<PAGE> 1
Registration Statement No. 33-35783
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 7
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
-------------------
NATIONWIDE VLI SEPARATE ACCOUNT-2
(EXACT NAME OF TRUST)
-------------------
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
GORDON E. MCCUTCHAN
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and Financial Statements.
It is proposed that this filing will become effective (check appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
The Registrant has registered an indefinite number of securities by a prior
registration statement in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable fee
in the amount of $500.00 has been paid to the Commission. Registrant filed its
Rule 24f-2 Notice for the fiscal year ended December 31, 1996, on February 25,
1997
================================================================================
1 of 107
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1.........................................................Nationwide Life Insurance Company
The Variable Account
2.........................................................Nationwide Life Insurance Company
3.........................................................Custodian of Assets
4.........................................................Distribution of The Policies
5.........................................................The Variable Account
6.........................................................Not Applicable
7.........................................................Not Applicable
8.........................................................Not Applicable
9.........................................................Legal Proceedings
10..........................................................Information About The Policies;
How The Cash Value Varies;
Right to Exchange for a Fixed Benefit
Policy; Reinstatement; Other Policy
Provisions
11..........................................................Investments of The Variable
Account
12..........................................................The Variable Account
13..........................................................Policy Charges
Reinstatement
14..........................................................Underwriting and Issuance -
Premium Payments Minimum
Requirements for Issuance of a Policy
15..........................................................Investments of the Variable
Account; Premium Payments
16..........................................................Underwriting and Issuance -
Allocation of Cash Value
17..........................................................Surrendering The Policy for Cash
18..........................................................Reinvestment
19..........................................................Not Applicable
20..........................................................Not Applicable
21..........................................................Policy Loans
22..........................................................Not Applicable
23..........................................................Not Applicable
24..........................................................Not Applicable
25..........................................................Nationwide Life Insurance Company
26..........................................................Not Applicable
27..........................................................Nationwide Life Insurance Company
28..........................................................Company Management
29..........................................................Company Management
30..........................................................Not Applicable
31..........................................................Not Applicable
32..........................................................Not Applicable
33..........................................................Not Applicable
34..........................................................Not Applicable
35..........................................................Nationwide Life Insurance Company
36..........................................................Not Applicable
37..........................................................Not Applicable
38..........................................................Distribution of The Policies
39..........................................................Distribution of The Policies
40..........................................................Not Applicable
41(a).......................................................Distribution of The Policies
42..........................................................Not Applicable
43..........................................................Not Applicable
44..........................................................How The Cash Value Varies
45..........................................................Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
46..........................................................How The Cash Value Varies
47..........................................................Not Applicable
48..........................................................Custodian of Assets
49..........................................................Not Applicable
50..........................................................Not Applicable
51..........................................................Summary of The Policies; Information
About The Policies
52..........................................................Substitution of Securities
53..........................................................Taxation of The Company
54..........................................................Not Applicable
55..........................................................Not Applicable
56..........................................................Not Applicable
57..........................................................Not Applicable
58..........................................................Not Applicable
59..........................................................Financial Statements
</TABLE>
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY P.O.
Box 182150
Columbus, Ohio 43218-2150
(800) 547-7548, TDD (800) 238-3035
MULTIPLE PAYMENT VARIABLE LIFE INSURANCE POLICIES
ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2
The Life Insurance Policies offered by this prospectus are variable life
insurance policies (collectively referred to as the "Policies"). The Policies
are designed to provide life insurance coverage on the Insured named in the
Policy. The Policies may also provide a Cash Surrender Value if the Policy is
terminated during the lifetime of the Insured. The death benefit and Cash Value
of the Policies may vary to reflect the experience of the Nationwide VLI
Separate Account-2 (the "Variable Account") or the Fixed Account to which Cash
Values are allocated.
The Policies described in this prospectus, meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. The Policies are
designed to generally require the payment of the Guideline Single Premium in
five annual installments for death benefit Option 1 and five or more annual
Guideline Level Premiums under death benefit Option 2.
The Policy Owner may allocate Net Premiums and Cash Value to one or more of the
sub-accounts of the Variable Account and the Fixed Account. The assets of each
sub-account will be used to purchase, at net asset value, shares of a
designated mutual fund of the following series of the underlying variable
account Mutual Fund options:
<TABLE>
<S> <C>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.: NEUBERGER & BERMAN ADVISERS
-American Century VP Balanced MANAGEMENT TRUST:
-American Century VP Capital -Growth Portfolio
Appreciation -Limited Maturity Bond Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: OPPENHEIMER VARIABLE ACCOUNT FUNDS:
-Equity Income Portfolio -Bond Fund
-Growth Portfolio -Multiple Strategies Fund
-High Income Portfolio* STRONG SPECIAL FUND II, INC.
