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Registration No. 333-27133
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VLI SEPARATE ACCOUNT-2
(Exact Name of Trust)
-------------------
NATIONWIDE LIFE INSURANCE COMPANY
One Nationwide Plaza
Columbus, Ohio 43216
(Exact Name and Address of Depositor and Registrant)
Gordon E. McCutchan
Secretary
One Nationwide Plaza
Columbus, Ohio 43216
(Name and address of Agent for Service)
-------------------
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The Registrant elects to register an indefinite number of securities by
this registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940.
Approximate date of proposed public offering: (As soon as practicable
after the effective date of this Registration Statement).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall therefore become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
1.........................................Nationwide Life Insurance Company
The Variable Account
2.........................................Nationwide Life Insurance Company
3.........................................Custodian of Assets
4.........................................Distribution of The Policies
5.........................................The Variable Account
6.........................................Not Applicable
7.........................................Not Applicable
8.........................................Not Applicable
9.........................................Legal Proceedings
10.........................................Information About The Policies; How
The Cash Value Varies; Right to
Exchange for a Fixed Benefit Policy;
Reinstatement; Other Policy
Provisions
11.........................................Investments of The Variable
Account
12.........................................The Variable Account
13.........................................Policy Charges
Reinstatement
14.........................................Underwriting and Issuance -
Premium Payments
Minimum Requirements for
Issuance of a Policy
15.........................................Investments of the Variable
Account; Premium Payments
16.........................................Underwriting and Issuance -
Allocation of Cash Value
17.........................................Surrendering The Policy for Cash
18.........................................Reinvestment
19.........................................Not Applicable
20.........................................Not Applicable
21.........................................Policy Loans
22.........................................Not Applicable
23.........................................Not Applicable
24.........................................Not Applicable
25.........................................Nationwide Life Insurance Company
26.........................................Not Applicable
27.........................................Nationwide Life Insurance Company
28.........................................Company Management
29.........................................Company Management
30.........................................Not Applicable
31.........................................Not Applicable
32.........................................Not Applicable
33.........................................Not Applicable
34.........................................Not Applicable
35.........................................Nationwide Life Insurance Company
36.........................................Not Applicable
37.........................................Not Applicable
38.........................................Distribution of The Policies
39.........................................Distribution of The Policies
40.........................................Not Applicable
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N-8B-2 Item Caption in Prospectus
41(a)......................................Distribution of The Policies
42.........................................Not Applicable
43.........................................Not Applicable
44.........................................How The Cash Value Varies
45.........................................Not Applicable
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
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NATIONWIDE LIFE INSURANCE COMPANY
P.O. Box 182150
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
CORPORATE FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2
The Life Insurance Policies offered by this prospectus are variable universal
life insurance policies (collectively referred to as the "Policies"). The
Policies are designed for use by corporations and employers, to provide life
insurance coverage and the flexibility to vary the amount and frequency of
premium payments. The Policies also may 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 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 "Code").
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
Sub-Accounts of the Variable Account and the Fixed Account. The assets of each
Sub-Account will be used to purchase, at net asset value, shares of a designated
Underlying Mutual Fund in the following series:
<TABLE>
<S> <C>
American Century Variable Portfolios, Inc.: Neuberger & Berman Advisers Management Trust:
-American Century VP Balanced -Growth Portfolio
-American Century VP Capital Appreciation -Limited Maturity Bond Portfolio
-American Century VP International -Partners Portfolio
-American Century VP Value Oppenheimer Variable Accounts Funds:
Dreyfus: -Oppenheimer Bond Fund
-Dreyfus Socially Responsible Growth Fund -Oppenheimer Global Securities Fund
-Dreyfus Stock Index Fund -Oppenheimer Growth Fund
Dreyfus Variable Investment Fund -Oppenheimer Multiple Strategies Fund
-Capital Appreciation Portfolio Strong Opportunity Fund II, Inc.
-Growth & Income Portfolio** Strong Variable Insurance Funds, Inc.:
Fidelity Variable Insurance Products Fund: -Discovery Fund II, Inc.
-Equity-Income Portfolio -International Stock Fund II
-Growth Portfolio Van Eck Worldwide Insurance Trust:
-High Income Portfolio** -Gold and Natural Resources Fund
-Overseas Portfolio -Worldwide Bond Fund
Fidelity Variable Insurance Products Fund II: -Worldwide Emerging Markets Fund
-Asset Manager Portfolio Van Kampen American Capital Life Investment
-Contrafund Portfolio Trust:
Fidelity Variable Insurance Products Fund III -American Capital Real Estate Securities Fund
-Growth Opportunities Portfolio Warburg Pincus Trust:
Morgan Stanley Universal Funds, Inc. -International Equity Portfolio
-Emerging Markets Debt Portfolio -Post-Venture Capital Portfolio
Nationwide Separate Account Trust: -Small Company Growth Portfolio
-Capital Appreciation Fund
-Government Bond Fund
-Money Market Fund
-Small Company Fund
-Total Return Fund
</TABLE>
**The Growth & Income Portfolio and 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. 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."
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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.
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 _____________________.
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GLOSSARY OF TERMS
Attained Age-The Insured's age on the Policy Date, plus the number of full years
since the Policy Date.
Accumulation Unit-An accounting unit of measure used to calculate the Cash Value
of the Variable Account.
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
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 prior to the Maturity Date.
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 Code. It represents the level annual
premiums required to mature the Policy under guaranteed mortality and current
expense charges, and an interest rate of 4%.
Home Office-The main office of the Company located in Columbus, Ohio.
Indebtedness-Amounts owed the Company as a result of Policy loans including both
principal and accrued interest.
Initial Premium-The Initial Premium is the premium required for coverage to
become effective on the Policy Date. It is shown on the Policy Data Page.
Insured-The person whose life is covered by the Policy, and who is named on the
Policy Data Page.
Maturity Date-The Policy Anniversary on or following the Insured's 100th
birthday.
Monthly Anniversary Day-The same day as the Policy Date for each succeeding
month.
Net Amount at Risk-For any Policy month, the Net Amount at Risk is the death
benefit at the beginning of the Policy month minus the Cash Value calculated at
the beginning of the Policy month prior to deduction of the base Policy cost of
insurance charge.
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.
Policy Year-Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
Scheduled Premium-The Scheduled Premium is shown on the Policy Data Page.
Specified Amount-A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy Data Page.
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Sub-Account-A part of the Variable Account, the assets of which are invested
exclusively in a corresponding Underlying Mutual Fund.
Surrender Charge - An amount deducted from the Cash Value if the Policy is
surrendered. This amount is zero.
Target Premium - The level annual premium at which the sales load is reduced on
a current basis.
Underlying Mutual Funds-The underlying mutual funds which correspond to the
Sub-Accounts of the Variable Account.
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 the Company, Nationwide VLI
Separate Account-2.
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TABLE OF CONTENTS
GLOSSARY OF TERMS.........................................................3
SUMMARY OF THE POLICIES...................................................8
Variable Life Insurance.............................................8
The Variable Account and its Sub-Accounts...........................8
The Fixed Account...................................................8
Deductions and Charges..............................................8
Premiums............................................................9
NATIONWIDE LIFE INSURANCE COMPANY.........................................9
THE VARIABLE ACCOUNT......................................................9
Investments of the Variable Account................................10
American Century Variable Portfolios, Inc.,
a member of American Century(SM) Investments.....................11
Dreyfus............................................................12
Dreyfus Variable Investment Fund...................................12
Fidelity Variable Insurance Products Fund..........................12
Fidelity Variable Insurance Products Fund II.......................13
Fidelity Variable Insurance Products Fund III......................13
Morgan Stanley Universal Funds, Inc................................14
Nationwide Separate Account Trust..................................14
Neuberger & Berman Advisers Management Trust.......................15
Oppenheimer Variable Account Funds.................................15
Strong Opportunity Fund II, Inc....................................16
Strong Variable Insurance Funds, Inc...............................16
Van Eck Worldwide Insurance Trust..................................16
Van Kampen American Capital Life Investment Trust..................17
Warburg Pincus Trust...............................................17
Reinvestment.......................................................18
Transfers..........................................................18
Dollar Cost Averaging..............................................19
Substitution of Securities.........................................19
Voting Rights......................................................19
INFORMATION ABOUT THE POLICIES...........................................20
Underwriting and Issuance..........................................20
-Minimum Requirements for Issuance of a Policy.....................20
-Premium Payments..................................................20
Allocation of Net Premium and Cash Value...........................20
Short-Term Right to Cancel Policy..................................21
POLICY CHARGES...........................................................21
Deductions from Premiums...........................................21
Deductions from Cash Value.........................................21
-Monthly Cost of Insurance.........................................21
-Monthly Administrative Charge.....................................22
Deductions from the Sub-Accounts...................................22
Reduction of Charges (Policy and Sub-Accounts).....................22
Expenses of the Underlying Mutual Funds............................22
HOW THE CASH VALUE VARIES................................................25
How the Investment Experience is Determined........................25
Net Investment Factor..............................................25
Valuation of Assets................................................26
Determining the Cash Value.........................................26
Valuation Periods and Valuation Dates..............................26
SURRENDERING THE POLICY FOR CASH.........................................26
Right to Surrender.................................................26
Cash Surrender Value...............................................26
Partial Surrenders.................................................26
-Preferred Partial Surrenders......................................27
-Reduction of the Specified Amount.................................27
Maturity Proceeds..................................................27
Income Tax Withholding.............................................27
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POLICY LOANS.............................................................27
Taking a Policy Loan...............................................27
Effect on Investment Performance...................................28
Interest...........................................................28
Effect on Death Benefit and Cash Value.............................28
Repayment..........................................................28
HOW THE DEATH BENEFIT VARIES.............................................28
Calculation of the Death Benefit...................................28
Proceeds Payable on Death..........................................30
RIGHT OF CONVERSION......................................................30
CHANGES OF INVESTMENT POLICY.............................................30
GRACE PERIOD.............................................................31
REINSTATEMENT............................................................31
THE FIXED ACCOUNT OPTION.................................................31
CHANGES IN EXISTING INSURANCE COVERAGE...................................32
Specified Amount Increases.........................................32
Specified Amount Decreases.........................................32
Changes in the Death Benefit Option................................32
OTHER POLICY PROVISIONS..................................................32
Policy Owner.......................................................32
Beneficiary........................................................33
Assignment.........................................................33
Incontestability...................................................33
Error in Age ......................................................33
Suicide............................................................33
Nonparticipating Policies..........................................33
Riders.............................................................33
LEGAL CONSIDERATIONS.....................................................34
DISTRIBUTION OF THE POLICIES.............................................34
CUSTODIAN OF ASSETS......................................................34
TAX MATTERS..............................................................34
Policy Proceeds....................................................34
-Non-Resident Aliens...............................................35
Taxation of the Company............................................35
Tax Changes........................................................36
THE COMPANY..............................................................36
COMPANY MANAGEMENT.......................................................37
Directors of the Company...........................................38
Executive Officers of the Company..................................38
OTHER CONTRACTS ISSUED BY THE COMPANY....................................38
STATE REGULATION.........................................................38
REPORTS TO POLICY OWNERS.................................................39
ADVERTISING..............................................................39
LEGAL PROCEEDINGS........................................................39
EXPERTS..................................................................39
REGISTRATION STATEMENT...................................................39
LEGAL OPINIONS...........................................................40
APPENDIX 1...............................................................41
PERFORMANCE TABLES.......................................................50
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
THE PRIMARY PURPOSE OF THE 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.
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SUMMARY OF THE POLICIES
Variable Life Insurance
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") provide for life insurance coverage on the Insured. The
Policies may provide for a Cash Surrender Value which is payable if the Policy
is terminated during the Insured's lifetime.
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.
Under certain conditions, a Policy may become a modified endowment contract as a
result of a material change or a reduction in benefits as defined by the
Internal Revenue Code ("Code"). Excess premiums paid may also cause the Policy
to become a modified endowment contract. The Company will monitor premiums paid
and other policy transactions and will notify the Policy Owner when the Policy's
non-modified endowment contract status is in jeopardy (see "Tax Matters").
The Variable Account and Its Sub-Accounts
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner selects the
sub-accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated. In such states which require a return of premiums to
those Policy Owners exercising their short term right to cancel (see "Short Term
Right to Cancel Policy"), 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 (see
"Allocation of Net Premium and Cash Value"). For a description of the Underlying
Mutual Fund options and their investment objectives, see "Investments of the
Variable Account."
The Fixed Account
The Fixed Account is funded by the assets of the Company's General Account. Cash
Values allocated to the Fixed Account are credited with interest daily at a rate
declared by the Company. The interest rate declared is at the Company's sole
discretion, but may never be less than an effective annual rate of 3%.
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 which is
guaranteed never to exceed 5.5% of such premium payment during the first seven
Policy Years and 2% thereafter. On a current basis, the sales load is 5.5% of
the Target Premium plus 3% of premiums in excess of the Target Premium during
the first seven Policy Years, and 0% on all premiums thereafter.
The Company also deducts from premium payments a tax expense charge of 3.5%, on
both a current and guaranteed basis, of all premium payments. This charge
reimburses the Company for premium taxes imposed by various state and local
jurisdictions and for federal taxes imposed under Section 848 of the Code. The
3.5 tax expense rate consists of the following components: (1) a state premium
tax rate of 2.25%; and (2) a federal tax rate of 1.25%.
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The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
3. an administrative expense charge. This charge is currently $5.00 per
month. The charge may be increased at the sole discretion of the
Company but is guaranteed not to exceed $10.00 per month.
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
guaranteed not to exceed an annual effective rate of 0.75% of the daily net
assets of the Variable Account. On a current basis this annual effective rate
will be 0.60% in the first through fourth Policy Years, 0.40% in fifth through
twentieth Policy Years and 0.25% thereafter.
There are no Surrender Charges.
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. (See
"Expenses of the Underlying Mutual Funds").
Premiums
The minimum Initial Premium for which a Policy may be issued is equal to three
monthly deductions. A policy may be issued to an Insured up to age 80. For a
limited time, the Policy Owner has the right to cancel the Policy and receive a
full refund of premiums paid (see "Short-Term Right to Cancel Policy"). The
Initial Premium is due on the Policy Date. It will be credited on the Policy
Date. Any due and unpaid monthly deductions will be subtracted from the Cash
Value at this time. Insurance will not be effective until the Initial Premium is
paid. The Initial Premium is shown on the Policy data page. Premiums, other than
the Initial Premium may be made at any time while the Policy is in force.
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide Mutual Insurance Company,
Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Insurance Company, National Casualty Company, West Coast Life Insurance Company,
Scottsdale Indemnity Company and Nationwide General Insurance Company. The
Company's Home Office is at One Nationwide Plaza, Columbus, Ohio 43216.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states, the
District of Columbia, and Puerto Rico (for additional information, see "The
Company").
THE VARIABLE ACCOUNT
The Variable Account was established by a resolution of the Company's Board of
Directors, on May 7,1987, pursuant to 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 Advisory 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.
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
9
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with the investment performance of the investments in the Variable Account (see
"How the Death Benefit Varies" and "How the Cash Value Varies").
Premium payments and Cash Value are allocated within the Variable Account among
one or more sub-accounts (see "Tax Matters"). The assets of each sub-account are
used to purchase shares of the Underlying Mutual Fund options designated by the
Policy Owner. Thus, the investment performance of a Policy depends upon the
investment performance of the Underlying Mutual Fund options designated by the
Policy Owner.
Investments of the Variable Account
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account Sub-Accounts and the Fixed
Account (see "Allocation of Net Premium and Cash Value"). In such states which
require a return of premiums to those Policy Owners exercising their short term
right to cancel (see "Short Term Right to Cancel Policy"), 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. Any subsequent Net
Premiums received after this period will be allocated based on the Fund
allocation factors.
No less than 1% of Net Premiums may be allocated to any one Sub-Account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or may
transfer Cash Value from one Sub-Account to another, subject to such terms and
conditions as may be imposed by each Underlying Mutual Fund option and as set
forth in this prospectus (see "Transfers", "Allocation of Cash Value" and
"Short-Term Right to Cancel Policy").
These Underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of life insurance companies which may or may not be
affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which is disclosed in the Underlying
Mutual Funds' prospectuses. A full description of the Underlying Mutual Funds,
their investment policies and restrictions, risks and charges are contained in
the prospectuses of the respective Underlying Mutual Funds.
Additional Premium payments, upon acceptance, will be allocated to the
Nationwide Separate Account Money Market Fund unless the Policy Owner specifies
otherwise (see "Premium Payments").
Each of the Underlying Mutual Fund options is a registered investment company
which receives investment advice from a registered investment adviser:
1. American Century Variable Portfolios, Inc., a member of the American
Century(SM) Investments;
2. Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment
Advisors;
3. The Dreyfus Socially Responsible Growth Fund, Inc., managed by The
Dreyfus Corporation;
4. Dreyfus Variable Investment Fund, managed by The Dreyfus
Corporation;
5. Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company;
6. Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company;
7. Fidelity Variable Insurance Products Fund III, managed by Fidelity
Management & Research Company;
8. Morgan Stanley Universal Funds, Inc. managed by Morgan Stanley Asset
Management, Inc.
9. Nationwide Separate Account Trust, managed by Nationwide Advisory
Services, Inc.;
10. Neuberger & Berman Advisers Management Trust, managed by Neuberger &
Berman Management Incorporated;
11. Oppenheimer Variable Accounts Funds, managed by Oppenheimer
Management Corporation;
12. Strong Opportunity Fund II, Inc., managed by Strong Capital
Management, Inc.;
13. Strong Variable Insurance Funds, Inc., managed by Strong Capital
Management
14. Van Eck Worldwide Insurance Trust, managed by Van Eck Associates
Corporation;
15. Van Kampen American Capital Life Investment Trust, managed by Van
Kampen American Capital Management, Inc.; and
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16. Warburg Pincus Trust, managed by Warburg, Pincus Counsellors, Inc.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund below. More detailed information may be found in the
current prospectus for each Underlying Mutual Fund option. A prospectus for the
Underlying Mutual Fund option(s) being considered must accompany this prospectus
and should be read in conjunction herewith.
American Century Variable Portfolios, Inc., a member of the American Century(SM)
Investments
American Century Variable 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 American Century(SM)
Investments, American Century Variable Portfolios, Inc. is managed by American
Century Investment Management, Inc.
- - American Century VP Balanced
Investment Objective: Capital growth and current income. The Fund will seek
to achieve its objective by maintaining approximately 60% of the assets of
the Fund in common stocks (including securities convertible into common
stocks and other equity equivalents) that are considered by management to
have better-than-average prospects for appreciation and approximately 40%
in fixed income securities. There can be no assurance that the Fund will
achieve its investment objective.
- - American Century VP Capital Appreciation
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.
- - American Century VP International
Investment Objective: To seek capital growth. The Fund will seek to achieve
its investment objective by investing primarily in securities of foreign
companies that meet certain fundamental and technical standards of
selection and, in the opinion of the investment manager, have potential for
appreciation. Under normal conditions, the Fund will invest at least 65% of
its assets in common stocks or other equity securities of issuers from at
least three countries outside the United States. Securities of United
States issuers may be included in the portfolio from time to time. Although
the primary investment of the Fund will be common stocks (defined to
include depository receipts for common stocks), the Fund may also invest in
other types of securities consistent with the Fund's objective. When the
manager believes that the total return potential of other securities equals
or exceeds the potential return of common stocks, the Fund may invest up to
35% of its assets in such other securities. There can be no assurance that
the Fund will achieve its objectives.
- - American Century VP Value
Investment Objective: The investment objective of the Fund is long-term
capital growth; income is a secondary objective. Under normal market
conditions, the Fund expects to invest at least 80% of the value of its
total asset in equity securities, including common and preferred stock,
convertible preferred stock and convertible debt obligations. The equity
securities in which the Fund will invest will be primarily securities of
well-established companies with intermediate-to-large market
capitalization's that are believed by management to be undervalued at the
time of purchase.
(Although the Statement of Additional Information concerning American
Century Variable Portfolios, Inc., refers to redemption's of securities in
kind under certain conditions, all surrendering or redeeming Contract
Owners will receive cash from the Company.)
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<PAGE> 15
Dreyfus
- - Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified,
management investment company. It was incorporated under Maryland law on
July 20, 1992, and commenced operations on October 7, 1993. Dreyfus
Corporation serves as the Fund's investment advisor. Tiffany Capitol
Advisors, Inc. serves as the Fund's sub-investment adviser and provides
day-to-day management of the Fund's portfolio.
Investment Objective: The Fund's primary goal is to provide capital growth
through equity investment in companies that, in the opinion of the Fund's
management, not only meet traditional investment standards, but which also
show evidence that they conduct their business in a manner that contributes
to the enhancement of the quality of life in America. Current income is
secondary to the primary goal.
- - Dreyfus Stock Index Fund
Dreyfus Stock Index Fund is an open-end, non-diversified, management
investment company. It was incorporated under Maryland law on January 24,
1989, and commenced operations on September 29, 1989. Wells Fargo Nikko
Investment Advisors serves as the Fund's index fund manager. As of May 1,
1994, Dreyfus Life Insurance Index Fund began doing business as Dreyfus
Stock Index Fund.
Investment Objective: To provide investment results that correspond to the
price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Fund is neither sponsored by nor affiliated with Standard
& Poor's Corporation.
Dreyfus Variable Investment Fund
Dreyfus Variable Investment Fund (the "Fund") is an open-end, management
investment company. It was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts on October 29,1986 and commenced
operations August 31, 1990. The Dreyfus Corporation ("Dreyfus") serves as the
Fund's manager. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which
is a wholly-owned subsidiary of Mellon Bank Corporation.
- - Capital Appreciation Portfolio
Investment Objective: The Fund's primary investment objective is to provide
long-term capital growth consistent with the preservation of capital;
current income is a secondary investment objective. This Fund invests
primarily in the common stocks of domestic and foreign issuers.
- - Growth and Income Portfolio
Investment Objective: To provide long-term capital growth, current income
and growth of income, consistent with reasonable investment risk. The
Portfolio invests in equity securities, debt securities and money market
instruments of domestic and foreign issuers. The proportion of the
Portfolio's assets invested in each type of security will vary from time to
time in accordance with Dreyfus' assessment of economic conditions and
investment opportunities. In purchasing equity securities, Dreyfus will
invest in common stocks, preferred stocks and securities convertible into
common stocks, particularly those which offer opportunities for capital
appreciation and growth of earnings, while paying current dividends. The
Portfolio will generally invest in investment-grade debt obligations,
except that it may invest up to 35% of the value of its net assets in
convertible debt securities rated not lower than Caa by Moody's Investor
Service, Inc. or CCC by Standard & Poor's Ratings Group, Fitch Investors
Service, L.P. or Duff & Phelps Credit Rating Co., or if unrated, deemed to
be of comparable quality by Dreyfus. These securities are considered to
have predominantly speculative characteristics with respect to capacity to
pay interest and repay principal and are considered to be of poor standing.
See "Investment Considerations and Risks-Lower Rated Securities" in the
Portfolio's prospectuses.
Fidelity Variable Insurance Products Fund
The Fund is an open-end, diversified, management investment company organized as
a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's
manager.
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<PAGE> 16
- - 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.
- - High Income Portfolio
Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, high-yielding, lower-rated, fixed-income
securities, while also considering growth of capital. The portfolio's
manager will seek high current income normally by investing the Portfolio's
assets as follows:
- at least 65% in income-producing debt securities and preferred stocks,
including convertible securities, zero coupon securities, and
mortgage-backed and asset-backed securities.
- up to 20% in common stocks and other equity securities when consistent
with the Portfolio's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or that
are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Portfolio may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus.
- - Overseas Portfolio
Investment Objective: To seek long term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means
for investors to diversify their own portfolios by participating in
companies and economies outside of the United States.
Fidelity Variable Insurance Products Fund II
The Fund is an open-end, diversified, management investment company organized as
a Massachusetts business trust on March 21, 1988. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the Fund's manager.
- - Asset Manager Portfolio
Investment Objective: To seek to obtain high total return with reduced risk
over the long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed income instruments.
- - Contrafund Portfolio
Investment Objective: To seek capital appreciation by investing primarily
in companies that the fund manager believes to be undervalued due to an
overly pessimistic appraisal by the public. This strategy can lead to
investments in domestic or foreign companies, small and large, many of
which may not be well known. The fund primarily invests in common stock and
securities convertible into common stock, but it has the flexibility to
invest in any type of security that may produce capital appreciation.
Fidelity Variable Insurance Products Fund III
The Fidelity Variable Insurance Products Fund III is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
July 14, 1994. The Fund's name was changed from
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<PAGE> 17
Fidelity Advisor Annuity Fund to Variable Insurance Products Fund III on
December 30, 1996. The Fund shares are purchased by insurance companies to fund
benefits under variable life insurance and annuity contracts. Fidelity
Management & Research Company ("FMR") is the Fund's manager.
- - Growth Opportunities Portfolio
Investment Objective: To provide capital growth by investing primarily in
common stocks and securities convertible into common stocks. The Fund,
under normal conditions, will invest at least 65% of its total assets in
securities of companies that FMR believes have long-term growth potential.
Although the Fund invests primarily in common stock and securities
convertible into common stock, it has the ability to purchase other
securities, such as preferred stock and bonds, that may produce capital
growth. The Fund may invest in foreign securities without limitation.
Morgan Stanley Universal Funds, Inc.
Morgan Stanley Universal Funds, Inc. (the "Fund") is a mutual fund designed to
provide investment vehicles for variable annuity contracts and variable life
insurance policies and for certain tax-qualified investors. The Fund is an
open-end management investment company, or mutual fund. The Fund is managed by
Morgan Stanley Asset Management, Inc.
- - Emerging Markets Debt Portfolio
Investment Objective: The Fund seeks high total return by investing
primarily in dollar- and non-dollar denominated Fixed Income Securities of
government and private-sector related issuers located in emerging market
countries, which securities provide a high level of current income, while
at the same time holding the potential for capital appreciation if the
perceived creditworthiness of the issuer improves due to improving
economic, financial, political, social or other conditions in the country
in which the issuer is located.
Nationwide Separate Account Trust
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The Trust
offers shares in the five separate Mutual Funds listed below, each with its own
investment objectives. Currently, shares of the Trust will be sold only to life
insurance company separate accounts to fund the benefits under variable life
insurance policies or variable annuity contracts issued by life insurance
companies. The assets of the Trust are managed by Nationwide Advisory Services,
Inc., One Nationwide Plaza, Columbus, Ohio 43216.
- - 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.
- - 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.
- - 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.
- - Small Company Fund
Investment Objective: The Fund seeks long-term growth of capital by
investing primarily in equity securities of domestic and foreign companies
with market capitalization's of less than $1 billion at the time of
purchase. Nationwide Advisory Services, Inc. ("NAS"), the Fund's adviser,
has contracted with a group of sub-advisers, each of which will manage a
portion of the Fund's portfolio. These sub-advisers are the Dreyfus
Corporation, Neuberger & Berman, L. P., Pictet International Management
Limited, Van Eck Associates Corporation, Strong Capital Management, Inc.
and Warburg Pincus Counsellors, Inc. The sub-advisers were chosen because
they utilize a number of different investment styles when
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<PAGE> 18
investing in small company stocks. By utilizing a number of investment
styles, NAS hopes to increase prospects for investment return and to reduce
market risk and volatility.
- - Total Return Fund
Investment Objective: To obtain a reasonable long-term total return (i.e.,
earnings growth plus potential dividend yield) on invested capital from a
flexible combination of current return and capital gains through
investments in common stocks, convertible issues, money market instruments
and bonds with a primary emphasis on common stocks.
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered directly to
qualified pension and retirement plans outside of the separate account context.
The investment adviser is Neuberger & Berman Management Incorporated.
- - 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.
- - 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.
- - Partners Portfolio
Investment Objective: To seek capital growth. This Portfolio will seek to
achieve its objective by investing primarily in the common stock of
established companies. Its investment program seeks securities believed to
be undervalued based on fundamentals such as low price-to-earnings ratios,
consistent cash flows, and support from asset values. The objective of the
Partners Portfolio is not fundamental and can be changed by the Trustees of
the Trust without shareholder approval. Shareholders will, however, receive
at least 30 days prior notice thereof. There is no assurance the investment
objective will be met.
Oppenheimer Variable Account Funds
The Oppenheimer Variable Account Funds is an open-ended, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. Oppenheimer Management Corporation is
the Funds' investment advisor.
- - Oppenheimer Bond Fund
Investment Objective: Primarily to seek a high level of current income from
investment in high yield fixed-income securities rated "Baa" or better by
Moody's or "BBB" or better by Standard & Poor's. Secondarily, the Fund
seeks capital growth when consistent with its primary objective.
- - Oppenheimer Global Securities Fund
Investment Objective: To seek long-term capital appreciation by investing a
substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which
are considered to have appreciation possibilities. Current income is not an
objective. These securities may be considered to be speculative.
