by Nationwide Financial
Services, Inc.;
4) The Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
5) Oppenheimer Variable Account Funds, managed by Oppenheimer Management
Corporation;
6) Strong Special Fund II, Inc., managed by Strong Capital Management, Inc.;
7) Strong Variable Insurance Funds, Inc. managed by Strong Capital
Management, Inc.;
8) TCI Portfolios, Inc., managed by Investors Research Corporation, an
affiliate of Twentieth Century Companies; and,
9) Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust),
managed by Van Eck Associates Corporation.
A summary of investment objectives is contained in the description of each
underlying Mutual Fund option below. More detailed information may be found in
the current prospectus for each underlying Mutual Fund. A prospectus for the
underlying Mutual Fund option(s) being considered must accompany this
prospectus and should be read in conjunction herewith.
10
<PAGE> 14
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the Fund's manager.
- - HIGH INCOME PORTFOLIO
Investment Objective: To obtain a high level of current income by investing
primarily in high-risk, high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. The Fund's manager will seek high
current income normally by investing the Fund's assets as follows:
- - at least 65% in income-producing debt securities and preferred stocks,
including convertible securities, zero coupon securities, and mortgage-
backed and asset-backed securities;
- - up to 20% in common stocks and other equity securities when consistent
with the Fund's primary objective or acquired as part of a unit combining
fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or that
are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Fund's may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Fund's prospectus.
- - EQUITY-INCOME PORTFOLIO
Investment Objective: To seek reasonable income by investing primarily in
income-producing equity securities. In choosing these securities FMR also
will consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's 500 Composite Stock Price
Index.
- - GROWTH PORTFOLIO
Investment Objective: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and established
companies, and smaller, less well-known companies which may have a narrow
product line or whose securities are thinly traded. These latter
securities will often involve greater risk than may be found in the
ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and investment
in the Portfolio may involve greater risk than is inherent in other mutual
funds. It is also important to point out that the Portfolio makes most
sense for you if you can afford to ride out changes in the stock market,
because it invests primarily in common stocks. FMR also can make
temporary investments in securities such as investment-grade bonds,
high-quality preferred stocks and short-term notes, for defensive purposes
when it believes market conditions warrant.
- - OVERSEAS PORTFOLIO
Investment Objective: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio
provides a means for investors to diversify their own portfolios by
participating in companies and economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on March 21, 1988. The fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management and Research Company (FMR) is the Fund's
manager.
- - ASSET MANAGER PORTFOLIO
Investment Objective: To seek to obtain high total return with reduced
risk over the long-term by allocating its assets among domestic and
foreign stocks, bonds and short-term fixed income instruments.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The
Trust offers shares in the four separate Funds listed below, each with its own
investment objective. Currently, shares of the Trust will be sold only to life
insurance company separate accounts to fund the benefits under variable
insurance policies or variable annuity Contracts issued by
11
<PAGE> 15
life insurance companies. The assets of the Trust are managed by Nationwide
Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216, a
wholly-owned subsidiary of Nationwide Life Insurance Company.
- - Capital Appreciation Fund
Investment Objective: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of
companies which the investment manager determines have a
better-than-average potential for sustained capital growth over the long
term.
- - MONEY MARKET FUND
Investment Objective: To seek as high a level of current income as is
considered consistent with the preservation of capital and liquidity by
investing primarily in money market instruments.
- - GOVERNMENT BOND FUND
Investment Objective: To provide as high a level of income as is
consistent with capital preservation through investing primarily in bonds
and securities issued or backed by the U.S. Government, its agencies
or instrumentalities.
- - TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return
(i.e., earnings growth plus potential dividend yield) on invested capital
from a flexible combination of current return and capital gains through
investments in common stocks, convertible issues, money market
instruments and bonds with a primary emphasis on common stocks.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered to qualified
pension and retirement plans outside of the separate account context. The
investment adviser is Neuberger & Berman Management Incorporated.
- - LIMITED MATURITY BOND PORTFOLIO
Investment Objective: To provide the high level of current income,
consistent with low risk to principal and liquidity. As a secondary
objective, it also seeks to enhance its total return through capital
appreciation when market factors, such as falling interest rates and
rising bond prices, indicate that capital appreciation may be available
without significant risk to principal. It seeks to achieve its objectives
through investments in a diversified portfolio of limited maturity debt
securities. The Portfolio invests in securities which are at least
investment grade and does not invest in junk bonds.
- - GROWTH PORTFOLIO
Investment Objective: The Portfolio seeks capital growth through
investments in common stocks of companies that the investment adviser
believes will have above average earnings or otherwise provide investors
with above average potential for capital appreciation. To maximize this
potential, the investment adviser may also utilize, from time to time,
securities convertible into common stocks, warrants and options to
purchase such stocks.
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.
- - OPPENHEIMER BOND FUND
Investment Objective: Primarily to seek a high level of current income
from investment in high yield fixed-income securities rated "Baa" or
better by Moody's or "BBB" or better by Standard & Poor's. Secondarily,
the Fund seeks capital growth when consistent with its primary objective.
- - OPPENHEIMER 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.
12
<PAGE> 16
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 insurance policies. Strong Capital Management, Inc. (the
"Advisor") is the investment advisor to the fund.
Investment Objective: To seek capital appreciation through
investments in a diversified portfolio of equity securities.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end
management investment company commonly referred to as a mutual fund.
Incorporated in the State of Wisconsin, the Corporation has been authorized to
issue shares of common stock and series and classes of series of common stock.
The Strong Discovery Fund II, Inc. ("Fund") is offered by the Corporation to
insurance company separate accounts for the purpose of funding variable life
insurance policies and variable annuity contracts. Strong Capital Management,
Inc. is the investment advisor to the Fund.
- - DISCOVERY FUND II, INC.
Investment Objective: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The Fund normally
emphasizes investment in equity securities and may invest up to 100% of
its total assets in equity securities including common stocks, preferred
stocks and securities convertible into common or preferred stocks.
Although the Fund normally emphasizes investment in equity securities,
the Fund has the flexibility to invest in any type of security that the
Advisor believes has the potential for capital appreciation including up
to 100% of its total assets in debt obligations, including intermediate
to long-term corporate or U.S. government debt securities.
TCI PORTFOLIOS, INC., MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS
TCI Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a
diversified, open-end management company, designed only to provide investment
vehicles for variable annuity and variable life insurance products of insurance
companies. A member of the Twentieth Century Family of Mutual Funds, TCI
Portfolios is managed by Investors Research Corporation.
- - TCI BALANCED
Investment Objective: Capital growth and current income. The fund will
seek to achieve its objective by maintaining approximately 60% of the
assets of the fund in common stocks (including securities convertible
into common stocks and other equity equivalents) that are considered by
management to have better-than-average prospects for appreciation and
approximately 40% in fixed income securities. A minimum of 25% of the
fixed income portion of the fund will be invested in fixed income senior
securities. There can be no assurance that the Fund will achieve its
investment objective.
- - TCI GROWTH
Investment Objective: Capital growth. The fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the fund's investment manager, better than average potential for
appreciation. The fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
The fund may invest in cash and cash equivalents temporarily or when it
is unable to find common stocks meeting its criteria of selection. It
may purchase securities only of companies that have a record of at least
three years continuous operation. There can be no assurance that the
Fund will achieve its investment objective.
(Although the Statement of Additional Information concerning TCI
Portfolios, Inc., refers to redemptions of securities in kind under
certain conditions, all surrendering or redeeming Contract Owners will
receive cash from the Company.)
VAN ECK WORLDWIDE INSURANCE TRUST (FORMERLY VAN ECK INVESTMENT TRUST)
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a "business trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Shares of the
13
<PAGE> 17
Trust are offered only to separate accounts of various insurance companies to
fund benefits of variable insurance and annuity policies. The assets of the
Trust are managed by Van Eck Associates Corporation.
- - GOLD AND NATURAL RESOURCES FUND
Investment Objective: To seek long-term capital appreciation by
investing in equity and debt securities of companies engaged in the
exploration, development, production and distribution of gold and other
natural resources, such as strategic and other metals, minerals, forest
products, oil, natural gas and coal. Current income is not an
objective.
- - WORLDWIDE BOND FUND (FORMERLY GLOBAL BOND FUND)
Investment Objective: To seek high total return through a flexible
policy of investing globally, primarily in debt securities. The Fund
does not invest in junk bonds.
REINVESTMENT
The underlying Mutual Fund options described above have as a policy the
distribution of dividends in the form of additional shares (or fractions
thereof) of the underlying Mutual Funds. The distribution of additional shares
will not affect the number of Accumulation Units attributable to a particular
Policy (see "Allocation of Cash Value").
TRANSFERS
The Policy Owner may request a transfer of up to 100% of the Cash Value from
the Variable Account to the Fixed Account. The Policy Owner's Cash Value in
each sub-account will be determined as of the date the transfer request is
received in the home office in good order. The Company reserves the right to
restrict transfers to the Fixed Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account and a portion of the Variable Account to the
Fixed Account, without penalty or adjustment. The Company reserves the right
to limit the amount of Cash Value transferred out of the Fixed Account each
Policy Year. Transfers from the Fixed Account must be made within 30 days
after the termination date of the interest rate guarantee period.
Transfers among the sub-accounts may be made once per Valuation Date and may be
made either in writing or, in states allowing such transfers, by telephone.
The Company will employ reasonable 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. 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
14
<PAGE> 18
from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond
Portfolio sub-account will be processed monthly until either the value in the
Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio
sub-account is completely depleted or the Policy Owner instructs the Company in
writing to cancel the monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Policy Owners however, any such discontinuation
would not affect Dollar Cost Averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
SUBSTITUTION OF SECURITIES
If shares of the above underlying Mutual Fund options should no longer be
available for investment by the Variable Account or, if in the judgment of the
Company's management further investment in such underlying Mutual Funds should
become inappropriate in view of the purposes of the Policy, the Company may
substitute shares of another underlying Mutual Fund for shares already
purchased or to be purchased in the future by Net Premium payments under the
Policy. No substitution of securities in the Variable Account may take place
without prior approval of the Securities and Exchange Commission, and under
such requirements as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value
allocated to the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote
the shares of the underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying mutual funds
in accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the underlying
Mutual Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that underlying Mutual Fund by the net asset
value of one share of that underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as
of a date chosen by the Company, but not more than 90 days prior to the meeting
of the underlying Mutual Fund. Voting instructions will be solicited by
written communication prior to such meeting.
The Company will vote underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares
held by the Company or by the Variable Account as to which no timely
instructions are received will be voted by the Company in the same proportion
as the voting instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the Funds'
proxy material and a form with which to give such voting instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
underlying Mutual Fund shares in any manner necessary to enable the underlying
Mutual Fund to: (1) make or refrain from making any change in the investments
or investment policies for any of the underlying Mutual Fund options, if
required by an insurance regulatory authority; (2) refrain from making any
change in the investment policies or any investment adviser or principal
underwriter of any portfolio which may be initiated by Policy Owners or the
underlying Mutual Fund's Board of Directors, provided the Company's disapproval
of the change is reasonable and, in the case of a change in the investment
policies or investment adviser, based on a good faith determination that such
change would be contrary to state law or otherwise inappropriate in light of
the portfolio's objective and purposes; or (3) enter into or refrain from
entering into any advisory agreement or underwriting contract, if required by
any insurance regulatory authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to generally permit the payment of the Guideline
Single Premium in five annual installments for death benefit Option 1 and five
annual Guideline Level Premiums under death benefit Option
15
<PAGE> 19
2. At issue, the Policy Owner selects a Scheduled Premium level. This
Scheduled Premium is used to determine the initial Specified Amount. The
minimum Scheduled Premium is $2,000. Policies may be issued to Insureds with
issue ages 75 or younger. Before issuing any Policy, the Company requires
satisfactory evidence of insurability which may include a medical examination.
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's home
office. The effective date of insurance coverage and is dependent upon
completion of all underwriting requirements, payment of the Initial Premium,
and delivery of the Policy while the Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the first 5
Policy Years, the total premium payments less any Policy Indebtedness must be
greater than or equal to the Minimum Premium requirement in order for the
Policy to continue in force. The Minimum Premium requirement is equal to the
monthly Minimum Premium multiplied by the number of completed policy months.
The monthly Minimum Premium is shown on the Policy data page.
Each premium payment must be at least equal to the monthly Minimum Premium.
Additional premium payments may be made at any time while the Policy is in
force. However, the Company reserves the right to require satisfactory
evidence of insurability before accepting any additional premium payment which
results in an increase in the net amount at risk. Also, the Company will
refund any portion of any premium payment which is determined to be in excess
of the premium limit established by law to qualify the Policy as a contract for
life insurance. The Company may also require that any existing Policy
Indebtedness is repaid prior to accepting any additional premium payments.
Additional premium payments or other changes to the contract, may jeopardize
the Policy's non-modified endowment contract status. The Company will monitor
premiums paid and other policy transactions and will notify the Policy Owner
when non-modified endowment contract status is in jeopardy by such additional
premiums (see "Tax Matters").
ALLOCATION OF CASH VALUE
At the time a Policy is issued, its Cash Value will be based on the Nationwide
Separate Account Trust Money Market Fund sub-account value or the Fixed Account
as if the Policy had been issued and the Initial Net Premium invested on the
date such premium was received in good order by the Company. When the Policy
is issued, the Net Premiums will be allocated to the Nationwide Separate
Account Trust Money Market Fund sub-account (for any Net Premiums allocated to
a sub-account on the Application) or the Fixed Account until the expiration of
the period in which the Policy Owner may exercise his or her short-term right
to cancel the Policy. Net Premiums not designated for the Fixed Account will
be placed in the Nationwide Separate Account Trust Money Market Sub-Account.
At the expiration of the period in which the Policy Owner may exercise his or
her short term right to cancel the Policy, shares of the underlying Mutual Fund
options specified by the Policy Owner are purchased at net asset value for the
respective sub-account(s). The Policy Owner may change the allocation of Net
Premiums or may transfer Cash Value from one sub-account to another, subject to
such terms and conditions as may be imposed by each underlying Mutual Fund
option and as set forth in the prospectus. Net Premiums allocated to the Fixed
Account at the time of application may not be transferred prior to the first
Policy Anniversary (see "Transfers" and "Investments of the Variable Account").
The designation of investment allocations will be made by the prospective
Policy Owner at the time of application for a Policy. The Policy Owner may
change the way in which future Net Premiums are allocated by giving written
notice to the Company. All percentage allocations must be in whole numbers,
and must be at least 5%. The sum of allocations must equal 100%.