-Overseas Portfolio STRONG VARIABLE INSURANCE FUNDS, INC.:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: -Discovery Fund II, Inc.
-Asset Manager Portfolio VAN ECK WORLDWIDE INSURANCE TRUST:
NATIONWIDE SEPARATE ACCOUNT TRUST: -Worldwide Bond Fund
-Capital Appreciation Fund -Worldwide Hard Assets Fund
-Government Bond Fund
-Money Market Fund
-Total Return Fund
</TABLE>
*The High Income Portfolio may invest in lower quality debt securities commonly
referred to as junk bonds.
Nationwide Life Insurance Company (the "Company") guarantees that the death
benefit for a Policy will never be less than the Specified Amount stated on the
Policy data pages as long as the Policy is in force. There is no guaranteed
Cash Surrender Value. If the Cash Surrender Value is insufficient to cover the
charges under the Policy, the Policy will lapse without value. Also, during the
first five Policy Years, the total premium payments less any existing Policy
Indebtedness must be greater than or equal to the Minimum Premium requirement
in order for the Policy to continue in force.
This prospectus generally describes only that portion of the Cash Value
allocated to the Variable Account. For a brief summary of the Fixed Account
Option, see "The Fixed Account Option." INVESTMENTS IN THESE CONTRACTS ARE NOT
DEPOSITS OR OBLIGATIONS OF, AND ARE NOT GUARANTEED OR ENDORSED BY, THE ADVISER
OF ANY OF THE UNDERLYING MUTUAL FUNDS IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR
ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT
RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE> 5
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS
FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.
The date of this Prospectus is May 1, 1997
2
<PAGE> 6
GLOSSARY OF TERMS
ATTAINED AGE- The Insured's age on the Policy Date, plus the number of full
years since the Policy Date.
ACCUMULATION UNIT- An accounting unit of measure used to calculate the Variable
Account Cash Value.
BENEFICIARY- The person to whom the Death Proceeds are paid.
CASH VALUE- The sum of the Policy values in the Variable Account, Fixed Account
and any associated value in the Policy Loan Account.
CASH SURRENDER VALUE- The Policy's Cash Value, less any Indebtedness under the
Policy, less any Surrender Charge.
CODE- The Internal Revenue Code of 1986, as amended.
COMPANY- Nationwide Life Insurance Company.
DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies
while the Policy is in force.
FIXED ACCOUNT- An investment option which is funded by the General Account of
the Company.
GENERAL ACCOUNT- All assets of the Company other than those of the Variable
Account or in other separate accounts that have been or may be established by
the Company.
GUIDELINE LEVEL PREMIUM- The amount of level annual premium calculated in
accordance with the provisions of the Internal Revenue Code of 1986, as
amended. It represents the level annual premiums required to mature the Policy
under guaranteed mortality and expense charges, and an interest rate of 4%.
GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance
with the provisions of the Internal Revenue Code of 1986, as amended. It
represents the single premium required to mature the Policy under guaranteed
mortality and expense charges, and an interest rate of 6%.
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 95th
birthday.
MINIMUM PREMIUM- The Minimum Premium is shown on the Policy Data Page. It is
used to measure the total amount that must be paid during the first five Policy
Years to continue the Policy in force.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
NET ASSET VALUE- The worth of one share at the end of a market day or at the
close of the New York Stock Exchange. Net Asset Value is computed by adding the
value of all portfolio holdings plus other assets, deducting liabilities and
then dividing the result by the number of shares outstanding.
NET PREMIUMS- Net Premiums are equal to the actual premiums minus the percent
of premium charge. The percent of premium charges are shown on the Policy Data
Page.
POLICY ANNIVERSARY- The same day and month as the Policy Date for succeeding
years.
POLICY CHARGES- All deductions made from the value of the Variable Account, or
the Policy Cash Value.
POLICY DATE- The date the provisions of the Policy take effect, as shown on the
Policy Owner's Policy Data Page.
POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy
Indebtedness.
POLICY OWNER- The person designated in the Policy application as the Owner. In
the State of New York, the variable life insurance Policies offered by the
Company are offered as "Certificates" for "Certificate Owners" under a group
contract rather than individual Policies. The provisions of both these
Certificates and the Policies are essentially the same and references to the
provisions of Policies and rights of Policy Owners in this prospectus include
Certificates and Certificate Owners.
POLICY YEAR- Each year commencing with the Policy Date and each Policy
Anniversary thereafter.