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<PAGE> 19
- - Oppenheimer Growth Fund
Investment Objective: The Fund seeks to achieve capital appreciation by
investing in securities of well-known established companies. In seeking its
objective of capital appreciation, the Fund will emphasize investments in
securities of well-known and established companies. Such securities
generally have a history of earnings and dividends and are issued by
seasoned companies (having an operating history of at least five years
including predecessors). Current income is a secondary consideration in the
selection of the Fund's portfolio securities.
- - Oppenheimer Multiple Strategies Fund
Investment Objective: To seek a total investment return (which includes
current income and capital appreciation in the value of its shares) from
investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
Strong Opportunity Fund II, Inc.
The Strong Opportunity Fund II, Inc. (fka "Strong Special Fund II, Inc.") is a
diversified, open-end management company commonly called a mutual fund. The
Fund, was incorporated in Wisconsin and may only be purchased by the separate
accounts of insurance companies for the purpose of funding variable annuity
contracts and variable life insurance policies. Strong Capital Management Inc.
(the "Advisor") is the investment advisor for the Fund.
Investment Objective: To seek capital appreciation through investments in a
diversified portfolio of equity securities.
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 International
Stock Fund II and The Strong Discovery Fund II, Inc. ("Funds") are 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 Funds.
- - 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.
- - International Stock Fund II
Investment Objective: To seek capital growth by investing primarily in the
equity securities of issuers located outside the United States.
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a "business trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Shares of the Trust are offered only to
separate accounts of various insurance companies to fund benefits of variable
insurance and annuity policies. The assets of the Trust are managed by Van Eck
Associates Corporation.
- - Gold and Natural Resources Fund
Investment Objective: To seek long-term capital appreciation by investing
in equity and debt securities of companies engaged in the exploration,
development, production and distribution of gold and other natural
resources, such as strategic and other metals, minerals, forest products,
oil, natural gas and coal. Current income is not an objective.
- - Worldwide Bond Fund
Investment Objective: To seek high total return through a flexible policy
of investing globally, primarily in debt securities. The Fund does not
invest in junk bonds.
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<PAGE> 20
- - Worldwide Emerging Markets Fund
Investment Objective: Seeks long-term capital appreciation by investing
primarily in equity securities in emerging markets around the world. The
Fund specifically emphasizes investment in countries that, compared to the
world's major economies, exhibit relatively low gross national product per
capita, as well as the potential for rapid economic growth. Peregrine Asset
Management (Hong Kong) Limited serves as sub-investment adviser to this
Fund.
Van Kampen American Capital Life Investment Trust
The American Capital Life Investment Trust is an open-end diversified management
investment company organized as a Massachusetts business trust on June 3, 1985.
The Trust offers shares in separate funds which are sold only to insurance
companies to provide funding for variable life insurance policies and variable
annuity contracts. Van Kampen American Capital Asset Management, Inc. serves as
the Fund's investment adviser.
- - American Capital Real Estate Securities Fund
Investment Objective: To seek long-term capital growth by investing in a
portfolio of securities of companies operating in the real estate industry
("Real Estate Securities"). Current income is a secondary consideration.
Real Estate Securities include equity securities, common stocks and
convertible securities, as well as non-convertible preferred stocks and
debt securities of real estate industry companies. A "real estate industry
company" is a company that derives at least 50% of its assets (marked to
market), gross income or net profits from the ownership, construction,
management or sale of residential, commercial or industrial real estate.
Under normal market conditions, at least 65% of the Fund's total assets
will be invested in Real Estate Securities, primarily equity securities of
real estate investment trusts. The Fund may invest up to 25% of its total
assets in securities issued by foreign issuers, some or all of which may
also be Real Estate Securities. There can be no assurance that the Fund
will achieve its investment objective.
Warburg Pincus Trust
The Warburg Pincus Trust ("Trust") is an open-end management investment company
organized in March 1995 as a business trust under the laws of The Commonwealth
of Massachusetts. The Trust offers its shares to insurance companies for
allocation to separate accounts for the purpose of funding variable annuity and
variable life contracts. Trust portfolios are managed by Warburg, Pincus
Counsellors, Inc. ("Counsellors.")
- - International Equity Portfolio
Investment Objective: To seek long-term capital appreciation by investing
primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of "Counsellors" have
their principal business activities and interests outside the United
States. The Portfolio will ordinarily invest substantially all of its
assets, but no less than 65% of its total assets, in common stocks,
warrants and securities convertible into or exchangeable for common stocks.
The Portfolio intends to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earning power and
improved utilization or recognition of assets.
- - Post-Venture Capital Portfolio
Investment Objective: The Portfolio seeks long-term growth of capital by
investing primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment strategy.
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in equity securities of "post-venture capital companies."
A post-venture capital company is one that has received venture capital
financing either (a) during the early stages of the company's existence or
the early stages of the development of a new product or service or (b) as a
part of a restructuring or recapitalization of the company. The Portfolio
may invest up to 10% of its assets in venture capital and other investment
funds.
- - Small Company Growth Portfolio
Investment Objective: To seek capital growth by investing in a portfolio of
equity securities of small-sized domestic companies. The Portfolio
ordinarily will invest at least 65% of its total assets in common stocks or
warrants of small-sized companies (i.e., companies having stock market
capitalization's of between $25 million and $1 billion at the time of
purchase) that represent attractive opportunities for capital growth. The
Portfolio intends to invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market. The
Portfolio's investments will be made on the
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<PAGE> 21
basis of their equity characteristics and securities ratings generally will
not be a factor in the selection process.
Reinvestment
The Funds described above have as a policy the distribution of dividends in the
form of additional shares (or fractions thereof) of the Underlying Mutual Funds.
The distribution of additional shares will not affect the number of Accumulation
Units attributable to a particular Policy (see "Allocation of Net Premium and
Cash Value").
Transfers
The Policy Owner may transfer amounts between the Fixed Account and the
Sub-Accounts, without penalty or adjustment, subject to the following
requirements. During any Policy Year, the Company reserves the right to restrict
such transfers between the Fixed Account and the Sub-Accounts to one transfer
per Policy Year.
Transfers made from the Fixed Account must be made within 45 days after the end
of an interest rate guarantee period (the period of time for which the current
interest crediting rate is guaranteed by the Company). The Company reserves the
right to restrict the amount transferred from the Fixed Account to 20% of that
portion of the Cash Value attributable to the Fixed Account as of the end of the
previous Policy Year.
Transfers made to the Fixed Account may not be made either: (a) prior to the
first Policy Anniversary; or (b) within 12 months subsequent to a prior
transfer. The Company reserves the right to restrict the amount transferred to
the Fixed Account to 20% of that portion of the Cash Value attributable to the
Sub-Accounts as of the close of business of the prior Valuation Period. The
Company further reserves the right to refuse a transfer to the Fixed Account, in
the event the Cash Value attributable to the Fixed Account should be greater
than or equal to 30% of the Cash Value.
Transfers may be made either in writing or, in states allowing such transfers,
by telephone. In states allowing telephone transfers, and if the Owner so
elects, the Company will also permit the Policy Owner to utilize the Telephone
Exchange Privilege for exchanging amounts among Sub-Account options. The Company
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include any or all of the following,
or such other procedures as the Company may, from time to time, deem reasonable:
requesting identifying information, such as name, contract number, Social
Security number, and/or personal identification number; tape recording all
telephone transactions; and providing written confirmation thereof to both the
Policy Owner and any agent of record at the last address of record. Although
failure to follow reasonable procedures may result in the Company's liability
for any losses due to unauthorized or fraudulent telephone transfers, the
Company will not be liable for following instructions communicated by telephone
which it reasonably believes to be genuine. Any losses incurred pursuant to
actions taken by the Company in reliance on telephone instructions reasonably
believed to be genuine shall be borne by the Contract Owner.
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.
Policies described in this prospectus may in some cases be sold to individuals
who independently utilize the services of a firm or individual engaged in market
timing. Generally, such firms or individuals obtain authorization from multiple
Policy Owners to make transfers and exchanges among the Sub-Accounts (the
Underlying Mutual Funds) on the basis of perceived market trends. Because of the
unusually large transfers of funds associated with some of these transactions,
the ability of the Company or Underlying Mutual Funds to process such
transactions may be compromised, and the execution of such transactions may
possibly disadvantage or work to the detriment of other Policy Owners not
utilizing market timing services.
Accordingly, the right to exchange Cash Surrender Values among the Sub-Accounts
may be subject to modification if such rights are exercised by a market timing
firm or any other third party authorized to initiate transfer or exchange
transactions on behalf of multiple Policy Owners. THE RIGHTS OF INDIVIDUAL
POLICY OWNERS TO EXCHANGE CASH SURRENDER VALUES, WHEN INSTRUCTIONS ARE SUBMITTED
DIRECTLY BY THE POLICY OWNER, OR BY THE POLICY OWNER'S REPRESENTATIVE OF RECORD
AS AUTHORIZED BY THE EXECUTION OF A VALID NATIONWIDE LIMITED POWER OF ATTORNEY
FORM, WILL NOT BE MODIFIED IN ANY WAY. In modifying such rights, the Company
may, among other things, not accept (1) the transfer or exchange instructions of
any agent acting under a power of attorney on behalf of
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<PAGE> 22
more than one Policy Owner, or (2) the transfer or exchange instructions of
individual Policy Owners who have executed pre-authorized transfer or exchange
forms which are submitted by market timing firms or other third parties on
behalf of more than one Policy Owner at the same time. The Company will not
impose any such restrictions or otherwise modify exchange rights unless such
action is reasonably intended to prevent the use of such rights in a manner that
will disadvantage or potentially impair the contract rights of other Policy
Owners.
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 or as frequently as otherwise authorized by the Company. This service is
intended to allow the Policy Owner to utilize dollar cost averaging, a long-term
investment program which provides for regular, level investments over time. The
Company makes no guarantees that dollar cost averaging, will result in a profit
or protect against loss in a declining market. To qualify for dollar cost
averaging, there must be a minimum total Cash Value, less Policy Indebtedness,
of $15,000. Transfers for purposes of dollar cost averaging can only be made
from the Money Market Sub-Account, Fixed Account, or the Limited Maturity Bond
Portfolio Sub-Account. The minimum monthly dollar cost averaging transfer is
$100. In addition, dollar cost averaging monthly transfers from the Fixed
Account must be equal to or less than 1/30th of the Fixed Account value when the
dollar cost averaging program is requested. Transfers out of the Fixed Account,
other than for dollar cost averaging, may be subject to certain additional
restrictions (see "Transfers" above). A written election of this service, on a
form provided by the Company, must be completed by the Policy Owner in order to
begin transfers. Once elected, transfers from the Money Market Sub-Account,
Fixed Account, or the Limited Maturity Bond Portfolio Sub-Account will be
processed monthly until either the value in the Money Market Sub-Account, Fixed
Account, or the Limited Maturity Bond Portfolio Sub-Account is completely
depleted or the Policy Owner instructs the Company in writing to cancel the
transfers.
The Company reserves the right to discontinue offering dollar cost averaging
upon 30 days written notice to Policy Owners. However, any such discontinuation
would not affect dollar cost averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
Substitution of Securities
If shares of the Underlying Mutual Fund options 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
19
<PAGE> 23
instructions are received will be voted by the Company in the same proportion as
the voting instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the Underlying
Mutual Funds' proxy material and a form with which to give such voting
instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
Underlying Mutual Fund shares in any manner necessary to enable the Underlying
Mutual Fund to: (1) make or refrain from making any change in the investments or
investment policies for any of the Underlying Mutual Funds, if required by an
insurance regulatory authority; (2) refrain from making any change in the
investment policies or any investment adviser or principal underwriter of any
portfolio which may be initiated by Policy Owners or the Underlying Mutual
Fund's Board of Directors, provided the Company's disapproval of the change is
reasonable and, in the case of a change in the investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise inappropriate in light of the portfolio's objective
and purposes; or (3) enter into or refrain from entering into any advisory
agreement or underwriting contract, if required by any insurance regulatory
authority.
INFORMATION ABOUT THE POLICIES
Underwriting and Issuance
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to provide life insurance coverage and the flexibility
to vary the amount and frequency of premium payments. At issue, the Policy Owner
selects the initial Specified Amount and premium. The minimum Specified Amount
is $50,000 ($100,000 in Pennsylvania and New Jersey). Policies may be issued to
Insured's who are 80 or younger at the time of issue. 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
or to an authorized agent. Upon payment of an initial premium, temporary
insurance may be provided, subject to a maximum amount. The effective date of
permanent insurance coverage is dependent upon completion of all underwriting
requirements, payment of Initial Premium, and delivery of the policy while the
Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force. Each premium payment must be at least $50. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any premium payment which results in an increase in the Net Amount at
Risk. The Company will refund any portion of any premium payment which is
determined to be in excess of the premium limit established by law to qualify
the Policy as a contract for life insurance. The Company may also require that
any existing Policy Indebtedness is repaid prior to accepting any additional
premium payments. Additional premium payments or other changes to the contract,
may jeopardize the Policy's non-modified endowment status. The Company will
monitor premiums paid and other policy transactions and will notify the Policy
Owner when non-modified endowment contract status is in jeopardy (see "Tax
Matters").
Allocation of Net Premium and Cash Value
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 1%. The sum of allocations must equal 100%. At the time a Policy is
issued, its Cash Value will be determined as if the Policy had been issued and
the Initial Net Premium is invested on the date such premium was received in
good order by the Company.
In such states which require a return of premiums to those Policy Owners
exercising their short term right to cancel (see "Short Term Right to Cancel
Policy"), Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund sub-account (for any Net Premiums allocated to a
sub-account on the application) or the Fixed Account until the expiration of the
period in which the Policy Owner may exercise his or her short-term right to
cancel the Policy. Net Premiums not designated for the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Sub-Account. At the
expiration of the period in which the Policy Owner may exercise his or her short
term right to cancel the Policy, shares of the Underlying Mutual Funds specified
by the Policy Owner are purchased at net asset value for the respective
sub-account(s). The
20
<PAGE> 24
Policy Owner may change the allocation of Net Premiums or may transfer Cash
Value from one sub-account to another, subject to such terms and conditions as
may be imposed by each Underlying Mutual Fund and as set forth in this
prospectus.
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 amount prescribed by the state in
which the Policy was issued within seven days after it receives the Policy. The
amount of the refund will be either the Premiums paid or the Cash Surrender
Value. The scope of this right varies by state. The exact policy provision
approved or used in a particular state will be disclosed in any policy issued.
POLICY CHARGES
Deductions from Premiums
The Company deducts a sales load from each premium payment received which is
guaranteed never to exceed 5.5% of such premium payment during the first seven
Policy Years and 2% thereafter. On a current basis, the sales load is 5.5% of
the Target Premium plus 3% of premiums in excess of the Target Premium during
the first seven Policy Years, and 0% on all premiums thereafter. The Target
Premium is a premium level based upon a percentage of the Guideline Level
Premium. The Target Premium is the level annual premium amount at which the
sales load is reduced on a current basis.
The Company also deducts from premium payments a tax expense charge of 3.5%, on
both a current and guaranteed basis, of all premium payments. This charge
reimburses the Company for premium taxes imposed by various state and local
jurisdictions and for federal taxes imposed under Section 848 of the Code. The
3.5% tax expense rate consists of the following components: (1) a state premium
tax rate of 2.25%; and (2) a federal tax rate of 1.25%.
The Company expects to pay an average state premium tax rate of approximately
2.25% of premiums for all states, although such tax rates range by state 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 2.25% 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 1.25% federal tax component is designed to reimburse the
Company for expenses incurred from federal taxes imposed under Section 848 of
the Code (enacted by the Omnibus Budget Reconciliation Act of 1990). The Company
does not expect to make a profit from this charge.
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. 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 be unisex and will not exceed those
guaranteed in the Policy. Guaranteed cost of insurance rates are based on the
1980 Commissioners Standard Ordinary Male Mortality Table, Age
21
<PAGE> 25
Last Birthday, aggregate as to tobacco status (1980 CSO). Guaranteed cost of
insurance rates for Policies issued on a substandard basis are based on
appropriate percentage multiples of the 1980 CSO.
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insured's into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. The Company may also
issue certain Policies on a "Non Medical", guaranteed issue or simplified issue
basis to certain categories of individuals. Due to the underwriting criteria
established for Policies issued on a Non Medical basis, actual rates will be
higher than the current cost of insurance rates being charged under Policies
that are medically underwritten.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only to
reimburse the Company for certain actual administrative expenses. The Company
does not expect to recover from this charge any amount in excess of aggregate
maintenance expenses. On a current basis this charge is $5.00 per month in all
Policy Years. On a guaranteed basis this charge is $10.00 per month in all
Policy Years.
Deductions from the Sub-Accounts
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risks assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses due
to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the Policies,
the Company deducts on a daily basis from the assets of the Variable Account a
charge to provide for mortality and expense risks. This charge is guaranteed not
to exceed an annual effective rate of 0.75% of the daily net assets of the
Variable Account. On a current basis this rate will be 0.60% during the first
through fourth Policy Years, 0.40% during the fifth through twentieth Policy
Years, and 0.25% thereafter. To the extent that future levels of mortality and
expenses are less than or equal to those expected, the Company may realize a
profit from this charge. Unrecovered expenses are born by the Company's general
assets which may include profits, if any, from mortality and expense risk
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.
Reduction of Charges (Policy and Sub-Accounts)
The Policy is available for purchase by individuals, corporations and other
groups. For group or sponsored arrangements (including employees of the Company
and their family members) and for special exchange programs which the Company
may make available from time to time, the Company reserves the right to reduce
or eliminate the sales load, mortality and expense risk charges, monthly
administrative charge, monthly cost of insurance charges or other charges
normally assessed on certain multiple life cases where it is expected that the
size or nature of such cases will result in savings of sales, underwriting,
administrative or other costs.
Eligibility for and the amount of these reductions will be determined by a
number of factors, including the number of Insured's, the total premium expected
to be paid, total assets under management for the Policy Owner, the nature of
the relationship among individual Insured's, the purpose for which the Policies
are being purchased, the expected persistency of individual Policies, and any
other circumstances which, in the opinion of the Company is rationally related
to the expected reduction in expenses. The extent and nature of reductions may
change from time to time. Any variations in the charge structure will be
determined in a uniform manner reflecting differences in costs of services and
not unfairly discriminatory to Policy Owners.
Expenses of the Underlying Mutual Funds
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.
22
<PAGE> 26
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:
Underlying Mutual Fund Annual Expenses
(After Expense Reimbursement)
<TABLE>
<CAPTION>
---------------------------------------
Management Other Total
Fees Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc.-American Century VP Balanced 1.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American Century VP Capital Appreciation 1.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American Century VP International 1.50% 0.00% 1.50%
- ----------------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.-American Century VP Value 1.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth Fund 0.72% 0.24% 0.96%
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 0.25% 0.05% 0.30%
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund- Capital Appreciation Portfolio 0.75% 0.08% 0.83%
- ----------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund- Growth & Income Portfolio. 0.75% 0.08% 0.83%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity-Income Portfolio 0.51% 0.07% 0.58%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio 0.61% 0.08% 0.69%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income Portfolio 0.59% 0.12% 0.71%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas Portfolio 0.76% 0.17% 0.93%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Asset Manager Portfolio 0.64% 0.10% 0.74%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund Portfolio 0.61% 0.13% 0.74%
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund III-Growth Opportunities Portfolio 0.61% 0.16% 0.77%
- ----------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Inc.-Emerging Markets Debt Portfolio 0.80% 0.50% 1.30%
- ----------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.83% 0.09% 0.92%
Trust-Growth Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.65% 0.13% 0.78%
Trust-Limited Maturity Bond Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.84% 0.11% 0.95%
Trust-Partners Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.50% 0.02% 0.52%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.01% 0.51%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.50% 0.03% 0.53%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT Small Company Fund 1.00% 0.10% 1.10%
- ----------------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.50% 0.02% 0.52%
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Bond Fund 0.74% 0.04% 0.78%
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Global Securities Fund 0.73% 0.08% 0.81%
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Growth Fund 0.75% 0.04% 0.79%
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Fund-Oppenheimer Multiple Strategies 0.73% 0.04% 0.77%
- ----------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 1.00% 0.17% 1.17%
- ----------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - Discovery Fund II, Inc. 1.00% 0.22% 1.22%
- ----------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc. - International Stock Fund II 1.00% 0.59% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Gold and Natural Resources Fund 1.00% 0.08% 1.08%
- ----------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Bond Fund 1.00% 0.08% 1.08%
- ----------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust-Worldwide Emerging Markets Fund 1.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life Investment Trust - 0.83% 0.27% 1.10%
American Capital Real Estate Securities Fund
- ----------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-International Equity Portfolio 0.62% 0.78% 1.40%
- ----------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Post-Venture Capital Portfolio 0.96% 0.40% 1.36%
- ----------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust-Small Company Growth Portfolio 0.90% 0.26% 1.16%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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. None of the above Underlying Mutual
Funds are subject to 12b-1 fees. The following Underlying Mutual Funds are
subject to the following fee waiver or expense reimbursement arrangements:
23
<PAGE> 27
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
- --------------------------------------------------------------------------------------------------------------
<S> <C>
American Century Variable Absent a waiver of fees by the Portfolio's investment adviser and
Portfolios, Inc. - American Century co-administrator, Management Fees for the Portfolio would equal
VP Value 1.25%; Other Expenses would equal .81%; Total Portfolio Operating
Expenses would have been 2.06%.
- --------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund In the event that aggregate expenses of the Fund exceed .40 of 1% of
the value of the Fund's average net assets for the fiscal year, the
Fund may deduct from the payment to be made to Dreyfus, or Dreyfus
will bear, such excess expense. In addition, the Fund may waive
receipt of its fees and/or voluntarily assume certain expenses of the
Fund, which would have the effect of lowering the overall expense
ratio of the Fund.
- --------------------------------------------------------------------------------------------------------------
Dreyfus Socially Responsible Growth In the event that aggregate expenses of the Fund exceed .40 of 1% of
Fund the value of the Fund's average net assets for the fiscal year, the
Fund may deduct from the payment to be made to Dreyfus, or Dreyfus
will bear, such excess expense. In addition, the Fund may waive
receipt of its fees and/or voluntarily assume certain expenses of the
Fund, which would have the effect of lowering the overall expense
ratio of the Fund.
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Equity-Income The Adviser has voluntarily agreed subject to revision or termination
Portfolio to reimburse a fund if, and to the extent that, its aggregate
operating expenses, including management fees, exceed a specified
annual rate for the fund. The expense cap is: 1.50% imposed on
October 9, 1986. Since the expense ratio is significantly below the
expense cap there is no reimbursement and none anticipated during the
current year. Since there is no reimbursement the discontinuance of
the arrangement has no effect on total fund operating expenses.
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - Growth Portfolio The Fund may, from time to time, agree to reimburse a fund for
management fees and other expenses above a specified limit. The Fund
retains the ability to be repaid if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement
arrangements, which may be terminated at any time, can decrease the
Fund's expense and boost its performance.
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund - High-Income The Fund may, from time to time, agree to reimburse a fund for
Portfolio management fees and other expenses above a specified limit. The Fund
retains the ability to be repaid if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement
arrangements, which may be terminated at any time, can decrease the
Fund's expense and boost its performance.
- --------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products The Adviser has voluntarily agreed subject to revision or termination
Fund - Overseas Portfolio to reimburse a fund if, and to the extent that, its aggregate
operating expenses, including management fees, exceed a specified
annual rate for the fund. The expense cap is: 1.50% imposed on
January 28, 1986. Since the expense ratio is significantly below the
expense cap there is no reimbursement and none anticipated during the
current year. Since there is no reimbursement the discontinuance of
the arrangement has no effect on total fund operating expenses.
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Asset Manager The Fund may, from time to time, agree to reimburse a fund for
Portfolio management fees and other expenses above a specified limit. The Fund
retains the ability to be repaid if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement
arrangements, which may be terminated at any time, can decrease the
Fund's expense and boost its performance.
- --------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II - Contrafund The Fund may, from time to time, agree to reimburse a fund for
Portfolio management fees and other expenses above a specified limit. The Fund
retains the ability to be repaid if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement
arrangements, which may be terminated at any time, can decrease the
Fund's expense and boost its performance.
- --------------------------------------------------------------------------------------------------------------
Neuberger&Berman Advisers The Fund manager will limit expenses by reimbursing the Portfolio for
Management Trust - Growth Portfolio its operating expenses and its pro rata share of operating expenses,
that exceed 1% of the Fund's average daily net asset value.
- --------------------------------------------------------------------------------------------------------------
Neuberger&Berman Advisers Management The Fund manager will limit expenses by reimbursing the Portfolio for
Trust - Limited Maturity Bond its operating expenses and its pro rata share of operating expenses,
Portfolio that exceed 1% of the Fund's average daily net asset value.
- --------------------------------------------------------------------------------------------------------------
Neuberger&Berman Advisers Management The Fund manager will limit expenses by reimbursing the Portfolio for
Trust - Partners Portfolio its operating expenses and its pro rata share of operating expenses,
that exceed 1% of the Fund's average daily net asset value.
- --------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds - Total mutual fund expenses would have been 0.81% in the absence of a
Oppenheimer Growth Fund voluntary one-time fee reimbursement described in the Statement of
Additional Information.
- --------------------------------------------------------------------------------------------------------------
Van Kampen American Capital Life The Trust reimburses the Adviser for the cost of the Fund's
Investment Trust - Real Estate accounting services. Further, the Adviser and the Subadviser may,
Securities Fund from time to time, agree to waive their respective investment
advisory fees or any portion thereof or elect to reimburse the Fund
for ordinary business expenses in excess of an agreed upon amount.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Warburg Pincus Trust - International The Management Fees, Other Expenses and Total Portfolio Operating
Equity Portfolio Expenses are net of any fee waivers or expense reimbursements.
Without such waivers or reimbursements, Management Fees would have
equaled 1.00%, Other Expenses would have equaled 1.21% and total
Portfolio Operating Expenses would have equaled 2.21%. The Fund's
investment adviser had undertaken to reduce or otherwise limit Total
Portfolio Operating Expenses; there is no assurance that these
undertakings will continue.
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - Small Company The Management Fees, Other Expenses and Total Portfolio Operating
Growth Portfolio Expenses are net of any fee waivers or expense reimbursements.
Without such waivers or reimbursements, Management Fees would have
equaled .90%, Other Expenses would have equaled .60% and total
Portfolio Operating Expenses would have equaled 1.50%. The Fund's
investment adviser had undertaken to reduce or otherwise limit Total
Portfolio Operating Expenses; there is no assurance that these
undertakings will continue.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The information relating to the Underlying Mutual Fund expenses was provided by
the Underlying Mutual Fund and was not independently verified by the Company.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in the
Fixed Account and Policy Loan Account depending on the allocation of Cash Value
by the Policy Owner.
How the Investment Experience is Determined
The Cash Value in each Sub-Account is converted to Accumulation Units of that
Sub-Account. The conversion is accomplished by dividing the amount of Cash Value
allocated to a Sub-Account by the value of an Accumulation Unit for the
Sub-Account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each Sub-Account was arbitrarily set
initially at $10 when the Underlying Mutual Fund shares in that Sub-Account were
available for purchase. The value for any subsequent Valuation Period is
determined by multiplying the Accumulation Unit value for each Sub-Account for
the immediately preceding Valuation Period by the Net Investment Factor for the
Sub-Account during the subsequent Valuation Period. The value of an Accumulation
Unit may increase or decrease from Valuation Period to Valuation Period. The
number of Accumulation Units will not change as a result of investment
experience.
Net Investment Factor
The Net Investment Factor for any Valuation Period is determined by dividing (a)
by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the Underlying Mutual Fund held in
the Sub-Account determined at the end of the current Valuation Period,
plus
(2) the per share amount of any dividend or capital gain distributions
made by the Underlying Mutual Fund held in the Sub-Account if the
"ex-dividend" date occurs during the current Valuation Period.
(b) is the net of:
(1) the net asset value per share of the Underlying Mutual Fund held in
the Sub-Account determined at the end of the immediately preceding
Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved for in
the immediately preceding Valuation Period (see "Charge For Tax
Provisions").
(c) is a factor representing the daily Mortality and Expense Risk Charge
deducted from the Variable Account. Such factor is guaranteed not to exceed
an annual effective rate of 0.75% of the daily net assets of the Variable
Account. On a current basis this annual effective rate will be 0.60% during
the first through fourth Policy Years, 0.40% during the fifth through
twentieth Policy Years, and 0.25% thereafter.
25
<PAGE> 29
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.
Determining the Cash Value
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account and the Policy Loan Account
is the Cash Value. The number of Accumulation Units credited per each
Sub-Account are determined by dividing the net amount allocated to the
Sub-Account by the Accumulation Unit Value for the Sub-Account for the Valuation
Period during which the premium is received by the Company. In the event part or
all of the Cash Value is surrendered or charges or deductions are made against
the Cash Value, 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 3%. 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. Where
permitted, the Company will require the signature to be 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.