SHORT-TERM RIGHT TO CANCEL POLICY
A Policy may be returned for cancellation and a full refund of premium within
10 days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed
or delivered to the registered representative who sold it, or to the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the total premiums paid within seven
days after it receives the Policy.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. (The Company may reduce this sales
loading at its sole discretion.) The total sales load actually deducted from
any Policy will be equal to the sum of the 3.5% front-end sales load plus any
sales surrender charge that may be deducted from Policies that are surrendered.
16
<PAGE> 20
The Company also pays any state premium taxes attributable to a particular
policy when incurred by the Company. The Company expects to pay an average
state premium tax rate of approximately 2.5% of premiums for all states,
although such tax rates generally can range from 0% to 4%. To reimburse the
Company for the payment of state premium taxes associated with the Policies,
the Company deducts a charge for state premium taxes equal to 2.5% of all
premium payments received. This charge may be more or less than the amount
actually assessed by the state in which a particular Policy Owner lives. The
Company does not expect to make a profit from this charge.
SURRENDER CHARGES
The Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The initial Surrender
Charge varies by issue age, sex and underwriting classification and is
calculated based on the initial Specified Amount. The following table
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
--- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
<TABLE>
<CAPTION>
Issue Charge per $1,000 of
Age Initial Specified Amount
--- ------------------------
<S> <C>
0-39 $3.50
40-59 $5.00
60-75 $6.50
</TABLE>
The underwriting surrender charge is designed to cover the administrative
expenses associated with underwriting and issuing the Policy, including the
costs of processing applications, conducting medical exams, determining
insurability and the Insured's underwriting class, and establishing policy
records. The Company does not expect to profit from the underwriting surrender
charges. The Surrender Charge may be insufficient to recover certain expenses
related to the sale of the Policies. Unrecovered expenses are born by the
company's general assets which may include profits, if any, from mortality and
expense risk charges (see "Deductions from the Sub-Accounts"). Additional
premiums and/or income earned on assets in the Variable Account or partial
surrenders have no effect on these charges. The remainder of the Surrender
Charge which is not attributable to the underwriting surrender charge component
represents the sales surrender charge component. The purpose of the sales
surrender charge component is to reimburse the Company for some of the expenses
incurred in the distribution of the Policies. The Company also deducts 3.5% of
each premium for sales load (see "Deductions from Premiums").
- -Reductions to Surrender Charges
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
------------ ----------------- ------------ -----------------
<S> <C> <C> <C>
0 100% 5 85%
1 100% 6 80%
2 100% 7 75%
3 95% 8 50%
4 90% 9+ 0%
</TABLE>
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see
Appendix 1).
17
<PAGE> 21
DEDUCTIONS FROM CASH VALUE
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance charges; plus
2. monthly cost of any additional benefits provided by Riders; plus
3. monthly administrative expense charge.
These deductions will be charged proportionately to the Cash Value in each
Variable Account sub-account and the Fixed Account.
- -Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
If death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value shall first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on a simplified basis
are based on the 1980 Commissioners Extended Term Mortality Table, Age Last
Birthday (1980 CET). Guaranteed cost of insurance rates for Policies issued on
a preferred basis are based on the 1980 Commissioners Standard Ordinary
Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance
rates for Policies issued on a substandard basis are based on appropriate
percentage multiples of the 1980 CSO. These mortality tables are sex distinct.
In addition, separate mortality tables will be used for standard and
non-tobacco.
For Policies issued in Texas, guaranteed cost of insurance rates for
Standard-Simplified issues ("Special Class-Simplified" in Texas) are based on
130% of the 1980 Commissioners Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rates for Policies issued on a simplified or preferred basis will not
exceed the rates in the appropriate table. The cost of insurance rates per
$1,000 of net amount at risk is less for Policies issued on a preferred basis
as compared to a simplified basis.
The rate class of an Insured may affect the cost of insurance rate. The
Company currently places Insureds into both standard rate classes and
substandard classes that involve a higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will have a lower cost
of insurance than an Insured in a rate class with higher mortality risks. The
Company may also issue certain Policies on a 'Simplified Issue' basis to
certain categories of individuals. Due to the underwriting criteria
established for Policies issued on a Simplified Issue basis, actual rates for
healthy individuals will be higher than the current cost of insurance rates
being charged under otherwise identical Policies that are issued on a Preferred
basis.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only
to reimburse the Company for certain actual administrative expenses. The
Company does not expect to recover from this charge any amount in excess of
aggregate maintenance expenses. Currently, this charge is $5 per month. The
Company may at its sole discretion increase this charge. However, the Company
guarantees that this charge will never exceed $7.50 per month.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses
due to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the
Policies, the Company deducts a daily Mortality and Expense Risk Charge from
the assets of the sub-accounts of the Variable Account. This charge is
equivalent to an annual effective rate of 0.80% of the daily net assets of the
Variable Account. To the
18
<PAGE> 22
extent that future levels of mortality and expenses are less than or equal to
those expected, the Company may realize a profit from this charge. The
Surrender Charge may be insufficient to recover certain expenses related to the
sale of the Policies. Unrecovered expenses are born by the Company's general
assets which may include profits, if any, from mortality and expense risk
charges (see "Surrender Charges").
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the sub-accounts of the Variable
Account (see "Taxation of the Company"). The Company reserves the right to
assess a charge for such taxes against the Variable Account if the Company
determines that such taxes will be incurred.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the
investment experience of the Variable Account and/or the daily crediting of
interest in the Fixed Account and Policy Loan Account depending on the
allocation of Cash Value by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash
Value allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the mutual fund shares in that sub-account were available
for purchase. The value for any subsequent Valuation Period is determined by
multiplying the Accumulation Unit value for each sub-account for the
immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing
(a) by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the underlying Mutual Fund
held in the sub-account determined at the end of the current
Valuation Period, plus
(2) the per share amount of any dividend or capital gain
distributions made by the underlying Mutual Fund held in the
sub-account if the "ex-dividend" date occurs during the current
Valuation Period.
(b) is the net 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 is the immediately preceding Valuation Period (see "Charge
For Tax Provisions").
(c) is a factor representing the daily Mortality and Expense Risk Charge
deducted from the Variable Account. Such factor is equal to an
annual rate of .80% of the daily net asset value of the Variable
Account.
For underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to
changes in the net asset value of underlying Mutual Fund shares, because of the
deduction for Mortality and Expense Risk Charge, and any charge or credit for
tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
net asset value.
19
<PAGE> 23
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account is the Cash Value. The
number of Accumulation Units credited per each sub-account are determined by
dividing the net amount allocated to the sub- account by the Accumulation Unit
Value for the sub-account for the Valuation Period during which the premium is
received by the Company. In the event part or all of the Cash Value is
surrendered or changes or deductions are made against the Cash Value, an
appropriate number of Accumulation Units from the Variable Account and an
appropriate amount from the Fixed Account will be deducted in the same
proportion that the Policy Owner's interest in the Variable Account and the
Fixed Account bears to the total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited
with interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office are open for business or any other day during
which there is sufficient degree of trading that the current net asset value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a Commercial
Bank or a Savings and Loan, which is a member of the Federal Deposit Insurance
Corporation. In some cases, the Company may require additional documentation
of a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, Indebtedness
or other deductions due on that date, which may also include a Surrender
Charge.
PARTIAL SURRENDERS
After the Policy has been in force for 5 Policy Years, the Policy Owner may
request a partial surrender. Partial surrenders will be permitted only if they
satisfy the following requirements:
1. The maximum partial surrender in any Policy Year is limited to
10% of the total premium payments;
2. The minimum partial surrender is $500; and
3. After the partial surrender, the Policy continues to qualify as
life insurance.
When a partial surrender is made, the Cash Value is reduced by the amount of
the partial surrender. Under Death Benefit Option 1, the Specified Amount is
reduced by the amount of the partial surrender, unless the death benefit is
based on the applicable percentage of 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 Specified
Amount.
Surrender charges will be waived for any partial surrenders which satisfy the
above conditions. Certain partial surrenders may result in currently taxable
income and tax penalties (see "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The maturity proceeds will be payable to the Policy Owner on
the Maturity Date provided the Policy is still in force. The Maturity Proceeds
will be equal to the amount of the Policy's Cash Value, less any Indebtedness.
20
<PAGE> 24
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 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 adviser, to determine the tax consequences, if any, of their
employer-sponsored life insurance arrangements.
POLICY LOANS
TAKING A POLICY LOAN
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Surrender Value less interest due on the next Policy Anniversary. Maximum
policy indebtedness, in Texas, is limited to 90% of the Cash Surrender Value in
the sub-accounts and 100% of the Cash Surrender Value in the Fixed Account less
interest due on the next Policy Anniversary. The Company will not grant a loan
for an amount less than $1,000 ($200 in Connecticut, $500 in New York). Should
the Death Proceeds become payable, the Policy be surrendered, or the Policy
mature while a loan is outstanding, the amount of Policy Indebtedness will be
deducted from the death benefit, Cash Surrender Value or the maturity value,
respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings
and Loan which is a member of the Federal Deposit Insurance Corporation.
Certain policy loans may result in currently taxable income and tax penalties
(see "Tax Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating
to a Policy are held in more than one sub-account, withdrawals from
sub-accounts will be made in proportion to the assets in each Variable
sub-account at the time of the loan. Policy loans will be transferred from the
Fixed Account only when insufficient amounts are available in the Variable
sub-accounts. The amount taken out of the Variable Account will not be
affected by the Variable Account's investment experience while the loan is
outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from
the date of transfer.
Policy loans will be currently credited interest daily at an annual effective
rate of 5.1%. This rate is guaranteed never to be lower than 4%. The Company
may change the current interest crediting rate on Policy loans at any time at
its sole discretion. This earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary
or at the time of loan repayment. It will be allocated according to the Fund
allocation factors in effect at the time of the transfer.
The loan interest rate is 6% per year for all Policy loans. Interest is
charged daily and is payable at the end of each Policy Year or at the time of
loan repayment. Unpaid interest will be added to the existing Policy
Indebtedness as of the due date and will be charged interest at the same rate
as the rest of the Indebtedness. Whenever the total Policy Indebtedness
exceeds the Cash Value less any Surrender Charges, the Company will send a
notice to the Policy Owner and the assignee, if any. The Policy will terminate
without value 61 days after the mailing of the notice unless a sufficient
repayment is made during that period. A repayment is sufficient if it is large
enough to reduce the total Policy Indebtedness to an amount equal to the total
Cash Value less any Surrender Charges plus an amount sufficient to continue the
Policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account
or the Fixed Account will apply only to the non-loaned portion of the Cash
Value. The longer the loan is outstanding, the greater the effect is likely to
be. Depending
21
<PAGE> 25
on the investment results of the Variable Account or the Fixed Account while
the loan is outstanding, the effect could be favorable or unfavorable.
REPAYMENT
All or part of the Indebtedness may be repaid at any time while the Policy is
in force during the Insured's lifetime. Any payment intended as a loan
repayment, rather than a premium payment, must be identified as such. Loan
repayments will be credited to the Variable sub-accounts and the Fixed Account
in proportion to the Policy Owner's Fund allocation factors in effect at the
time of the repayment. Each repayment may not be less than $1,000 ($50 in
Connecticut and New York). The Company reserves the right to require that any
loan repayments resulting from Policy loans transferred from the Fixed Account
must be first allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects a desired Scheduled Premium level. The
Scheduled Premium is used to determine the initial Specified Amount. Under
death benefit Option 1, the initial Specified Amount is determined by treating
the Scheduled Premium as 20% of the Guideline Single Premium. Under death
benefit Option 2, the initial Specified Amount is determined by treating the
Scheduled Premium as the Guideline Level Premium. For either death benefit
option, the initial Specified Amount will be set at such a level such that
payment of the Scheduled Premiums will not result in the Policy being
classified as a modified endowment contract (see "Tax Matters").
The following table illustrates the Initial Specified Amount that results from
a $2,000 Scheduled Premium payment.
<TABLE>
<CAPTION>
Male Female
Issue Non-Tobacco Non-Tobacco
Age Option 1 Option 2 Option 1 Option 2
-------- --------
<S> <C> <C> <C> <C>
30 $85,779 $75,378 $99,541 $93,577
35 $68,165 $61,559 $79,212 $76,497
40 $54,111 $50,082 $63,070 $62,320
45 $43,165 $40,605 $50,599 $50,633
50 $34,675 $32,791 $40,824 $40,958
55 $28,136 $26,852 $33,171 $32,949
60 $23,176 $22,867 $27,141 $26,301
65 $19,474 $19,474 $22,369 $22,168
</TABLE>
Generally, for a given Scheduled Premium, the initial Specified Amount is
greater for non-tobacco than standard and females than males. The Specified
Amount is shown in the Policy.
While the Policy is in force, the death benefit will never be less than the
Specified Amount. The death benefit may vary with the Cash Value of the
Policy, which depends on investment performance.
The Policy Owner may choose one of two death benefit options. Under Option 1,
the death benefit will be the greater of the Specified Amount or the Applicable
Percentage of Cash Value. Under Option 1, the amount of the death benefit will
ordinarily not change for several years to reflect the investment performance
and may not change at all. If investment performance is favorable the amount
of death benefit may increase. To see how and when investment performance will
begin to affect death benefits, please see the illustrations located in the
prospectus. Under Option 2, the death benefit will be the greater of the
Specified Amount plus the Cash Value, or the Applicable Percentage of Cash
Value and will vary directly with the investment performance.
The term "Applicable Percentage" means:
1. 250% when the Insured is Attained Age 40 or less at the
beginning of a Policy Year, and
2. when the Insured is above Attained Age 40, the percentage shown
in the "Applicable Percentage of Cash Value Table" shown below.
22
<PAGE> 26
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
<TABLE>
<CAPTION>
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
PROCEEDS PAYABLE ON DEATH
The actual Proceeds payable on the Insured's death will be the death benefit as
described above, less any Policy Indebtedness and less any unpaid Policy
Charges. Under certain circumstances, the Death Proceeds may be adjusted (see
"Incontestability", "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a flexible premium adjustable life
insurance policy offered by the Company on the Policy Date. The benefits for
the new policy will not vary with the investment experience of a separate
account. The exchange must be elected within 24 months from the Policy Date.
No evidence of insurability will be required.
The Policy Owner and Beneficiary under the new policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new
policy will have a death benefit on the exchange date not more than the death
benefit of the original Policy immediately prior to the exchange date. The new
policy will have the same Policy Date and issue age as the original Policy.