3
<PAGE> 7
SCHEDULED PREMIUM- The Scheduled Premium is shown on the Policy Data Page. It
is used to calculate the initial Specified Amount.
SPECIFIED AMOUNT- A dollar amount used to determine the death benefit under a
Policy. It is shown on the Policy Data Page.
SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is
surrendered.
UNDERLYING MUTUAL FUNDS- The Underlying Mutual Funds which correspond to the
sub-accounts of the Variable Account.
UNSCHEDULED PREMIUM- Additional premium payments which may be allowed under
certain conditions
VALUATION DATE- Each day the New York Stock Exchange and the Company's home
office are open for business or any other day during which there is sufficient
degree of trading that the current net asset value of the Accumulation Units
might be materially affected.
VALUATION PERIOD- A period commencing with the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date.
VARIABLE ACCOUNT- A separate investment account of Nationwide Life Insurance
Company.
4
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF TERMS.....................................................................................................3
SUMMARY OF THE POLICIES...............................................................................................7
Variable Life Insurance......................................................................................7
The Variable Account and its Sub-Accounts....................................................................7
The Fixed Account............................................................................................7
Deductions and Charges.......................................................................................7
Premiums....................................................................................................10
NATIONWIDE LIFE INSURANCE COMPANY....................................................................................10
THE VARIABLE ACCOUNT.................................................................................................10
Investments of the Variable Account.........................................................................11
American Century Variable Portfolios, Inc., member of the American CenturySM Investments....................11
Fidelity Variable Insurance Products Fund...................................................................12
Fidelity Variable Insurance Products Fund II................................................................13
Nationwide Separate Account Trust...........................................................................13
Neuberger & Berman Advisers Management Trust................................................................13
Oppenheimer Variable Account Funds..........................................................................14
Strong Special Fund II, Inc.................................................................................14
Strong Variable Insurance Funds, Inc........................................................................14
Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust).......................................14
Reinvestment................................................................................................15
Transfers...................................................................................................15
Dollar Cost Averaging.......................................................................................15
Substitution of Securities..................................................................................16
Voting Rights...............................................................................................16
INFORMATION ABOUT THE POLICIES.......................................................................................16
Underwriting and Issuance...................................................................................16
-Minimum Requirements for Issuance of a Policy..............................................................16
-Premium Payments...........................................................................................17
Allocation of Cash Value....................................................................................17
Short-Term Right to Cancel Policy...........................................................................17
POLICY CHARGES.......................................................................................................17
Deductions from Premiums....................................................................................17
Surrender Charges...........................................................................................18
-Reductions to Surrender Charges............................................................................18
Deductions from Cash Value..................................................................................18
-Monthly Cost of Insurance..................................................................................19
-Monthly Administrative Charge..............................................................................19
Deductions from the Sub-Accounts............................................................................19
HOW THE CASH VALUE VARIES............................................................................................20
How the Investment Experience is Determined.................................................................20
Net Investment Factor.......................................................................................20
Valuation of Assets.........................................................................................20
Determining the Cash Value..................................................................................20
Valuation Periods and Valuation Dates.......................................................................21
SURRENDERING THE POLICY FOR CASH.....................................................................................21
Right to Surrender..........................................................................................21
Cash Surrender Value........................................................................................21
Partial Surrenders..........................................................................................21
Maturity Proceeds...........................................................................................21
Income Tax Withholding......................................................................................21
POLICY LOANS.........................................................................................................22
Taking a Policy Loan........................................................................................22
Effect on Investment Performance............................................................................22
Interest....................................................................................................22
Effect on Death Benefit and Cash Value......................................................................22
Repayment...................................................................................................23
HOW THE DEATH BENEFIT VARIES.........................................................................................23
Calculation of the Death Benefit............................................................................23
Proceeds Payable on Death...................................................................................24
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY.........................................................................24
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C>
CHANGES OF INVESTMENT POLICY.........................................................................................24
GRACE PERIOD.........................................................................................................25
-First Five Policy Years....................................................................................25
-Policy Years Six and After.................................................................................25
-All Policy Years...........................................................................................25
REINSTATEMENT........................................................................................................25