Partial Surrenders
After the Policy has been in force for one year, the Policy Owner may request a
partial surrender. Partial surrenders will be permitted only if they satisfy the
following requirements:
1. The minimum partial surrender is $500;
2. The partial surrender may not reduce the Specified Amount to less than
$50,000;
3. After the partial surrender, the Cash Surrender Value is greater than
$500 or an amount equal to three times the current monthly deduction,
if higher; and
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<PAGE> 30
4. After the partial surrender, the Policy continues to qualify as life
insurance.
When a partial surrender is made, the Cash Value will be reduced by the amount
of the partial surrender. Further, the Specified Amount will be reduced by the
amount necessary to prevent any increase to the Net Amount at Risk, unless the
Policy Owner elects that the partial surrender be treated as a preferred partial
surrender. (Any such reduction to the Specified Amount will be done in the
manner as set forth below).
- -Preferred Partial Surrenders
A partial surrender may be considered a preferred partial surrender if the
following conditions are met: (1) such surrender occurs before the 15th Policy
Anniversary; and (2) the surrender amount plus the amount of any previous
preferred policy surrenders in that same Policy Year does not exceed 10% of the
Cash Surrender Value as of the beginning of the Policy Year.
- -Reduction of the Specified Amount
When a partial surrender is made, in addition to the Cash Value being reduced by
the amount of the partial surrender, the Specified Amount also is reduced,
except for a preferred partial surrender. The reduction to the Specified Amount
will be made in the following order: (1) against the most recent increase in the
Specified Amount; (2) against the next most recent increases in the Specified
Amount in succession; and (3) against the Specified Amount under the original
application.
Maturity Proceeds
The Maturity Date is the Policy Anniversary on or next following the Insured's
100th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any Indebtedness.
Income Tax Withholding
Federal law requires the Company to withhold income tax from any portion of
surrender proceeds that is subject to tax, unless the Policy Owner advises the
Company, in writing, of his or her request not to withhold.
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following: (1) the value each year of the life
insurance protection provided, (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value 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 advisor, 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
Value in the Sub-Accounts of the Variable Account plus 100% of the Cash Value in
the Fixed Account plus 100% of the Cash Value in the Policy Loan Account. The
Company will not grant a loan for an amount less than $500 (unless otherwise
required by state law). 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. Where permitted, the Company will require
the signature to be guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange; or by a Commercial Bank
or a Savings and Loan which is a member of the Federal Deposit Insurance
Corporation. Certain policy loans may result in currently taxable income and tax
penalties (see "Tax Matters").
A Policy Owner considering the use of policy loans in connection with his or her
retirement income plan should consult his or her personal tax adviser regarding
potential tax consequences that may arise if necessary
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<PAGE> 31
payments are not made to keep the Policy from lapsing. The amount of such
payments necessary to prevent the Policy from lapsing would increase with age
(see "Tax Matters").
Effect on Investment Performance
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one Sub-Account, withdrawals from Sub-Accounts
will be made in proportion to the assets in each Variable Sub-Account at the
time of the loan. Policy loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable Sub-Accounts. The amount
taken out of the Variable Account will not be affected by the Variable Account's
investment experience while the loan is outstanding.
Interest
On a current and guaranteed basis, any Cash Value allocated to the Policy Loan
Account will be credited with an annual effective rate of 3.0% in Policy Years 2
and thereafter. The loan interest rate is guaranteed to not exceed 3.75% per
year for all Policy loans. On a current basis, the loan interest rate is 3.6% in
Policy Years one through four, 3.4% in Policy Years five through twenty, and
3.25% thereafter. In the event that it is determined that such loans will be
treated, as a result of the differential between the interest crediting rate and
the loan interest rate, as taxable distributions under any applicable ruling,
regulation, or court decision, the Company retains the right to increase the net
cost (by decreasing the interest crediting rate) on all subsequent policy loans
to an amount that would result in the transaction being treated as a loan under
Federal tax law. If this amount is not prescribed by such ruling, regulation, or
court decision, the amount will be that which the Company considers to be more
likely to result in the transaction being treated as a loan under Federal tax
law.
Amounts transferred to the Policy Loan Account will earn interest daily from the
date of transfer. The earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary,
at the time a new loan is requested, 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.
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, 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 plus an amount sufficient to continue the Policy in force
for 3 months.
Effect on Death Benefit and Cash Value
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account or
the Fixed Account will apply only to the non-loaned portion of the Cash Value.
The longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account or the Fixed Account
while the loan is outstanding, the effect could be favorable or unfavorable.
Repayment
All or part of the Indebtedness may be repaid at any time while the Policy is in
force during the Insured's lifetime. Any payment intended as a loan repayment,
rather than a premium payment, must be identified as such. Loan repayments will
be credited to the Variable Sub-Accounts and the Fixed Account in proportion to
the Policy Owner's Underlying Mutual Fund allocation factors in effect at the
time of the repayment. Each repayment may not be less than $50. The Company
reserves the right to require that any loan repayments resulting from Policy
loans transferred from the Fixed Account must be first allocated to the Fixed
Account.
HOW THE DEATH BENEFIT VARIES
Calculation of the Death Benefit
At issue, the Policy Owner selects the Specified Amount, death benefit option,
and definition of life insurance (Guideline Premium/Cash Value Corridor Test or
the Cash Value Accumulation Test) pursuant to Section 7702 of the Code.
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<PAGE> 32
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 three death benefit options.
Under Option 1, the death benefit will be the greater of the Specified Amount or
the applicable percentage of cash value. Under Option 1, the amount of the death
benefit will ordinarily not change for several years to reflect the investment
performance and may not change at all. If investment performance is favorable
the amount of death benefit may increase. To see how and when investment
performance will begin to affect death benefits, please see the illustrations.
Under Option 2, the death benefit will be the greater of the Specified Amount
plus the Cash Value as of the date of death, or the applicable percentage of
cash value and will vary directly with the investment performance.
Under Option 3, the death benefit is the greater of: the applicable percentage
of the Cash Value (see Table below) as of the date of death; or the Specified
Amount plus the lesser of either: (i) the maximum increase amount shown on the
Policy, or (ii) the amount of all premium payments and interest accrued at the
Option 3 interest rate as shown in the Policy, accumulated up to the date of
death, less any partial surrenders and applicable interest accrued at the Option
3 interest rate as shown in the Policy. Once elected, Option 3 is irrevocable.
The "Applicable Percentage" for the Guideline Premium/Cash Value Corridor Test
is in the Tables below:
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 101%
56 146% 76 105% 96 101%
57 142% 77 105% 97 101%
58 138% 78 105% 98 101%
59 134% 79 105% 99 101%
The "Applicable Percentage" for the Cash Value Accumulation Test is the Table
below:
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
16 708.43% 44 292.29% 72 141.69%
17 687.69% 45 283.37% 73 139.10%
18 667.85% 46 274.79% 74 136.66%
19 648.73% 47 266.55% 75 134.38%
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<PAGE> 33
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
20 630.14% 48 258.61% 76 133.56%
21 611.94% 49 250.98% 77 132.83%
22 594.06% 50 243.65% 78 132.18%
23 576.45% 51 236.59% 79 131.58%
24 559.07% 52 229.82% 80 131.04%
25 541.95% 53 223.34% 81 130.55%
26 525.08% 54 217.13% 82 130.12%
27 508.52% 55 211.19% 83 127.37%
28 492.32% 56 205.51% 84 124.75%
29 476.49% 57 200.06% 85 122.26%
30 461.08% 58 194.84% 86 119.89%
31 446.10% 59 189.84% 87 117.63%
32 431.57% 60 185.03% 88 115.44%
33 417.50% 61 180.43% 89 113.31%
34 403.89% 62 176.02% 90 112.35%
35 390.73% 63 171.81% 91 111.38%
36 378.03% 64 167.80% 92 110.38%
37 365.79% 65 163.98% 93 109.32%
38 354.01% 66 160.34% 94 108.18%
39 342.67% 67 156.86% 95 106.94%
40 331.77% 68 153.54% 96 105.62%
41 321.30% 69 150.37% 97 104.27%
42 311.24% 70 147.33% 98 102.99%
43 301.57% 71 144.44% 99 101.98%
In the event the Policy Owner has a substandard rating, the above percentages
will differ.
Proceeds Payable on Death
The actual Death Proceeds payable on the Insured's death will be the death
benefit as described above, less any Policy Indebtedness and less any unpaid
Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted
(see "Incontestability", "Error in Age", and "Suicide").
RIGHT OF CONVERSION
The Policy Owner may at any time, upon written request to the Company within 24
months of the Policy Date, make an irrevocable, one-time election to transfer
all Sub-Account Cash Values to the Fixed Account. The Right of Conversion
provision is subject to state availability.
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 Owner may elect to transfer all
Sub-Account Cash Value to the Fixed Account. No transfer charges will be
assessed. The Policy Owner has the later of 60 days (6 months in Pennsylvania)
from the date of the investment policy change or 60 days (6 months in
Pennsylvania) from being informed of such change to make this conversion. The
Company will not require evidence of insurability for this conversion.
The new policy will not be affected by the investment experience of any separate
account. The new policy will be for an amount of insurance not exceeding the
death benefit of the Policy converted on the date of such conversion.
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<PAGE> 34
GRACE PERIOD
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current Policy Charges, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of a premium equal to three
times the current monthly deduction. The Company will send a notice at the start
of the Grace Period to the Policy Owner's address as indicated on the
application or the last address specified. If the required premium is not paid
by the end of the Grace Period, the Policy will terminate without value. If the
Insured dies during the Grace Period, the Company will pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the
end of the Grace Period and prior to the Maturity Date;
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all policy charges that were due
and unpaid during the Grace Period;
4. paying 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 the
Company. If the 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 Cash Value at the end of the Grace Period.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the Underlying Mutual Fund allocation factors in effect at the start of
the Grace Period.
THE FIXED ACCOUNT OPTION
Under 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 is subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this prospectus relating to the Fixed Account
option. Disclosures regarding the General Account may, however, be subject to
certain generally applicable provisions of the federal securities laws
concerning 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 3%. 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.
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CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under the
Policy. Any request must be in writing and received at the Company's Home
Office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
Specified Amount Increases
After the first Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the Cash Surrender Value is sufficient to continue the Policy in
force for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the Monthly Anniversary Day
on or next following the date the Company approves the supplemental application
unless a different date is requested by the Policy Owner. The Company reserves
the right to limit the number of Specified Amount increases to one each Policy
Year.
Specified Amount Decreases
After the first Policy Year, the Policy Owner may also request a decrease to the
Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
1. against insurance provided by the most recent increase;
2. against the next most recent increases successively; and
3. against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount decreases
to one each Policy Year. The Company will refuse a request for a decrease which
would:
1. reduce the Specified Amount to less than $50,000 ($100,000 in New
Jersey and Pennsylvania); or
2. disqualify the Policy as a contract for life insurance.
Changes in the Death Benefit Option
After the first Policy Year, the Policy Owner may elect to change the death
benefit option under the Policy from either Option 1 to Option 2, or from Option
2 to Option 1. Initial elections to Option 3 are irrevocable. Accordingly, such
changes to or from Option 3 are not permitted. Only one change of death benefit
option is permitted per Policy Year. The effective date of such change will be
the Monthly Anniversary Day following the date such change is approved by the
Company.
In order for any such change in the death benefit option to become effective,
the Cash Surrender Value, after such change, must be sufficient to keep the
Policy in force for at least three months subsequent to said change.
The Company will adjust the Specified Amount such that the Net Amount at Risk
remains constant. Any such change which would result in the Specified Amount
being reduced to an amount in which the total premiums paid exceed the premium
limit required by applicable state law to qualify the Policy as a contract for
life insurance will not be permitted.
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.
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<PAGE> 36
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 Insured's, 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
If the age 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 in the policy month of death; and
3. is the Cash Value at the time of the Insured's death.
Suicide
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in the
Specified Amount, the Company will pay no more than the amount paid for such
additional benefit.
Nonparticipating Policies
These are Nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
Riders
A rider may be added as an addition to the Policy. Riders currently include:
1. Base Insured Term Rider;
2. Change of Insured Rider; and
3. Additional Protection Rider.
Rider availability varies by state.
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LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from premiums made on or after
August 1, 1983. The Policies offered by this prospectus are based upon actuarial
tables which distinguish between men and women and thus the Policies provide
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris on any employment related insurance or benefit program before
purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives of
broker dealers registered under the Securities Exchange Act of 1934 who are
member firms of the National Association of Securities Dealers, Inc. ("NASD").
The Policies will be distributed by the General Distributor, Nationwide Advisory
Services, Inc. NAS 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 Variable Account-9, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C, Nationwide VL Separate Account-A, Nationwide VL Separate Account-B,
Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, Nationwide
VLI Separate Account-4, NACo Variable Account and the Nationwide Variable
Account, all of which are separate investment accounts of the Company or its
affiliates. NAS is a wholly owned subsidiary of the Company.
NAS also acts as principal underwriter for the Nationwide Investing Foundation,
Nationwide Separate Account Trust, Financial Horizons Investment Trust,
Nationwide Investing Foundation II and Nationwide Asset Allocation Trust, which
are open-end management investment companies.
Gross first year commissions plus any expense allowance payments made by the
Company on the sale of these Policies distributed by the General Distributor
will not exceed 40% of the Target Premium plus 5% of any excess premium payments
in year one and 25% of the Target Premium plus 5% on the excess premium in years
two through four. Gross renewal commissions paid at the beginning of Policy Year
five and beyond by the Company will not exceed 2.5% of actual premium payments
plus an annual effective rate of 0.20%, paid quarterly, of the Cash Value as of
the end the prior quarter.
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 on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (see "Information about the Policies"). The Code provides for taxation
of surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts (other than certain
distributions to terminally ill or chronically ill individuals) are subject to
federal income taxes a manner similar to the 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 or the distribution is
part of an annuity to the Policy Owner as defined in the Code. Under certain
circumstances, certain distributions made under a Policy on the life of a
"terminally ill individual" or a "chronically ill individual," as those terms
are defined in the Code, are excludable from gross income.
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The Policies offered by this prospectus may or may not be issued as modified
endowment contracts. The Company will monitor premiums paid and will notify the
Policy Owner when the policy's non-modified endowment status is in jeopardy. If
a Policy is not a modified endowment contract, a cash distribution during the
first 15 years after a Policy is issued which causes a reduction in death
benefits may still become fully or partially taxable to the Owner pursuant to
Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this
potential effect and seek further information before initiating any changes in
the terms of the policy. Under certain conditions, a Policy may become a
modified endowment as a result of a material change or a reduction in benefits
as defined by Section 7702A(c) of the Code.
In addition to meeting the tests required under Sections 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations under 817(h) provide that a
variable life policy that fails to satisfy the diversification standards will
not be treated as life insurance unless such failure was inadvertent, 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 of his or her account.
Representatives of the Internal Revenue Service have suggested, from time to
time, that the number of Underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of Underlying
Mutual Funds, transfers between Underlying Mutual Funds, exchanges of Underlying
Mutual Funds or changes in investment objectives of Underlying Mutual Funds such
that the Policy would no longer qualify as life insurance under Section 7702 of
the Code, the Company will take whatever steps are available to remain in
compliance.
The Company will monitor compliance with these regulations and, to the extent
necessary, will change the objectives or assets of the Sub-Account investments
to remain in compliance.
A total surrender or cancellation of the Policy by lapse or the maturity of the
Policy on its Maturity Date may have adverse tax consequences. If the amount
received by the Policy Owner plus total Policy Indebtedness exceeds the premiums
paid into the Policy, the excess generally will be treated as taxable income,
regardless of whether or not the Policy is a modified endowment contract.
- - Non-Resident Aliens
Distributions of income to nonresident aliens ("NRAs") are generally subject to
federal income tax and tax withholding, at a statutory rate of 30% of the amount
of income that is distributed. The Company is required to withhold such amount
from the Distribution and remit it to the Internal Revenue Service.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to the Company sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the Internal
Revenue Service. In addition, for any Distribution made after December 31, 1997,
the NRA must obtain an individual Taxpayer Identification Number from the
Internal Revenue Service, and furnish that number to the Company prior to the
Distribution. If the Company does not have the proper proof of citizenship or
residency and (for Distributions after December 31, 1997) a proper individual
Taxpayer Identification Number prior to any Distribution, the Company will be
required to withhold 30% of the income, regardless of any treaty provision.
A payment may not be subject to withholding where the recipient sufficiently
establishes to the Company that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and that such
payment is includable in the recipient's gross income for United States federal
income tax purposes, Any such distributions may be subject to back-up
withholding at the statutory rate (currently 31%) if not taxpayer identification
number, or an incorrect taxpayer identification number, is provided.
State and local estate, inheritance, income 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. The Variable
Account will not be taxed separately from the Company 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
35
<PAGE> 39
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. Under Ohio law, in general, variable
account assets are immune from the claims of the general creditors of the
Company to the extent of the reserves and other policy liabilities.
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.
Tax Changes
The foregoing discussion, which is based on the Company's understanding of
federal tax laws as they are currently interpreted by the Internal Revenue
Service, is general and is not intended as tax advice.
In the recent past, the Code has been subjected to numerous amendments and
changes, and it is reasonable to believe that it will continue to be revised.
The United States Congress has, in the past, considered numerous legislative
proposals that, if enacted, could change the tax treatment of the Policies. It
is reasonable to believe that such proposals, and other proposals will be
considered in the future, and some may be enacted into law. In addition, the
U.S. Treasury Department may amend existing regulations, issue new regulations,
or adopt new interpretations of existing law that may be at variance with its
current positions on these matters. In addition, current state law (which is not
discussed herein), and future amendments to state law, may affect the tax
consequences of the Policy.
If the Policy Owner, Insured, or Beneficiary or other person receiving any
benefit or interest in or from the Policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the Policy, the
Death Benefit, or other Distributions and/or ownership of the Policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a Policy may be changed retroactively. There
is no way of predicting if when, and to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
THE FOREGOING IS A GENERAL EXPLANATION AS TO CERTAIN TAX MATTERS PERTAINING TO
INSURANCE POLICIES. IT IS NOT INTENDED TO BE LEGAL OR TAX ADVICE, AND SHOULD NOT
TAKE THE PLACE OF YOUR INDEPENDENT LEGAL, TAX AND/OR FINANCIAL ADVISOR.
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,
Nationwide Variable Account-9, MFS Variable Account, Nationwide Multi-Flex
Variable Account, Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4,
NACo Variable Account, Nationwide DC Variable Account and the Nationwide
DCVA-II, 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
36
<PAGE> 40
agents, the approval of policy forms, the methods of computing reserves, the
form and content of statutory financial statements, the amount of policyholders'
and stockholders' dividends, and the type of distribution of investments
permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete with
the registrant in the sale of insurance policies.
As is customary in insurance Company groups, employees are shared with the other
insurance companies in the group. In addition to its direct salaried employees,
the Company shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Insurance Company, National Casualty Company, 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 Financial Services, Inc. is
the sole shareholder of Nationwide Life.
Directors of the Company
Director
Name Since Principal Occupation
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner, Fred W. Eckel Sons;
President, Eckel Farms, Inc. (1)
Willard J. Engel 1994 General Manager Lyon County
Co-Operative Oil Company (1)
Fred C. Finney 1992 Owner and Operator, Moreland Fruit
Farm; Operator, Melrose Orchard (1)
Charles L. Fuellgraf, Jr.*+ 1969 Chief Executive Officer, Fuellgraf
Electric Company. (1)
Joseph J. Gasper*+ 1996 President and Chief Operating
Officer, Nationwide Life and Annuity
Insurance Company and Nationwide
Life and Annuity Insurance Company.
(2)
Henry S. Holloway*+ 1986 Farm Owner and Operator (1)
Dimon Richard McFerson*+ 1988 Chairman and Chief Executive
Officer, Nationwide Insurance
Enterprise (2)
David O. Miller*+ 1985 President, Owen Potato Farm, Inc.;
Partner, M&M Enterprises (1)
C. Ray Noecker 1994 Owner and Operator, Noecker Farms
(1)
James F. Patterson + 1989 Vice President, Pattersons, Inc. ;
President, Patterson Farms, Inc. (1)
Arden L. Shisler*+ 1984 President and Chief Executive
Officer, K&B Transport, Inc. (1)
Robert L. Stewart 1989 Owner and Operator, Sunnydale Farms
and Mining (1)
Nancy C. Thomas* 1986 Farm Owner and Operator. (1)
Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farms
(1)
*Member, Executive +Member, Investment Committee
Committee
1) Principal occupation for last five years.
37
<PAGE> 41
2) Prior to assuming this current position, Messrs. McFerson and Gasper held
other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of
the Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson
and Gasper are directors of Nationwide Advisory Services, Inc., a registered
broker-dealer.
Messrs. Holloway, McFerson, Miller, Patterson, Shisler and Fuellgraf are
directors of Nationwide Financial Services, Inc. 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, Nationwide Investing
Foundation II and Nationwide Asset Allocation Trust, registered investment
companies. Mr. Engel is a director of Western Cooperative Transport.
Executive Officers of the Company
Name Office Held
Dimon Richard McFerson Chairman and Chief Executive Officer-Nationwide
Insurance Enterprise
Joseph J. Gasper President and Chief Operating Officer
Gordon E. McCutchan Executive Vice President, Law and Corporate
Services and Secretary
Robert A. Oakley Executive Vice President-Chief Financial
Officer
Robert J. Woodward, Jr. Executive Vice President-Chief Investment
Officer
James E. Brock Senior Vice President - Life Company Operations
W. Sidney Druen Senior Vice President and General Counsel and
Assistant Secretary
Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary
Richard A. Karas Senior Vice President - Sales and Financial
Services
Mark R. Thresher Vice President - Controller
Duane M. Campbell Vice President - Treasurer
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. Thresher, who joined the
Registrant in 1996. From 1988-1996, Mr. Thresher served as a partner in the
accounting firm KPMG Peat Marwick LLP and lead partner for Nationwide Insurance
Enterprise from 1993 to March, 1996.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer variable contracts
and policies with benefits which vary in accordance with the investment
experience of a separate account of the Company.
STATE REGULATION
The Company is subject to the laws of Ohio governing insurance companies and to
regulation by the Ohio Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering the operation of
the Company for the preceding year and its financial condition as of the end of
such year. Regulation by the Insurance Department includes periodic examination
to determine the Company's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. The Company's books and
accounts are subject to review by the Insurance Department at all times and a
full examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. Such regulation does not, however,
involve any supervision of management or investment practices or policies. In
addition, the Company is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
38
<PAGE> 42
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the address specified on the
application or any address provided subsequent to the application, 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,
including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or claims-paying ability of the
Company. The ratings are not intended to reflect the investment experience or
financial strength of the Variable Account. The Company may advertise these
ratings from time to time. In addition, the Company may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend the Company or the Contracts. Furthermore, the
Company may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In February 1997, Nationwide Life was named as a
defendant in a lawsuit filed in New York Supreme Court also related to the sale
of whole life policies on a "vanishing premium" basis (John H. Snyder v.
Nationwide Mutual Insurance Company, Nationwide Mutual Insurance Co. and
Nationwide Life Insurance Co.). The plaintiff in such lawsuit seeks to represent
a national class of Nationwide Life policyholders and claims unspecified
compensatory and punitive damages. This lawsuit is in an early stage and has not
been certified as a class action. Nationwide Life intends to defend this case
vigorously. There can be no assurance that any future litigation relating to
pricing and sales practices will not have a material adverse effect on the
Company.
The General Distributor, Nationwide Advisory Services, Inc., is not engaged in
any material litigation of any nature.
EXPERTS
The financial statements and schedules have been included herein in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Account, the Company, and the Policies
offered hereby. Statements contained in this prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
39
<PAGE> 43
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus,
Ohio 43216. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
40
<PAGE> 44
APPENDIX 1
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 guaranteed mortality and expense risk charges
for Policy Years one through four are equivalent to an annual effective rate of
0.75% of the daily net asset value of the Variable Account. The current
mortality and expense risk charges for Policy Years one through four are
equivalent to an annual effective rate of 0.60% of the daily net asset value of
the Variable Account. The current mortality and expense risk charges for Policy
Years five through twenty are equivalent to an annual effective rate of 0.40% of
the daily net asset value of the Variable Account. The current mortality and
expense risk charges for Policy Years twenty-one and beyond are equivalent to an
annual effective rate of 0.25% of the daily net asset value of the Variable
Account. In addition, the net investment returns also reflect the deduction of
Underlying Mutual Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.90% 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, 1997.
Considering current charges for mortality and expense risks and Underlying
Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond
to net investment experience at constant annual rates of -1.50%, 4.50% and
10.50%, for Policy Years one through four, and rates of -1.30%, 4.70% and
10.70%, for Policy Years five through twenty, and rates of -1.15%, 4.85% and
10.85%, for Policy Years twenty-one and beyond. Considering guaranteed charges
for mortality and expense risks and Underlying Mutual Fund expenses, gross
annual rates of return of 0%, 6% and 12% correspond to net investment experience
at constant annual rates of -1.65%, 4.35% and 10.35%, for all Policy Years.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as standard. Policies issued on a substandard basis would result in lower
Cash Values and Death benefits than those illustrated.
The illustrations also reflect the fact that the Company deducts a sales load
from each premium payment received guaranteed not to exceed 5.5% of each premium
payment for the first seven Policy Years and 2% thereafter. On a current basis,
the sales load is 5.5% of the Target Premium plus 3% of premiums in excess of
the Target Premium in the first seven Policy Years, and 0% on all premiums
thereafter. The Company also deducts a tax expense charge of 3.5%, both current
and guaranteed, from all premium payments. The illustrations also reflect the
fact that the Company deducts a charge for state premium taxes at a rate of
2.25% and for federal tax at a rate of 1.25% (imposed under Section 848 of the
Code) of all premium payments.
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 currently $5.00 per month and
guaranteed not to exceed $10.00. 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, smoking classification, rating classification and
premium payment requested.