The initial Specified Amount and any increases in Specified Amount will have
the same rate class as those of the original Policy. Any Indebtedness may be
transferred to the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of the Variable
Account. The Company must inform the Policy Owners and obtain all necessary
regulatory approvals. Any change must be submitted to the various state
insurance departments which may disapprove it if deemed detrimental to the
interests of the Policy Owners or if it renders the Company's operations
hazardous to the public. If a Policy Owner objects, the Policy may be
converted to a substantially comparable General Account life insurance policy
offered by the Company on the life of the Insured. The Policy Owner has the
later of 60 days (6 months in Pennsylvania) from the date of the investment
policy change or 60 days (6 months in Pennsylvania) from being informed of such
change to make this conversion. The Company will not require evidence of
insurability for this conversion.
23
<PAGE> 27
The new policy will not be affected by the investment experience of any
separate account. The new policy will be for an amount of insurance not
exceeding the death benefit of the Policy converted on the date of such
conversion.
GRACE PERIOD
- -First Five Policy Years
This Policy will not lapse during the first five Policy Years provided that on
each Monthly Anniversary Day (1) is greater than or equal to (2) where:
(1) Is the sum of all premiums paid to date minus any Policy
Indebtedness; and
(2) Is the sum of monthly Minimum Premiums since the Policy Date
including the monthly Minimum Premium for the current Monthly
Anniversary Day.
If (1) is less than (2), a Grace Period of 61 days from the Monthly Anniversary
Day will be allowed for the payment of sufficient premium to satisfy the
Minimum Premium requirement. If sufficient premium is not paid by the end of
the Grace Period, the Policy will lapse. The Policy will be terminated with
the return of any available Cash Surrender Value. The Cash Surrender Value
will be calculated as of the beginning of the Grace Period. The Policy Owner
may also elect in writing to have the Policy placed on Extended Term Insurance.
- -Policy Years Six and After
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current monthly deduction for insurance costs, administrative
expenses and other benefits, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of sufficient premium to cover
the current monthly deduction plus an amount equal to three times the current
monthly deduction.
- -All Policy Years
The Company will send such a notice at the start of the Grace Period to the
Policy Owner's last known address. If the Insured dies during the Grace
Period, the Company will pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the end
of the Grace Period and prior to the Maturity Date:
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all Policy Charges that were due
and unpaid during the Grace Period;
4. paying sufficient premium to keep the Policy in force for 3 months
from the date of reinstatement; and
5. paying or reinstating any Indebtedness against the Policy which
existed at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day
on or next following the date the application for reinstatement is approved by
us. If your Policy is reinstated, the Cash Value on the date of reinstatement,
but prior to applying any premiums or loan repayments received, will be set
equal to the lesser of:
(1) the Cash Value at the end of the Grace Period; or
(2) the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the Fund allocation factors in effect at the start of the Grace
Period.
THE FIXED ACCOUNT OPTION
Because of exemptive and exclusionary provisions, interests in the Company's
General Account have not been registered under the Securities Act of 1933 and
the General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the General Account nor
any interests therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus relating to the
Fixed Account option. Disclosures regarding the General Account may, however,
be subject to certain
24
<PAGE> 28
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
As explained earlier, a Policy Owner may elect to allocate or transfer all or
part of the Cash Value to the Fixed Account and the amount allocated or
transferred becomes part of the Company's General Account. The Company's
General Account consists of all assets of the Company other than those in the
Variable Account and in other separate accounts that have been or may be
established by the Company. Subject to applicable law, the Company has sole
discretion over the investment of the assets of the General Account, and Policy
Owners do not share in the investment experience of those assets. The Company
guarantees that the part of the Cash Value invested under the Fixed Account
option will accrue interest daily at an effective annual rate that the Company
declares periodically. The Fixed Account crediting rate will not be less than
an effective annual rate of 4%. Upon request the Company will inform a Policy
Owner of the then applicable rate. The Company is not obligated to credit
interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under
the Policy. Any request must be in writing and received at the Company's home
office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
SPECIFIED AMOUNT INCREASES
After the fifth Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
(1) the request must be applied for in writing;
(2) satisfactory evidence of insurability must be provided;
(3) the increase must be for a minimum of $10,000;
(4) the Cash Surrender Value is sufficient to continue the Policy in
force for at least 3 months; and
(5) age limits are the same as a new issue.
Any approved increase will have an effective date of the Monthly Anniversary
Day on or next following the date the Company approves the supplemental
application. The Company reserves the right to limit the number of Specified
Amount increases to one each Policy Year.
SPECIFIED AMOUNT DECREASES
After the fifth Policy Year, the Policy Owner may also request a decrease to
the Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
(1) against insurance provided by the most recent increase;
(2) against the next most recent increases successively; and
(3) against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount
decreases to one each Policy Year. The Company will refuse a request for a
decrease which would:
(1) reduce the Specified Amount to less than $10,000; or
(2) disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the fifth Policy Year, the Policy Owner may change the death benefit
option under the Policy. If the change is from Option 1 to Option 2, the
Specified Amount will be decreased by the amount of the Cash Value. If the
change is from Option 2 to Option 1, the Specified Amount will be increased by
the amount of the Cash Value. The Company reserves the right to require
evidence of insurability for either change (from Option 1 to Option 2 only in
New York). The effective date of the change will be the Monthly Anniversary
Day on or next following the date the Company approves the request for change.
Only one change of option is permitted per Policy Year. A change in death
benefit option will not be permitted if it results in the total premiums paid
exceeding the then current maximum premium limitations prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance contract.
25
<PAGE> 29
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to
the Company and recorded at the Company's home office. Once recorded, the
change will be effective when signed. The change will not affect any payment
made or action taken by the Company before it was recorded. The Company may
require that the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at
the Company's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by the
Company before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insureds, the Death Proceeds shall be paid to
the Policy Owner or the Policy Owner's estate.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its home office. Any assignment will not affect any
payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before
it was recorded.
INCONTESTABILITY
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified
Amount requiring evidence of insurability, the Company will not contest payment
of the Death Proceeds based on such an increase after it has been in force
during the Insured's lifetime for 2 years from its effective date.
ERROR IN AGE OR SEX
If the age or sex of the Insured has been misstated, the affected benefits will
be adjusted. The amount of the death benefit will be (1) multiplied by (2) and
then the result added to (3), where:
(1) is the amount of the death benefit at the time of the Insured's
death reduced by the amount of the Cash Value at the time of
the Insured's death;
(2) is the ratio of the monthly cost of insurance applied in the
policy month of death and the monthly cost of insurance that
should have been applied at the true age and sex in the policy
month of death; and
(3) is the Cash Value at the time of the Insured's death.
SUICIDE
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in
the Specified Amount, the Company will pay no more than the amount paid for
such additional benefit.
26
<PAGE> 30
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from contributions made on or
after August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with
legal counsel, the impact of Norris on any employment related insurance or
benefit program before purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where
the Policies may lawfully be sold. Such agents will be registered
representatives of broker dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
(NASD). The Policies will be distributed by the General Distributor,
Nationwide Financial Services, Inc. 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, all of which are open-end management
investment companies.
Gross first year commissions paid by the Company on the sale of these Policies
plus fees for marketing services provided by the General Distributor are not
more than 26% of the Scheduled Premium plus 5% of any excess premium
payments. Gross renewal commissions paid by the Company will not exceed 5% of
actual premium payments.
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 Death Proceeds payable under a Policy are excludable from gross
income of the beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those
policies issued or materially changed after June 21, 1988, on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (see "Information about the Policies"). The Code provides for
taxation of surrenders, partial surrenders, loans, collateral assignments and
other pre-death distributions from modified endowment contracts in the same way
annuities are taxed. Modified endowment contract distributions are defined by
the Code as amounts not received as an annuity and are taxable to the extent
the cash value of the policy exceeds, at the time of distribution, the premiums
paid into the policy. A 10% tax penalty generally applies to the taxable
portion of such distributions unless the Policy Owner is over age 59 1/2 or
disabled.
The Policies offered by this prospectus may or may not be issued as modified
endowment contracts. The Company will monitor premiums paid and will notify
the Policy Owner when the policy's non-modified endowment status is in
jeopardy. If a policy is not a modified endowment contract, a cash
distribution during the first 15 years after a policy is issued which causes a
reduction in death benefits may still become fully or partially taxable to the
Owner Pursuant to Section 7702(f)(7) of the Code. The Policy Owner should
carefully consider this potential effect and seek further information before
initiating any changes in the terms of the
27
<PAGE> 31
policy. Under certain conditions, a policy may become a modified endowment as
a result of a material change or a reduction in benefits as defined by Section
7702A (c) of the Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Code requires that the investments of Separate Accounts such as the
Variable Account be adequately diversified. Regulations under 817(h) provide
that a variable life policy which does not satisfy the diversification
standards will not be treated as life insurance unless the failure to satisfy
the 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 will be deemed the owner of the underlying securities and taxed on
the earnings in his or account.
Representatives of the Internal Revenue Service, have suggested from time to
time, that the number of underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of funds,
transfers between funds, exchanges of funds or changes in investment objectives
of funds such that the Policy would no longer qualify as life insurance under
Section 7702 of the Code, the Company will take whatever steps are available to
remain in compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the sub-account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse may have adverse tax
consequences depending on the circumstances. If the amount received by the
Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the
Policy, the excess will generally be treated as taxable income, regardless of
whether or not the Policy is a modified endowment contract.
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.
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.
28
<PAGE> 32
THE COMPANY
The life insurance business, which includes product lines in health insurance
and annuities, is the only business in which the Company is engaged.
The Company markets its Policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
The Company 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, and each of which is a separate investment
account of the Company.
The Company, in common with other insurance companies, is subject to regulation
and supervision by the regulatory authorities of the states in which it is
licensed to do business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in that state. In
general, all states have statutory administrative powers. Such regulation
relates, among other things, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves, the form and
content of statutory financial statements, the amount of policyholders' and
stockholders' dividends, and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete
with the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the
other insurance companies in the group. In addition to its direct salaried
employees, the Company shares employees with Nationwide Mutual Insurance
Company and Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Indemnity Company, Nationwide Mutual Fire Insurance
Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, West Coast Life
Insurance Company, Scottsdale Indemnity Company and Nationwide General
Insurance Company and their affiliated companies comprise the Nationwide
Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have substantially
common boards of directors and officers. Nationwide Corporation is the sole
shareholder of Nationwide Life.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Name Director Principal Occupation
---- Since --------------------
-----
<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
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 (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
D. Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide Insurance
Enterprise
</TABLE>
29
<PAGE> 33
<TABLE>
<S> <C> <C>
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.
Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and Chief
Executive Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Farm Owner and Operator; Owner, Sunnydale Mining (1)
Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farms (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
</TABLE>
- -------------------------------------
*Member, Executive Committee +Member, Investment Committee
1) Principal occupation for last five years.
2) Prior to assuming this current position, Messrs. McFerson and Gasper
held other executive management positions with the companies.
Each of the directors is a director of the major insurance affiliates of the
Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life and Annuity 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 Y. Woodward, Jr. Executive Vice President - Chief Investment Officer
James E. Brock Senior Vice President - Investment Product Operations
W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President 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.
30
<PAGE> 34
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a
prescribed form is filed with the Insurance Department each year covering the
operation of the Company for the preceding year and its financial condition as
of the end of such year. Regulation by the Insurance Department includes
periodic examination to determine the Company's contract liabilities and
reserves so that the Insurance Department may certify the items are correct.
The Company's books and accounts are subject to review by the Insurance
Department at all times and a full examination of its operations is conducted
periodically by the National Association of Insurance Commissioners. Such
regulation does not, however, involve any supervision of management or
investment practices or policies. In addition, the Company is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the last known address of record,
an annual statement showing the amount of the current death benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each sub-account of the Variable Account, and any
Policy Indebtedness.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes
in future premium allocation, transfers among sub-accounts, premium payments,
loans, loan repayments, reinstatement and termination.
ADVERTISING
The Company is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. The purpose
of these ratings is to reflect the financial strength or claims-paying ability
of the Company. The ratings are not intended to reflect the investment
experience or financial strength of the Variable Account. The Company may
advertise these ratings from time to time. In addition, the Company may
include in certain advertisements endorsements in the form of a list of
organizations, individuals or other parties which recommend the Company or the
Contracts. Furthermore, the Company may occasionally include in
advertisements comparisons of currently taxable and tax deferred investment
programs based on selected tax brackets or discussions of alternative
investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business to which the Company and the Variable Account are
parties or to which any of their property is the subject.
The General Distributor, Nationwide Financial Services, Inc., is not engaged
in any material litigation of any nature.
EXPERTS
The financial statements and 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.
31
<PAGE> 35
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.
32
<PAGE> 36
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $50,599. She now wishes to
surrender the Policy during the first Policy year. By using the initial
surrender charge table reproduced below, (also see "Surrender Charges") the
total surrender charge per thousand multiplied by the Specified Amount
expressed in thousands equals the total surrender charge of $514.09 ($10.160 X
50.599 = $514.09).
Example 2: A male non-tobacco, age 35, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $68,165. He now wants to
surrender the Policy in the sixth Policy Year. The total initial surrender
value is calculated using the method illustrated above. (Specified Amount in
thousands $68.165 X 7.260 = 494.88 total first year surrender charge.)
Because the fifth Policy Year has been completed, the total initial surrender
charge is reduced by multiplying it by the applicable percentage factor from
the "Reductions to Surrender Charges" table below (Also see "Reductions to
Surrender Charges"). In this case, $494.88 X 85% = $420.65.
Initial Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
<TABLE>
<CAPTION>
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
<S> <C> <C> <C> <C>
25 $ 5.878 $ 5.537 $ 6.680 $ 5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
Reductions to Surrender Charges.
<TABLE>
<CAPTION>
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
<S> <C> <C> <C>
0 100% 5 85%
1 100% 6 80%
2 100% 7 75%
3 95% 8 50%
4 90% 9+ 0%
</TABLE>
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are 8% higher than those
shown. In addition, the guaranteed maximum Surrender Charge in subsequent
years in Pennsylvania are reduced in the following manner:
<TABLE>
<CAPTION>
SURRENDER CHARGE SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
------------ ----------------- ------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
0 100% 5 83% 10 46%
1 98% 6 75% 11 37%
2 95% 7 70% 12 28%
3 92% 8 65% 13 14%
4 88% 9 55% 14+ 0%
</TABLE>
The illustrations of current values are the same for Pennsylvania. However,
the guaranteed maximum Surrender Charges are slightly higher in Pennsylvania.