41
<PAGE> 45
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 87,786 89,929 1,703,050 93,212 95,354 1,703,050 98,639 100,782 1,703,050
2 215,250 173,990 176,133 1,703,050 190,334 192,477 1,703,050 207,332 209,475 1,703,050
3 331,013 258,969 258,969 1,703,050 291,904 291,904 1,703,050 327,522 327,522 1,703,050
4 452,563 342,694 342,694 1,703,050 398,092 398,092 1,703,050 460,407 460,407 1,703,050
5 580,191 425,967 425,967 1,703,050 510,080 510,080 1,703,050 608,516 608,516 1,703,050
6 714,201 508,108 508,108 1,703,050 627,380 627,380 1,703,050 772,363 772,363 1,881,786
7 854,911 589,184 589,184 1,703,050 750,216 750,216 1,774,935 952,732 952,732 2,254,069
8 897,656 577,278 577,278 1,703,050 781,428 781,428 1,795,878 1,049,061 1,049,061 2,410,953
9 942,539 565,129 565,129 1,703,050 813,828 813,828 1,817,521 1,154,975 1,154,975 2,579,406
10 989,666 552,688 552,688 1,703,050 847,440 847,440 1,839,962 1,271,389 1,271,389 2,760,439
11 1,039,150 539,943 539,943 1,703,050 882,327 882,327 1,863,298 1,399,358 1,399,358 2,955,163
12 1,091,107 526,847 526,847 1,703,050 918,524 918,524 1,887,568 1,539,999 1,539,999 3,164,698
13 1,145,662 513,383 513,383 1,703,050 956,098 956,098 1,912,769 1,694,584 1,694,584 3,390,184
14 1,202,945 499,505 499,505 1,703,050 995,094 995,094 1,938,841 1,864,473 1,864,473 3,632,740
15 1,263,093 485,021 485,021 1,703,050 1,035,455 1,035,455 1,965,603 2,050,949 2,050,949 3,893,316
16 1,326,247 469,833 469,833 1,703,050 1,077,198 1,077,198 1,993,140 2,255,544 2,255,544 4,173,433
17 1,392,560 453,822 453,822 1,703,050 1,120,339 1,120,339 2,021,316 2,479,917 2,479,917 4,474,266
18 1,462,188 436,818 436,818 1,703,050 1,164,863 1,164,863 2,050,275 2,725,803 2,725,803 4,797,686
19 1,535,297 418,637 418,637 1,703,050 1,210,755 1,210,755 2,080,198 2,995,078 2,995,078 5,145,844
20 1,612,062 399,103 399,103 1,703,050 1,258,023 1,258,023 2,110,837 3,289,824 3,289,824 5,519,995
21 1,692,665 380,192 380,192 1,703,050 1,309,635 1,309,635 2,147,409 3,620,457 3,620,457 5,936,464
22 1,777,298 361,292 361,292 1,703,050 1,363,911 1,363,911 2,186,758 3,985,915 3,985,915 6,390,617
23 1,866,163 341,267 341,267 1,703,050 1,420,297 1,420,297 2,227,878 4,387,832 4,387,832 6,882,754
24 1,959,471 319,592 319,592 1,703,050 1,478,645 1,478,645 2,270,311 4,829,068 4,829,068 7,414,551
25 2,057,445 296,056 296,056 1,703,050 1,539,010 1,539,010 2,314,055 5,313,360 5,313,360 7,989,169
26 2,160,317 270,400 270,400 1,703,050 1,601,437 1,601,437 2,359,397 5,844,752 5,844,752 8,611,073
27 2,268,333 242,377 242,377 1,703,050 1,666,004 1,666,004 2,406,210 6,427,770 6,427,770 9,283,628
28 2,381,750 211,669 211,669 1,703,050 1,732,764 1,732,764 2,455,153 7,067,266 7,067,266 10,013,609
29 2,500,837 177,875 177,875 1,703,050 1,801,760 1,801,760 2,506,068 7,768,491 7,768,491 10,805,194
30 2,625,879 140,522 140,522 1,703,050 1,873,019 1,873,019 2,559,668 8,537,076 8,537,076 11,666,768
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET
PREMIUM FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND
ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 83,858 86,000 1,703,050 89,106 91,248 1,703,050 94,357 96,500 1,703,050
2 215,250 166,199 168,342 1,703,050 181,945 184,087 1,703,050 198,326 200,468 1,703,050
3 331,013 247,061 247,061 1,703,050 278,717 278,717 1,703,050 312,964 312,964 1,703,050
4 452,563 326,469 326,469 1,703,050 379,626 379,626 1,703,050 439,449 439,449 1,703,050
5 580,191 404,454 404,454 1,703,050 484,902 484,902 1,703,050 579,107 579,107 1,703,050
6 714,201 481,028 481,028 1,703,050 594,775 594,775 1,703,050 733,316 733,316 1,786,652
7 854,911 556,200 556,200 1,703,050 709,497 709,497 1,703,050 901,980 901,980 2,133,995
8 897,656 539,922 539,922 1,703,050 733,836 733,836 1,703,050 986,652 986,652 2,267,525
9 942,539 523,086 523,086 1,703,050 758,771 758,771 1,703,050 1,078,886 1,078,886 2,409,476
10 989,666 505,593 505,593 1,703,050 784,294 784,294 1,703,050 1,179,290 1,179,290 2,560,475
11 1,039,150 487,328 487,328 1,703,050 810,395 810,395 1,711,393 1,288,511 1,288,511 2,721,077
12 1,091,107 468,181 468,181 1,703,050 837,069 837,069 1,720,176 1,407,260 1,407,260 2,891,919
13 1,145,662 448,065 448,065 1,703,050 864,327 864,327 1,729,172 1,536,345 1,536,345 3,073,611
14 1,202,945 426,821 426,821 1,703,050 892,141 892,141 1,738,248 1,676,566 1,676,566 3,266,621
15 1,263,093 404,256 404,256 1,703,050 920,467 920,467 1,747,323 1,828,760 1,828,760 3,471,536
16 1,326,247 380,153 380,153 1,703,050 949,252 949,252 1,756,400 1,993,813 1,993,813 3,689,153
17 1,392,560 354,265 354,265 1,703,050 978,442 978,442 1,765,306 2,172,670 2,172,670 3,919,931
18 1,462,188 326,231 326,231 1,703,050 1,007,955 1,007,955 1,774,101 2,366,221 2,366,221 4,164,785
19 1,535,297 295,662 295,662 1,703,050 1,037,711 1,037,711 1,782,892 2,575,413 2,575,413 4,424,817
20 1,612,062 262,148 262,148 1,703,050 1,067,657 1,067,657 1,791,422 2,801,292 2,801,292 4,700,289
21 1,692,665 225,251 225,251 1,703,050 1,097,750 1,097,750 1,799,981 3,044,996 3,044,996 4,992,880
22 1,777,298 184,506 184,506 1,703,050 1,127,968 1,127,968 1,808,472 3,307,782 3,307,782 5,303,367
23 1,866,163 139,405 139,405 1,703,050 1,158,308 1,158,308 1,816,922 3,591,044 3,591,044 5,632,912
24 1,959,471 89,294 89,294 1,703,050 1,188,748 1,188,748 1,825,203 3,896,216 3,896,216 5,982,250
25 2,057,445 33,297 33,297 1,703,050 1,219,230 1,219,230 1,833,235 4,224,700 4,224,700 6,352,259
26 2,160,317 (*) (*) (*) 1,249,651 1,249,651 1,841,110 4,577,785 4,577,785 6,744,450
27 2,268,333 (*) (*) (*) 1,279,878 1,279,878 1,848,528 4,956,693 4,956,693 7,158,952
28 2,381,750 (*) (*) (*) 1,309,724 1,309,724 1,855,748 5,362,403 5,362,403 7,597,989
29 2,500,837 (*) (*) (*) 1,339,039 1,339,039 1,862,469 5,796,012 5,796,012 8,061,673
30 2,625,879 (*) (*) (*) 1,367,727 1,367,727 1,869,136 6,258,808 6,258,808 8,553,287
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(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%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: REGULAR ISSUE/NONTOBACCO PREFERRED, AGE 45
DEATH BENEFIT OPTION 2
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 87,587 89,730 1,790,637 93,000 95,143 1,796,050 98,415 100,558 1,801,465
2 215,250 173,348 175,491 1,876,398 189,626 191,769 1,892,676 206,555 208,698 1,909,605
3 331,013 257,648 257,648 1,960,698 290,389 290,389 1,993,439 325,795 325,795 2,028,845
4 452,563 340,430 340,430 2,043,480 395,392 395,392 2,098,442 457,208 457,208 2,160,258
5 580,191 422,441 422,441 2,125,491 505,707 505,707 2,208,757 603,133 603,133 2,306,183
6 714,201 502,957 502,957 2,206,007 620,742 620,742 2,323,792 764,156 764,156 2,467,206
7 854,911 582,021 582,021 2,285,071 740,741 740,741 2,443,791 941,909 941,909 2,644,959
8 897,656 568,009 568,009 2,271,059 768,746 768,746 2,471,796 1,035,437 1,035,437 2,738,487
9 942,539 553,650 553,650 2,256,700 797,516 797,516 2,500,566 1,138,373 1,138,373 2,841,423
10 989,666 538,882 538,882 2,241,932 827,019 827,019 2,530,069 1,251,650 1,251,650 2,954,700
11 1,039,150 523,701 523,701 2,226,751 857,281 857,281 2,560,331 1,376,362 1,376,362 3,079,412
12 1,091,107 508,057 508,057 2,211,107 888,277 888,277 2,591,327 1,513,665 1,513,665 3,216,715
13 1,145,662 491,938 491,938 2,194,988 920,027 920,027 2,623,077 1,664,887 1,664,887 3,367,937
14 1,202,945 475,298 475,298 2,178,348 952,509 952,509 2,655,559 1,831,439 1,831,439 3,568,376
15 1,263,093 457,889 457,889 2,160,939 985,495 985,495 2,688,545 2,014,515 2,014,515 3,824,154
16 1,326,247 439,600 439,600 2,142,650 1,018,886 1,018,886 2,721,936 2,215,474 2,215,474 4,099,292
17 1,392,560 420,303 420,303 2,123,353 1,052,554 1,052,554 2,755,604 2,435,861 2,435,861 4,394,780
18 1,462,188 399,807 399,807 2,102,857 1,086,303 1,086,303 2,789,353 2,677,377 2,677,377 4,712,452
19 1,535,297 377,915 377,915 2,080,965 1,119,918 1,119,918 2,822,968 2,941,868 2,941,868 5,054,423
20 1,612,062 354,459 354,459 2,057,509 1,153,198 1,153,198 2,856,248 3,231,375 3,231,375 5,421,925
21 1,692,665 331,815 331,815 2,034,865 1,189,821 1,189,821 2,892,871 3,556,134 3,556,134 5,830,993
22 1,777,298 309,431 309,431 2,012,481 1,228,216 1,228,216 2,931,266 3,915,097 3,915,097 6,277,075
23 1,866,163 285,878 285,878 1,988,928 1,266,997 1,266,997 2,970,047 4,309,873 4,309,873 6,760,466
24 1,959,471 260,563 260,563 1,963,613 1,305,557 1,305,557 3,008,607 4,743,268 4,743,268 7,282,813
25 2,057,445 233,317 233,317 1,936,367 1,343,688 1,343,688 3,046,738 5,218,954 5,218,954 7,847,220
26 2,160,317 203,933 203,933 1,906,983 1,381,135 1,381,135 3,084,185 5,740,903 5,740,903 8,458,073
27 2,268,333 172,244 172,244 1,875,294 1,417,665 1,417,665 3,120,715 6,313,561 6,313,561 9,118,676
28 2,381,750 138,026 138,026 1,841,076 1,452,977 1,452,977 3,156,027 6,941,693 6,941,693 9,835,685
29 2,500,837 101,002 101,002 1,804,052 1,486,695 1,486,695 3,189,745 7,630,457 7,630,457 10,613,203
30 2,625,879 60,857 60,857 1,763,907 1,518,384 1,518,384 3,221,434 8,385,385 8,385,385 11,459,468
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET
PREMIUM FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND
ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
$100,000 ANNUAL PREMIUM FOR FIRST 7 YEARS
$1,703,050 SPECIFIED AMOUNT
CASH VALUE ACCUMULATION TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 2
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 83,557 85,700 1,786,607 88,787 90,930 1,791,837 94,020 96,163 1,797,070
2 215,250 165,271 167,414 1,868,321 180,921 183,063 1,883,971 197,201 199,344 1,900,251
3 331,013 245,138 245,138 1,948,188 276,510 276,510 1,979,560 310,447 310,447 2,013,497
4 452,563 323,137 323,137 2,026,187 375,652 375,652 2,078,702 434,740 434,740 2,137,790
5 580,191 399,247 399,247 2,102,297 478,447 478,447 2,181,497 571,159 571,159 2,274,209
6 714,201 473,415 473,415 2,176,465 584,965 584,965 2,288,015 720,863 720,863 2,423,913
7 854,911 545,570 545,570 2,248,620 695,263 695,263 2,398,313 885,107 885,107 2,588,157
8 897,656 526,118 526,118 2,229,168 714,448 714,448 2,417,498 964,905 964,905 2,667,955
9 942,539 505,932 505,932 2,208,982 733,374 733,374 2,436,424 1,051,785 1,051,785 2,754,835
10 989,666 484,904 484,904 2,187,954 751,909 751,909 2,454,959 1,146,349 1,146,349 2,849,399
11 1,039,150 462,912 462,912 2,165,962 769,892 769,892 2,472,942 1,249,240 1,249,240 2,952,290
12 1,091,107 439,851 439,851 2,142,901 787,177 787,177 2,490,227 1,361,187 1,361,187 3,064,237
13 1,145,662 415,652 415,652 2,118,702 803,645 803,645 2,506,695 1,483,028 1,483,028 3,186,078
14 1,202,945 390,163 390,163 2,093,213 819,081 819,081 2,522,131 1,615,599 1,615,599 3,318,649
15 1,263,093 363,198 363,198 2,066,248 833,230 833,230 2,536,280 1,759,783 1,759,783 3,462,833
16 1,326,247 334,557 334,557 2,037,607 845,804 845,804 2,548,854 1,916,534 1,916,534 3,619,584
17 1,392,560 304,026 304,026 2,007,076 856,484 856,484 2,559,534 2,086,887 2,086,887 3,789,937
18 1,462,188 271,273 271,273 1,974,323 864,816 864,816 2,567,866 2,271,839 2,271,839 3,998,663
19 1,535,297 235,970 235,970 1,939,020 870,321 870,321 2,573,371 2,472,261 2,472,261 4,247,592
20 1,612,062 197,810 197,810 1,900,860 872,516 872,516 2,575,566 2,689,005 2,689,005 4,511,881
21 1,692,665 156,505 156,505 1,859,555 870,914 870,914 2,573,964 2,922,935 2,922,935 4,792,736
22 1,777,298 111,789 111,789 1,814,839 865,022 865,022 2,568,072 3,175,182 3,175,182 5,090,769
23 1,866,163 63,414 63,414 1,766,464 854,341 854,341 2,557,391 3,447,084 3,447,084 5,407,096
24 1,959,471 11,048 11,048 1,714,098 838,260 838,260 2,541,310 3,740,017 3,740,017 5,742,422
25 2,057,445 (*) (*) (*) 815,993 815,993 2,519,043 4,055,327 4,055,327 6,097,589
26 2,160,317 (*) (*) (*) 786,536 786,536 2,489,586 4,394,251 4,394,251 6,474,050
27 2,268,333 (*) (*) (*) 748,671 748,671 2,451,721 4,757,963 4,757,963 6,871,926
28 2,381,750 (*) (*) (*) 700,900 700,900 2,403,950 5,147,401 5,147,401 7,293,353
29 2,500,837 (*) (*) (*) 641,662 641,662 2,344,712 5,563,620 5,563,620 7,738,439
30 2,625,879 (*) (*) (*) 569,479 569,479 2,272,529 6,007,855 6,007,855 8,210,335
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(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%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CORRIDOR TEST
UNISEX: GUARANTEED ISSUE/NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40,816 31,065 31,374 1,703,050 33,063 33,372 1,703,050 35,063 35,372 1,703,050
2 83,672 60,300 60,609 1,703,050 66,205 66,514 1,703,050 72,355 72,663 1,703,050
3 128,671 87,990 87,990 1,703,050 99,708 99,708 1,703,050 112,409 112,409 1,703,050
4 175,921 114,855 114,855 1,703,050 134,318 134,318 1,703,050 156,280 156,280 1,703,050
5 225,532 141,515 141,515 1,703,050 170,769 170,769 1,703,050 205,142 205,142 1,703,050
6 277,625 167,891 167,891 1,703,050 209,040 209,040 1,703,050 259,399 259,399 1,703,050
7 332,321 193,822 193,822 1,703,050 249,065 249,065 1,703,050 319,495 319,495 1,703,050
8 389,753 220,728 220,728 1,703,050 292,471 292,471 1,703,050 387,752 387,752 1,703,050
9 450,056 246,871 246,871 1,703,050 337,607 337,607 1,703,050 463,166 463,166 1,703,050
10 513,375 272,461 272,461 1,703,050 384,776 384,776 1,703,050 546,767 546,767 1,703,050
11 579,859 297,401 297,401 1,703,050 434,002 434,002 1,703,050 639,430 639,430 1,703,050
12 649,668 321,318 321,318 1,703,050 485,066 485,066 1,703,050 741,944 741,944 1,703,050
13 722,967 344,184 344,184 1,703,050 538,075 538,075 1,703,050 855,521 855,521 1,703,050
14 799,931 365,931 365,931 1,703,050 593,117 593,117 1,703,050 981,530 981,530 1,703,050
15 880,743 386,483 386,483 1,703,050 650,293 650,293 1,703,050 1,121,547 1,121,547 1,703,050
16 965,596 405,708 405,708 1,703,050 709,684 709,684 1,703,050 1,277,385 1,277,385 1,703,050
17 1,054,691 423,596 423,596 1,703,050 771,496 771,496 1,703,050 1,450,526 1,450,526 1,856,673
18 1,148,242 439,981 439,981 1,703,050 835,849 835,849 1,703,050 1,641,423 1,641,423 2,068,193
19 1,246,469 454,691 454,691 1,703,050 902,907 902,907 1,703,050 1,851,857 1,851,857 2,296,303
20 1,349,608 467,579 467,579 1,703,050 972,901 972,901 1,703,050 2,083,849 2,083,849 2,542,296
21 1,417,089 443,589 443,589 1,703,050 1,008,939 1,008,939 1,703,050 2,302,456 2,302,456 2,762,947
22 1,487,943 419,516 419,516 1,703,050 1,047,290 1,047,290 1,703,050 2,544,383 2,544,383 3,027,816
23 1,562,341 395,360 395,360 1,703,050 1,088,104 1,088,104 1,703,050 2,812,159 2,812,159 3,318,348
24 1,640,458 371,121 371,121 1,703,050 1,131,538 1,131,538 1,703,050 3,108,589 3,108,589 3,637,049
25 1,722,480 346,116 346,116 1,703,050 1,177,473 1,177,473 1,703,050 3,436,508 3,436,508 3,986,349
26 1,808,604 318,911 318,911 1,703,050 1,225,583 1,225,583 1,703,050 3,798,740 3,798,740 4,368,551
27 1,899,035 289,234 289,234 1,703,050 1,276,107 1,276,107 1,703,050 4,199,685 4,199,685 4,745,645
28 1,993,986 256,754 256,754 1,703,050 1,329,318 1,329,318 1,703,050 4,643,768 4,643,768 5,154,582
29 2,093,686 221,055 221,055 1,703,050 1,385,539 1,385,539 1,703,050 5,135,998 5,135,998 5,598,238
30 2,198,370 181,622 181,622 1,703,050 1,445,151 1,445,151 1,703,050 5,682,084 5,682,084 6,079,830
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET
PREMIUM FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND
ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CORRIDOR TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 1
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40,816 28,953 29,262 1,703,050 30,875 31,184 1,703,050 32,800 33,109 1,703,050
2 83,672 57,073 57,382 1,703,050 62,724 63,033 1,703,050 68,613 68,921 1,703,050
3 128,671 84,353 84,353 1,703,050 95,578 95,578 1,703,050 107,746 107,746 1,703,050
4 175,921 110,772 110,772 1,703,050 129,455 129,455 1,703,050 150,531 150,531 1,703,050
5 225,532 136,312 136,312 1,703,050 164,381 164,381 1,703,050 197,344 197,344 1,703,050
6 277,625 160,923 160,923 1,703,050 200,353 200,353 1,703,050 248,576 248,576 1,703,050
7 332,321 184,546 184,546 1,703,050 237,363 237,363 1,703,050 304,661 304,661 1,703,050
8 389,753 208,457 208,457 1,703,050 276,821 276,821 1,703,050 367,594 367,594 1,703,050
9 450,056 231,213 231,213 1,703,050 317,349 317,349 1,703,050 436,577 436,577 1,703,050
10 513,375 252,752 252,752 1,703,050 358,956 358,956 1,703,050 512,278 512,278 1,703,050
11 579,859 273,002 273,002 1,703,050 401,647 401,647 1,703,050 595,456 595,456 1,703,050
12 649,668 291,904 291,904 1,703,050 445,454 445,454 1,703,050 687,005 687,005 1,703,050
13 722,967 309,430 309,430 1,703,050 490,449 490,449 1,703,050 787,984 787,984 1,703,050
14 799,931 325,482 325,482 1,703,050 536,655 536,655 1,703,050 899,565 899,565 1,703,050
15 880,743 339,936 339,936 1,703,050 584,092 584,092 1,703,050 1,023,110 1,023,110 1,703,050
16 965,596 352,654 352,654 1,703,050 632,791 632,791 1,703,050 1,160,217 1,160,217 1,703,050
17 1,054,691 363,484 363,484 1,703,050 682,799 682,799 1,703,050 1,312,778 1,312,778 1,703,050
18 1,148,242 372,177 372,177 1,703,050 734,119 734,119 1,703,050 1,481,780 1,481,780 1,867,043
19 1,246,469 378,481 378,481 1,703,050 786,796 786,796 1,703,050 1,667,181 1,667,181 2,067,304
20 1,349,608 382,144 382,144 1,703,050 840,927 840,927 1,703,050 1,870,592 1,870,592 2,282,123
21 1,417,089 345,962 345,962 1,703,050 857,475 857,475 1,703,050 2,053,501 2,053,501 2,464,201
22 1,487,943 306,230 306,230 1,703,050 873,030 873,030 1,703,050 2,253,775 2,253,775 2,681,993
23 1,562,341 262,469 262,469 1,703,050 887,447 887,447 1,703,050 2,473,052 2,473,052 2,918,201
24 1,640,458 214,065 214,065 1,703,050 900,528 900,528 1,703,050 2,713,114 2,713,114 3,174,343
25 1,722,480 160,197 160,197 1,703,050 911,986 911,986 1,703,050 2,975,894 2,975,894 3,452,036
26 1,808,604 99,762 99,762 1,703,050 921,424 921,424 1,703,050 3,263,480 3,263,480 3,753,002
27 1,899,035 31,330 31,330 1,703,050 928,322 928,322 1,703,050 3,579,619 3,579,619 4,044,969
28 1,993,986 (*) (*) (*) 931,993 931,993 1,703,050 3,927,578 3,927,578 4,359,611
29 2,093,686 (*) (*) (*) 931,653 931,653 1,703,050 4,311,237 4,311,237 4,699,248
30 2,198,370 (*) (*) (*) 926,448 926,448 1,703,050 4,735,269 4,735,269 5,066,738
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(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%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CORRIDOR TEST
UNISEX: GUARANTEED ISSUE/NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 2
CURRENT VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40,816 30,986 31,295 1,734,036 32,978 33,287 1,736,028 34,973 35,282 1,738,023
2 83,672 60,014 60,323 1,763,064 65,889 66,198 1,768,939 72,008 72,317 1,775,058
3 128,671 87,338 87,338 1,790,388 98,961 98,961 1,802,011 111,557 111,557 1,814,607
4 175,921 113,695 113,695 1,816,745 132,934 132,934 1,835,984 154,641 154,641 1,857,691
5 225,532 139,716 139,716 1,842,766 168,533 168,533 1,871,583 202,386 202,386 1,905,436
6 277,625 165,335 165,335 1,868,385 205,733 205,733 1,908,783 255,154 255,154 1,958,204
7 332,321 190,373 190,373 1,893,423 244,418 244,418 1,947,468 313,281 313,281 2,016,331
8 389,753 216,165 216,165 1,919,215 286,080 286,080 1,989,130 378,860 378,860 2,081,910
9 450,056 240,978 240,978 1,944,028 329,026 329,026 2,032,076 450,742 450,742 2,153,792
10 513,375 265,043 265,043 1,968,093 373,543 373,543 2,076,593 529,834 529,834 2,232,884
11 579,859 288,231 288,231 1,991,281 419,562 419,562 2,122,612 616,757 616,757 2,319,807
12 649,668 310,068 310,068 2,013,118 466,650 466,650 2,169,700 711,828 711,828 2,414,878
13 722,967 330,488 330,488 2,033,538 514,774 514,774 2,217,824 815,829 815,829 2,518,879
14 799,931 349,381 349,381 2,052,431 563,846 563,846 2,266,896 929,572 929,572 2,632,622
15 880,743 366,614 366,614 2,069,664 613,756 613,756 2,316,806 1,053,936 1,053,936 2,756,986
16 965,596 381,985 381,985 2,085,035 664,310 664,310 2,367,360 1,189,813 1,189,813 2,892,863
17 1,054,691 395,450 395,450 2,098,500 715,471 715,471 2,418,521 1,338,361 1,338,361 3,041,411
18 1,148,242 406,756 406,756 2,109,806 766,977 766,977 2,470,027 1,500,632 1,500,632 3,203,682
19 1,246,469 415,641 415,641 2,118,691 818,548 818,548 2,521,598 1,677,783 1,677,783 3,380,833
20 1,349,608 421,878 421,878 2,124,928 869,918 869,918 2,572,968 1,871,123 1,871,123 3,574,173
21 1,417,089 391,612 391,612 2,094,662 885,762 885,762 2,588,812 2,046,617 2,046,617 3,749,667
22 1,487,943 361,693 361,693 2,064,743 902,373 902,373 2,605,423 2,241,108 2,241,108 3,944,158
23 1,562,341 332,117 332,117 2,035,167 919,787 919,787 2,622,837 2,456,653 2,456,653 4,159,703
24 1,640,458 302,881 302,881 2,005,931 938,044 938,044 2,641,094 2,695,531 2,695,531 4,398,581
25 1,722,480 273,121 273,121 1,976,171 956,298 956,298 2,659,348 2,959,354 2,959,354 4,662,404
26 1,808,604 241,108 241,108 1,944,158 972,756 972,756 2,675,806 3,248,976 3,248,976 4,952,026
27 1,899,035 206,654 206,654 1,909,704 987,111 987,111 2,690,161 3,566,960 3,566,960 5,270,010
28 1,993,986 169,532 169,532 1,872,582 998,999 998,999 2,702,049 3,916,109 3,916,109 5,619,159
29 2,093,686 129,462 129,462 1,832,512 1,007,977 1,007,977 2,711,027 4,299,461 4,299,461 6,002,511
30 2,198,370 86,095 86,095 1,789,145 1,013,512 1,013,512 2,716,562 4,720,314 4,720,314 6,423,364
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY
$5.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. CURRENT VALUES REFLECT A
PREMIUM CHARGE OF 9% OF TARGET PREMIUM AND 6.5% OF EXCESS-OF-TARGET
PREMIUM FOR THE FIRST 7 YEARS AND 3.5% OF ALL PREMIUM FROM EIGHTH YEAR AND
ON.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
$38,872.05 ANNUAL PREMIUM FOR 20 YEARS
$1,703,050 SPECIFIED AMOUNT
GUIDELINE PREMIUM AND CORRIDOR TEST
UNISEX: NONTOBACCO, AGE 45
DEATH BENEFIT OPTION 2
GUARANTEED VALUES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Premiums
Paid Plus Cash Cash Cash
Policy Interest Cash Surrender Death Cash Surrender Death Cash Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 40,816 28,842 29,151 1,731,892 30,757 31,066 1,733,807 32,676 32,984 1,735,726
2 83,672 56,738 57,047 1,759,788 62,354 62,663 1,765,404 68,206 68,514 1,771,256
3 128,671 83,669 83,669 1,786,719 94,791 94,791 1,797,841 106,847 106,847 1,809,897
4 175,921 109,598 109,598 1,812,648 128,052 128,052 1,831,102 148,865 148,865 1,851,915
5 225,532 134,493 134,493 1,837,543 162,121 162,121 1,865,171 194,554 194,554 1,897,604
6 277,625 158,285 158,285 1,861,335 196,943 196,943 1,899,993 244,199 244,199 1,947,249
7 332,321 180,889 180,889 1,883,939 232,447 232,447 1,935,497 298,099 298,099 2,001,149
8 389,753 203,545 203,545 1,906,595 269,957 269,957 1,973,007 358,065 358,065 2,061,115
9 450,056 224,777 224,777 1,927,827 308,002 308,002 2,011,052 423,074 423,074 2,126,124
10 513,375 244,489 244,489 1,947,539 346,480 346,480 2,049,530 493,519 493,519 2,196,569
11 579,859 262,569 262,569 1,965,619 385,268 385,268 2,088,318 569,812 569,812 2,272,862
12 649,668 278,923 278,923 1,981,973 424,257 424,257 2,127,307 652,426 652,426 2,355,476
13 722,967 293,494 293,494 1,996,544 463,366 463,366 2,166,416 741,920 741,920 2,444,970
14 799,931 306,138 306,138 2,009,188 502,423 502,423 2,205,473 838,817 838,817 2,541,867
15 880,743 316,682 316,682 2,019,732 541,212 541,212 2,244,262 943,661 943,661 2,646,711
16 965,596 324,936 324,936 2,027,986 579,491 579,491 2,282,541 1,057,028 1,057,028 2,760,078
17 1,054,691 330,695 330,695 2,033,745 616,987 616,987 2,320,037 1,179,537 1,179,537 2,882,587
18 1,148,242 333,637 333,637 2,036,687 653,292 653,292 2,356,342 1,311,742 1,311,742 3,014,792
19 1,246,469 333,444 333,444 2,036,494 687,980 687,980 2,391,030 1,454,253 1,454,253 3,157,303
20 1,349,608 329,819 329,819 2,032,869 720,618 720,618 2,423,668 1,607,756 1,607,756 3,310,806
21 1,417,089 286,351 286,351 1,989,401 712,454 712,454 2,415,504 1,732,516 1,732,516 3,435,566
22 1,487,943 239,507 239,507 1,942,557 699,715 699,715 2,402,765 1,865,750 1,865,750 3,568,800
23 1,562,341 189,039 189,039 1,892,089 681,893 681,893 2,384,943 2,008,006 2,008,006 3,711,056
24 1,640,458 134,614 134,614 1,837,664 658,361 658,361 2,361,411 2,159,793 2,159,793 3,862,843
25 1,722,480 75,763 75,763 1,778,813 628,322 628,322 2,331,372 2,321,523 2,321,523 4,024,573
26 1,808,604 11,844 11,844 1,714,894 590,757 590,757 2,293,807 2,493,459 2,493,459 4,196,509
27 1,899,035 (*) (*) (*) 544,434 544,434 2,247,484 2,675,713 2,675,713 4,378,763
28 1,993,986 (*) (*) (*) 487,839 487,839 2,190,889 2,868,176 2,868,176 4,571,226
29 2,093,686 (*) (*) (*) 419,396 419,396 2,122,446 3,070,731 3,070,731 4,773,781
30 2,198,370 (*) (*) (*) 337,611 337,611 2,040,661 3,283,401 3,283,401 4,986,451
</TABLE>
(1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A
MONTHLY $10.00 ADMINISTRATIVE EXPENSE CHARGE ALL THE TIME. GUARANTEED
VALUES REFLECT A PREMIUM CHARGE OF 9% OF PREMIUM FOR THE FIRST 7 YEARS AND
5.5% OF PREMIUM FROM EIGHTH YEAR AND ON.
(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%, AND 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATION CAN BE MADE BY 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
PERFORMANCE TABLES
The following performance tables display historical investment results of the
Underlying Mutual Fund sub-accounts of the Variable Account. This information
may be useful in helping potential investors in deciding which Underlying Mutual
Fund sub-accounts to choose and in assessing the competence of the Underlying
Mutual Funds' investment advisers. The performance figures shown should be
considered in light of the investment objectives and policies, characteristics
and quality of the underlying portfolios of the Underlying Mutual Funds, and the
market conditions during the periods of time quoted. The performance figures
should not be considered as estimates or predictions of future performance.
Investment return and the principal value of the Underlying Mutual Fund
sub-accounts are not guaranteed and will fluctuate so that a Policy Owner's
units, when redeemed, may be worth more or less than their original cost.
50
<PAGE> 54
FUND PERFORMANCE TABLE*
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Annual Percentage Change Cumulative Non-Annualized
Percentage Change
----------------------------------------------------------------------------------------
Fund Unit 1 mo 1 Yr 2 Yrs
UNDERLYING MUTUAL FUND Inception Values 1994 1995 1996 to to to
Date 12/31/96 12/31/96 12/31/96 12/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Century VP Balanced 05/01/91 9.34 -0.14 20.23 11.37 -4.06 5.97 25.28
American Century VP Capital Appreciation 11/20/87 9.13 -1.91 30.14 -5.04 -8.56 -18.88 -0.30
American Century VP International 05/01/94 9.29 N/A 11.38 13.56 0.65 16.71 36.03
American Century VP Value 05/01/96 9.23 N/A N/A N/A -2.56 N/A N/A
Dreyfus Variable Investment Fund 05/02/94 9.34 N/A 60.73 18.74 -4.52 6.35 60.91
Growth & Income Fund
Dreyfus Socially Responsible Growth Fund 10/06/93 8.87 0.74 33.58 20.33 -5.58 13.36 50.90
Dreyfus Stock Index Fund 09/29/89 8.91 0.13 35.78 20.53 -4.21 17.40 53.14
Fidelity VIP Fund II -Asset Manager 09/06/89 9.24 -6.79 16.09 13.75 -3.87 10.43 29.04
Portfolio
Fidelity VIP Fund II -Contrafund Portfolio 01/03/95 9.21 N/A N/A 20.41 -2.65 13.39 48.78
Fidelity VIP Fund - Equity-Income 10/09/86 9.10 6.28 34.10 13.43 -3.78 9.96 41.06
Portfolio
Fidelity VIP Fund - Growth Portfolio 10/09/86 8.93 -0.76 34.38 13.85 -5.67 5.39 40.96
Fidelity VIP Fund - High Income Portfolio 09/19/85 9.46 -2.28 19.72 13.18 -3.17 8.15 26.97
Fidelity VIP Fund - Overseas Portfolio 01/28/87 9.34 0.97 8.86 12.37 0.84 11.86 27.51
NSAT Capital Appreciation Fund 04/15/92 8.89 -1.64 28.41 25.21 -3.30 18.18 55.48
NSAT Government Bond Fund 11/08/82 9.78 -3.95 17.87 2.71 -1.06 4.45 14.84
NSAT Money Market Fund 11/10/81 9.93 3.11 4.86 4.33 0.36 4.31 9.23
NSAT Small Company Fund 10/23/95 9.13 N/A N/A 21.92 -4.00 7.17 N/A
NSAT Total Return Fund 11/08/82 9.03 0.32 28.15 20.94 -3.38 16.80 46.85
Neuberger & Berman Advisers Management 09/10/84 9.16 -5.70 30.77 8.32 -4.53 5.15 31.80
Trust -Growth Portfolio
Neuberger & Berman Advisers Management 09/10/84 9.86 -0.90 10.11 3.52 -0.36 4.56 11.18
Trust -Bond Portfolio
Neuberger & Berman Advisers Management 03/22/94 8.95 N/A 35.48 28.62 -3.54 19.47 59.67
Trust -Partners Portfolio
Oppenheimer Variable Account Fund - Bond 04/30/85 9.80 -2.67 16.13 2.39 -0.93 3.28 13.24
Fund
Oppenheimer Variable Account Fund - 11/12/90 9.37 -6.43 1.48 16.93 -1.31 18.35 28.72
Global Securities
Oppenheimer Variable Account Fund - 02/09/87 9.35 -2.68 20.47 13.40 -2.53 9.72 28.35
Multiple Strategies
Strong Variable Insurance Funds, Inc. 05/08/92 8.93 -6.10 34.27 0.05 -6.96 -7.13 15.58
- -Discovery Fund II, Inc.
Strong Variable Insurance Funds, Inc. 10/20/95 9.62 N/A N/A 9.56 -2.78 5.25 N/A
- -International Stock Fund II
Strong Opportunity Fund II, Inc. 05/08/92 9.00 2.83 24.90 17.27 -3.25 8.66 36.69
Van Eck Worldwide Insurance Trust 12/27/95 9.60 -5.50 10.17 17.19 -3.70 -2.16 22.46
- -Worldwide Emerging Markets Fund
Van Eck Worldwide Insurance Trust 09/01/89 9.92 -2.06 16.44 1.76 -1.20 1.62 3.85
- -Worldwide Bond Fund
Van Eck Worldwide Insurance Trust 09/01/87 9.47 N/A N/A 25.78 -3.83 31.50 N/A
- -Worldwide Hard Assets Fund
Van Kampen American Capital Life 07/03/95 10.01 N/A N/A 39.50 -1.34 36.58 N/A
Investment Trust - American Capital Real
Estate Securities Fund
Warburg Pincus Trust-International Equity 06/30/95 9.18 N/A N/A 9.16 -0.66 4.60 N/A
Portfolio
Warburg Pincus Trust-Post Venture Capital 11/18/96 9.03 N/A N/A N/A -6.47 N/A N/A
Portfolio
Warburg Pincus Trust-Small Company Growth 06/30/95 8.91 N/A N/A 13.06 -8.05 -5.97 N/A
Portfolio
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Cumulative Non-Annualized Average Annualized
Percentage Change Percentage Change
---------------------------------------------------------------------
3 Yrs. 5 yrs. Inception 3 Yrs. 5 yrs. Inception
UNDERLYING MUTUAL FUND to to to to to to
12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Century VP Balanced 29.91 38.27 61.40 9.11 6.70 8.43
American Century VP Capital Appreciation 5.83 16.42 102.86 1.91 3.09 7.85
American Century VP International N/A N/A 25.64 N/A N/A 8.15
American Century VP Value N/A N/A 22.39 N/A N/A 24.74
Dreyfus Variable Investment Fund N/A N/A 83.32 N/A N/A 23.14
Growth & Income Fund
Dreyfus Socially Responsible Growth Fund 61.20 N/A 72.69 17.25 N/A 16.98
Dreyfus Stock Index Fund 74.92 99.23 143.80 20.49 14.78 12.61
Fidelity VIP Fund II -Asset Manager 29.23 59.40 112.35 8.92 9.77 10.46
Portfolio
Fidelity VIP Fund II -Contrafund Portfolio N/A N/A 61.74 N/A N/A 23.92
Fidelity VIP Fund - Equity-Income 67.78 115.53 239.69 18.83 16.60 12.38
Portfolio
Fidelity VIP Fund - Growth Portfolio 52.93 87.27 271.11 15.21 13.37 13.33
Fidelity VIP Fund - High Income Portfolio 31.61 70.18 226.30 9.59 11.22 10.80
Fidelity VIP Fund - Overseas Portfolio 24.97 58.68 103.40 7.71 9.67 7.23
NSAT Capital Appreciation Fund 67.77 N/A 84.43 18.82 N/A 13.14
NSAT Government Bond Fund 18.92 37.29 225.37 5.95 6.54 8.54
NSAT Money Market Fund 13.40 18.39 173.57 4.28 3.43 6.76
NSAT Small Company Fund N/A N/A 31.90 N/A N/A 21.23
NSAT Total Return Fund 62.48 85.64 592.87 17.56 13.17 14.39
Neuberger & Berman Advisers Management 43.12 60.63 314.17 12.69 9.94 11.98
Trust -Growth Portfolio
Neuberger & Berman Advisers Management 15.00 26.47 144.84 4.77 4.81 7.39
Trust -Bond Portfolio
Neuberger & Berman Advisers Management 80.15 N/A 70.39 21.68 N/A 19.27
Trust -Partners Portfolio
Oppenheimer Variable Account Fund - Bond 17.46 37.54 167.10 5.51 6.58 8.59
Fund
Oppenheimer Variable Account Fund - 21.09 76.76 86.84 6.59 12.07 10.29
Global Securities
Oppenheimer Variable Account Fund - 36.28 63.69 170.01 10.87 10.36 10.29
Multiple Strategies
Strong Variable Insurance Funds, Inc. 19.98 N/A 48.73 6.26 N/A 8.45
- -Discovery Fund II, Inc.
Strong Variable Insurance Funds, Inc. N/A N/A 15.03 N/A N/A 10.16
- -International Stock Fund II
Strong Opportunity Fund II, Inc. 49.28 N/A 111.15 14.29 N/A 16.50
Van Eck Worldwide Insurance Trust 17.30 91.34 62.25 5.46 13.86 6.59
- -Worldwide Emerging Markets Fund
Van Eck Worldwide Insurance Trust 17.03 19.03 47.88 5.38 3.55 5.30
- -Worldwide Bond Fund
Van Eck Worldwide Insurance Trust N/A N/A 35.45 N/A N/A 27.21
- -Worldwide Hard Assets Fund
Van Kampen American Capital Life N/A N/A 49.69 N/A N/A 26.06
Investment Trust - American Capital Real
Estate Securities Fund
Warburg Pincus Trust-International Equity N/A N/A 18.00 N/A N/A 9.97
Portfolio
Warburg Pincus Trust-Post Venture Capital N/A N/A -11.08 N/A N/A -20.93
Portfolio
Warburg Pincus Trust-Small Company Growth N/A N/A 22.79 N/A N/A 12.51
Portfolio
</TABLE>
(See accompanying Notes to Fund Performance Table)
*TOTAL RETURN SHOWS THE PERCENT CHANGE IN UNIT VALUES, WITH DIVIDENDS AND
CAPITAL GAINS REINVESTED, AFTER THE DEDUCTION OF A GUARANTEED MORTALITY AND
EXPENSE RISK CHARGE AT THE RATE OF 0.75% PER ANNUM OF DAILY NET ASSET VALUE OF
THE VARIABLE ACCOUNT AND THE DEDUCTION OF APPLICABLE INVESTMENT ADVISORY FEES
AND OTHER EXPENSES OF THE UNDERLYING MUTUAL FUNDS.
THE TOTAL RETURN FIGURES DO NOT TAKE INTO ACCOUNT THE SEVERAL OTHER POLICY
CHARGES WHICH ARE DESCRIBED IN THE "POLICY CHARGES" SECTION. THESE OTHER CHARGES
INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF INSURANCE CHARGES, SURRENDER CHARGES
AND A MONTHLY ADMINISTRATIVE CHARGE.
51
<PAGE> 55
NOTES TO FUND PERFORMANCE TABLE
The preceding table displays three types of total return: (1) Annual Percentage
Change; (2) Cumulative Non-Annualized Percentage Change; and (3) Average
Annualized Percentage Change. Total return shows the percent change in unit
values, with dividends and capital gains reinvested, after the deduction of
guaranteed mortality and expense risk charge at the rate of 0.75% per annum of
daily net asset value of the Variable Account and the deduction of applicable
investment advisory fees and other expenses of the Underlying Mutual Funds. The
total return figures shown in the Annual Percentage Change and Average
Annualized Percentage Change columns represent annualized figures, i.e., that is
the rate of growth that would have produced the corresponding cumulative return
had performance been constant over the entire period quoted. The Annual
Percentage Change reflects the rate of return on an annual percentage basis
during the 1994, 1995 and 1996 calendar years. The Average Annualized Percentage
Change reflects the annual percentage rate of return over 3 and 5 year periods,
or from Underlying Mutual Fund inception. The Cumulative Non-Annualized
Percentage Change total return figures are not annual return figures but instead
represent the total percentage change in unit value over the stated periods
without annualization. THE TOTAL RETURN FIGURES DO NOT TAKE INTO ACCOUNT THE
SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY CHARGES"
SECTION. THESE OTHER CHARGES INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF INSURANCE
CHARGES, SURRENDER CHARGES AND A MONTHLY ADMINISTRATIVE CHARGE.
The Underlying Mutual Fund Inception Date is the date the Underlying Mutual Fund
first became effective, which is not necessarily the same date the Underlying
Mutual Fund was first made available through the Variable Account. For those
Underlying Mutual Funds which have not been offered as Sub-Accounts through the
Variable Account for one of the quoted periods, the total return figures will
show the investment performance such Underlying Mutual Funds would have achieved
(reduced by the guaranteed mortality and expense risk charge and Underlying
Mutual Fund investment advisory fees and expenses) had they been offered as
sub-accounts through the Variable Account for the period quoted. Certain
Underlying Mutual Funds are not as old as some of the periods quoted, therefore,
total return figures may not be available for all of the periods shown.
THE PRECEDING FUND PERFORMANCE TABLE DISPLAYS HISTORICAL INVESTMENT RESULTS OF
THE UNDERLYING MUTUAL FUNDS OF THE VARIABLE ACCOUNT. THIS INFORMATION MAY BE
USEFUL IN HELPING POTENTIAL INVESTORS IN DECIDING WHICH UNDERLYING MUTUAL FUNDS
TO CHOOSE AND IN ASSESSING THE COMPETENCE OF THE UNDERLYING MUTUAL FUNDS'
INVESTMENT ADVISERS. THE PERFORMANCE FIGURES SHOWN SHOULD BE CONSIDERED IN LIGHT
OF THE INVESTMENT OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE
UNDERLYING PORTFOLIOS OF THE UNDERLYING MUTUAL FUNDS, AND THE MARKET CONDITIONS
DURING THE PERIODS OF TIME QUOTED. THE PERFORMANCE FIGURES SHOULD NOT BE
CONSIDERED AS ESTIMATES OR PREDICTIONS OF FUTURE PERFORMANCE. INVESTMENT RETURN
AND THE PRINCIPAL VALUE OF THE UNDERLYING MUTUAL FUNDS ARE NOT GUARANTEED AND
WILL FLUCTUATE SO THAT A POLICY OWNER'S UNITS, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
52
<PAGE> 56
CASH VALUE PERFORMANCE TABLE*
HYPOTHETICAL ANNUAL PREMIUM: $10,000
$440,003 SPECIFIED AMOUNT
MALE AGE 45 / NON-TOBACCO PREFERRED
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1 Year to 2 Years to 3 Years to
12/31/96 12/31/96 12/31/96
----------------------------------------------------------------------------------------
FUND CASH CASH CASH
UNDERLYING MUTUAL FUND INCEPTION ACCUM SURR. ACCUM SURR. ACCUM SURR.
DATE VALUE VALUE VALUE VALUE VALUE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
American Century VP Balanced 05/01/91 $8,688 $8,766 $18,912 $18,990 $29,352 $29,352
American Century VP Capital 11/20/87 $6,597 $6,676 $14,782 $14,860 $23,294 $23,294
Appreciation
American Century VP 05/01/94 $9,575 $9,654 $20,655 $20,734 N/A N/A
International
American Century VP Value 05/01/94 N/A N/A N/A N/A N/A N/A
Dreyfus Variable Investment 05/02/94 $8,720 $8,799 $22,040 $22,119 N/A N/A
Fund Growth & Income Fund
Dreyfus Socially Responsible 10/06/93 $9,320 $9,398 $21,732 $21,810 $34,729 $34,729
Growth Fund
Dreyfus Stock Index Fund 09/29/89 $9,652 $9,731 $22,216 $22,295 $36,387 $36,387
Fidelity VIP Fund II -Asset 09/06/89 $9,057 $9,135 $19,556 $19,634 $29,933 $29,933
Manager Portfolio
Fidelity VIP Fund II 01/03/95 $9,320 $9,399 $21,577 $21,655 N/A N/A
- -Contrafund Portfolio
Fidelity VIP Fund - 10/09/86 $9,003 $9,081 $20,556 $20,634 $34,211 $34,211
Equity-Income Portfolio
Fidelity VIP Fund - Growth 10/09/86 $8,644 $8,722 $20,281 $20,360 $32,608 $32,608
Portfolio
Fidelity VIP Fund - High 09/19/85 $8,870 $8,949 $19,215 $19,293 $29,779 $29,779
Income Portfolio
Fidelity VIP Fund - Overseas 01/28/87 $9,160 $9,239 $19,517 $19,596 $29,551 $29,551
Portfolio
NSAT Capital Appreciation Fund 04/15/92 $9,710 $9,789 $22,435 $22,513 $35,980 $35,980
NSAT Government Bond Fund 11/08/82 $8,534 $8,612 $17,861 $17,940 $27,405 $27,405
NSAT Money Market Fund 11/10/81 $8,518 $8,597 $17,328 $17,406 $26,443 $26,443
NSAT Small Company Fund 10/23/95 $8,818 $8,897 N/A N/A N/A N/A
NSAT Total Return Fund 11/08/82 $9,591 $9,670 $21,601 $21,680 $34,747 $34,747
Neuberger & Berman Advisers 09/10/84 $8,567 $8,645 $19,363 $19,442 $30,874 $30,874
Management Trust -Growth
Portfolio
Neuberger & Berman Advisers 09/10/84 $8,539 $8,617 $17,528 $17,607 $26,763 $26,763
Management Trust -Bond
Portfolio
Neuberger & Berman Advisers 03/22/94 $9,832 $9,910 $22,945 $23,023 $37,515 $37,515
Management Trust -Partners
Portfolio
Oppenheimer Variable Account 04/30/85 $8,434 $8,513 $17,622 $17,701 $27,058 $27,058
Fund - Bond Fund
Oppenheimer Variable Account 11/12/90 $9,727 $9,805 $20,163 $20,241 $29,879 $29,879
Fund - Global Securities
Oppenheimer Variable Account 02/09/87 $9,001 $9,079 $19,457 $19,535 $30,426 $30,426
Fund - Multiple Strategies
Strong Variable Insurance 05/08/92 $7,572 $7,650 $17,068 $17,146 $26,709 $26,709
Funds, Inc. -Discovery Fund
II, Inc.
Strong Variable Insurance 10/20/95 $8,606 $8,685 N/A N/A N/A N/A
Funds, Inc. -International
Stock Fund II
Strong Opportunity Fund II, 05/08/92 $8,904 $8,982 $20,082 $20,161 $32,167 $32,167
Inc.
Van Eck Worldwide Insurance 12/27/95 $7,963 $8,042 $17,917 $17,995 $27,271 $27,271
Trust -Worldwide Emerging
Markets Fund
Van Eck Worldwide Insurance 09/01/89 $8,300 $8,378 $16,680 $16,758 $26,094 $26,094
Trust -Worldwide Bond Fund
Van Eck Worldwide Insurance 09/01/89 $10,901 $10,980 N/A N/A N/A N/A
Trust -Worldwide Hard Assets
Fund
Van Kampen American Capital 07/03/95 $11,304 $11,383 N/A N/A N/A N/A
Life Investment Trust -
American Capital Real Estate
Securities Fund
Warburg Pincus 06/30/95 $8,542 $8,621 N/A N/A N/A N/A
Trust-International Equity
Portfolio
Warburg Pincus Trust-Post 11/18/96 N/A N/A N/A N/A N/A N/A
Venture Capital Portfolio
Warburg Pincus Trust-Small 6/30/95 $7,716 $7,794 N/A N/A N/A N/A
Company Growth Portfolio
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
5 Years to 10 Years to Inception to
12/31/96 12/31/96 12/31/96
------------------------------------------------------------------------------
CASH CASH CASH
UNDERLYING MUTUAL FUND ACCUM SURR. ACCUM SURR. ACCUM SURR.
VALUE VALUE VALUE VALUE VALUE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Century VP Balanced $51,350 $51,350 N/A N/A $64,786 $64,786
American Century VP Capital $41,455 $41,455 N/A N/A $109,150 $109,150
Appreciation
American Century VP N/A N/A N/A N/A $29,975 $29,975
International
American Century VP Value N/A N/A N/A N/A $10,154 $10,232
Dreyfus Variable Investment N/A N/A N/A N/A $36,007 $36,007
Fund Growth & Income Fund
Dreyfus Socially Responsible N/A N/A N/A N/A $46,155 $46,155
Growth Fund
Dreyfus Stock Index Fund $66,495 $66,495 N/A N/A $121,745 $121,745
Fidelity VIP Fund II -Asset $54,041 $54,041 N/A N/A $100,142 $100,142
Manager Portfolio
Fidelity VIP Fund II N/A N/A N/A N/A $31,766 $31,766
- -Contrafund Portfolio
Fidelity VIP Fund - $65,947 $65,947 $177,675 $177,675 $198,138 $198,138
Equity-Income Portfolio
Fidelity VIP Fund - Growth $61,277 $61,277 $176,533 $176,533 $197,812 $197,812
Portfolio
Fidelity VIP Fund - High $55,350 $55,350 $154,341 $154,341 $197,897 $197,897
Income Portfolio
Fidelity VIP Fund - Overseas $54,822 $54,822 $129,016 $129,016 $142,367 $142,367
Portfolio
NSAT Capital Appreciation Fund N/A N/A N/A N/A $64,792 $64,792
NSAT Government Bond Fund $48,085 $48,085 $122,366 $122,366 $229,133 $229,133
NSAT Money Market Fund $45,087 $45,087 $102,541 $102,541 $200,419 $200,419
NSAT Small Company Fund N/A N/A N/A N/A $19,330 $19,408
NSAT Total Return Fund $63,332 $63,332 $167,295 $167,295 $377,534 $377,534
Neuberger & Berman Advisers $55,390 $55,390 $143,638 $143,638 $222,627 $222,627
Management Trust -Growth
Portfolio
Neuberger & Berman Advisers $46,226 $46,226 $109,757 $109,757 $159,240 $159,240
Management Trust -Bond
Portfolio
Neuberger & Berman Advisers N/A N/A N/A N/A $46,163 $46,163
Management Trust -Partners
Portfolio
Oppenheimer Variable Account $47,957 $47,957 $122,649 $122,649 $162,816 $162,816
Fund - Bond Fund
Oppenheimer Variable Account $58,365 $58,365 N/A N/A $85,001 $85,001
Fund - Global Securities
Oppenheimer Variable Account $55,334 $55,334 $142,510 $142,510 $155,789 $155,789
Fund - Multiple Strategies
Strong Variable Insurance N/A N/A N/A N/A $48,990 $48,990
Funds, Inc. -Discovery Fund
II, Inc.
Strong Variable Insurance N/A N/A N/A N/A $18,360 $18,439
Funds, Inc. -International
Stock Fund II
Strong Opportunity Fund II, N/A N/A N/A N/A $62,320 $62,320
Inc.
Van Eck Worldwide Insurance $56,180 $56,180 N/A N/A $92,088 $92,088
Trust -Worldwide Emerging
Markets Fund
Van Eck Worldwide Insurance $45,104 $45,104 N/A N/A $77,279 $77,279
Trust -Worldwide Bond Fund
Van Eck Worldwide Insurance N/A N/A N/A N/A $20,846 $20,925
Trust -Worldwide Hard Assets
Fund
Van Kampen American Capital N/A N/A N/A N/A $23,184 $23,263
Life Investment Trust -
American Capital Real Estate
Securities Fund
Warburg Pincus N/A N/A N/A N/A $18,067 $18,145
Trust-International Equity
Portfolio
Warburg Pincus Trust-Post N/A N/A N/A N/A $7,688 $7,766
Venture Capital Portfolio
Warburg Pincus Trust-Small N/A N/A N/A N/A $17,403 $17,481
Company Growth Portfolio
</TABLE>
(See Accompanying Notes to Cash Value Performance Table)
*THE CASH SURRENDER VALUE FIGURES REFLECT THE DEDUCTION OF ALL APPLICABLE POLICY
CHARGES, INCLUDING A DEDUCTION FROM EACH PREMIUM PAYMENT, A 0.75% ASSET CHARGE,
APPLICABLE COST OF INSURANCE CHARGES, AND A MONTHLY ADMINISTRATIVE CHARGE (AND
THE DEDUCTION OF APPLICABLE INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE
UNDERLYING MUTUAL FUNDS).
53
<PAGE> 57
NOTES TO CASH VALUE PERFORMANCE TABLE
The preceding Cash-Value performance table shows the effect of the performance
quoted on accumulated values and cash surrender values, based on a hypothetical
annual premium of $10,000 for a 45 year-old male, non-tobacco preferred, with a
level death benefit and an initial specified amount of $440,003 (based on a
Guideline Level Premium of $10,000 issued on a preferred basis). The cash
surrender value figures reflect the deduction of all applicable Policy Charges,
including a deduction from each premium payment, a 0.75% asset charge,
applicable cost of insurance charges, and a monthly
administrative charge (and the deduction of applicable investment advisory fees
and other expenses of the Underlying Mutual Funds). See the "Policy Charges"
section for more information about these charges. The cost of insurance charges
may be higher or lower for purchasers who do not meet the profile of the
hypothetical purchaser. Illustrations reflecting a potential purchaser's
specific characteristics are available from the Company upon request.
The Underlying Mutual Fund Inception Date is the date the Underlying Mutual Fund
first became effective, which is not necessarily the same date the Underlying
Mutual Fund was first made available through the Variable Account. For those
Underlying Mutual Funds which have not been offered as sub-accounts through the
Variable Account for one of the quoted periods, the cash values will show the
investment performance such Underlying Mutual Funds would have achieved (reduced
by any applicable Variable Account and Policy Charges, and Underlying Mutual
Fund investment advisory fees and expenses) had they been offered as
sub-accounts through the Variable Account for the period quoted. Certain
Underlying Mutual Funds are not as old as some of the periods quoted, therefore,
the cash values may not be available for all of the periods shown.