If this contract is issued in Pennsylvania, please contact the home office for
an illustration.
The Company has no plans to change the current Surrender Charges.
33
<PAGE> 37
APPENDIX 2
ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and death benefits under a
Policy would vary over time if the hypothetical gross investment rates of
return were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is no Policy Indebtedness, no additional
premium payments are made, no Cash Values are allocated to the Fixed Account,
and there are no changes in the Specified Amount or death benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and death benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is
due to the daily charges made against the assets of the sub-accounts for
assuming mortality and expense risks. The mortality and expense risk charges
are equivalent to an annual effective rate of .80% of the daily net asset value
of the Variable Account. In addition, the net investment returns also reflect
the deduction of Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.85% of the daily net asset value of
the Variable Account. This effective rate is based on the average of the fund
expenses for the preceding year for all Mutual Fund options available under the
policy as of April 30, 1996.
Considering current charges for mortality and expense risks and Fund expenses,
gross annual rates of return of 0%, 6% and 12% correspond to net investment
experience at constant annual rates of -1.65%, 4.35% and 10.35%.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as standard (including non-tobacco). Policies issued on a substandard
basis would result in lower Cash Values and Death benefits than those
illustrated.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy Month. This
monthly administrative expense charge is $5 and is guaranteed not to exceed
$7.50. Current values reflect a current monthly administrative expense charge
of $5 and guaranteed values reflect the $7.50 maximum monthly administrative
charge under the Policy. The illustrations also reflect the fact that no
charges for federal or state income taxes are currently made against the
Variable Account. If such a charge is made in the future, it will require a
higher gross investment return than illustrated in order to produce the net
after-tax returns shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
34
<PAGE> 38
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year
1 2,000 2,100 1,668 1,186 43,165 1,773 1,292 43,165 1,879 1,397 43,165
2 2,000 4,305 3,307 2,825 43,165 3,620 3,139 43,165 3,947 3,465 43,165
3 2,000 6,620 4,915 4,433 43,165 5,544 5,062 43,165 6,225 5,743 43,165
4 2,000 9,051 6,495 6,037 43,165 7,549 7,091 43,165 8,734 8,277 43,165
5 2,000 11,604 8,044 7,611 43,165 9,636 9,203 43,165 11,499 11,066 43,165
6 0 12,184 7,707 7,298 43,165 9,844 9,434 43,165 12,468 12,059 43,165
7 0 12,793 7,363 6,977 43,165 10,049 9,664 43,165 13,530 13,144 43,165
8 0 13,433 7,009 6,648 43,165 10,252 9,891 43,165 14,693 14,331 43,165
9 0 14,105 6,646 6,405 43,165 10,452 10,211 43,165 15,970 15,729 43,165
10 0 14,810 6,270 6,270 43,165 10,647 10,647 43,165 17,371 17,371 43,165
15 0 18,901 4,172 4,172 43,165 11,510 11,510 43,165 26,820 26,820 43,165
20 0 24,124 1,433 1,433 43,165 11,959 11,959 43,165 42,382 42,382 51,706
25 0 30,788 (*) (*) (*) 11,388 11,388 43,165 67,360 67,360 78,138
30 0 39,295 (*) (*) (*) 8,375 8,375 43,165 107,288 107,288 114,798
35 0 50,151 (*) (*) (*) (*) (*) (*) 171,712 171,712 180,297
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
35
<PAGE> 39
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,575 1,094 43,165 1,678 1,196 43,165 1,780 1,299 43,165
2 2,000 4,305 3,118 2,636 43,165 3,420 2,939 43,165 3,736 3,254 43,165
3 2,000 6,620 4,627 4,146 43,165 5,231 4,749 43,165 5,885 5,403 43,165
4 2,000 9,051 6,105 5,647 43,165 7,113 6,656 43,165 8,249 7,791 43,165
5 2,000 11,604 7,549 7,116 43,165 9,070 8,637 43,165 10,852 10,419 43,165
6 0 12,184 7,099 6,690 43,165 9,133 8,723 43,165 11,636 11,227 43,165
7 0 12,793 6,632 6,246 43,165 9,176 8,791 43,165 12,485 12,100 43,165
8 0 13,433 6,143 5,781 43,165 9,198 8,837 43,165 13,405 13,044 43,165
9 0 14,105 5,627 5,386 43,165 9,192 8,951 43,165 14,401 14,160 43,165
10 0 14,810 5,082 5,082 43,165 9,154 9,154 43,165 15,481 15,481 43,165
15 0 18,901 1,733 1,733 43,165 8,288 8,288 43,165 22,508 22,508 43,165
20 0 24,124 (*) (*) (*) 5,399 5,399 43,165 33,826 33,826 43,165
25 0 30,788 (*) (*) (*) (*) (*) (*) 52,553 52,553 60,962
30 0 39,295 (*) (*) (*) (*) (*) (*) 82,040 82,040 87,783
35 0 50,151 (*) (*) (*) (*) (*) (*) 129,233 129,233 135,695
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
36
<PAGE> 40
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,670 1,217 42,276 1,776 1,322 42,381 1,881 1,428 42,486
2 2,000 4,305 3,306 2,853 43,911 3,619 3,166 44,225 3,945 3,492 44,551
3 2,000 6,620 4,906 4,453 45,512 5,533 5,080 46,138 6,210 5,757 46,816
4 2,000 9,051 6,472 6,041 47,077 7,519 7,089 48,124 8,697 8,266 49,302
5 2,000 11,604 8,000 7,592 48,605 9,578 9,170 50,183 11,423 11,015 52,028
6 2,000 14,284 9,491 9,106 50,096 11,712 11,327 52,317 14,414 14,029 55,020
7 2,000 17,098 10,944 10,582 51,549 13,924 13,561 54,529 17,695 17,333 58,301
8 2,000 20,053 12,359 12,019 52,964 16,214 15,875 56,820 21,295 20,955 61,900
9 2,000 23,156 13,736 13,509 54,341 18,588 18,361 59,193 25,244 25,018 65,850
10 2,000 26,414 15,072 15,072 55,677 21,043 21,043 61,649 29,576 29,576 70,182
15 2,000 45,315 21,328 21,328 61,934 34,889 34,889 75,494 58,723 58,723 99,328
20 2,000 69,439 26,366 26,366 66,971 51,122 51,122 91,728 105,084 105,084 145,690
25 2,000 100,227 29,734 29,734 70,339 69,680 69,680 110,285 178,686 178,686 219,292
30 2,000 139,522 30,537 30,537 71,143 89,915 89,915 130,520 295,140 295,140 335,746
35 2,000 189,673 27,631 27,631 68,237 110,666 110,666 151,271 479,373 479,373 519,978
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
37
<PAGE> 41
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,579 1,126 42,184 1,681 1,228 42,287 1,784 1,331 42,389
2 2,000 4,305 3,118 2,665 43,723 3,420 2,966 44,025 3,734 3,281 44,339
3 2,000 6,620 4,616 4,163 45,221 5,216 4,763 45,821 5,865 5,412 46,470
4 2,000 9,051 6,072 5,641 46,677 7,071 6,640 47,676 8,195 7,764 48,800
5 2,000 11,604 7,485 7,077 48,091 8,985 8,577 49,591 10,741 10,334 51,347
6 2,000 14,284 8,854 8,469 49,459 10,959 10,574 51,565 13,524 13,139 54,130
7 2,000 17,098 10,176 9,814 50,781 12,993 12,630 53,598 16,564 16,202 57,170
8 2,000 20,053 11,448 11,108 52,053 15,083 14,743 55,689 19,883 19,543 60,488
9 2,000 23,156 12,666 12,440 53,272 17,229 17,003 57,835 23,505 23,278 64,110
10 2,000 26,414 13,828 13,828 54,434 19,429 19,429 60,035 27,456 27,456 68,062
15 2,000 45,315 18,689 18,689 59,294 31,176 31,176 71,781 53,297 53,297 93,902
20 2,000 69,439 21,506 21,506 62,111 43,754 43,754 84,359 93,070 93,070 133,675
25 2,000 100,227 21,252 21,252 61,857 55,986 55,986 96,591 153,879 153,879 194,485
30 2,000 139,522 16,189 16,189 56,794 65,535 65,535 106,140 246,274 246,274 286,879
35 2,000 189,673 3,371 3,371 43,976 67,920 67,920 108,526 385,475 385,475 426,080
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
38
<PAGE> 42
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,291 3,019 114,019 4,558 3,286 114,019 4,825 3,553 114,019
2 5,000 10,763 8,507 7,234 114,019 9,306 8,034 114,019 10,138 8,866 114,019
3 5,000 16,551 12,646 11,373 114,019 14,251 12,979 114,019 15,987 14,715 114,019
4 5,000 22,628 16,712 15,503 114,019 19,405 18,196 114,019 22,433 21,224 114,019
5 5,000 29,010 20,700 19,555 114,019 24,772 23,626 114,019 29,532 28,387 114,019
6 0 30,460 19,975 18,893 114,019 25,447 24,365 114,019 32,163 31,082 114,019
7 0 31,983 19,232 18,214 114,019 26,127 25,109 114,019 35,047 34,029 114,019
8 0 33,582 18,468 17,514 114,019 26,811 25,857 114,019 38,211 37,257 114,019
9 0 35,261 17,685 17,049 114,019 27,500 26,864 114,019 41,688 41,052 114,019
10 0 37,024 16,873 16,873 114,019 28,186 28,186 114,019 45,506 45,506 114,019
15 0 47,254 12,337 12,337 114,019 31,571 31,571 114,019 71,267 71,267 114,019
20 0 60,309 6,421 6,421 114,019 34,445 34,445 114,019 113,599 113,599 138,591
25 0 76,971 (*) (*) (*) 35,716 35,716 114,019 181,626 181,626 210,686
30 0 98,237 (*) (*) (*) 32,871 32,871 114,019 290,627 290,627 310,971
35 0 125,378 (*) (*) (*) 20,885 20,885 114,019 466,657 466,657 489,989
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE> 43
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,159 2,886 114,019 4,422 3,149 114,019 4,685 3,413 114,019
2 5,000 10,763 8,235 6,962 114,019 9,018 7,746 114,019 9,834 8,561 114,019
3 5,000 16,551 12,229 10,956 114,019 13,798 12,526 114,019 15,496 14,223 114,019
4 5,000 22,628 16,142 14,933 114,019 18,770 17,561 114,019 21,727 20,518 114,019
5 5,000 29,010 19,974 18,829 114,019 23,944 22,798 114,019 28,589 27,444 114,019
6 0 30,460 19,078 17,996 114,019 24,402 23,320 114,019 30,945 29,864 114,019
7 0 31,983 18,147 17,129 114,019 24,839 23,821 114,019 33,514 32,496 114,019
8 0 33,582 17,174 16,220 114,019 25,247 24,293 114,019 36,314 35,360 114,019
9 0 35,261 16,151 15,514 114,019 25,619 24,983 114,019 39,369 38,732 114,019
10 0 37,024 15,069 15,069 114,019 25,947 25,947 114,019 42,703 42,703 114,019
15 0 47,254 8,481 8,481 114,019 26,597 26,597 114,019 64,815 64,815 114,019
20 0 60,309 (*) (*) (*) 24,190 24,190 114,019 101,107 101,107 123,350
25 0 76,971 (*) (*) (*) 14,938 14,938 114,019 159,556 159,556 185,085
30 0 98,237 (*) (*) (*) (*) (*) (*) 252,154 252,154 269,805
35 0 125,378 (*) (*) (*) (*) (*) (*) 400,851 400,851 420,893
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE> 44
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,306 3,151 107,827 4,573 3,418 108,094 4,841 3,685 108,362
2 5,000 10,763 8,526 7,371 112,047 9,325 8,170 112,847 10,157 9,002 113,678
3 5,000 16,551 12,658 11,502 116,179 14,261 13,105 117,782 15,993 14,838 119,515
4 5,000 22,628 16,704 15,606 120,225 19,388 18,291 122,909 22,404 21,307 125,926
5 5,000 29,010 20,657 19,618 124,179 24,707 23,667 128,228 29,439 28,400 132,961
6 5,000 35,710 24,522 23,540 128,043 30,227 29,245 133,748 37,164 36,182 140,685
7 5,000 42,746 28,293 27,369 131,815 35,953 35,029 139,474 45,643 44,718 149,164
8 5,000 50,133 31,971 31,105 135,493 41,890 41,024 145,411 54,950 54,084 158,471
9 5,000 57,889 35,558 34,980 139,079 48,048 47,471 151,569 65,171 64,593 168,692
10 5,000 66,034 39,046 39,046 142,567 54,428 54,428 157,949 76,389 76,389 179,910
15 5,000 113,287 55,493 55,493 159,014 90,520 90,520 194,042 152,000 152,000 255,521
20 5,000 173,596 69,077 69,077 172,598 133,213 133,213 236,734 272,686 272,686 376,207
25 5,000 250,567 78,844 78,844 182,366 182,703 182,703 286,224 465,021 465,021 568,542
30 5,000 348,804 82,881 82,881 186,402 238,011 238,011 341,532 770,716 770,716 874,238
35 5,000 474,182 78,731 78,731 182,252 297,141 297,141 400,662 1,256,583 1,256,583 1,360,104
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 45
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,180 3,024 107,701 4,443 3,288 107,964 4,706 3,551 108,227
2 5,000 10,763 8,262 7,107 111,783 9,046 7,890 112,567 9,861 8,705 113,382
3 5,000 16,551 12,248 11,092 115,769 13,813 12,658 117,334 15,507 14,351 119,028
4 5,000 22,628 16,134 15,036 119,655 18,750 17,652 122,271 21,691 20,593 125,212
5 5,000 29,010 19,920 18,880 123,441 23,858 22,819 127,380 28,465 27,425 131,986
6 5,000 35,710 23,602 22,620 127,123 29,142 28,160 132,663 35,883 34,901 139,405
7 5,000 42,746 27,175 26,251 130,696 34,601 33,677 138,122 44,005 43,081 147,526
8 5,000 50,133 30,634 29,768 134,156 40,236 39,370 143,757 52,894 52,027 156,415
9 5,000 57,889 33,974 33,396 137,495 46,046 45,468 149,567 62,619 62,042 166,140
10 5,000 66,034 37,187 37,187 140,708 52,030 52,030 155,551 73,258 73,258 176,779
15 5,000 113,287 51,171 51,171 154,692 84,551 84,551 188,072 143,444 143,444 246,965
20 5,000 173,596 60,809 60,809 164,330 120,924 120,924 224,445 253,129 253,129 356,650
25 5,000 250,567 64,135 64,135 167,656 159,381 159,381 262,902 423,868 423,868 527,389
30 5,000 348,804 57,829 57,829 161,350 196,058 196,058 299,579 688,770 688,770 792,291
35 5,000 474,182 36,319 36,319 139,840 223,193 223,193 326,714 1,098,021 1,098,021 1,201,543
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 46
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,219 12,612 301,625 18,290 13,683 301,625 19,362 14,755 301,625
2 20,000 43,050 34,140 29,533 301,625 37,351 32,744 301,625 40,691 36,083 301,625
3 20,000 66,203 50,782 46,175 301,625 57,238 52,630 301,625 64,217 59,610 301,625
4 20,000 90,513 67,147 62,770 301,625 77,990 73,613 301,625 90,181 85,804 301,625
5 20,000 116,038 83,219 79,072 301,625 99,636 95,490 301,625 118,836 114,689 301,625
6 0 121,840 80,411 76,495 301,625 102,519 98,603 301,625 129,664 125,748 301,625
7 0 127,932 77,510 73,824 301,625 105,434 101,748 301,625 141,575 137,889 301,625
8 0 134,329 74,485 71,030 301,625 108,359 104,904 301,625 154,679 151,223 301,625
9 0 141,045 71,326 69,022 301,625 111,293 108,990 301,625 169,121 166,817 301,625
10 0 148,097 68,037 68,037 301,625 114,247 114,247 301,625 185,075 185,075 301,625
15 0 189,014 48,054 48,054 301,625 128,364 128,364 301,625 294,478 294,478 341,595
20 0 241,235 17,507 17,507 301,625 138,985 138,985 301,625 472,509 472,509 505,585
25 0 307,884 (*) (*) (*) 141,234 141,234 301,625 760,267 760,267 798,281
30 0 392,947 (*) (*) (*) 124,862 124,862 301,625 1,217,535 1,217,535 1,278,412
35 0 501,511 (*) (*) (*) 59,677 59,677 301,625 1,935,318 1,935,318 2,032,083
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 47
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,081 11,474 301,625 17,117 12,510 301,625 18,155 13,548 301,625
2 20,000 43,050 31,805 27,198 301,625 34,883 30,275 301,625 38,086 33,479 301,625
3 20,000 66,203 47,188 42,581 301,625 53,347 48,740 301,625 60,015 55,408 301,625
4 20,000 90,513 62,237 57,860 301,625 72,558 68,181 301,625 84,184 79,807 301,625
5 20,000 116,038 76,955 72,808 301,625 92,570 88,423 301,625 110,875 106,728 301,625
6 0 121,840 72,607 68,691 301,625 93,579 89,663 301,625 119,426 115,509 301,625
7 0 127,932 67,951 64,265 301,625 94,347 90,661 301,625 128,709 125,023 301,625
8 0 134,329 62,922 59,466 301,625 94,816 91,360 301,625 138,800 135,345 301,625
9 0 141,045 57,453 55,149 301,625 94,923 92,619 301,625 149,795 147,491 301,625
10 0 148,097 51,472 51,472 301,625 94,602 94,602 301,625 161,814 161,814 301,625
15 0 189,014 10,890 10,890 301,625 83,750 83,750 301,625 243,970 243,970 301,625
20 0 241,235 (*) (*) (*) 42,243 42,243 301,625 385,307 385,307 412,279
25 0 307,884 (*) (*) (*) (*) (*) (*) 612,829 612,829 643,471
30 0 392,947 (*) (*) (*) (*) (*) (*) 963,397 963,397 1,011,567
35 0 501,511 (*) (*) (*) (*) (*) (*) 1,486,642 1,486,642 1,560,974
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE> 48
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Cash Net Cash Net Cash Net
Annual Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,271 13,125 288,733 18,342 14,195 289,804 19,413 15,266 290,875
2 20,000 43,050 34,168 30,021 305,630 37,371 33,224 308,833 40,702 36,555 312,164
3 20,000 66,203 50,702 46,556 322,164 57,123 52,977 328,585 64,064 59,918 335,526
4 20,000 90,513 66,864 62,925 338,326 77,613 73,674 349,075 89,694 85,755 361,156
5 20,000 116,038 82,622 78,890 354,084 98,834 95,102 370,296 117,783 114,051 389,245
6 20,000 142,840 97,989 94,465 369,451 120,824 117,299 392,286 148,588 145,063 420,050
7 20,000 170,982 112,959 109,641 384,421 143,600 140,283 415,062 182,370 179,052 453,832
8 20,000 200,531 127,503 124,393 398,965 167,163 164,053 438,625 219,397 216,287 490,859
9 20,000 231,558 141,620 139,547 413,082 191,536 189,463 462,998 259,988 257,915 531,450
10 20,000 264,136 155,325 155,325 426,787 216,763 216,763 488,225 304,517 304,517 575,979
15 20,000 453,150 218,239 218,239 489,701 357,592 357,592 629,054 602,578 602,578 874,040
20 20,000 694,385 265,419 265,419 536,881 518,819 518,819 790,281 1,072,248 1,072,248 1,343,710
25 20,000 1,002,269 291,795 291,795 563,257 697,917 697,917 969,379 1,812,137 1,812,137 2,083,599
30 20,000 1,395,216 290,557 290,557 562,019 889,293 889,293 1,160,756 2,979,455 2,979,455 3,250,917
35 20,000 1,896,726 249,775 249,775 521,237 1,079,693 1,079,693 1,351,155 4,822,266 4,822,266 5,093,728
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
45
<PAGE> 49
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Cash Net Cash Net Cash Net
Annual Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,184 12,038 287,646 17,220 13,073 288,682 18,257 14,110 289,719
2 20,000 43,050 31,877 27,730 303,339 34,940 30,794 306,402 38,128 33,982 309,590
3 20,000 66,203 47,072 42,926 318,534 53,168 49,022 324,630 59,765 55,618 331,227
4 20,000 90,513 61,751 57,812 333,213 71,898 67,958 343,360 83,317 79,378 354,779
5 20,000 116,038 75,889 72,157 347,351 91,116 87,384 362,578 108,945 105,213 380,407
6 20,000 142,840 89,459 85,934 360,921 110,807 107,282 382,269 136,821 133,297 408,283
7 20,000 170,982 102,431 99,114 373,893 130,950 127,633 402,413 167,134 163,817 438,596
8 20,000 200,531 114,758 111,648 386,220 151,507 148,397 422,969 200,069 196,959 471,531
9 20,000 231,558 126,392 124,318 397,854 172,434 170,361 443,896 235,832 233,759 507,294
10 20,000 264,136 137,288 137,288 408,750 193,690 193,690 465,152 274,652 274,652 546,114
15 20,000 453,150 179,287 179,287 450,749 303,404 303,404 574,866 524,459 524,459 795,921
20 20,000 694,385 193,401 193,401 464,863 410,516 410,516 681,978 897,812 897,812 1,169,274
25 20,000 1,002,269 165,230 165,230 436,692 495,149 495,149 766,611 1,449,402 1,449,402 1,720,864
30 20,000 1,395,216 76,531 76,531 347,993 527,482 527,482 798,944 2,262,330 2,262,330 2,533,792
35 20,000 1,896,726 (*) (*) (*) 454,371 454,371 725,833 3,451,917 3,451,917 3,723,379
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
46
<PAGE> 50
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,618 11,732 205,135 17,673 12,786 205,135 18,728 13,842 205,135
2 20,000 43,050 32,941 28,054 205,135 36,092 31,206 205,135 39,372 34,485 205,135
3 20,000 66,203 48,992 44,105 205,135 55,327 50,441 205,135 62,184 57,297 205,135
4 20,000 90,513 64,779 60,137 205,135 75,440 70,798 205,135 87,442 82,800 205,135
5 20,000 116,038 80,339 75,941 205,135 96,529 92,131 205,135 115,498 111,100 205,135
6 0 121,840 76,906 72,753 205,135 98,778 94,625 205,135 125,708 121,555 205,135
7 0 127,932 73,232 69,323 205,135 100,961 97,052 205,135 136,997 133,088 205,135
8 0 134,329 69,291 65,627 205,135 103,072 99,407 205,135 149,534 145,869 205,135
9 0 141,045 65,045 62,602 205,135 105,098 102,654 205,135 163,519 161,076 205,135
10 0 148,097 60,430 60,430 205,135 107,010 107,010 205,135 179,187 179,187 205,135
15 0 189,014 29,550 29,550 205,135 114,133 114,133 205,135 287,698 287,698 302,083
20 0 241,235 (*) (*) (*) 113,840 113,840 205,135 460,496 460,496 483,521
25 0 307,884 (*) (*) (*) 94,478 94,478 205,135 731,738 731,738 768,325
30 0 392,947 (*) (*) (*) 15,855 15,855 205,135 1,166,147 1,166,147 1,177,808
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
47
<PAGE> 51
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Annual Cash Net Cash Net Cash Net
Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,205 9,319 205,135 15,188 10,302 205,135 16,174 11,288 205,135
2 20,000 43,050 28,074 23,187 205,135 30,954 26,067 205,135 33,958 29,072 205,135
3 20,000 66,203 41,640 36,754 205,135 47,385 42,499 205,135 53,624 48,737 205,135
4 20,000 90,513 54,939 50,297 205,135 64,586 59,944 205,135 75,496 70,854 205,135
5 20,000 116,038 67,999 63,601 205,135 82,675 78,277 205,135 99,971 95,573 205,135
6 0 121,840 61,657 57,503 205,135 81,451 77,297 205,135 106,042 101,889 205,135
7 0 127,932 54,577 50,668 205,135 79,596 75,686 205,135 112,561 108,652 205,135
8 0 134,329 46,582 42,917 205,135 76,953 73,288 205,135 119,588 115,924 205,135
9 0 141,045 37,460 35,016 205,135 73,337 70,894 205,135 127,215 124,772 205,135
10 0 148,097 26,972 26,972 205,135 68,532 68,532 205,135 135,581 135,581 205,135
15 0 189,014 (*) (*) (*) 15,446 15,446 205,135 198,356 198,356 208,274
20 0 241,235 (*) (*) (*) (*) (*) (*) 311,439 311,439 327,011
25 0 307,884 (*) (*) (*) (*) (*) (*) 480,207 480,207 504,217
30 0 392,947 (*) (*) (*) (*) (*) (*) 746,244 746,244 753,706
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
48
<PAGE> 52
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Cash Net Cash Net Cash Net
Annual Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,547 11,908 211,285 17,594 12,955 212,332 18,642 14,003 213,381
2 20,000 43,050 32,613 27,974 227,351 35,722 31,083 230,460 38,957 34,318 233,695
3 20,000 66,203 48,191 43,552 242,929 54,391 49,752 249,129 61,097 56,458 255,836
4 20,000 90,513 63,246 58,839 257,984 73,579 69,172 268,318 85,205 80,798 279,943
5 20,000 116,038 77,770 73,595 272,509 93,294 89,119 288,032 111,462 107,287 306,201
6 20,000 142,840 91,757 87,814 286,496 113,540 109,596 308,278 140,070 136,127 334,809
7 20,000 170,982 105,157 101,446 299,895 134,280 130,569 329,019 171,208 167,497 365,947
8 20,000 200,531 117,963 114,484 312,701 155,519 152,040 350,258 205,115 201,636 399,853
9 20,000 231,558 130,153 127,834 324,892 177,246 174,926 371,984 242,039 239,720 436,778
10 20,000 264,136 141,679 141,679 336,418 199,420 199,420 394,159 282,225 282,225 476,963
15 20,000 453,150 190,197 190,197 384,936 318,421 318,421 513,160 545,952 545,952 740,690
20 20,000 694,385 216,571 216,571 411,309 444,024 444,024 638,763 949,833 949,833 1,144,572
25 20,000 1,002,269 212,426 212,426 407,165 566,208 566,208 760,946 1,568,052 1,568,052 1,762,790
30 20,000 1,395,216 167,420 167,420 362,158 669,255 669,255 863,994 2,516,798 2,516,798 2,711,536
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
49
<PAGE> 53
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<TABLE>
<CAPTION>
0.00% Hypothetical 6.00% Hypothetical 12.00% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Cash Net Cash Net Cash Net
Annual Premiums Cash Surr Death Cash Surr Death Cash Surr Death
Year Paid at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,065 9,426 208,804 15,033 10,394 209,771 16,003 11,364 210,741
2 20,000 43,050 27,434 22,795 222,172 30,225 25,586 224,964 33,136 28,497 227,875
3 20,000 66,203 40,082 35,444 234,821 45,548 40,910 240,287 51,479 46,840 246,217
4 20,000 90,513 51,978 47,571 246,716 60,962 56,555 255,700 71,106 66,699 265,844
5 20,000 116,038 63,071 58,896 257,810 76,406 72,231 271,145 92,083 87,908 286,822
6 20,000 142,840 73,294 69,351 268,032 91,798 87,855 286,537 114,461 110,518 309,200
7 20,000 170,982 82,559 78,848 277,298 107,032 103,321 301,771 138,276 134,565 333,014
8 20,000 200,531 90,758 87,279 285,497 121,972 118,493 316,710 163,539 160,060 358,278
9 20,000 231,558 97,782 95,462 292,520 136,475 134,155 331,213 190,265 187,945 385,003
10 20,000 264,136 103,541 103,541 298,279 150,410 150,410 345,149 218,487 218,487 413,225
15 20,000 453,150 111,282 111,282 306,020 207,629 207,629 402,368 384,589 384,589 579,328
20 20,000 694,385 73,398 73,398 268,136 226,517 226,517 421,255 595,047 595,047 789,786
25 20,000 1,002,269 (*) (*) (*) 168,760 168,760 363,499 843,370 843,370 1,038,109
30 20,000 1,395,216 (*) (*) (*) (*) (*) (*) 1,119,536 1,119,536 1,314,275
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
50
<PAGE> 54
<PAGE> 1
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Contract Owners of
Nationwide VLI Separate Account-2
Nationwide Life Insurance Company:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account-2 as of December 31,
1995, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and the
transfer agents of the underlying mutual funds. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide VLI Separate Account-2 as of December 31, 1995, and the
results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
ASSETS:
Investments at market value:
<S> <C>
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
62,614 shares (cost $1,038,589) ............................................ $ 1,083,848
Dreyfus Stock Index Fund (DryStkIx)
271,861 shares (cost $4,342,422) ........................................... 4,676,009
Fidelity VIP - Equity-Income Portfolio (FidEqInc)
1,479,252 shares (cost $24,428,367) ........................................ 28,505,182
Fidelity VIP - Growth Portfolio (FidGro)
1,134,365 shares (cost $33,508,734) ........................................ 33,123,460
Fidelity VIP - High Income Portfolio (FidHiInc)
825,519 shares (cost $9,365,281) ........................................... 9,947,503
Fidelity VIP - Overseas Portfolio (FidOSeas)
676,060 shares (cost $10,850,506) .......................................... 11,526,815
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
1,172,533 shares (cost $16,833,524) ........................................ 18,514,290
Fidelity VIP-II - Contrafund Portfolio (FidContP)
195,404 shares (cost $2,668,754) ........................................... 2,692,665
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
212,307 shares (cost $2,582,301) ........................................... 2,861,899
Nationwide SAT - Government Bond Fund (NWGvtBd)
467,280 shares (cost $4,984,922) ........................................... 5,308,298
Nationwide SAT - Money Market Fund (NWMyMkt)
25,831,056 shares (cost $25,831,056) ....................................... 25,831,056
Nationwide SAT - Small Company Fund (NWSmCoFd)
30,450 shares (cost $339,903) .............................................. 347,742
Nationwide SAT - Total Return Fund (NWTotRet)
1,926,298 shares (cost $20,615,292) ........................................ 22,229,482
Neuberger & Berman - Growth Portfolio (NBGro)
351,272 shares (cost $8,083,142) ........................................... 9,083,899
Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat)
211,743 shares (cost $2,994,517) ........................................... 3,114,733
Neuberger & Berman - Partners Portfolio (NBPart)
216,170 shares (cost $2,643,081) ........................................... 2,859,928
Oppenheimer - Bond Fund (OppBdFd)
342,871 shares (cost $3,867,584) ........................................... 4,059,588
Oppenheimer - Global Securities Fund (OppGlSec)
397,052 shares (cost $5,971,306) ........................................... 5,955,777
Oppenheimer - Multiple Strategies Fund (OppMult)
349,048 shares (cost $4,730,069) ........................................... 5,078,650
Strong VIP - Strong Discovery Fund II, Inc. (StDisc2)
403,468 shares (cost $4,727,581) ........................................... 5,422,616
Strong VIP - Strong International Stock Fund II, Inc. (StIntStk2)