THE PRECEDING CASH-VALUE PERFORMANCE TABLE DISPLAYS HISTORICAL INVESTMENT
RESULTS OF THE UNDERLYING MUTUAL FUNDS OF THE VARIABLE ACCOUNT. THIS
INFORMATION MAY BE USEFUL IN HELPING POTENTIAL INVESTORS IN DECIDING WHICH
UNDERLYING MUTUAL FUNDS TO CHOOSE AND IN ASSESSING THE COMPETENCE OF
THE UNDERLYING MUTUAL FUNDS' INVESTMENT ADVISERS. THE PERFORMANCE FIGURES SHOWN
SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES,
CHARACTERISTICS AND QUALITY OF THE UNDERLYING PORTFOLIOS OF THE UNDERLYING
MUTUAL FUNDS, AND THE MARKET CONDITIONS DURING THE PERIODS OF TIME QUOTED. THE
PERFORMANCE FIGURES SHOULD NOT BE CONSIDERED AS ESTIMATES OR PREDICTIONS OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND THE PRINCIPAL VALUE OF THE UNDERLYING
MUTUAL FUNDS ARE NOT GUARANTEED AND WILL FLUCTUATE SO THAT A POLICY
OWNER'S UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
54
<PAGE> 58
<PAGE> 1
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide VLI Separate Account-2:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account-2 as of December 31,
1996, 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 include confirmation of securities
owned as of December 31, 1996, by correspondence with 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, 1996, 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 7, 1997
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
146,819 shares (cost $3,024,270) ................................. $ 2,949,585
Dreyfus Stock Index Fund (DryStkIx)
763,499 shares (cost $14,597,832) ................................ 15,483,766
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
2,131,003 shares (cost $38,585,366) .............................. 44,815,000
Fidelity VIP - Growth Portfolio (FidVIPGr)
1,730,628 shares (cost $51,294,462) .............................. 53,891,755
Fidelity VIP - High Income Portfolio (FidVIPHI)
1,362,065 shares (cost $16,148,006) .............................. 17,053,049
Fidelity VIP - Overseas Portfolio (FidVIPOv)
859,910 shares (cost $14,604,187) ................................ 16,200,703
Fidelity VIP II - Asset Manager Portfolio (FidVIPAM)
1,317,970 shares (cost $19,127,367) .............................. 22,313,225
Fidelity VIP II - Contrafund Portfolio (FidVIPCon)
824,740 shares (cost $12,402,278) ................................ 13,657,697
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
505,369 shares (cost $7,950,583) ................................. 8,227,404
Nationwide SAT - Government Bond Fund (NSATGvtBd)
605,008 shares (cost $6,588,470) ................................. 6,679,290
Nationwide SAT - Money Market Fund (NSATMyMkt)
34,777,014 shares (cost $34,777,014) ............................. 34,777,014
Nationwide SAT - Small Company Fund (NSATSmCo)
425,548 shares (cost $5,751,682) ................................. 5,910,856
Nationwide SAT - Total Return Fund (NSATTotRe)
3,193,395 shares (cost $37,809,735) .............................. 42,376,355
Neuberger &Berman - Growth Portfolio (NBAMTGro)
493,535 shares (cost $12,574,511) ................................ 12,723,337
Neuberger &Berman - Limited Maturity Bond Portfolio (NBAMTLMat)
197,236 shares (cost $2,784,764) ................................. 2,771,172
Neuberger &Berman - Partners Portfolio (NBAMTPart)
646,222 shares (cost $9,535,912) ................................. 10,649,743
Oppenheimer - Bond Fund (OppBdFd)
513,225 shares (cost $5,888,181) ................................. 5,968,803
Oppenheimer - Global Securities Fund (OppGlSec)
561,069 shares (cost $8,710,530) ................................. 9,914,098
Oppenheimer - Multiple Strategies Fund (OppMult)
509,706 shares (cost $7,225,046) ................................. 7,966,703
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Strong Special Fund II, Inc. (StSpec2)
893,185 shares (cost $14,371,245) ................................ 17,184,873
Strong VIF - Strong Discovery Fund II (StDisc2)
624,950 shares (cost $7,308,503) ................................. 6,749,458
Strong VIF - Strong International Stock Fund II (StIntStk2)
162,907 shares (cost $1,831,224) ................................. 1,829,443
TCI Portfolios - TCI Balanced (TCIBal)
351,201 shares (cost $2,386,878) ................................. 2,648,056
TCI Portfolios - TCI Growth (TCIGro)
1,169,740 shares (cost $12,750,085) .............................. 11,978,141
TCI Portfolios - TCI International (TCIInt)
576,818 shares (cost $3,278,870) ................................. 3,437,835
TCI Portfolios - TCI Value (TCIValue)
1,637 shares (cost $9,188) ....................................... 9,133
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
377,518 shares (cost $6,100,328) ................................. 6,312,096
Van Eck - Worldwide Bond Fund (VEWrldBd)
202,885 shares (cost $2,232,824) ................................. 2,252,023
Van Eck - Worldwide Emerging Markets Fund (VEWrldEMkt)
257 shares (cost $3,213) ......................................... 3,213
Van Kampen American Capital LIT - Real Estate Securities Fund (VKACRES
216,078 shares (cost $2,880,829) ................................. 3,193,630
Warburg Pincus - International Equity Portfolio (WPIntEq)
730,797 shares (cost $8,366,199) ................................. 8,389,554
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
514,119 shares (cost $7,238,771) ................................. 7,326,189
-------------
Total investments ............................................. 405,643,199
Accounts receivable .................................................... 3,525,975
-------------
Total assets .................................................. 409,169,174
-------------
CONTRACT OWNERS' EQUITY (NOTE 7) .......................................... $ 409,169,174
=============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends . . . . . . . . . . . . . $ 16,972,691 6,764,208 3,376,057
Mortality and expense charges (note 3) . . . . . . . . . . . . . (2,983,466) (1,747,342) (879,737)
------------ ----------- -----------
Net investment activity . . . . . . . . . . . . . . . . . . . 13,989,225 5,016,866 2,496,320
------------ ----------- -----------
Proceeds from mutual fund shares sold . . . . . . . . . . . . . 275,979,207 163,574,836 184,340,809
Cost of mutual fund shares sold . . . . . . . . . . . . . . . . (266,008,543) (154,208,870) (184,441,475)
------------ ----------- -----------
Realized gain (loss) on investments . . . . . . . . . . . . . 9,970,664 9,365,966 (100,666)
Change in unrealized gain (loss) on investments . . . . . . . . 12,175,328 17,134,325 (3,604,010)
------------ ----------- -----------
Net gain (loss) on investments . . . . . . . . . . . . . . . 22,145,992 26,500,291 (3,704,676)
------------ ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations . . . . . . . . . . . 36,135,217 31,517,157 (1,208,356)
------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners . . . . . . . . 174,104,282 106,694,208 77,172,455
Surrenders (note 2d) . . . . . . . . . . . . . . . . . . . . . . (6,124,049) (4,970,867) (1,308,994)
Death benefits . . . . . . . . . . . . . . . . . . . . . . . . . (730,700) (143,265) (15,398)
Policy loans (net of repayments) (note 5) . . . . . . . . . . . (6,468,023) (2,529,830) (2,980,396)
Deductions for surrender charges (note 2d) . . . . . . . . . . . (721,263) (364,725) (116,899)
Redemptions to pay cost of insurance charges
and administrative charges (notes 2b and 2c) . . . . . . . . (24,075,896) (14,110,656) (5,382,393)
Deductions for asset charges (note 3) . . . . . . . . . . . . . (20,037) - -
------------ ----------- -----------
Net increase (decrease) in equity transactions . . . . . . 135,964,314 84,574,865 67,368,375
------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY . . . . . . . . . . . . . . . 172,099,531 116,092,022 66,160,019
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD . . . . . . . . . . . . 237,069,643 120,977,621 54,817,602
------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD . . . . . . . . . . . . . . . $ 409,169,174 237,069,643 120,977,621
============= =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT-2
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(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)
Dreyfus Variable Investment Fund - Growth and Income Portfolio (DryGroInc)
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - Growth Portfolio (FidVIPGr)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Fidelity VIP - Overseas Portfolio (FidVIPOv)
Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity
VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Small Company Fund (NSATSmCo)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolios of the Neuberger & Berman Advisers Management Trust
(Neuberger & Berman);
Neuberger & Berman - Growth Portfolio (NBAMTGro)
Neuberger & Berman - Limited Maturity Bond Portfolio (NBAMTLMat)
Neuberger & Berman - Partners Portfolio (NBAMTPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer);
Oppenheimer - Bond Fund (OppBdFd)
Oppenheimer - Global Securities Fund (OppGlSec)
Oppenheimer - Multiple Strategies Fund (OppMult)
<PAGE> 6
Strong Special Fund II, Inc. (StSpec2)
Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF);
Strong VIF - Strong Discovery Fund II (StDisc2)
Strong VIF - Strong International Stock Fund II (StIntStk2)
Portfolios of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Balanced (TCIBal)
TCI Portfolios - TCI Growth (TCIGro)
TCI Portfolios - TCI International (TCIInt)
TCI Portfolios - TCI Value (TCIValue)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck);
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
Van Eck - Worldwide Bond Fund (VEWrldBd) (formerly Van Eck - Global
Bond Fund (VEGlobBd))
Van Eck - Worldwide Emerging Markets Fund (VEWrldEMkt)
Fund of the Van Kampen American Capital Life Investment Trust
(Van Kampen American Capital);
Van Kampen American Capital LIT - Real Estate Securities Fund
(VKACRESec)
Portfolios of the Warburg Pincus Trust (Warburg Pincus);
Warburg Pincus - International Equity Portfolio (WPIntEq)
Warburg Pincus - Post Venture Capital Portfolio (WPPVenCap)
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1996, contract owners have invested in all of the above
funds (except Dreyfus Variable Investment Fund - Growth and Income Portfolio and
Warburg Pincus - Post Venture Capital Portfolio.) The contract owners' equity is
affected by the investment results of each fund, equity transactions by contract
owners and certain contract expenses (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, 1996. 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
Operations of the Account form a part of, and are taxed with, operations
of the Company, which is taxed as a life insurance company under the provisions
of the Internal Revenue Code.
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.
(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.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
current year presentation.
<PAGE> 7
(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.
On last survivor flexible premium contracts, the Company deducts a charge
for state premium taxes equal to 3.5% 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 5% of each premium payment during the
first ten years and 1.5% of each premium payment thereafter.
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).
For last survivor flexible premium contracts, the monthly cost of
insurance is determined in a manner that reflects the anticipated mortality of
the two insureds and the fact that the death benefit is not payable until the
death of the second insured to die.
(c) Administrative Charges
An administrative charge is assessed against each contract to recover
policy maintenance, accounting, record keeping and other administrative expenses
and is assessed against each contract by liquidating units.
For single premium contracts, the Company deducts an annual administrative
charge which is determined as follows:
Contracts issued prior to April 16, 1990:
Purchase payments totalling less than $25,000 - $10/month
Purchase payments totalling $25,000 or more - none
Contracts issued on or after April 16, 1990:
Purchase payments totalling less than $25,000 - $90/year ($65/year in
New York)
Purchase payments totalling $25,000 or more - $50/year
For multiple payment contracts, the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum).
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). 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.
For modified single premium contracts, the monthly charge is equal to an
annual rate of .30% multiplied by the policy's cash value. For policy years 11
and later, this monthly charge is reduced to an annual rate of 0.15% of the
policy's cash value. The monthly charge is subject to a $10 minimum.
For last survivor flexible premium contracts, the Company deducts a
monthly administrative charge equal to the sum of the policy charge and the
basic coverage charge. For policy years one through ten the policy charge is
$10. Additionally, there is a $0.04 per $1000 basic coverage charge (not less
than $20 or more than $80 per policy). For policy years eleven and after, the
policy charge is $5. Additionally, there is a $0.02 per $1000 basic coverage
charge (not less than $10 or more than $40 per policy). Additionally, the
Company deducts a monthly increase charge of $2.40 per $1000 applied to any
increase in the specified amount during the first 12 months after the increase
becomes effective. The charge may be raised to $3.60 per $1000 of increase per
year at the Company's discretion.
<PAGE> 8
(d) Surrender Charges
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.
For modified single premium contracts, the amount charged is based on the
original purchase payment. The charge is 10% in the first year, declining to 0%
in the ninth year.
For last survivor flexible premium contracts, the charge is 100% of the
initial surrender charge, declining to 0% in the fourteenth year if the average
issue age is 74 or less. The charge is 100% of the initial surrender charge,
declining to 0% in the ninth year if the average issue age is 75 or greater. For
last survivor flexible payment contracts, the initial surrender charge is
comprised of two components, an underwriting surrender charge and a sales
surrender charge.
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.
For modified single premium contracts, the Company deducts an annual rate
of .90% charged against the cash value of the contacts. This charge is assessed
monthly against each contract by liquidating units.
For last survivor flexible premium contracts, the Company deducts an
annual rate of .80% in policy years one through ten. This charge is assessed
monthly by liquidating units. In policy years eleven and greater, the Company
deducts an annual rate of .80% if the cash value of the contract is less than
$100,000. If the cash value is greater than or equal to $100,000, the Company
reduces the annual asset fee rate to .30%.
(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. For last survivor flexible
premium contracts, the proceeds are payable on the death of the last surviving
insured. The excess of the death benefit proceeds over the contract value on the
date of death is paid by the Company's general account.
<PAGE> 9
(5) POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% (50% during
first year of single and modified 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, flexible premium,
modified single and last survivor flexible premium contracts, 6% interest is due
and payable in advance on the policy anniversary when there is a loan
outstanding on the policy.
At the time the loan is granted, the amount of the loan is transferred
from the Account to the Company's general account as collateral for the
outstanding loan. Collateral amounts in the general account are credited with
the stated rate of interest in effect at the time the loan is made, subject to a
guaranteed minimum rate. Loan repayments result in a transfer of collateral,
including interest, back to the Account.
(6) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for determining contract owners' equity. This schedule is
presented for each series, as applicable, in the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to
capital gains and dividend 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> 10
(7) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1996,
for each series, in both the accumulation and payout phases.
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 ........................ 8,709 $29.854628 $260,004
Fidelity VIP - Growth Portfolio ............................... 5,280 34.379126 181,522
Fidelity VIP - High Income Portfolio .......................... 3,462 24.493313 84,796
Fidelity VIP - Overseas Portfolio ............................. 5,297 19.654083 104,108
Fidelity VIP-II - Asset Manager Portfolio ..................... 1,158 20.525705 23,769
Nationwide SAT - Government Bond Fund ......................... 2,831 19.842234 56,173
Nationwide SAT - Money Market Fund ............................ 28,405 14.875178 422,529
Nationwide SAT - Total Return Fund ............................ 1,189 26.717684 31,767
Neuberger &Berman - Growth Portfolio .......................... 5,398 24.838185 134,077
Neuberger &Berman - Limited Maturity Bond Portfolio ........... 5,192 16.433880 85,325
Oppenheimer - Global Securities Fund .......................... 1,616 13.422186 21,690
Strong Special Fund II, Inc. .................................. 406 21.426416 8,699
TCI Portfolios - TCIGrowth .................................... 8,408 24.053649 202,243
Van Eck - Gold and Natural Resources Fund ..................... 4,593 15.014547 68,962
Van Eck - Worldwide Bond Fund ................................. 23 14.682655 338
Van Kampen American Capital LIT - Real Estate Securities Fund . 5,134 15.011508 77,069
Warburg Pincus - International Equity Portfolio ............... 1,802 11.634515 20,965
Single Premium contracts issued on or after April 16, 1990:
The Dreyfus Socially Responsible Growth Fund, Inc. ............ 16,672 17.041821 284,121
Dreyfus Stock Index Fund ...................................... 166,883 16.474993 2,749,396
Fidelity VIP - Equity-Income Portfolio ........................ 556,249 24.419978 13,583,588
Fidelity VIP - Growth Portfolio ............................... 436,608 23.774932 10,380,326
Fidelity VIP - High Income Portfolio .......................... 160,710 25.198564 4,049,661
Fidelity VIP - Overseas Portfolio ............................. 349,868 14.155666 4,952,615
Fidelity VIP-II - Asset Manager Portfolio ..................... 328,224 20.046209 6,579,647
Fidelity VIP-II - Contrafund Portfolio ........................ 253,591 13.256842 3,361,816
Nationwide SAT - Capital Appreciation Fund .................... 69,468 17.984058 1,249,317
Nationwide SAT - Government Bond Fund ......................... 215,649 16.449774 3,547,377
Nationwide SAT - Money Market Fund ............................ 1,264,987 12.479104 15,785,904
Nationwide SAT - Small Company Fund ........................... 84,265 13.833221 1,165,656
Nationwide SAT - Total Return Fund ............................ 145,392 23.035683 3,349,204
Neuberger &Berman - Growth Portfolio .......................... 171,390 17.521012 3,002,926
Neuberger &Berman - Limited Maturity Bond Portfolio ........... 72,295 14.088625 1,018,537
Neuberger &Berman - Partners Portfolio ........................ 166,759 17.259712 2,878,212
Oppenheimer - Bond Fund ....................................... 107,202 16.608318 1,780,445
Oppenheimer - Global Securities Fund .......................... 112,397 13.270426 1,491,556
Oppenheimer - Multiple Strategies Fund ........................ 137,052 18.701076 2,563,020
Strong Special Fund II, Inc. .................................. 145,314 21.077454 3,062,849
Strong VIF - Strong Discovery Fund II ......................... 96,856 16.133543 1,562,630
Strong VIF - Strong International Stock Fund II ............... 51,959 11.141803 578,917
TCI Portfolios - TCIBalanced .................................. 38,880 14.303509 556,120
TCI Portfolios - TCIGrowth .................................... 187,431 16.163625 3,029,564
TCI Portfolios - TCIInternational ............................. 140,670 11.748051 1,652,598
Van Eck - Gold and Natural Resources Fund ..................... 179,378 16.582948 2,974,616
Van Eck - Worldwide Bond Fund ................................. 51,233 14.339608 734,661
Van Kampen American Capital LIT - Real Estate Securities Fund . 77,060 14.933196 1,150,752
Warburg Pincus - International Equity Portfolio ............... 229,373 11.573771 2,654,711
Warburg Pincus - Small Company Growth Portfolio ............... 101,386 13.975650 1,416,935
Multiple Payment contracts and Flexible Premium contracts:
The Dreyfus Socially Responsible Growth Fund, Inc. ............ 149,312 17.319589 2,586,022
Dreyfus Stock Index Fund ...................................... 743,163 16.744674 12,444,022
Fidelity VIP - Equity-Income Portfolio ........................ 1,203,661 25.185570 30,314,888
Fidelity VIP - Growth Portfolio ............................... 1,774,112 24.186560 42,909,666
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Fidelity VIP - High Income Portfolio .......................... 519,177 23.588786 12,246,755
Fidelity VIP - Overseas Portfolio ............................. 723,688 15.324813 11,090,383
Fidelity VIP-II - Asset Manager Portfolio ..................... 858,375 18.169993 15,596,668
Fidelity VIP-II - Contrafund Portfolio ........................ 741,153 13.356323 9,899,079
Nationwide SAT - Capital Appreciation Fund .................... 373,658 18.410667 6,879,293
Nationwide SAT - Government Bond Fund ......................... 196,023 15.383251 3,015,471
Nationwide SAT - Money Market Fund ............................ 1,548,800 12.214743 18,918,194
Nationwide SAT - Small Company Fund ........................... 325,390 13.915643 4,528,011
Nationwide SAT - Total Return Fund ............................ 1,740,045 21.988773 38,261,455
Neuberger &Berman - Growth Portfolio .......................... 542,729 17.282005 9,379,445
Neuberger &Berman - Limited Maturity Bond Portfolio ........... 117,219 13.551318 1,588,472
Neuberger &Berman - Partners Portfolio ........................ 434,744 17.469360 7,594,699
Oppenheimer - Bond Fund ....................................... 260,488 15.764821 4,106,547
Oppenheimer - Global Securities Fund .......................... 616,399 13.487753 8,313,837
Oppenheimer - Multiple Strategies Fund ........................ 287,199 18.446363 5,297,777
Strong VIF - Strong Discovery Fund II ......................... 305,653 16.514861 5,047,817
Strong VIF - Strong International Stock Fund II ............... 103,783 11.208230 1,163,224
Strong Special Fund II, Inc. .................................. 649,651 21.575419 14,016,493
TCI Portfolios - TCIBalanced .................................. 137,856 14.642920 2,018,614
TCI Portfolios - TCIGrowth .................................... 564,722 15.327392 8,655,715
TCI Portfolios - TCIInternational ............................. 145,930 11.890858 1,735,233
TCI Portfolios - TCI Value .................................... 900 10.143687 9,129
Van Eck - Gold and Natural Resources Fund ..................... 174,641 18.284590 3,193,239
Van Eck - Worldwide Bond Fund ................................. 110,868 13.479157 1,494,407
Van Eck - Worldwide Emerging Markets Fund ..................... 319 10.078948 3,215
Van Kampen American Capital LIT - Real Estate Securities Fund . 120,572 15.045195 1,814,029
Warburg Pincus - International Equity Portfolio ............... 469,367 11.660648 5,473,123
Warburg Pincus - Small Company Growth Portfolio ............... 402,279 14.080553 5,664,311
Modified Single Premium and Last Survivor Flexible Premium contracts:
The Dreyfus Socially Responsible Growth Fund, Inc. ............ 7,118 11.180091 79,580
Dreyfus Stock Index Fund ...................................... 25,438 11.459856 291,516
Fidelity VIP - Equity-Income Portfolio ........................ 61,195 10.790149 660,303
Fidelity VIP - Growth Portfolio ............................... 40,595 10.446167 424,062
Fidelity VIP - High Income Portfolio .......................... 62,142 10.830462 673,027
Fidelity VIP - Overseas Portfolio ............................. 5,158 10.668178 55,026
Fidelity VIP-II - Asset Manager Portfolio ..................... 10,453 11.022140 115,214
Fidelity VIP-II - Contrafund Portfolio ........................ 35,353 11.249999 397,721
Nationwide SAT - Capital Appreciation Fund .................... 8,542 11.610340 99,176
Nationwide SAT - Government Bond Fund ......................... 5,711 10.679205 60,989
Nationwide SAT - Money Market Fund ............................ 304,482 10.339005 3,148,041
Nationwide SAT - Small Company Fund ........................... 20,576 10.524418 216,550
Nationwide SAT - Total Return Fund ............................ 64,330 11.444877 736,249
Neuberger &Berman - Growth Portfolio .......................... 21,053 9.869834 207,790
Neuberger &Berman - Limited Maturity Bond Portfolio ........... 7,552 10.477247 79,124
Neuberger &Berman - Partners Portfolio ........................ 15,462 11.476324 177,447
Oppenheimer - Bond Fund ....................................... 7,727 10.644626 82,251
Oppenheimer - Global Securities Fund .......................... 8,064 10.833847 87,364
Oppenheimer - Multiple Strategies Fund ........................ 9,746 10.937578 106,598
Strong Special Fund II, Inc. .................................. 9,106 10.766829 98,043
Strong VIF - Strong Discovery Fund II ......................... 14,115 9.884557 139,521
Strong VIF - Strong International Stock Fund II ............... 8,692 10.054422 87,393
TCI Portfolios - TCIBalanced .................................. 6,725 10.931147 73,512
TCI Portfolios - TCIGrowth .................................... 9,987 9.118427 91,066
TCI Portfolios - TCIInternational ............................. 4,661 10.773558 50,216
Van Eck - Gold and Natural Resources Fund ..................... 7,974 10.056004 80,187
Van Eck - Worldwide Bond Fund ................................. 2,209 10.516764 23,232
Van Kampen American Capital LIT - Real Estate Securities Fund . 11,112 13.673840 151,944
Warburg Pincus - International Equity Portfolio ............... 24,290 9.935018 241,322
Warburg Pincus - Small Company Growth Portfolio ............... 24,804 9.827590 243,764
------ -------- ------------
$409,169,174
============
</TABLE>
<PAGE> 12
SCHEDULE I
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
FIDVIPEI FIDVIPGR FIDVIPHI FIDVIPOV FIDVIPAM
-------- -------- -------- -------- --------
1996**
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan 1 $26.373971 30.259267 21.685282 17.526172 18.081878
- -------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.217030 2.174262 1.977825 .431349 1.189904
- -------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.528645 2.256603 1.050520 1.872575 1.435663
- -------------------------------------------------------------------------------------------------------------------------------
Asset charges (.265018) (.311006) (.220314) (.176013) (.181740)
- -------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $29.854628 34.379126 24.493313 19.654083 20.525705
- -------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 13% 14% 13% 12% 14%
================================================================================================================================
1995
Beginning unit value - Jan 1 $19.708533 22.566466 18.151674 16.131866 15.607540
- -------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.542607 .124738 1.314664 .123427 .327932
- -------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.341041 7.828480 2.410020 1.428229 2.304058
- -------------------------------------------------------------------------------------------------------------------------------
Asset charges (.218210) (.260417) (.191076) (.157350) (.157652)
- -------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $26.373971 30.259267 21.685282 17.526172 18.081878
- -------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 34% 34% 19% 9% 16%
================================================================================================================================
1994
Beginning unit value - Jan 1 $18.583057 22.785679 18.612185 16.009316 16.778042
- -------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.395798 1.371061 1.706032 .082663 .815806
- -------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.087894) (1.381165) (1.991707) .196908 (1.832732)
- -------------------------------------------------------------------------------------------------------------------------------
Asset charges (.182428) (.209109) (.174836) (.157021) (.153576)
- -------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.708533 22.566466 18.151674 16.131866 15.607540
- -------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 6% (1)% (2)% 1% (7)%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NSATGVTBD NSATMYMKT NSATTOTRE
--------- --------- ---------
1996
<S> <C> <C> <C>
Beginning unit value - Jan. 1 19.357639 14.287454 22.138653
- --------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.200383 .727569 1.479674
- --------------------------------------------------------------------------------------------
Unrealized gain (loss) (.533024) .000000 3.328301
- --------------------------------------------------------------------------------------------
Asset charges (.182764) (.139845) (.228944)
- --------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 19.842234 14.875178 26.717684
- --------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 3% 4% 21%
============================================================================================
1995
Beginning unit value - Jan. 1 16.457035 13.652006 17.312690
- --------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.167149 .768745 1.720678
- --------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.903991 .000000 3.293404
- --------------------------------------------------------------------------------------------
Asset charges (.170536) (.133297) (.188119)
- --------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 19.357639 14.287454 22.138653
- --------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 18% 5% 28%
============================================================================================
1994
Beginning unit value - Jan. 1 17.168348 13.267517 17.291720
- --------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.079469 .512535 .875020
- --------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.633239) .000000 (.688478)
- --------------------------------------------------------------------------------------------
Asset charges (.157543) (.128046) (.165572)
- --------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 16.457035 13.652006 17.312690
- --------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (4)% 3% 0%
============================================================================================
<FN>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
** No other investment options were being utilized.
</TABLE>
<PAGE> 13
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NBAMTGRO NBAMTLDMAT OPPGLSEC STSPEC2
-------- ---------- -------- -------
1996***
<S> <C> <C> <C> <C>
Beginning unit value - Jan 1 $22.976381 15.906671 11.503363 18.309087
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.084651 1.338753 .000000 .861320
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .004126 (.659070) 2.036434 2.443023
- -----------------------------------------------------------------------------------------------------------------
Asset charges (.226973) (.152474) (.117611) (.187014)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $24.838185 16.433880 13.422186 21.426416
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
unit value* (a) 8% 3% 17% 17%
=================================================================================================================
1995
Beginning unit value - Jan 1 $17.608267 14.475203 11.358489 14.690448
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .623265 .804090 .298934 .761035
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 4.945641 .771696 (.045712) 3.013032
- -----------------------------------------------------------------------------------------------------------------
Asset charges (.200792) (.144318) (.108348) (.155428)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $22.976381 15.906671 11.503363 18.309087
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 30% 10% 1% 25%
=================================================================================================================
1994
Beginning unit value - Jan 1 $18.709214 14.635617 12.162716 14.315226
- -----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.255334 .618309 .214436 .411358
- -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (3.185612) (.641424) (.903773) .103258
- -----------------------------------------------------------------------------------------------------------------
Asset charges (.170669) (.137299) (.114890) (.139394)
- -----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.608267 14.475203 11.358489 14.690448
- -----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (6)% (1)% (7)% 3%
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TCIGRO VEGOLDNR VEWRLDBD VKACRESEC WPINTEQ
------ -------- -------- --------- --------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan 1 25.381408 12.839256 14.458585 10.784280 10.679811
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.847171 .272272 .394300 .288822 .226874
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (3.934619) 2.040791 (.034088) 4.051625 .835595
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.240311) (.137772) (.136142) (.113219) (.107765)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 24.053649 15.014547 14.682655 15.011508 11.634515
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
unit value* (a) (5)% 17% 2% 39% 9%
=============================================================================================================================
1995
Beginning unit value - Jan 1 19.544976 11.677805 12.443161 10.000000 **
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .022491 .115292 1.008475 .092106
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 6.032555 1.160549 1.138120 .740132
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.218614) (.114390) (.131171) (.047958)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 25.381408 12.839256 14.458585 10.784280
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 30% 10% 16% 8%(B)
=============================================================================================================================
1994
Beginning unit value - Jan 1 19.964524 12.382561 12.729709 ** **
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .002137 .062321 .051271
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.236035) (.652194) (.220753)
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.185650) (.114883) (.117066)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 19.544976 11.677805 12.443161
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% (6)% (2)%
=============================================================================================================================
<FN>
* 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 being utilized or was not available.
*** No other investment options were being utilized.
</TABLE>
<PAGE> 14
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKIX FIDVIPEI FIDVIPGR FIDVIPHI
-------- -------- -------- -------- --------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $14.242220 13.621789 21.648958 20.999607 22.388295
- -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .735836 .587431 .998669 1.508424 2.041281
- -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.266937 2.459672 2.069513 1.561724 1.079684
- -----------------------------------------------------------------------------------------------------------
Asset charges (.203172) (.193899) (.297162) (.294823) (.310696)
- -----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.041821 16.474993 24.419978 23.774932 25.198564
- -----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 20% 21% 13% 13% 13%
============================================================================================================
1995
Beginning unit value - Jan. 1 $10.722275 10.088849 16.234159 15.715602 18.805616
- -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .392053 .361339 1.269479 .086841 1.361583
- -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.289798 3.326196 4.390826 5.444880 2.491513
- -----------------------------------------------------------------------------------------------------------
Asset charges (.161906) (.154595) (.245506) (.247716) (.270417)
- -----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.242220 13.621789 21.648958 20.999607 22.388295
- -----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 35% 33% 34% 19%
============================================================================================================
1994
Beginning unit value - Jan. 1 $10.702403 10.131165 15.360584 15.923752 19.350153
- -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .276372 .283260 1.152726 .957853 1.773098
- -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.117327) (.195255) (.073161) (.966373) (2.069306)
- -----------------------------------------------------------------------------------------------------------
Asset charges (.139173) (.130321) (.205990) (.199630) (.248329)
- -----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.722275 10.088849 16.234159 15.715602 18.805616
- -----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% 0% 6% (1)% (3)%
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDVIPOV FIDVIPAM FIDVIPCON NSATCAPAP NSATGVTBD
-------- -------- --------- --------- ---------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 12.667544 17.721708 11.071965 14.444672 16.104612
- -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .311669 1.165823 .104326 .749268 .996469
- -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.350232 1.401973 2.236026 2.998693 (.443598)
- -----------------------------------------------------------------------------------------------------------
Asset charges (.173779) (.243295) (.155475) (.208575) (.207709)
- -----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.155666 20.046209 13.256842 17.984058 16.449774
- -----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 12% 13% 20% 25% 2%
============================================================================================================
1995
Beginning unit value - Jan. 1 11.700527 15.350115 10.000000 11.312336 13.739287
- -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .089493 .322418 .142783 .642275 .972265
- -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.033414 2.260958 .998389 2.653961 1.587542
- -----------------------------------------------------------------------------------------------------------
Asset charges (.155890) (.211783) (.069207) (.163900) (.194482)
- -----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.667544 17.721708 11.071965 14.444672 16.104612
- -----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% 15% 11%(B) 28% 17%
============================================================================================================
1994
Beginning unit value - Jan. 1 11.652241 16.559029 ** 11.563943 14.383265
- -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .060146 .804872 .182742 .902346
- -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .144272 (1.806726) (.286826) (1.366016)
- -----------------------------------------------------------------------------------------------------------
Asset charges (.156132) (.207060) (.147523) (.180308)
- -----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.700527 15.350115 11.312336 13.739287
- -----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% (7)% (2)% (4)%
============================================================================================================
<FN>
* 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 being utilized or was not available.