9,631 shares (cost $97,747) ................................................ 98,431
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
672,585 shares (cost $10,088,689) .......................................... 11,460,850
TCI Portfolios - TCI Balanced (TCIBal)
217,142 shares (cost $1,372,140) ........................................... 1,528,680
TCI Portfolios - TCI Growth (TCIGro)
868,667 shares (cost $8,887,302) ........................................... 10,476,124
TCI Portfolios - TCI International (TCIInt)
208,270 shares (cost $1,082,648) ........................................... 1,110,078
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
244,680 shares (cost $3,489,920) ........................................... 3,528,286
Van Eck - Worldwide Bond Fund (VEWrldBd)
182,821 shares (cost $1,985,685) ........................................... 2,036,622
Van Kampen American Capital - Real Estate Securities Fund (VKACRESec)
28,825 shares (cost $299,720) .............................................. 309,583
Warburg Pincus - International Equity Portfolio (WPIntEq)
158,334 shares (cost $1,656,897) ........................................... 1,686,256
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
273,996 shares (cost $3,188,845) ........................................... 3,427,686
------------
Total assets ........................................................... 237,886,036
ACCOUNTS PAYABLE ................................................................ 816,393
------------
CONTRACT OWNERS' EQUITY ......................................................... $237,069,643
============
</TABLE>
<PAGE> 3
Contract owners' equity represented by:
<TABLE>
<CAPTION>
UNITS UNIT VALUE
--------- ----------
<S> <C> <C> <C>
Single Premium contracts issued prior to April 16, 1990:
Fidelity VIP - Equity-Income Portfolio ....................................... 13,681 $26.373971 $ 360,822
Fidelity VIP - Growth Portfolio .............................................. 9,046 30.259267 273,725
Fidelity VIP - High Income Portfolio ......................................... 3,417 21.685282 74,099
Fidelity VIP - Overseas Portfolio ............................................ 9,048 17.526172 158,577
Fidelity VIP-II - Asset Manager Portfolio .................................... 1,075 18.081878 19,438
Nationwide SAT - Government Bond Fund ........................................ 2,984 19.357639 57,763
Nationwide SAT - Money Market Fund ........................................... 9,556 14.287454 136,531
Nationwide SAT - Total Return Fund ........................................... 1,195 22.138653 26,456
Neuberger & Berman - Growth Portfolio ........................................ 5,776 22.976381 132,712
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 4,610 15.906671 73,330
Oppenheimer - Global Securities Fund ......................................... 1,656 11.503363 19,050
Strong VIP - Strong Special Fund II, Inc. .................................... 319 18.309087 5,841
TCI Portfolios - TCI Growth .................................................. 8,480 25.381408 215,234
Van Eck - Gold and Natural Resources Fund .................................... 4,617 12.839256 59,279
Van Eck - Worldwide Bond Fund ................................................ 23 14.458585 333
Van Kampen American Capital - Real Estate Securities Fund .................... 4,203 10.784280 45,326
Single Premium contracts issued on or after April 16, 1990:
The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 10,235 14.242220 145,769
Dreyfus Stock Index Fund ..................................................... 57,341 13.621789 781,087
Fidelity VIP - Equity-Income Portfolio ....................................... 508,482 21.648958 11,008,105
Fidelity VIP - Growth Portfolio .............................................. 435,011 20.999607 9,135,060
Fidelity VIP - High Income Portfolio ......................................... 124,646 22.388295 2,790,611
Fidelity VIP - Overseas Portfolio ............................................ 299,548 12.667544 3,794,537
Fidelity VIP-II - Asset Manager Portfolio .................................... 354,042 17.721708 6,274,229
Fidelity VIP-II - Contrafund Portfolio ....................................... 63,736 11.071965 705,683
Nationwide SAT - Capital Appreciation Fund ................................... 16,446 14.444672 237,557
Nationwide SAT - Government Bond Fund ........................................ 221,416 16.104612 3,565,819
Nationwide SAT - Money Market Fund ........................................... 1,202,213 12.028786 14,461,163
Nationwide SAT - Small Company Fund .......................................... 18,120 11.410311 206,755
Nationwide SAT - Total Return Fund ........................................... 136,950 19.154939 2,623,269
Neuberger & Berman - Growth Portfolio ........................................ 167,819 16.264834 2,729,548
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 80,410 13.684722 1,100,388
Neuberger & Berman - Partners Portfolio ...................................... 59,329 13.495873 800,697
Oppenheimer - Bond Fund ...................................................... 91,827 16.056725 1,474,441
Oppenheimer - Global Securities Fund ......................................... 103,965 11.413379 1,186,592
Oppenheimer - Multiple Strategies Fund ....................................... 124,127 16.404926 2,036,294
Strong VIP - Strong Discovery Fund II, Inc. .................................. 130,968 16.214896 2,123,632
Strong VIP - Strong International Stock Fund II, Inc. ........................ 2,862 10.226632 29,269
Strong VIP - Strong Special Fund II, Inc. .................................... 162,203 18.074367 2,931,717
TCI Portfolios - TCI Balanced ................................................ 38,974 12.914886 503,345
TCI Portfolios - TCI Growth .................................................. 229,772 17.116040 3,932,787
TCI Portfolios - TCI International ........................................... 41,356 10.403803 430,260
Van Eck - Gold and Natural Resources Fund .................................... 118,139 14.230388 1,681,164
Van Eck - Worldwide Bond Fund ................................................ 55,939 14.170551 792,686
Van Kampen American Capital - Real Estate Securities Fund .................... 12,834 10.765797 138,168
Warburg Pincus - International Equity Portfolio .............................. 68,691 10.661502 732,349
Warburg Pincus - Small Company Growth Portfolio .............................. 93,602 12.430586 1,163,528
Multiple Payment contracts and Flexible Premium contracts:
The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 65,138 14.401809 938,105
Dreyfus Stock Index Fund ..................................................... 282,759 13.775382 3,895,113
Fidelity VIP - Equity-Income Portfolio ....................................... 771,429 22.215745 17,137,870
Fidelity VIP - Growth Portfolio .............................................. 1,116,041 21.256059 23,722,633
Fidelity VIP - High Income Portfolio ......................................... 339,950 20.852993 7,088,975
Fidelity VIP - Overseas Portfolio ............................................ 554,741 13.645033 7,569,459
Fidelity VIP-II - Asset Manager Portfolio .................................... 764,633 15.982529 12,220,769
Fidelity VIP-II - Contrafund Portfolio ....................................... 179,024 11.099135 1,987,012
Nationwide SAT - Capital Appreciation Fund ................................... 178,373 14.713230 2,624,443
Nationwide SAT - Government Bond Fund ........................................ 112,463 14.984933 1,685,251
Nationwide SAT - Money Market Fund ........................................... 887,531 11.714295 10,396,800
Nationwide SAT - Small Company Fund .......................................... 12,345 11.420759 140,989
Nationwide SAT - Total Return Fund ........................................... 1,076,286 18.192762 19,580,615
Neuberger & Berman - Growth Portfolio ........................................ 389,800 15.962482 6,222,175
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 148,223 13.096811 1,941,249
Neuberger & Berman - Partners Portfolio ...................................... 151,517 13.591346 2,059,320
Oppenheimer - Bond Fund ...................................................... 170,613 15.164813 2,587,314
Oppenheimer - Global Securities Fund ......................................... 411,619 11.542134 4,750,962
Oppenheimer - Multiple Strategies Fund ....................................... 188,985 16.100377 3,042,730
Strong VIP - Strong Discovery Fund II, Inc. .................................. 199,781 16.514850 3,299,353
Strong VIP - Strong International Stock Fund II, Inc. ........................ 6,756 10.236021 69,155
Strong VIP - Strong Special Fund II, Inc. .................................... 463,043 18.408627 8,523,986
TCI Portfolios - TCI Balanced ................................................ 77,950 13.155049 1,025,436
TCI Portfolios - TCI Growth .................................................. 391,898 16.149061 6,328,785
TCI Portfolios - TCI International ........................................... 64,755 10.477472 678,469
Van Eck - Gold and Natural Resources Fund .................................... 114,539 15.612002 1,788,183
Van Eck - Worldwide Bond Fund ................................................ 93,956 13.253457 1,245,242
Van Kampen American Capital - Real Estate Securities Fund .................... 11,685 10.792212 126,107
Warburg Pincus - International Equity Portfolio .............................. 89,255 10.687672 953,928
Warburg Pincus - Small Company Growth Portfolio .............................. 181,701 12.461074 2,264,190
====== ========== ------------
$237,069,643
============
</TABLE>
See accompanying notes to financial statements.
===============================================================================
<PAGE> 4
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ......................... $ 6,764,208 3,376,057 974,676
------------- ------------ ------------
Gain (loss) on investments:
Proceeds from redemption of mutual fund shares ............ 163,574,836 184,340,809 115,961,691
Cost of mutual fund shares sold ........................... (154,208,870) (184,441,475) (113,135,035)
------------- ------------ ------------
Realized gain (loss) on investments ....................... 9,365,966 (100,666) 2,826,656
Change in unrealized gain (loss) on investments ........... 17,134,325 (3,604,010) 1,224,589
------------- ------------ ------------
Net gain (loss) on investments ....................... 26,500,291 (3,704,676) 4,051,245
------------- ------------ ------------
Net investment activity ......................... 33,264,499 (328,619) 5,025,921
------------- ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ................ 106,694,208 77,172,455 31,008,045
Surrenders (note 2d) ........................................... (4,970,867) (1,308,994) (559,275)
Death benefits (note 4) ........................................ (143,265) (15,398) (360,580)
Policy loans (net of repayments) (note 5) ...................... (2,529,830) (2,980,396) (1,781,013)
------------- ------------ ------------
Net equity transactions ......................... 99,050,246 72,867,667 28,307,177
------------- ------------ ------------
EXPENSES:
Deductions for surrender charges (note 2d) ..................... (364,725) (116,899) (24,490)
Redemptions to pay cost of insurance charges
and administrative charges (notes 2b and 2c) .............. (14,110,656) (5,382,393) (1,539,443)
Deductions for asset charges (note 3) .......................... (1,747,342) (879,737) (430,173)
------------- ------------ ------------
Total expenses .................................. (16,222,723) (6,379,029) (1,994,106)
------------- ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .............................. 116,092,022 66,160,019 31,338,992
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........................ 120,977,621 54,817,602 23,478,610
------------- ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD .............................. $ 237,069,643 120,977,621 54,817,602
============= =========== ==========
</TABLE>
See accompanying notes to financial statements.
===============================================================================
<PAGE> 5
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account-2 (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on May 7, 1987. The Account has been registered as a unit
investment trust under the Investment Company Act of 1940.
The Company offers Modified Single Premium and Flexible Premium Variable
Life Insurance Policies through the Account. The primary distribution for the
contracts is through the brokerage community; however, other distributors may be
utilized.
(b) The Contracts
Prior to December 31, 1990, only contracts without a front-end sales
charge, but with a contingent deferred sales charge and certain other fees, were
offered for purchase. Beginning December 31, 1990, contracts with a front-end
sales charge, a contingent deferred sales charge and certain other fees, are
offered for purchase. See note 2 for a discussion of policy charges, and note 3
for asset charges.
Contract owners may invest in the following:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro);
Dreyfus Stock Index Fund (DryStkIx)(formerly Dreyfus Life and Annuity Index
Fund, Inc. (DLAI));
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidEqInc)
Fidelity VIP - Growth Portfolio (FidGro)
Fidelity VIP - High Income Portfolio (FidHiInc)
Fidelity VIP - Overseas Portfolio (FidOSeas)
Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity
VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
Fidelity VIP-II - Contrafund Portfolio (FidContP)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
Nationwide SAT - Government Bond Fund (NWGvtBd)
Nationwide SAT - Money Market Fund (NWMyMkt)
Nationwide SAT - Small Company Fund (NWSmCoFd)
Nationwide SAT - Total Return Fund (NWTotRet)
Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger &
Berman);
Neuberger & Berman - Growth Portfolio (NBGro)
Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat)
Neuberger & Berman - Partners Portfolio (NBPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer);
Oppenheimer - Bond Fund (OppBdFd)
Oppenheimer - Global Securities Fund (OppGlSec)
Oppenheimer - Multiple Strategies Fund (OppMult)
Funds of the Strong Variable Insurance Products Funds (Strong VIP);
Strong VIP - Strong Discovery Fund II, Inc. (StDisc2)
Strong VIP - Strong International Stock Fund II, Inc. (StIntStk2)
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
<PAGE> 6
Portfolios of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Balanced (TCIBal)
TCI Portfolios - TCI Growth (TCIGro)
TCI Portfolios - TCI International (TCIInt)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck) (formerly Van Eck
Investment Trust);
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
Van Eck - Worldwide Bond Fund (VEWrldBd) (formerly Van Eck - Global
Bond Fund (VEGlobBd))
Fund of the Van Kampen American Capital Life Investment Trust (Van Kampen
American Capital);
Van Kampen American Capital - Real Estate Securities Fund
(VKACRESec)
Portfolios of the Warburg Pincus Trust (Warburg Pincus);
Warburg Pincus - International Equity Portfolio (WPIntEq)
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1995, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of each
fund, equity transactions by contract owners and certain policy charges (see
notes 2 and 3). The accompanying financial statements include only contract
owners' purchase payments pertaining to the variable portions of their contracts
and exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing net
asset value per share at December 31, 1995. Fund purchases and sales are
accounted for on the trade date (date the order to buy or sell is executed). The
cost of investments sold is determined on a specific identification basis, and
dividends (which include capital gain distributions) are accrued as of the
ex-dividend date.
(d) Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the
operations of the Company, which is taxed as a life insurance company under the
provisions of the Internal Revenue Code.
Currently, no charge is being made to the Account for Federal income taxes,
or reserves for such taxes, which may be attributed to the Account. However, the
Company reserves the right to make such charges in the future.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(2) POLICY CHARGES
(a) Deductions from Premiums
On multiple payment contracts and flexible premium contracts, the Company
deducts a charge for state premium taxes equal to 2.5% of all premiums received
to cover the payment of these premium taxes. The Company also deducts a sales
load from each premium payment received not to exceed 3.5% of each premium
payment. The Company may at its sole discretion reduce this sales loading.
(b) Cost of Insurance
A cost of insurance charge is assessed monthly against each contract by
liquidating units. The amount of the charge is based upon age, sex, rate class
and net amount at risk (death benefit less total contract value).
(c) Administrative Charges
For single premium contracts, the Company deducts an annual administrative
charge which is determined as follows:
Contracts issued prior to April 16, 1990:
Purchase payments totalling less than $25,000 - $10/month
Purchase payments totalling $25,000 or more - none
<PAGE> 7
Contracts issued on or after April 16, 1990:
Purchase payments totalling less than $25,000 - $90/year ($65/year in
New York)
Purchase payments totalling $25,000 or more - $50/year
For multiple payment contracts, the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum) to recover policy
maintenance, accounting, record keeping and other administrative expenses.
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $25 during the first policy year and $5 per month
thereafter (may deduct up to $7.50, maximum) to recover policy maintenance,
accounting, record keeping and other administrative expenses. Additionally, the
Company deducts an increase charge of $2.04 per year per $1,000 applied to any
increase in the specified amount during the first 12 months after the increase
becomes effective.
The above charges are assessed against each contract by liquidating units.
(d) Surrenders
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or designee.
The surrender proceeds consist of the contract value, less any outstanding
policy loans, and less a surrender charge, if applicable. The charge is
determined according to contract type.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. For single premium
contracts issued prior to April 16, 1990, the charge is 8% in the first year and
declines to 0% after the ninth year. For single premium contracts issued on or
after April 16, 1990, the charge is 8.5% in the first year, and declines to 0%
after the ninth year.
For multiple payment contracts and flexible premium contracts, the amount
charged is based upon a specified percentage of the initial surrender charge,
which varies by issue age, sex and rate class. The charge is 100% of the initial
surrender charge in the first year, declining to 0% after the ninth year.
The Company may waive the surrender charge for certain contracts in which
the sales expenses normally associated with the distribution of a contract are
not incurred.
(3) ASSET CHARGES
For single premium contracts, the Company deducts a charge from the
contract to cover mortality and expense risk charges related to operations, and
to recover policy maintenance and premium tax charges. For contracts issued
prior to April 16, 1990, the charge is equal to an annual rate of .95% during
the first ten policy years, and .50% thereafter. A reduction of charges on these
contracts is possible in policy years six through ten for those contracts
achieving certain investment performance criteria. For single premium contracts
issued on or after April 16, 1990, the charge is equal to an annual rate of
1.30% during the first ten policy years, and 1.00% thereafter.
For multiple payment contracts and flexible premium contracts the Company
deducts a charge equal to an annual rate of .80%, with certain exceptions, to
cover mortality and expense risk charges related to operations.
The above charges are assessed through the daily unit value calculation.
(4) DEATH BENEFITS
Death benefits result in a redemption of the contract value from the
Account and payment of the death benefit proceeds, less any outstanding policy
loans (and policy charges), to the legal beneficiary. The excess of the death
benefit proceeds over the contract value on the date of death is paid by the
Company's general account.
(5) POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% (50% during
first year of single premium contracts) of a policy's cash surrender value. For
single premium contracts issued prior to April 16, 1990, 6.5% interest is due
and payable annually in advance. For single premium contracts issued on or after
April 16, 1990, multiple payment contracts and flexible premium contracts, 6%
interest is due and payable in advance on the policy anniversary when there is a
loan outstanding on the policy.
<PAGE> 8
At the time the loan is granted, the amount of the loan is transferred from
the Account to the Company's general account as collateral for the outstanding
loan. Collateral amounts in the general account are credited with the stated
rate of interest in effect at the time the loan is made, subject to a guaranteed
minimum rate. Loan repayments result in a transfer of collateral, including
interest, back to the Account.
(6) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for determining contract owners' equity. This schedule is
presented for each series, as applicable, in the following format:
- Beginning unit value - Jan. 1
- Reinvested dividends and capital gains (This amount reflects the
increase in the unit value due to dividend and capital gain
distributions from the underlying mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
===============================================================================
<PAGE> 9
===============================================================================
Schedule I
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
FIDEQINC FIDGRO FIDHIINC FIDOSEAS
-------- ------ -------- --------
1995
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $19.708533 22.566466 18.151674 16.131866
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.542607 .124738 1.314664 .123427
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.341041 7.828480 2.410020 1.428229
- ------------------------------------------------------------------------------------------------------------
Asset charges (.218210) (.260417) (.191076) (.157350)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $26.373971 30.259267 21.685282 17.526172
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 34% 34% 19% 9%
============================================================================================================
1994
Beginning unit value - Jan. 1 $18.583057 22.785679 18.612185 16.009316
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.395798 1.371061 1.706032 .082663
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.087894) (1.381165) (1.991707) .196908
- ------------------------------------------------------------------------------------------------------------
Asset charges (.182428) (.209109) (.174836) (.157021)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.708533 22.566466 18.151674 16.131866
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 6% (1)% (2)% 1%
============================================================================================================
1993
Beginning unit value - Jan. 1 $15.870837 19.270345 15.591886 11.777024
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .463717 .428707 1.282532 .275295
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.415095 3.287237 1.901458 4.091447
- ------------------------------------------------------------------------------------------------------------
Asset charges (.166592) (.200610) (.163691) (.134450)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.583057 22.785679 18.612185 16.009316
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 17% 18% 19% 36%
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDASMGR NWGVTBD NWMYMKT NWTOTRET
-------- ------- ------- --------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 15.607540 16.457035 13.652006 17.312690
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .327932 1.167149 .768745 1.720678
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.304058 1.903991 .000000 3.293404
- ----------------------------------------------------------------------------------------------------------
Asset charges (.157652) (.170536) (.133297) (.188119)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 18.081878 19.357639 14.287454 22.138653
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 18% 5% 28%
==========================================================================================================
1994
Beginning unit value - Jan. 1 16.778042 17.168348 13.267517 17.291720
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .815806 1.079469 .512535 .875020
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.832732) (1.633239) .000000 (.688478)
- ----------------------------------------------------------------------------------------------------------
Asset charges (.153576) (.157543) (.128046) (.165572)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.607540 16.457035 13.652006 17.312690
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (7)% (4)% 3% 0%
==========================================================================================================
1993
Beginning unit value - Jan. 1 13.992516 15.826033 13.035884 15.738275
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .649736 1.013212 .357335 .643850
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.280467 .488744 .000000 1.067081
- ----------------------------------------------------------------------------------------------------------
Asset charges (.144677) (.159641) (.125702) (.157486)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 16.778042 17.168348 13.267517 17.291720
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 20% 8% 2% 10%
==========================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
<PAGE> 10
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NBGRO NBLTDMAT OPPGLSEC STSPEC2 TCIGRO
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $17.608267 14.475203 11.358489 14.690448 19.544976
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .623265 .804090 .298934 .761035 .022491
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 4.945641 .771696 (.045712) 3.013032 6.032555
- -------------------------------------------------------------------------------------------------------
Asset charges (.200792) (.144318) (.108348) (.155428) (.218614)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $22.976381 15.906671 11.503363 18.309087 25.381408
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
unit value*(a) 30% 10% 1% 25% 30%
=======================================================================================================
1994
Beginning unit value - Jan. 1 $18.709214 14.635617 12.162716 14.315226 19.964524
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 2.255334 .618309 .214436 .411358 .002137
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (3.185612) (.641424) (.903773) .103258 (.236035)
- -------------------------------------------------------------------------------------------------------
Asset charges (.170669) (.137299) (.114890) (.139394) (.185650)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.608267 14.475203 11.358489 14.690448 19.544976
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (6)% (1)% (7)% 3% (2)%
=======================================================================================================
1993
Beginning unit value - Jan. 1 $17.686598 13.856975 ** ** 18.270571
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .409995 .569917 .049805
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .782366 .345457 1.825395
- -------------------------------------------------------------------------------------------------------
Asset charges (.169745) (.136732) (.181247)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.709214 14.635617 19.964524
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 6% 6% 9%
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGOLDNR VEWRLDBD VKACRESEC
--------- --------- ---------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 11.677805 12.443161 10.000000
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .115292 1.008475 .092106
- ----------------------------------------------------------------------------
Unrealized gain (loss) 1.160549 1.138120 .740132
- ----------------------------------------------------------------------------
Asset charges (.114390) (.131171) (.047958)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 12.839256 14.458585 10.784280
- ----------------------------------------------------------------------------
Percentage increase (decrease)
unit value*(a) 10% 16% 8%(b)
============================================================================
1994
Beginning unit value - Jan. 1 12.382561 12.729709 **
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .062321 .051271
- ----------------------------------------------------------------------------
Unrealized gain (loss) (.652194) (.220753)
- ----------------------------------------------------------------------------
Asset charges (.114883) (.117066)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.677805 12.443161
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (6)% (2)%
============================================================================
1993
Beginning unit value - Jan. 1 7.583732 ** **
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .035765
- ----------------------------------------------------------------------------
Unrealized gain (loss) 4.857738
- ----------------------------------------------------------------------------
Asset charges (.094674)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 12.382561
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 63%
============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
<PAGE> 11
===============================================================================
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKLX FIDEQINC FIDGRO FIDHIINC FIDOSEAS FIDASMGR
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .392053 .36133 1.269479 .086841 1.361583 .089493 .322418
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.289798 3.326196 4.390826 5.444880 2.491513 1.033414 2.260958
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.161906) (.154595) (.245506) (.247716) (.270417) (.155890) (.211783)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.242220 13.621789 21.648958 20.999607 22.388295 12.667544 17.721708
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 35% 33% 34% 19% 8% 15%
==================================================================================================================================
1994
Beginning unit value - Jan. 1 $10.702403 10.131165 15.360584 15.923752 19.350153 11.652241 16.559029
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .276372 .283260 1.152726 .957853 1.773098 .060146 .804872
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.117327) (.195255) (.073161) (.966373) (2.069306) .144272 (1.806726)
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.139173) (.130321) (.205990) (.199630) (.248329) (.156132) (.207060)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% 0% 6% (1)% (3)% 0% (7)%
==================================================================================================================================
1993
Beginning unit value - Jan. 1 ** $10.000000 13.165400 13.515048 16.267831 8.602313 13.859040
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.497818 .383884 .300564 1.337665 .201014 .643313
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.334006) 2.000061 2.300317 1.977956 2.983042 2.252405
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.032647) (.188761) (.192177) (.233299) (.134128) (.195729)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.131165 15.360584 15.923752 19.350153 11.652241 16.559029
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1%(b) 17% 18% 19% 35% 19%
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDCONTP NWCAPAPP NWGVTBD
--------- --------- ---------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 10.000000 11.312336 13.739287
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .142783 .642275 .972265
- ----------------------------------------------------------------------------
Unrealized gain (loss) .998389 2.653961 1.587542
- ----------------------------------------------------------------------------
Asset charges (.069207) (.163900) (.194482)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.071965 14.444672 16.104612
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 11%(b) 28% 17%
============================================================================
1994
Beginning unit value - Jan. 1 ** 11.563943 14.383265
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .182742 .902346
- ----------------------------------------------------------------------------
Unrealized gain (loss) (.286826) (1.366016)
- ----------------------------------------------------------------------------
Asset charges (.147523) (.180308)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.312336 13.739287
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% (4)%
============================================================================
1993
Beginning unit value - Jan. 1 ** 10.688742 13.305926
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .260088 .849957
- ----------------------------------------------------------------------------
Unrealized gain (loss) .755302 .410720
- ----------------------------------------------------------------------------
Asset charges (.140189) (.183338)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.563943 14.383265
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% 8%
============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note
2; and
(b) This investment option was not utilized for the entire year
indicated.