*** No other investment options were being utilized.
</TABLE>
<PAGE> 15
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NSATMYMKT NSATSMCO NSATTOTRE NBAMTGRO NBAMTLMAT
--------- -------- --------- -------- ---------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan 1 $12.028786 11.410311 19.154939 16.264834 13.684722
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .611421 .133295 1.276326 1.474851 1.151075
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 2.456523 2.875006 .000818 (.567983)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.161103) (.166908) (.270588) (.219491) (.179189)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.479104 13.833221 23.035683 17.521012 14.088625
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 21% 20% 8% 3%
====================================================================================================================================
1995
Beginning unit value - Jan 1 $11.534440 10.000000 15.031721 12.508337 12.496729
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .648458 .017459 1.489410 .442496 .693794
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418328 2.856936 3.508824 .664378
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.154112) (.025476) (.223128) (.194823) (.170179)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.028786 11.410311 19.154939 16.264834 13.684722
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 14%(b) 27% 30% 10%
====================================================================================================================================
1994
Beginning unit value - Jan 1 $11.249231 ** 15.066007 13.336899 12.679406
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .433762 .760244 1.607088 .535454
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.597472) (2.269450) (.555628)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.148553) (.197058) (.166200) (.162503)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.534440 15.031721 12.508337 12.496729
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NBAMTPART OPPBDFD OPPGLSEC OPPMULT STDISC2 STINTSTK2
--------- ------- -------- ------- ------- ---------
1996***
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value - Jan 1 13.495873 16.056725 11.413379 16.404926 16.214896 10.226632
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .549661 1.030165 .000000 1.247087 3.300617 .050938
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.411340 (.269155) 2.016448 1.276232 (3.177170) 1.007488
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.197162) (.209417) (.159401) (.227169) (.204800) (.143255)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 17.259712 16.608318 13.270426 18.701076 16.133543 11.141803
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 28% 3% 16% 14% (1)% 9%
====================================================================================================================================
1995
Beginning unit value - Jan 1 10.018146 13.903136 11.309050 13.693997 12.144445 10.000000
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .081860 .956955 .297396 1.103154 .211667 .041085
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.550382 1.391543 (.045694) 1.805769 4.042004 .209467
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.154515) (.194909) (.147373) (.197994) (.183220) (.023920)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.495873 16.056725 11.413379 16.404926 16.214896 10.226632
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 35% 15% 1% 20% 34% 2%(b)
====================================================================================================================================
1994
Beginning unit value - Jan 1 10.000000 14.362878 12.152136 14.148115 13.003547 **
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .809172 .214078 .720350 .971167
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .072562 (1.086058) (.900362) (.993926) (1.670283)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges .054416 (.182856) (.156802) (.180542) (.159986)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 10.018146 13.903136 11.309050 13.693997 12.144445
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0%(b) (3)% (7)% (3)% (7)%
====================================================================================================================================
<FN>
* 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 being utilized or was not available.
*** No other investment options were being utilized.
</TABLE>
<PAGE> 16
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
STSPEC2 TCIBAL TCIGRO TCIINT VEGOLDNR
------- ------ ------ ------ --------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $18.074367 12.914886 17.116040 10.403803 14.230388
- ------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .849403 .609960 1.918348 .247063 .301335
- ------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.405871 .954721 (2.649394) 1.239275 2.259820
- ------------------------------------------------------------------------------------------------------------------
Asset charges (.252187) (.176058) (.221369) (.142090) (.208595)
- ------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $21.077454 14.303509 16.163625 11.748051 16.582948
- ------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 17% 11% (6)% 13% 17%
==================================================================================================================
1995
Beginning unit value - Jan. 1 $14.552799 10.801955 13.226279 9.392654 12.988341
- ------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .753037 .305779 .015219 .000000 .127947
- ------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.978850 1.961461 4.076606 1.136602 1.287916
- ------------------------------------------------------------------------------------------------------------------
Asset charges (.210319) (.154309) (.202064) (.125453) (.173816)
- ------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.074367 12.914886 17.116040 10.403803 14.230388
- ------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 24% 20% 29% 11% 10%
==================================================================================================================
1994
Beginning unit value - Jan. 1 $14.230663 10.876445 13.557427 10.000000 13.820369
- ------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .407898 .260556 .001450 .000000 .069418
- ------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .103521 (.194370) (.160376) (.554327) (.726294)
- ------------------------------------------------------------------------------------------------------------------
Asset charges (.189283) (.140676) (.172222) (.053019) (.175152)
- ------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.552799 10.801955 13.226279 9.392654 12.988341
- ------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2% (1)% (2)% (6)%(b) (6)%
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEWRLDBD VKACRESEC WPLNTEQ WPSMCOGR
-------- --------- ------- --------
1996***
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 14.170551 10.765797 10.661502 12.430586
- -------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .385883 .287384 .225731 .000000
- -------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.034573) 4.034391 .833478 1.720228
- -------------------------------------------------------------------------------------------------
Asset charges (.182253) (.154376) (.146940) (.175164)
- -------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.339608 14.933196 11.573771 13.975650
- -------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 39% 9% 12%
=================================================================================================
1995
Beginning unit value - Jan. 1 $ 12.237880 10.000000 10.000000 10.000000
- -------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .990055 .091962 .077347 .000000
- -------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.118852 .739397 .650501 2.501606
- -------------------------------------------------------------------------------------------------
Asset charges (.176236) (.065562) (.066346) (.071020)
- -------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 14.170551 10.765797 10.661502 12.430586
- -------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 16% 8%(b) 7%(b) 24%(b)
=================================================================================================
1994
Beginning unit value - Jan. 1 $ 12.563474 ** ** **
- -------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .050533
- -------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.218292)
- -------------------------------------------------------------------------------------------------
Asset charges (.157835)
- -------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $ 12.237880
- -------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (3)%
=================================================================================================
<FN>
* 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 being utilized or was not available.
*** No other investment options were being utilized.
</TABLE>
<PAGE> 17
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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKIX FIDVIPEI FIDVIPGR FIDVIPHI
-------- -------- -------- -------- --------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $14.401809 13.775382 22.215745 21.256059 20.852993
- --------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .747630 .596225 1.025291 1.527554 1.902180
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.296912 2.494042 2.132663 1.587071 1.012148
- --------------------------------------------------------------------------------------------------------
Asset charges (.126762) (.120975) (.188129) (.184124) (.178535)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.319589 16.744674 25.185570 24.186560 23.588786
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 20% 22% 13% 14% 13%
========================================================================================================
1995
Beginning unit value - Jan. 1 $10.788547 10.151919 16.576413 15.828463 17.428943
- --------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .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 capital gains
and dividends .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)%
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDVIPOV FIDVIPAM FIDVIPCON NSATCAPAP NSATGVTBD
-------- -------- --------- --------- ---------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 13.645033 15.982529 11.099135 14.713230 14.984933
- --------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .335875 1.051899 .104631 .766553 .930103
- --------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.459385 1.270941 2.248711 3.061949 (.412550)
- --------------------------------------------------------------------------------------------------------
Asset charges (.115480) (.135376) (.096154) (.131065) (.119235)
- --------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.324813 18.169993 13.356323 18.410667 15.383251
- --------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 12% 14% 20% 25% 3%
========================================================================================================
1995
Beginning unit value - Jan. 1 12.540728 13.774855 10.000000 11.465403 12.720514
- --------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .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 capital gains
and dividends .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)%
========================================================================================================
<FN>
* 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 being utilized or was not available.
*** No other investment options were being utilized.
</TABLE>
<PAGE> 18
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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NSATMYMKT NSATSMCO NSATTOTRE NBAMTGRO NBAMTLMAT NBAMTPART
--------- -------- --------- -------- --------- ---------
1996***
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $11.714295 11.420759 18.192762 15.962482 13.096811 13.591346
- ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .596995 .133983 1.217547 1.448641 1.102543 .554011
- ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 2.463983 2.737018 .003774 (.542247) 3.446498
- ----------------------------------------------------------------------------------------------------------------
Asset charges (.096547) (.103082) (.158554) (.132892) (.105789) (.122495)
- ----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.214743 13.915643 21.988773 17.282005 13.551318 17.469360
- ----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 22% 21% 8% 3% 29%
================================================================================================================
1995
Beginning unit value - Jan. 1 $11.176411 10.000000 14.205723 12.214794 11.900389 10.038887
- ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .629782 .017475 1.413734 .432461 .661221 .082096
- ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418968 2.703396 3.432609 .635177 3.565899
- ----------------------------------------------------------------------------------------------------------------
Asset charges (.091898) (.015684) (.130091) (.117382) (.099976) (.095536)
- ----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.714295 11.420759 18.192762 15.962482 13.096811 13.591346
- ----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 5% 14%(b) 28% 31% 10% 35%
================================================================================================================
1994
Beginning unit value - Jan. 1 $10.845265 ** 14.167308 12.959107 12.014277 10.000000
- ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .419275 .717782 1.562441 .507651 .000000
- ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.565055) (2.207122) (.526553) .072401
- ----------------------------------------------------------------------------------------------------------------
Asset charges (.088129) (.114312) (.099632) (.094986) (.033514)
- ----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.176411 14.205723 12.214794 11.900389 10.038887
- ----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)% 0%(b)
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
OPPBDFD OPPGLSEC OPPMULT STDISC2 STINTSTK2
------- -------- ------- ------- ---------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 15.164813 11.542134 16.100377 16.514850 10.236021
- ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .975830 .000000 1.226905 3.367146 .051144
- ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.253799) 2.045080 1.256649 (3.238459) 1.009533
- ----------------------------------------------------------------------------------------------------------------
Asset charges (.122023) (.099461) (.137568) (.128676) (.088468)
- ----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.764821 13.487753 18.446363 16.514861 11.208230
- ----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 17% 15% 0% 9%
================================================================================================================
1995
Beginning unit value - Jan. 1 $13.065574 11.379737 13.372968 12.307607 10.000000
- ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .902009 .299595 1.079776 .215562 .041121
- ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.310232 (.045711) 1.766931 4.106245 .209625
- ----------------------------------------------------------------------------------------------------------------
Asset charges (.113002) (.091487) (.119298) (.114564) (.014725)
- ----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $15.164813 11.542134 16.100377 16.514850 10.236021
- ----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 16% 1% 20% 34% 2%(b)
================================================================================================================
1994
Beginning unit value - Jan. 1 $13.430475 12.167250 13.747705 13.112678 **
- ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .759284 .214589 .702216 .983647
- ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.018698) (.905246) (.968729) (1.689193)
- ----------------------------------------------------------------------------------------------------------------
Asset charges (.105487) (.096856) (.108224) (.099525)
- ----------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.065574 11.379737 13.372968 12.307607
- ----------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (3)% (6)% (3)% (6)%
================================================================================================================
<FN>
* 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 being utilized or was not available.
*** No other investment options were being utilized.
</TABLE>
<PAGE> 19
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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
STSPEC2 TCIBAL TCIGRO TCIINT TCIVALUE
------- ------ ------ ------ --------
1996***
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $18.408627 13.155049 16.149061 10.477472 10.000000
- ---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .866384 .622373 1.812196 .249286 .000000
- ---------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.458870 .976138 (2.505020) 1.252389 .145457
- ---------------------------------------------------------------------------------------------------
Asset charges (.158462) (.110640) (.128845) (.088289) (.001770)
- ---------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $21.575419 14.642920 15.327392 11.890858 10.143687
- ---------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 17% 11% (5)% 13% 1%(b)
===================================================================================================
1995
Beginning unit value - Jan. 1 $14.748256 10.948128 12.417011 9.412116 **
- ---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .764407 .310910 .014289 .000000
- ---------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.027469 1.992508 3.834812 1.142911
- ---------------------------------------------------------------------------------------------------
Asset charges (.131505) (.096497) (.117051) (.077555)
- ---------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.408627 13.155049 16.149061 10.477472
- ---------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 25% 20% 30% 11%
===================================================================================================
1994
Beginning unit value - Jan. 1 $14.350073 10.968814 12.664593 10.000000 **
- ---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .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)
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGOLDNR VEWRLDBD VEWRLDEMKT VKACRESEC WPLNTEQ WPSMCOGR
-------- -------- ---------- --------- ------- --------
1996***
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 15.612002 13.253457 10.000000 10.792212 10.687672 12.461074
- --------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .331277 .361660 .000000 .289441 .227366 .000000
- --------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.482492 (.030793) .080699 4.059026 .836487 1.727810
- --------------------------------------------------------------------------------------------------------------
Asset charges (.141181) (.105167) (.001751) (.095484) (.090877) (.108331)
- --------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 18.284590 13.479157 10.078948 15.045195 11.660648 14.080553
- --------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 17% 2% 1%(b) 39% 9% 13%
==============================================================================================================
1995
Beginning unit value - Jan. 1 14.178501 11.388987 ** 10.000000 10.000000 10.000000
- --------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .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 capital gains
and dividends .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)%
==============================================================================================================
<FN>
* 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 being utilized or was not available.
*** No other investment options were being utilized.
</TABLE>
<PAGE> 20
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MODIFIED SINGLE PREMIUM AND LAST SURVIVOR FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKIX FIDVIPEI FIDVIPGR
-------- -------- -------- --------
1996**
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $10.000000 10.000000 10.000000 10.000000
- ---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .482403 .358216 .000000 .000000
- ---------------------------------------------------------------------------------------------------
Unrealized gain (loss) .697688 1.101640 .790149 .446167
- ---------------------------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000 .000000
- ---------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.180091 11.459856 10.790149 10.446167
- ---------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 12%(b) 15%(b) 8%(b) 4%(b)
===================================================================================================
FIDVIPCON NSATCAPAP NSATGVTBD NSATMYMKT
--------- --------- --------- ---------
1996**
Beginning unit value - Jan. 1 $10.000000 10.000000 10.000000 10.000000
- ---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .445367 .489314 .339005
- ---------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.249999 1.164973 .189891 .000000
- ---------------------------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000 .000000
- ---------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.249999 11.610340 10.679205 10.339005
- ---------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 12%(b) 16%(b) 7%(b) 3%(b)
===================================================================================================
NBAMTLMAT NBAMTPART OPPBDFD OPPGLSEC
--------- --------- ------- --------
1996**
Beginning unit value - Jan. 1 $10.000000 10.000000 10.000000 10.000000
- ---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .000000 .479143 .000000
- ---------------------------------------------------------------------------------------------------
Unrealized gain (loss) .477247 1.476324 .165483 .833847
- ---------------------------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000 .000000
- ---------------------------------------------------------------------------------------------------
Ending unit value - Dec.31 $10.477247 11.476324 10.644626 10.833847
- ---------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 5%(b) 15%(b) 6%(b) 8%(b)
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDVIPHI FIDVIPOV FIDVIPAM
-------- -------- --------
1996**
<S> <C> <C> <C>
Beginning unit value - Jan. 1 10.000000 10.000000 10.000000
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .000000 .000000
- --------------------------------------------------------------------------------
Unrealized gain (loss) .830462 .668178 1.022140
- --------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000
- --------------------------------------------------------------------------------
Ending unit value - Dec.31 10.830462 10.668178 11.022140
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 8%(b) 7%(b) 10%(b)
================================================================================
NSATSMCO NSATTOTRE NBAMTGRO
-------- --------- --------
1996**
Beginning unit value - Jan. 1 10.000000 10.000000 10.000000
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends .095576 .580169 .000000
- --------------------------------------------------------------------------------
Unrealized gain (loss) .428842 .864708 (.130166)
- --------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000
- --------------------------------------------------------------------------------
Ending unit value - Dec.31 $10.524418 11.444877 9.869834
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 5%(b) 14%(b) (1)%(b)
================================================================================
OPPMULT STDISC2 STINTSTK2
------- ------- ---------
1996**
Beginning unit value - Jan. 1 $10.000000 10.000000 10.000000
- --------------------------------------------------------------------------------
Reinvested capital gains
and dividends .402281 .520758 .045738
- --------------------------------------------------------------------------------
Unrealized gain (loss) .535297 (.636201) .008684
- --------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000
- --------------------------------------------------------------------------------
Ending unit value - Dec.31 10.937578 9.884557 10.054422
- --------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 9%(b) (1)%(b) 1%(b)
================================================================================
<FN>
* 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.
** No other investment options were being utilized.
</TABLE>
<PAGE> 21
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MODIFIED SINGLE PREMIUM AND LAST SURVIVOR FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
STSPEC2 TCIBAL TCIGRO TCIINT
------- ------ ------ ------
1996**
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $10.000000 10.000000 10.000000 10.000000
- ---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .045100 .122861 .000000 .224735
- ---------------------------------------------------------------------------------------------------
Unrealized gain (loss) .721729 .808286 (.881573) .548823
- ---------------------------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000 .000000
- ---------------------------------------------------------------------------------------------------
Ending unit value - Dec.31 $10.766829 10.931147 9.118427 10.773558
- ---------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 8%(b) 9%(b) (9)%(b) 8%(b)
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGoldNR VEWrldNR VKACRESec
-------- -------- ---------
1996**
<S> <C> <C> <C>
Beginning unit value - Jan. 1 10.000000 10.000000 10.000000
- ---------------------------------------------------------------------------------
Reinvested capital gains
and dividends .181335 .280847 .255666
- ---------------------------------------------------------------------------------
Unrealized gain (loss) (.125331) .235917 3.418174
- ---------------------------------------------------------------------------------
Contract charges .000000 .000000 .000000
- ---------------------------------------------------------------------------------
Ending unit value - Dec. 31 10.056004 10.516764 13.673840
- ---------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 1%(b) 5%(b) 37%(b)
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
WPINTEQ WPSMCOGR
------- --------
1996**
<S> <C> <C>
Beginning unit value - Jan. 1 $10.000000 10.000000
- ----------------------------------------------------------------
Reinvested capital gains
and dividends .193639 .000000
- ----------------------------------------------------------------
Unrealized gain (loss) (.258621) (.172410)
- ----------------------------------------------------------------
Contract charges .000000 .000000
- ----------------------------------------------------------------
Ending unit value - Dec.31 $9.935018 9.827590
- ----------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (1)%(b) (2)%(b)
================================================================
<FN>
* 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.
** No other investment options were being utilized.
See note 6.
</TABLE>
<PAGE> 59
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company) as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
Assets 1996 1995
------ ----------------- ----------------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------------- ----------------
18,306,921 17,778,860
----------------- ----------------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
$47,766,246 38,507,633
================= ================
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------------- ----------------
192,382 281,928
----------------- ----------------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------------- ----------------
45,628,372 35,879,121
----------------- ----------------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------------- ----------------
2,137,874 2,628,512
----------------- ----------------
$47,766,246 38,507,633
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- -------------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
--------------- -------------- -------------
1,992,838 1,798,651 1,599,499
--------------- -------------- -------------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
--------------- -------------- -------------
1,677,341 1,511,079 1,357,641
--------------- -------------- -------------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
--------------- -------------- -------------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
--------------- -------------- -------------
110,889 99,808 78,589
--------------- -------------- -------------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
--------------- -------------- -------------
Net income $ 215,932 212,478 183,728
=============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($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>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
=========== ============= =============== ================= ===============
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
=========== ============= =============== ================= ===============
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
----------- ------------- --------------- ----------------- ---------------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
=========== ============= =============== ================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
--------------- --------------- ---------------
Net cash provided by operating activities 346,159 187,633 39,880
---------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------------- --------------- ---------------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------------- --------------- --------------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------------- --------------- --------------
Net increase (decrease) in cash 34,329 5,832 (16,315)
---------------- --------------- ---------------
Cash, beginning of year 9,455 3,623 19,938
---------------- --------------- ---------------
Cash, end of year $ 43,784 9,455 3,623
================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) Organization and Description of Business
----------------------------------------
Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary
of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries
of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC),
Employers Life Insurance Company of Wausau and subsidiaries (ELICW),
National Casualty Company (NCC), West Coast Life Insurance Company
(WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide
Financial Services, Inc.), Nationwide Investment Services Corporation
(formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and
its subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in
November 1996 as a holding company for NLIC and the other companies of
the Nationwide Insurance Enterprise that offer or distribute long-term
savings and retirement products. On January 27, 1997, Nationwide Corp.
contributed to NFS the common stock of NLIC and three marketing and
distribution companies. NFS is planning an initial public offering of
its Class A common stock during the first quarter of 1997.
In anticipation of the restructuring described above, on September 24,
1996, NLIC's Board of Directors declared a dividend payable January 1,
1997 to Nationwide Corp. consisting of the outstanding shares of common
stock of certain subsidiaries (ELICW, NCC and WCLIC) that do not offer
or distribute long-term savings and retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and another affiliate effective January 1, 1996. These
subsidiaries and all accident and health and group life insurance
business have been accounted for as discontinued operations for all
periods presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC intends
to make an $850,000 distribution to NFS which will then make an
equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to
competition from other financial services providers 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 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, 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 reinsurance and credit and collection
policies and by providing for any amounts deemed uncollectible.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies that offer or distribute long-term savings and
retirement products. Prior to the contribution by Nationwide Corp. to
NFS of the outstanding common stock of NLIC and other companies, NLIC
effected certain transactions with respect to certain subsidiaries and
lines of business that were unrelated to long-term savings and
retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the outstanding shares of common stock
of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group
accident and health and group life insurance business and maintains it
offices in Wausau, Wisconsin. NCC is a property and casualty company
that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate.
NCC maintains its offices in Scottsdale, Arizona. WCLIC writes high
dollar term life insurance policies and is located in San Francisco,
California. ELICW, NCC and WCLIC have been accounted for as
discontinued operations for all periods presented. NLIC did not
recognize any gain or loss on the disposal of these subsidiaries.
A summary of the combined results of operations, including the results
of the accident and health and group life insurance business ELICW
assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and
WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 13 for a
complete discussion of the reinsurance agreements. NLIC has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated companies
and will cease writing any new business prior to December 31, 1997.
NLIC's accident and health and group life insurance business is
accounted for as discontinued operations for all periods presented.
NLIC did not recognize any gain or loss on the disposal of the accident
and health and group life insurance business. The assets, liabilities,
results of operations and activities of discontinued operations are
distinguished physically, operationally and for financial reporting
purposes from the remaining assets, liabilities, results of operations
and activities of NLIC.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
A summary of the results of operations, net of amounts ceded to ELICW
and NMIC in 1996, and assets and liabilities of NLIC's accident and
health and group life insurance business as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) 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. Annual Statements for NLIC and its insurance
subsidiaries, filed with the department of insurance of each insurance
company's state of domicile, are prepared on the basis of accounting
practices prescribed or permitted by each department. 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.
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 consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are
classified and reported as discontinued operations are not
consolidated but rather are reported as "Investment in
Subsidiaries Classified as Discontinued Operations" in the
accompanying consolidated balance sheets and "Income for
Discontinued Operations" in the accompanying consolidated
statements of income. 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, 1996 or 1995.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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. Impairment
losses are 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.
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.
(c) Revenues and Benefits
---------------------
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, 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 interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance 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.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: 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. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(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
investment products and universal life insurance 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. For traditional life 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. 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 3(b).
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life 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 and claims for collectively renewable
long-term disability policies and group long-term disability
policies 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. All health insurance
business is accounted for as discontinued operations. See note 2.
(g) Participating Business
----------------------
Participating business represents approximately 52% in 1996 (54%
in 1995 and 55% in 1994) of the Company's life insurance in force,
78% in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) 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.
(h) Federal Income Tax
------------------
The Company, with the exception of ELICW, files a consolidated
federal income tax return with NMIC, the majority shareholder of
Nationwide Corp. The members of the consolidated tax return group
have a tax sharing arrangement which provides, in effect, for each
member to bear essentially the same federal income tax liability
as if separate tax returns were filed. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
The Company utilizes the asset and liability method of accounting
for income tax. Under this 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.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 2 and 13.
(j) Reclassification
----------------
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) Change in Accounting Principle
------------------------------
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 (SFAS)
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 $6,299,665
and $6,721,714, 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 $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
--------------
$ 212,553
==============
</TABLE>
(5) Investments
-----------
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ------------ ------------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ------------ ------------
$12,014,768 400,341 (51,339) 12,363,770
============ ========== ============ ============
</TABLE>
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
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>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
------------ ---------- ----------- ---------------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
------------ ---------- ----------- ---------------
$11,886,173 663,588 (34,244) 12,515,517
============ ========== =========== ===============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1996, 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 $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
--------------- --------------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
--------------- --------------
$11,970,878 12,304,639
=============== ==============
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
--------------- --------------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
--------------- --------------
$173,592 384,304
=============== ==============
</TABLE>
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- --------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------------- ------------- --------------
$(280,342) 951,932 (1,075,483)
=============== ============= ==============
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996,
1995 and 1994 were $299,558, $107,345 and $228,308, respectively.
During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994,
respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995
and 1994, respectively) were realized on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 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
$3,535.
As permitted by the Financial Accounting Standards Board'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 $3,320,093, resulting in a gross unrealized gain
of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities,
$20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in
other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and
valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of
December 31, 1995).
The recorded investment of mortgage loans on real estate considered to
be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE)
as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995),
which includes $41,663 ($23,975 as of December 31, 1995) of impaired
mortgage loans on real estate for which the related valuation allowance
was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of
December 31, 1995) of impaired mortgage loans on real estate for which
there was no valuation allowance. During 1996, the average recorded
investment in impaired mortgage loans on real estate was approximately
$39,674 ($22,181 in 1995) and interest income recognized on those loans
was $2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------------- -------------
Allowance, end of year $51,038 49,128
============= ==============
</TABLE>
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
--------------- ------------- --------------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
--------------- ------------- ---------------
Net investment income $1,357,759 1,294,033 1,210,811
=============== ============= ==============
</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>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------------ ------------ ------------
$ (326) (1,724) (16,527)
============ ============ ============
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592
as of December 31, 1996 and 1995, 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 87% and 87% of the total liability for future
policy benefits as of December 31, 1996 and 1995, respectively. The
average interest rate credited on investment product policies was
approximately 6.3%, 6.6% and 6.5% for the years ended December 31,
1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
Interest rates: Interest rates vary as follows:
--------------
<TABLE>
<CAPTION>
Year of issue Interest rates
----------------- ----------------------------------------
<S> <C>
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
WITHDRAWALS: Rates, which vary by issue age, type of coverage
and policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on
published tables, modified for the Company's actual
experience.
The Company has entered into a reinsurance contract to cede a portion
of its general account individual annuity business to The Franklin Life
Insurance Company (Franklin). Total recoveries due from Franklin were
$240,451 and $245,255 as of December 31, 1996 and 1995, respectively.
The contract is immaterial to the Company's results of operations. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. Under the terms of the contract,
Franklin has established a trust as collateral for the recoveries. The
trust assets are invested in investment grade securities, the market
value of which must at all times be greater than or equal to 102% of
the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 13. All other reinsurance agreements are not material
to either premiums or reinsurance recoverables.
(7) Federal Income Tax
-------------------
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
----------------- ---------------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
----------------- ---------------
Net deferred tax assets 441,527 345,748
================= ===============
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
----------------- ---------------
Total gross deferred tax liabilities 603,739 592,375
----------------- ---------------
$162,212 246,627
================= ===============
</TABLE>
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. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1996, 1995 and 1994.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
------------ -------- ------------- -------- ------------- --------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
============ ======== ============= ======== ============= ========
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239
during the years ended December 31, 1996, 1995 and 1994,
respectively.
(8) Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
SFAS 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.
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 is 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, which includes certain surrender
charges.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 analyses. 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 insurance, universal life
insurance 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.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Assets
------
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
-----------
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 75% 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 $327,456 extending into
1997 were outstanding as of December 31, 1996.
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 21% (20% in 1995) in any geographic area and no more than 2% (2%
in 1995) with any one borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
------------- ------------- ------------- -------------- ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
============ ============= ============= =============
Less valuation allowances and unamortized discount 58,369
--------------
Total mortgage loans on real estate, net $5,272,119
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
------------ ------------ ------------- ------------- --------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
============ ============= ============= =============
Less valuation allowances and unamortized discount 57,948
--------------
Total mortgage loans on real estate, net $4,602,764
==============
</TABLE>
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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.
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, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996 and
1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for
the Nationwide Insurance Companies and Affiliates Retirement Plan as a
whole for the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
--------------- --------------- ---------------
$ 72,189 53,866 55,046
=============== =============== ===============
</TABLE>
Basis for measurements, net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
--------------- ---------------
$1,349,703 1,263,233
=============== ===============
Net accrued pension expense:
Projected benefit obligation for services rendered to
date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
--------------- ---------------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
--------------- ---------------
$ (26,819) (21,592)
=============== ===============
</TABLE>
Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(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.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation; however, 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,
1996 and 1995 was $34,884 and $33,537, respectively, and the net
periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994
was $3,286, $3,132 and $4,284, respectively.
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
----------- ----------- -----------
$17,875 19,076 23,165
=========== =========== ===========
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
--------------- ---------------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
--------------- ---------------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
--------------- ---------------
$(159,216) (152,734)
=============== ===============
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
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, 1996 by $701 and the NPPBC for the year ended December 31,
1996 by $83.
(12) Shareholder's Equity, 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 company subsidiaries exceed the minimum risk-based capital
requirements.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State of
Ohio (the Department). NLIC's dividend of the outstanding shares of
common stock of certain companies which was declared on September 24,
1996 and the anticipated $850,000 dividend (as discussed in note 1) are
deemed extraordinary under Ohio insurance laws. As a result of such
dividends, any dividend paid by NLIC during the 12-month period
immediately following the $850,000 dividend would also be an
extraordinary dividend under Ohio insurance laws. Accordingly, no such
dividend could be paid without prior regulatory approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its stockholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and stockholder dividends
in the future.
(13) Transactions With Affiliates
----------------------------
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the
Company made lease payments to NMIC and its subsidiaries of $9,065,
$8,986 and $8,133, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $101,584, $107,112, and $100,601 in 1996,
1995 and 1994, respectively. The allocations are based on techniques
and procedures in accordance with insurance regulatory guidelines.
Measures used to allocate expenses among companies include individual
employee estimates of time spent, special cost studies, salary expense,
commissions expense and other methods agreed to by the participating
companies that are within industry guidelines and practices. The
Company believes these allocation methods are reasonable. In addition,
the Company does not believe that expenses recognized under the
intercompany agreements are materially different than expenses that
would have been recognized had the Company operated on a stand alone
basis. Amounts payable to NMIC from the Company under the cost sharing
agreement were $15,111 and $1,186 as of December 31, 1996 and 1995,
respectively.
The Company also 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 1996 and
1995 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance contracts exist between NLIC and, respectively
NMIC and ELICW whereby all of NLIC's accident and health and group life
insurance business is ceded on a modified coinsurance basis. NLIC
entered into the reinsurance agreements during 1996 because the
accident and health and group life insurance business was unrelated to
NLIC's long-term savings and retirement products. Accordingly, the
accident and health and group life insurance business has been
accounted for as discontinued operations for all periods presented.
Under modified coinsurance agreements, invested assets are retained by
the ceding company and investment earnings are paid to the reinsurer.
Under the terms of NLIC's agreements, the investment risk associated
with changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee is
paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC's
retention of such risk. The agreements will remain in force until all
policy obligations are settled. However, with respect to the agreement
between NLIC and NMIC, either party may terminate the contract on
January 1 of any year with prior notice. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. NLIC believes that the terms of the modified coinsurance
agreements are consistent in all material respects with what NLIC could
have obtained with unaffiliated parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and NCC,
are summarized in note 2. Amounts ceded to ELICW in 1996 include
premiums of $224,224, net investment income and other revenue of
$14,833, and benefits, claims and other expenses of $246,641. Amounts
ceded to NMIC in 1996 include premiums of $97,331, net investment
income of $10,890, and benefits, claims and other expenses of $100,476.
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 $4,789 and $9,654 as of December 31,
1996 and 1995, respectively, and are included in short-term investments
on the accompanying consolidated balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the outstanding
shares, with shareholder equity value of $30, of NISC to NLIC. NLIC
contributed an additional $500 to NISC on August 30, 1996.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding
shares of common stock of Farmland Life Insurance Company (Farmland) to
NLIC. Farmland merged into WCLIC effective June 30, 1995. The
contribution resulted in a direct increase to consolidated
shareholder's equity of $46,918. As discussed in note 2, WCLIC is
accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock 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. As discussed in note 2, ELICW is
accounted for as discontinued operations.
Certain annuity products are sold through three affiliated companies
which are also subsidiaries of Nationwide Corp. Total commissions and
fees paid to these affiliates for the years ended December 31, 1996,
1995 and 1994 were $76,922, $57,280 and $50,168, respectively.
(14) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, established a $600,000 revolving
credit facility which provides for a $600,000 loan over a five year
term on a fully revolving basis with a group of national financial
institutions. The credit facility provides for several and not joint
liability with respect to any amount drawn by either NLIC or NMIC. NLIC
and NMIC pay facility and usage fees to the financial institutions to
maintain the revolving credit facility. All previously existing line of
credit agreements were canceled.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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.
(16) Segment Information
-------------------
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment consists
of annuity contracts that provide the customer with the opportunity to
invest in mutual funds managed by the Company and independent
investment managers, with the investment returns accumulating on a
tax-deferred basis. The Fixed Annuities segment consists of annuity
contracts that generate a return for the customer at a specified
interest rate, fixed for a prescribed period, with returns accumulating
on a tax-deferred basis. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the
Company reports corporate expenses and investments, and the related
investment income supporting capital not specifically allocated to its
product segments in a Corporate and Other segment. In addition, all
realized gains and losses, investment management fees and other revenue
earned from mutual funds, other than the portion allocated to the
variable annuities and life insurance segments, are reported in the
Corporate and Other segment.
During 1996, 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 from continuing
operations before federal income tax expense for the years ended
December 31, 1996, 1995 and 1994 and assets as of December 31, 1996,
1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
----------------- --------------- ---------------
$ 1,992,838 1,798,651 1,599,499
================= =============== ===============
Income from continuing operations before federal income tax
expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
----------------- --------------- ---------------
$ 315,497 287,572 241,858
================= =============== ===============
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
----------------- --------------- ---------------
$47,766,246 38,507,633 29,246,024
================= =============== ===============
</TABLE>
<PAGE> 60
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Form S-6 Pre-Effective Amendment No. 1 comprises the following papers and
documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 99 pages.
Representations and Undertakings.
The Signatures.
Accountants' Consent
The following exhibits required by Forms N-8B-2 and S-6:
1. Power of Attorney dated April 2, 1997. Attached hereto.
2. Resolution of the Depositor's Board Included with the Registration
of Directors authorizing the establishment Statement on Form N-8B-2 for
of the Registrant, adopted the Nationwide VLI Separate
Account-2 (File No. 811-5311),
and is hereby incorporated by
reference.
3. Distribution Contracts Filed previously with initial
registration on May 14, 1997,
and is hereby incorporated by
reference herein.
4. Form of Security Filed previously with initial
registration on May 14, 1997,
and is hereby incorporated by
reference herein.
5. Articles of Incorporation of Depositor Filed previously with initial
registration on May 14, 1997,
and is hereby incorporated by
reference herein.
6. Application form of Security Attached hereto.
7. Opinion of Counsel Filed previously with initial
registration on May 14, 1997,
and is hereby incorporated by
reference herein.
100
<PAGE> 61
ACCOUNTANTS' CONSENT
The Board of Directors of Nationwide Life Insurance Company:
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
May 14, 1997
102
<PAGE> 62
SIGNATURES
As required by the Securities Act of 1933, the Registrant, Nationwide VLI
Separate Account-2, has caused this Pre-Effective Amendment No. 1 to be signed
on its behalf in the City of Columbus, and State of Ohio, on this 13th day of
August, 1997.
NATIONWIDE VLI SEPARATE ACCOUNT-2
(Registrant)
(Seal) NATIONWIDE LIFE
Attest: INSURANCE COMPANY
(Depositor)
W. SIDNEY DRUEN By: JOSEPH P. RATH
- -------------------------------- ------------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment No. 1 has been signed below by the following persons in the capacities
indicated on the 13th of August, 1997.
Signature Title
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
Chairman and Chief Executive Officer
DIMON RICHARD MCFERSON - Nationwide Insurance
- ----------------------------- Enterprise and Director
Dimon Richard McFerson
DAVID O. MILLER Director
- -----------------------------
David O. Miller
C. RAY NOECKER Director
- -----------------------------
C. Ray Noecker
ROBERT A. OAKLEY Executive Vice President-Chief
- ----------------------------- Financial Officer
Robert A. Oakley
JAMES F. PATTERSON Director By /s/ 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
103
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as
directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE
LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or
will file with the U.S. Securities and Exchange Commission under the provisions
of the Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with 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, Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B,
Nationwide VA Separate Account-C and Nationwide VA Separate Account-Q; 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 Nationwide Multiple Maturity Separate Account and
Nationwide Multiple Maturity Separate Account-A, and the registration of Group
Flexible Fund Retirement Contracts in connection with Nationwide DC Variable
Account, Nationwide DCVA-II, and 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 Nationwide VLI Separate Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VL Separate Account-A
and Nationwide VL Separate Account-B, hereby constitutes and appoints Dimon
Richard McFerson, Joseph J. Gasper, W. Sidney Druen, Mark R. Thresher, 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 U.S. 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 22nd day of May, 1997.
<TABLE>
<CAPTION>
<S> <C>
/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 J. Engel /s/ Robert A. Oakley
- ------------------------------------------------- --------------------------------------------------
Willard J. 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, Jr., Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------------------- --------------------------------------------------
Joseph J. Gasper, President and Chief Operating Officer Robert L. Stewart, Director
and Director
/s/ Henry S. Holloway /s/ Nancy C. Thomas
- ------------------------------------------------- --------------------------------------------------
Henry S. Holloway, Chairman of the Board, Director Nancy C. Thomas, Director
/s/ Dimon Richard McFerson /s/ Harold W. Weihl
- ------------------------------------------------- --------------------------------------------------
Dimon Richard McFerson, Chairman and Chief Executive Harold W. Weihl, Director
Officer-Nationwide Insurance Enterprise and Director
</TABLE>
<PAGE> 1
================================================================================
WELCOME TO
NATIONWIDE LIFE
INSURANCE COMPANY
&
NATIONWIDE LIFE AND
ANNUITY INSURANCE COMPANY
SPECIMEN COPY
VLOB-113 (08/97)
================================================================================
<PAGE> 2
ABC
PART I
<TABLE>
<CAPTION>
|_| Nationwide Life Insurance Company
|_| Nationwide Life and Annuity
Insurance Company
Employer-Sponsored P.O. Box 182150
Flexible Premium Variable Universal Life Columbus, Ohio 43218-2150
====================================================================================================================================
<S> <C> <C> <C> <C>
1. EMPLOYER INFORMATION
====================================================================================================================================
Employer Name Taxpayer ID Number
====================================================================================================================================
Address (City, State, Zip Code)
====================================================================================================================================
2. INSURED
====================================================================================================================================
Name of Insured (First, Middle, Last) Home Telephone Business Telephone
( ) ( )
====================================================================================================================================
Social Security
Sex |_| M |_| F Age Date of Birth / / Birth Place Number - -
====================================================================================================================================
Street Address City State Zip Code County
====================================================================================================================================
3. OWNER (If other than Employer)
====================================================================================================================================
Full Name Date of Birth Relationship to Insured
====================================================================================================================================
Address Social Sec or Tax ID Number
- -
====================================================================================================================================
4. BENEFICIARY (If other than Employer)
====================================================================================================================================
Full Name of Date Of Relationship Social
Beneficiary Address Birth To Insured Security #
- ---------------------------- ------------------------------ --------------------- ------------------ -------------------
- ---------------------------- ------------------------------ --------------------- ------------------ -------------------
- ---------------------------- ------------------------------ --------------------- ------------------ -------------------
====================================================================================================================================
5. SPECIFIED AMOUNT AND PREMIUM PLAN
====================================================================================================================================
Base Plan Planned Premium
Specified Amount
|_| Employer List Bill $___________________ |_|Annual $_________________
$___________________________ |_| Monthly $___________________ |_|Semi-Annual $_________________
(Electronic Funds Transfer) |_|Quarterly $_________________
Additional Protection Rider (Attach completed authorization |_|Other $_________________
Amount (if elected) and void check)
$ ____________________
====================================================================================================================================
6. OPTIONAL BENEFIT RIDERS
====================================================================================================================================
|_| Additional Protection Rider |_| Change of Insured Rider |_| Other ____________________________
====================================================================================================================================
7. DEATH BENEFIT OPTION
====================================================================================================================================
|_| Option 1 (The Specified Amount, or a multiple of the Contract Value, whichever is greater.)
|_| Option 2 (The Specified Amount, plus premium Contract Value, or a multiple of the Contract
Value, whichever is greater.)
|_| Option 3 (The Specified Amount, plus the accumulation at ___________ % interest or a multiple of the Contract
Value, whichever is greater.)
(If no option is selected, Option 1 is elected.)
====================================================================================================================================
</TABLE>
VLOB-113 (08/97)
<PAGE> 3
<TABLE>
<CAPTION>
====================================================================================================================================
8. SUPPLEMENTAL INFORMATION
====================================================================================================================================
<S> <C> <C>
a. Have you been actively at work daily on a full-time basis (minimum 30 hours per week) for the past 3 months? (Disregard
vacation days and absences that total less than 5 days.)
|_|Yes |_|No If No, explain and complete PART II __________________________________________________________________
b. Have you used any tobacco products in the past 12 months?
|_|Yes |_|No If Yes, specify Type: __________________________________ Frequency: _________________________________
c. Will the insurance applied for replace existing Life Insurance or Annuities on any person here proposed for insurance?
|_|Yes |_|No If Yes, explain _____________________________________________________________________________________
_____________________________________________________________________________________
(Complete and send replacement
forms where applicable.)
====================================================================================================================================
9. SUITABILITY
====================================================================================================================================
YES NO
a. Do you understand that the Death Benefit and Surrender Value may increase or decrease depending
on the investment experience of the Variable Account?............................................................. |_| |_|
b. Do you believe that this policy will meet your insurance needs and financial objectives?.......................... |_| |_|
c. Have you received a current copy of the prospectus?............................................................... |_| |_|
====================================================================================================================================
10. ALLOCATIONS
====================================================================================================================================
FOR CONTRACTS ISSUED IN STATES WHICH REQUIRE A RETURN OF PREMIUM TO A POLICY
OWNER EXERCISING THE SHORT TERM RIGHT TO CANCEL; NET PREMIUMS WILL BE ALLOCATED
TO THE NATIONWIDE SEPARATE ACCOUNT TRUST MONEY MARKET FUND OR TO THE FIXED
ACCOUNT IF SELECTED UNTIL THE END OF THE RIGHT TO CANCEL PERIOD. AT THE END OF
THIS PERIOD, YOUR CONTRACT VALUE WILL BE ALLOCATED TO THE SUBACCOUNTS INDICATED
BELOW. FOR STATES REQUIRING A RETURN OF CASH VALUE YOUR NET PREMIUM WILL BE
ALLOCATED TO THE SUBACCOUNTS AT THE BEGINNING OF THE SHORT TERM RIGHT TO CANCEL
PERIOD. YOUR SELECTIONS MUST TOTAL 100%. MINIMUM INITIAL ALLOCATION TO ANY
SINGLE SUBACCOUNT IS 1%. NO FRACTIONAL PERCENTAGES. THESE PERCENTAGES WILL
APPLY IN FUTURE YEARS BUT MAY BE CHANGED AT ANY TIME BY THE POLICY OWNER. (IF
NO ALLOCATION INDICATED, MONEY MARKET WILL BE AUTOMATICALLY SELECTED.)
====================================================================================================================================
NATIONWIDE SEPARATE ACCOUNT TRUST NEUBERGER & BERMAN AMERICAN CENTURY VARIABLE PORTFOLIOS,
_____ % Money Market Fund ADVISERS MANAGEMENT TRUST INC.
_____ % Government Bond Fund _____ % Limited Maturity Bond Port. _____ % VP Capital Appreciation
_____ % Total Return Fund _____ % Growth Port. _____ % VP Balanced
_____ % Capital Appreciation Fund _____ % Partners Port. _____ % VP International
_____ % Small Company Fund _____ % VP Value
STRONG VARIABLE INSURANCE
OPPENHEIMER VARIABLE ACCOUNTS FUND FUNDS, INC. VAN ECK WORLDWIDE
_____ % Bond Fund _____ % Discovery Fund II INSURANCE TRUST
_____ % Multiple Strategies Fund _____ % Opportunity Fund II _____ % Worldwide Hard Assets Fund
_____ % Global Securities Fund _____ % International Stock Fund II _____ % Worldwide Bond Fund
_____ % Growth Fund _____ % Worldwide Emerging
Markets Fund
WARBURG PINCUS TRUST
FIDELITY VIP FUNDS _____ % International Equity Port.
_____ % High Income Port. _____ % Small Company Growth Port. NATIONWIDE LIFE INSURANCE CO.
_____ % Equity-Income Port. _____ % Post-Venture Capital Port. _____ % Fixed Account
_____ % Growth Port.
_____ % Overseas Port. DREYFUS, INC. VAN KAMPEN AMERICAN CAPITAL LIFE
_____ % Asset Manager Port. _____ % Stock Index Fund INVESTMENT TRUST
_____ % Contrafund Port. _____ % Socially Responsible _____ % Real Estate Securities Fund
Growth Fund
_____ % Growth Opportunities Port. _____ % VIF Capital Appreciation Port.
_____ % VIF Growth & Income Port. OTHER AVAILABLE FUNDS
MORGAN STANLEY UNIVERSAL FUNDS, INC. _____ % _______________
_____ % Emerging Markets Debt Port. _____ % _______________
====================================================================================================================================
</TABLE>
<PAGE> 4
================================================================================
11. TAXPAYER IDENTIFICATION NUMBER
================================================================================
Under the Interest and Dividend Compliance Act of 1983, persons owning
insurance policies are required to provide the Company with certification that
their taxpayer identification number is correct. (For most individuals, this
is their Social Security Number.) If you do not provide us with certification
of this number, you may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, we will be forced to withhold 31% from interest
and other payments we make to you (known as backup withholding). It is not an
additional tax, since the amount withheld will be applied against the tax you
owe. If withholding results in an overpayment of taxes, a refund may be
obtained.
|_| Check this box if the Internal Revenue Service has notified you that you
are not subject to the provisions of this law. Otherwise, your signature
on this application is certification that the taxpayer identification
number on this application is true, correct, and complete.
================================================================================
12. IMPORTANT NOTICE
================================================================================
I UNDERSTAND THAT THE DEATH BENEFIT UNDER A VARIABLE LIFE INSURANCE POLICY MAY
INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT RETURN OF THE SUBACCOUNT(S)
I SELECT. REGARDLESS OF INVESTMENT RETURN, THE DEATH BENEFIT CAN NEVER BE LESS
THAN THE SPECIFIED AMOUNT, AS LONG AS THE POLICY IS IN FORCE. THE CONTRACT
VALUE MAY INCREASE OR DECREASE ON ANY DAY, DEPENDING ON THE INVESTMENT RETURN
FOR THE POLICY. NO MINIMUM CONTRACT VALUE IS GUARANTEED. ON REQUEST, WE WILL
FURNISH ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH BENEFITS AND CONTRACT
VALUES FOR A VARIABLE LIFE INSURANCE POLICY AND A FIXED LIFE INSURANCE POLICY
FOR THE SAME PREMIUM.
================================================================================
AGREEMENT, AUTHORIZATION AND SIGNATURES
================================================================================
I have read this application. I understand each of the questions. All of the
answers and statements on this form are complete and true to the best of my
knowledge and belief. I understand and agree that:
1. This application and any amendments to it, will become a part of the Policy.
They are the basis of any insurance issued upon this application.
2. Any person who submits an application or a claim containing a false or
deceptive statement, and does so with intent to defraud or knowing that
he/she is facilitating a fraud against an insurer, is guilty of insurance
fraud.
3. No agent or other representative of Nationwide may accept risks or make or
change any contract, or waive or change any of the Company's rights or
requirements.
4. No information will be considered as having been given to Nationwide unless
it is written in this application.
5. Insurance will only take effect when all of the following conditions are met:
a. If a Policy is issued by Nationwide and is accepted by me; and
b. If the full first premium is paid; and
c. If all the answers and statements made on the application and amendments
continue to be true to the best of my knowledge and belief.
Signed at ___________________________, on _____________________, ______________.
_____________________________ ___________________________
Signature of Proposed Insured Signature of Owner
================================================================================
I have truly and accurately recorded all Proposed Insured's answers on this
application and have witnessed his/her/their signature(s) hereon.
To the best of my knowledge, the insurance applied for |_|will |_| will not
(CHECK ONE) replace any life insurance or annuity.
_______________________________________ _______________________________________
Licensed Resident Agent Signature Firm Agent's Name (Print) License ID Number
================================================================================
VLOB-113
<PAGE> 5
PART II
<TABLE>
<CAPTION>
====================================================================================================================================
13. PERSONAL INFORMATION
====================================================================================================================================
<S> <C> <C>
YES NO
a. Have you ever had any application for Life or Health Insurance (or for reinstatement of Life or Health
Insurance) declined, postponed, rated-up or limited?.............................................................. |_| |_|
(If "Yes", provide details below.)
b. Have you ever applied for or received disability payments for any illness or injury?.............................. |_| |_|
(If "Yes", provide details below.)
c. Has either of your natural parents suffered cardiovascular disease or death prior to age 60?...................... |_| |_|
d. Have you ever had your driver's license suspended or revoked; or been convicted of driving while
impaired or intoxicated; or been convicted in the past three years of more than one moving violation?............. |_| |_|
(If "Yes", provide details, driver's license #, and state of issue below.)
e. Have you ever been convicted of a felony, misdemeanor, or any other crime or have you ever used
drugs other than as prescribed by a physician?.................................................................... |_| |_|
(If "Yes", provide details below.)
f. In the past 3 years have you engaged in, or do you intend to engage in: flying as a pilot, student pilot,
or crew member; racing of an automobile, motorcycle, or any type of motor-powered vehicle; scuba
diving, mountain climbing, hang gliding, parachuting, sky diving, bungee jumping, or any type of
body-contact or life-threatening sport?........................................................................... |_| |_|
(If "Yes", complete an Aviation/Hazardous Activities Questionnaire.)
DETAILS: _______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
====================================================================================================================================
14. MEDICAL QUESTIONS AND INFORMATION
(For each "yes" answer circle the appropriate item and provide details in #15 below.)
====================================================================================================================================
YES NO
To the best of your knowledge and belief, in the past 10 years have you been
treated for or been diagnosed by a member of the medical profession as having:
a. Alcoholism, drug use other than as prescribed by a physician, nervous or mental disorder?......................... |_| |_|
b. High blood pressure, epilepsy or stroke, Alzheimer's disease, disease of the pancreas or lymph glands,
blood disorder?................................................................................................... |_| |_|
c. Chest pains, heart attack or other heart disorder, diabetes, kidney disorder, lung or respiratory disorder
or any cancer or malignancy?...................................................................................... |_| |_|
d. AIDS (Acquired Immune Deficiency Syndrome), ARC (AIDS-related complex), or any other AIDS-related
condition, or received a positive result of an HIV test?.......................................................... |_| |_|
e. Any chronic or persistent disease not mentioned previously?....................................................... |_| |_|
Within the past five years, have you:
f. Consulted, or been examined or treated by any physician, chiropractor, or other medical practitioner,
or by any hospital, clinic, or other medical facility not previously mentioned?................................... |_| |_|
g. Had any disease, disorder, injury, or operation not previously mentioned?......................................... |_| |_|
Within the past two years, have you:
h. Taken or do you currently take any prescription medication (If so, state name of drug, reason for taking
drug and frequency below)?........................................................................................ |_| |_|
i. Been advised to have any surgery, hospitalization, treatment or test that was not completed?...................... |_| |_|
====================================================================================================================================
15. DETAILS OF MEDICAL HISTORY
====================================================================================================================================
Question
Number & Dates Details (Be specific. Give full names, addresses and telephone
Letter number, if available, of physicians, hospitals, etc.)
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
- ------------------ ---------------- ------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
VLOB-113
<PAGE> 6
================================================================================
16. PERSONAL PHYSICIAN INFORMATION
================================================================================
Name, address, and phone number of Personal Physician __________________________
________________________________________________________________________________
Date last consulted, reason and results _______________________________________
________________________________________________________________________________
Proposed Insured's Height: ___________________________ Weight:__________________
================================================================================
17. INSURANCE INFORMATION
================================================================================
List all Life Insurance now in force on Proposed Insured. If none, write "NONE".
- --------------------------------------------------------------------------------
Year Accidental
Insurance Company Policy Number Amount Issued Death To Be Replaced?
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
18. SPECIAL INSTRUCTIONS
================================================================================
================================================================================
AGREEMENT, AUTHORIZATION AND SIGNATURES
================================================================================
I have read this application. I understand each of the questions. All of the
answers and statements on this form are complete and true to the best of my
knowledge and belief. I understand and agree that:
1. This application and any amendments to it, and any related medical
examinations will become a part of the Policy. They are the basis of any
insurance issued upon this application.
2. Any person who submits an application or a claim containing a false or
deceptive statement, and does so with intent to defraud or knowing that
he/she is facilitating a fraud against an insurer, is guilty of insurance
fraud.
3. No medical examiner or no agent or other representative of Nationwide may
accept risks or make or change any contract, or waive or change any of the
Company's rights or requirements.
4. Insurance will only take effect when all of the following conditions are met:
a. If a Policy is issued by Nationwide and is accepted by me; and
b. If the full first premium is paid; and
c. If all the answers and statements made on the application and amendments
continue to be true to the best of my knowledge and belief.
I have received the pre-notice form of the Fair Credit Reporting Act of 1970.
Also, the Medical Information Bureau disclosure form has been given to me. I
certify that the Social Security Number given is correct and complete. I
authorize: any licensed physician or medical practitioner; any hospital, clinic
or other medical or medically related facility; any insurance company; the
Medical Information Bureau; or any other organization, institution or person who
has knowledge of me; to give that information to the Medical Director of the
Nationwide Insurance Company, or its reinsurers. This authorization, or a copy
of it, will be valid for a period of not more than one year from the date it was
signed.
Signed at _______________________________, on _______________ , ______________.
___________________________________
Signature of Proposed Insured
================================================================================
I have truly and accurately recorded all Proposed Insured's answers on this
application and have witnessed his/her/their signature(s) hereon.
To the best of my knowledge, the insurance |_|will |_| will not (CHECK ONE)
applied for insurance or annuity. replace any life
_______________________________________ _______________________________________
Licensed Resident Agent Signature Firm Agent's Name (Print) License ID Number
================================================================================
<PAGE> 7
Provide To Proposed Insured ONLY If PART II Of Application Is Completed
IMPORTANT NOTICE
DETACH AND GIVE TO PROPOSED INSURED
PRE-NOTICE OF PROCEDURES AS REQUIRED BY THE FAIR CREDIT REPORTING ACT OF 1970
This notice is to inform you that as part of our normal underwriting procedures
in connection with an application for insurance:
An investigative consumer report may be made whereby information is obtained
through personal interviews with your neighbors, friends or others with whom you
are acquainted. This inquiry will include information as to character, general
reputation, personal characteristics and mode of living, except as may be
related directly or indirectly to your sexual orientation, with respect to you,
members of your family, and others having an interest in or closely connected
with the insurance transaction; and
Upon your written request, made within a reasonable time after you receive this
notice, additional information as to the nature and scope of the investigation,
if one is made, will be provided. Requests for additional information should be
addressed to Nationwide Life Insurance Company/Nationwide Life and Annuity
Insurance Company, Box 182150, Columbus, Ohio 43218-2150.
MEDICAL INFORMATION BUREAU DISCLOSURE NOTICE
Information regarding your insurability will be treated as confidential.
Nationwide Life Insurance Company/Nationwide Life and Annuity Insurance Company,
or its reinsurer(s) may, however, make a brief report thereon to the Medical
Information Bureau, a non-profit membership organization of life insurance
companies, which operates an information exchange on behalf of its members. If
you apply to another Bureau member company for life or health insurance coverage
or a claim for benefits is submitted to such a company, the Bureau, upon
request, will supply such company with the information in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. (Medical information will be disclosed
only to your attending physician.) If you question the accuracy of information
in the Bureau's file, you may contact the Bureau and seek a correction in
accordance with the procedures set forth in the Federal Fair Credit Reporting
Act. The address of the Bureau's information office is Post Office Box 105,
Essex Station, Boston Massachusetts, 02112, telephone number (617) 426-3660.
Nationwide Life Insurance Company/Nationwide Life and Annuity Insurance Company,
or its reinsurer(s) may also release information in its file to other life
insurance companies to whom you may apply for life or health insurance, or to
whom a claim for benefits may be submitted.
VLOB-113