** This investment option was not available or was not utilized.
===============================================================================
<PAGE> 12
===============================================================================
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NWMYMKT NWSMCOFD NWTOTRET NBGRO NBLTDMAT NBPART OPPBDFD
----------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $11.534440 10.000000 15.031721 12.508337 12.496729 10.018146 13.903136
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .648458 .017459 1.489410 .442496 .693794 .081860 .956955
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418328 2.856936 3.508824 .664378 3.550382 1.391543
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.154112) (.025476) (.223128) (.194823) (.170179) (.154515) (.194909)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.028786 11.410311 19.154939 16.264834 13.684722 13.495873 16.056725
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 14%(b) 27% 30% 10% 35% 15%
=================================================================================================================================
1994
Beginning unit value - Jan. 1 $11.249231 ** 15.066007 13.336899 12.679406 10.000000 14.362878
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .433762 .760244 1.607088 .535454 .000000 .809172
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.597472) (2.269450) (.555628) .072562 (1.086058)
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.148553) (.197058) (.166200) (.162503) (.054416) (.182856)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.534440 15.031721 12.508337 12.496729 10.018146 13.903136
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)% 0%(b) (3)%
=================================================================================================================================
1993
Beginning unit value - Jan. 1 $11.092030 ** 13.761364 12.652864 12.047601 ** 12.872824
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .303567 .561430 .293188 .495297 .894915
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .931322 .556715 .298894 .774891
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.146366) (.188109) (.165868) (.162386) (.179752)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.249231 15.066007 13.336899 12.679406 14.362878
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 9% 5% 5% 12%
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
OPPGLSEC OPPMULT STDISC2
---------- ---------- ----------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 11.309050 13.693997 12.144445
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .297396 1.103154 .211667
- -------------------------------------------------------------------------------
Unrealized gain (loss) (.045694) 1.805769 4.042004
- -------------------------------------------------------------------------------
Asset charges (.147373) (.197994) (.183220)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.413379 16.404926 16.214896
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 20% 34%
===============================================================================
1994
Beginning unit value - Jan. 1 12.152136 14.148115 13.003547
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .214078 .720350 .971167
- -------------------------------------------------------------------------------
Unrealized gain (loss) (.900362) (.993926) (1.670283)
- -------------------------------------------------------------------------------
Asset charges (.156802) (.180542) (.159986)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.309050 13.693997 12.144445
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (7)% (3)% (7)%
===============================================================================
1993
Beginning unit value - Jan. 1 10.000000 12.362293 10.796269
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .000000 .546245 .809234
- -------------------------------------------------------------------------------
Unrealized gain (loss) 2.187580 1.411883 1.546688
- -------------------------------------------------------------------------------
Asset charges (.035444) (.172306) (.148644)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.152136 14.148115 13.003547
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 22%(b) 14% 20%
===============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
<PAGE> 13
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
STINTSTK2 STSPEC2 TCIBAL TCIGRO TCIINT VEGOLDNR VEWRLDBD
----------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.000000 14.552799 10.801955 13.226279 9.392654 12.988341 12.237880
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .041085 .753037 .305779 .015219 .000000 .127947 .990055
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .209467 2.978850 1.961461 4.076606 1.136602 1.287916 1.118852
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.023920) (.210319) (.154309) (.202064) (.125453) (.173816) (.176236)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.226632 18.074367 12.914886 17.116040 10.403803 14.230388 14.170551
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 2%(b) 24% 20% 29% 11% 10% 16%
================================================================================================================================
1994
Beginning unit value - Jan. 1 ** $14.230663 10.876445 13.557427 10.000000 13.820369 12.563474
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .407898 .260556 .001450 .000000 .069418 .050533
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .103521 (.194370) (.160376) (.554327) (.726294) (.218292)
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.189283) (.140676) (.172222) (.053019) (.175152) (.157835)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.552799 10.801955 13.226279 9.392654 12.988341 12.237880
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 2% (1)% (2)% (6)%(b) (6)% (3)%
================================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.518529 10.232336 12.451309 ** 8.494453 11.809827
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .057229 .193813 .033826 .039957 .949184
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.823424 .587650 1.241015 5.430795 (.037350)
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.168519) (.137354) (.168723) (.144836) (.158187)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.230663 10.876445 13.557427 13.820369 12.563474
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 24% 6% 9% 63% 6%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VKACRESEC WPINTEQ WPSMCOGR
---------- ---------- ----------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 10.000000 10.000000 10.000000
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains .091962 .077347 .000000
- ------------------------------------------------------------------------------
Unrealized gain (loss) .739397 .650501 2.501606
- ------------------------------------------------------------------------------
Asset charges (.065562) (.066346) (.071020)
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31 10.765797 10.661502 12.430586
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 8%(b) 7%(b) 24%(b)
==============================================================================
1994
Beginning unit value - Jan. 1 ** ** **
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains
- ------------------------------------------------------------------------------
Unrealized gain (loss)
- ------------------------------------------------------------------------------
Asset charges
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a)
==============================================================================
1993
Beginning unit value - Jan. 1 ** ** **
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains
- ------------------------------------------------------------------------------
Unrealized gain (loss)
- ------------------------------------------------------------------------------
Asset charges
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a)
==============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
<PAGE> 14
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DrySRGro DryStkIx FidEqInc FidGro FidHiInc
-------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.788547 10.151919 16.576413 15.828463 17.428943
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .396430 .364933 1.297971 .087506 1.262495
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.317353 3.354508 4.496038 5.494030 2.316172
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.100521) (.095978) (.154677) (.153940) (.154617)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.401809 13.775382 22.215745 21.256059 20.852993
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 36% 34% 34% 20%
====================================================================================================================================
1994
Beginning unit value - Jan. 1 $10.715005 10.143796 15.606442 15.958341 17.844401
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .278073 .284601 1.172669 .960381 1.635883
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.118575) (.195976) (.073581) (.966828) (1.910067)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.085956) (.080502) (.129117) (.123431) (.141274)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.788547 10.151919 16.576413 15.828463 17.428943
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 0% 6% (1)% (2)%
====================================================================================================================================
1993
Beginning unit value - Jan. 1 $10.000000 10.000000 13.308899 13.476298 14.926526
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .031142 1.499665 .389191 .299849 1.227974
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .703426 (1.335764) 2.026087 2.300419 1.821967
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.019563) (.020105) (.117735) (.118225) (.132066)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.715005 10.143796 15.606442 15.958341 17.844401
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 7%(b) 1%(b) 17% 18% 20%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FidOSeas FidAsMgr FidContP NWCapApp NWGvtBd
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 12.540728 13.774855 10.000000 11.465403 12.720514
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .095965 .289466 .143118 .653781 .903001
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.111417 2.035460 .998657 2.696528 1.472503
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.103077) (.117252) (.042640) (.102482) (.111085)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.645033 15.982529 11.099135 14.713230 14.984933
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 9% 16% 11%(b) 28% 18%
========================================================================================================================
1994
Beginning unit value - Jan. 1 12.426854 14.785784 ** 11.662121 13.250482
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .064174 .719044 .184927 .833925
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .152413 (1.615920) (.289863) (1.261429)
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.102713) (.114053) (.091782) (.102464)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.540728 13.774855 11.465403 12.720514
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% (7)% (2)% (4)%
========================================================================================================================
1993
Beginning unit value - Jan. 1 9.128094 12.312732 ** 10.725293 12.196370
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .213405 .571816 .261975 .781559
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.173177 2.008516 .761628 .376228
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.087822) (.107280) (.086775) (.103675)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.426854 14.785784 11.662121 13.250482
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 36% 20% 9% 9%
========================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
<PAGE> 15
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NWMyMkt NWSmCoFd NWTotRet NBGro NBLtdMat
------- -------- -------- ----- --------
1995
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $11.176411 10.000000 14.205723 12.214794 11.900389
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .629782 .017475 1.413734 .432461 .661221
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418968 2.703396 3.432609 .635177
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.091898) (.015684) (.130091) (.117382) (.099976)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.714295 11.420759 18.192762 15.962482 13.096811
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 5% 14%(b) 28% 31% 10%
=============================================================================================================================
1994
Beginning unit value - Jan. 1 $10.845265 ** 14.167308 12.959107 12.014277
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .419275 .717782 1.562441 .507651
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.565055) (2.207122) (.526553)
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.088129) (.114312) (.099632) (.094986)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.176411 14.205723 12.214794 11.900389
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)%
=============================================================================================================================
1993
Beginning unit value - Jan. 1 $10.639809 ** 12.875439 12.232618 11.358230
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .291848 .527331 .283612 .467224
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .873117 .541815 .283278
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.086392) (.108579) (.098938) (.094455)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.845265 14.167308 12.959107 12.014277
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2% 10% 6% 6%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NBPart OppBdFd OppGlSec OppMult StDisc2
------ ------- -------- ------- -------
1995
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $10.038887 13.065574 11.379737 13.372968 12.307607
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .082096 .902009 .299595 1.079776 .215562
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.565899 1.310232 (.045711) 1.766931 4.106245
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.095536) (.113002) (.091487) (.119298) (.114564)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.591346 15.164813 11.542134 16.100377 16.514850
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 35% 16% 1% 20% 34%
=========================================================================================================================
1994
Beginning unit value - Jan. 1 $10.000000 13.430475 12.167250 13.747705 13.112678
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .000000 .759284 .214589 .702216 .983647
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .072401 (1.018698) (.905246) (.968729) (1.689193)
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.033514) (.105487) (.096856) (.108224) (.099525)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.038887 13.065574 11.379737 13.372968 12.307607
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% (3)% (6)% (3)% (6)%
=========================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.976650 10.000000 11.952042 10.832134
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .835328 .000000 .529802 .814568
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .721678 2.189077 1.368631 1.557980
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.103181) (.021827) (.102770) (.092004)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.430475 12.167250 13.747705 13.112678
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 12% 22%(b) 15% 21%
=========================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
<PAGE> 16
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
StIntStk2 StSpec2 TCIBal TCIGro TCIInt
--------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.000000 14.748256 10.948128 12.417011 9.412116
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .041121 .764407 .310910 .014289 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .209625 3.027469 1.992508 3.834812 1.142911
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.014725) (.131505) (.096497) (.117051) (.077555)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.236021 18.408627 13.155049 16.149061 10.477472
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2%(b) 25% 20% 30% 11%
=======================================================================================================================
1994
Beginning unit value - Jan. 1 ** $14.350073 10.968814 12.664593 10.000000
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .412806 .263602 .001356 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .103139 (.196764) (.149703) (.555221)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117762) (.087524) (.099235) (.032663)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.748256 10.948128 12.417011 9.412116
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (2)% (6)%(b)
=======================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.556788 10.267347 11.572833 **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .057587 .195102 .031592
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.840017 .591395 1.156915
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.104319) (.085030) (.096747)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.350073 10.968814 12.664593
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 24% 7% 9%
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGoldNR VEWrldBd VKACRESec WPIntEq WPSmCoGr
-------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 14.178501 11.388987 10.000000 10.000000 10.000000
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .140115 .923751 .092168 .077521 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.410450 1.041904 .740443 .651025 2.504833
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117064) (.101185) (.040399) (.040874) (.043759)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.612002 13.253457 10.792212 10.687672 12.461074
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 10% 16% 8%(b) 7%(b) 25%(b)
=======================================================================================================================
1994
Beginning unit value - Jan. 1 15.011706 11.633841 ** ** **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .075618 .046884
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.791458) (.201583)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117365) (.090155)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.178501 11.388987
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (6)% (2)%
=======================================================================================================================
1993
Beginning unit value - Jan. 1 9.180337 10.880964 ** ** **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .043340 .876895
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.884613 (.034094)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.096584) (.089924)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.011706 11.633841
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 64% 7%
=======================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available.
See note 6.
- --------------------------------------------------------------------------------
<PAGE> 55
<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> 56
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 6 to 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 91 pages.
Representations and Undertakings.
Accountants' Consent.
The Signatures.
<TABLE>
<S> <C>
The following exhibits required by Forms N-8B-2 and S-6:
1. Power of Attorney dated April 4, 1996 An original Power of Attorney dated April 4, 1996 is
included with the Post-Effective Amendment No. 8 to the
Registration Statement on Form N-4 of NACo Variable Account
(File No. 33-33425, 811-5999) on file with the Company.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for
authorizing the establishment of the Registrant, adopted the Nationwide VLI Separate Account-2 (File No. 811-5311),
and hereby incorporated herein by reference.
3. Distribution Contracts Included with the Registration Statement on Form N-8B-2 for
the Nationwide VLI Separate Account-2 (File No. 811-5311),
and hereby incorporated herein by reference.
4. Form of Security Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein 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 (File No. 811-5311),
and hereby incorporated herein by reference.
6. Application form of Security Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein by reference.
7. Opinion of Counsel Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein by reference.
</TABLE>
<PAGE> 57
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)(A) under the Act with respect to
the Policies described in the prospectus. The Policies have been designed in
such a way as to qualify for the exemptive relief from various provisions of
the Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges") assumed by
the Company under the Policies. The Company represents that the risk charges
are within the range of industry practice for comparable policies and
reasonable in relation to all of the risks assumed by the issuer under the
Policies. Actuarial memoranda demonstrating the reasonableness of these
charges are maintained by the Company, and will be made available to the
Securities and Exchange Commission (the "Commission") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit the
separate account and the contractholders and will keep and make available to
the Commission on request a memorandum setting forth the basis for this
representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and reports
as may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
<PAGE> 58
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 26, 1996
<PAGE> 59
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. 6 and has duly caused this Post-Effective
Amendment No. 6 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 26th day of April, 1996.
NATIONWIDE VLI SEPARATE ACCOUNT-2
(Registrant)
(Seal) NATIONWIDE LIFE INSURANCE COMPANY
Attest: (Sponsor)
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. 6 has been signed below by the following persons in the
capacities indicated on the 26th day of April, 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-
- -------------------------------- 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> 1
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 1993, 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 III, 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, 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 4th day of April, 1996.
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Director
/s/ Keith W. Eckel /s/ C. Ray Noecker
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director C. Ray Noecker, Director
/s/ Willard P. Engel /s/ Robert A. Oakley
- ------------------------------------- -------------------------------------
Willard P. Engel, Director Robert A. Oakley, Executive Vice
President and Chief Financial Officer
/s/ Fred C. Finney
- ------------------------------------- /s/ James F. Patterson
Fred C. Finney, Director -------------------------------------
James F. Patterson, Director
/s/ Charles L. Fuellgraf
- ------------------------------------- /s/ Arden L. Shisler
Charles L. Fuellgraf, Director -------------------------------------
Arden L. Shisler, Director
/s/ Joseph J. Gasper
- ------------------------------------- /s/ Robert L. Stewart
Joseph J. Gasper, President and Chief -------------------------------------
Operating Officer and Director Robert L. Stewart, Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------- -------------------------------------
Henry S. Holloway, Chairman of the Nancy C. Thomas, Director
Board, Director
/s/ Harold W. Weihl
/s/ D. Richard McFerson -------------------------------------
- ------------------------------------- Harold W. Weihl, Director
D. Richard McFerson, Chairman and
Chief Executive Officer-Nationwide
Insurance Enterprise and Director