THE FIXED ACCOUNT OPTION.............................................................................................25
CHANGES IN EXISTING INSURANCE COVERAGE...............................................................................26
Specified Amount Increases..................................................................................26
Specified Amount Decreases..................................................................................26
Changes in the Death Benefit Option.........................................................................26
OTHER POLICY PROVISIONS..............................................................................................27
Policy Owner................................................................................................27
Beneficiary.................................................................................................27
Assignment..................................................................................................27
Incontestability............................................................................................27
Error in Age or Sex.........................................................................................27
Suicide.....................................................................................................27
Nonparticipating Policies...................................................................................28
LEGAL CONSIDERATIONS.................................................................................................28
DISTRIBUTION OF THE POLICIES.........................................................................................28
CUSTODIAN OF ASSETS..................................................................................................28
TAX MATTERS..........................................................................................................28
Policy Proceeds.............................................................................................28
-Federal Estate and Generation-Skipping Transfer Taxes......................................................29
-Non-Resident Aliens........................................................................................29
Taxation of the Company.....................................................................................30
Tax Changes.................................................................................................30
THE COMPANY..........................................................................................................31
COMPANY MANAGEMENT...................................................................................................31
Directors of the Company....................................................................................31
Executive Officers of the Company...........................................................................32
OTHER CONTRACTS ISSUED BY THE COMPANY................................................................................33
STATE REGULATION.....................................................................................................33
REPORTS TO POLICY OWNERS.............................................................................................33
ADVERTISING..........................................................................................................33
LEGAL PROCEEDINGS....................................................................................................33
EXPERTS..............................................................................................................34
REGISTRATION STATEMENT...............................................................................................34
LEGAL OPINIONS.......................................................................................................34
APPENDIX 1...........................................................................................................35
APPENDIX 2...........................................................................................................36
FINANCIAL STATEMENTS.................................................................................................53
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
6
<PAGE> 10
THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR
THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN
ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
SUMMARY OF THE POLICIES
VARIABLE LIFE INSURANCE
The variable life insurance Policies offered by Nationwide Life Insurance
Company (the "Company") are similar in many ways to fixed-benefit whole life
insurance. As with fixed-benefit whole life insurance, the Owner of the Policy
pays a premium for life insurance coverage on the person insured. Also like
fixed-benefit whole life insurance, the Policies may provide for a Cash
Surrender Value which is payable if the Policy is terminated during the
Insured's lifetime. As with fixed-benefit whole life insurance, the Cash
Surrender Value during the early Policy years may be substantially lower than
the premiums paid.
However, the Policies differ from fixed-benefit whole life insurance in several
respects. Unlike fixed-benefit whole life insurance, the death benefit and Cash
Value of the Policies may increase or decrease to reflect the investment
performance of the Variable Account sub-accounts or the Fixed Account to which
Cash Values are allocated (see "How the Death Benefit Varies"). There is no
guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the Cash
Surrender Value is insufficient to pay the Policy Charges, the Policy will
lapse without value. Also, during the first five Policy Years, the total
premium payments less any existing Policy Indebtedness must be greater than or
equal to the Minimum Premium requirement in order for the Policy to continue in
force. The Policies are designed to generally permit the payment of the
Guideline Single Premium in five annual installments for death benefit Option 1
and five annual Guideline Level Premiums under death benefit Option 2.
The Policies are designed to avoid classification as modified endowment
contracts under Section 7702A of the Internal Revenue Code (the "Code"), which
provides for taxation of surrenders, partial surrenders, loans, collateral
assignments and other pre-death distributions in the same way as annuities are
taxed. Under certain conditions, a Policy may become a modified endowment
contract as a result of a material change or a reduction in benefits as defined
by the Code. Excess premiums paid may also cause the Policy to become a
modified endowment contract. The Company will monitor premiums paid and other
policy transactions and will notify the Policy Owner when the Policy's
non-modified endowment contract status is in jeopardy (see "Tax Matters").
THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS
The Company places the Policy's Net Premiums in the Variable Account or the
Fixed Account at the time the Policy is issued. The Policy Owner selects the
sub-accounts of the Variable Account or the Fixed Account into which the Cash
Value will be allocated (see "Allocation of Cash Value"). When the Policy is
issued, the Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund sub-account (for any Net Premiums allocated to a
sub-account on the application) or the Fixed Account until the expiration of
the period in which the Policy Owner may exercise his or her short term right
to cancel the Policy. Assets of each sub-account are invested at net asset
value in shares of a corresponding Underlying Mutual Fund option. For a
description of the Underlying Mutual Fund option and its investment objectives,
see the "Investments of the Variable Account" located in this prospectus.
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's General Account.
Cash Values allocated to the Fixed Account are credited with interest daily at
a rate declared by the Company. The interest rate declared is at the Company's
sole discretion, but may never be less than an effective annual rate of 4%.
DEDUCTIONS AND CHARGES
The Company deducts certain charges from the assets of the Variable Account and
the Cash Value of the Policy. These charges are made for administrative and
sales expenses, state premium taxes, providing life insurance protection and
assuming the mortality and expense risks. For a discussion of any charges
imposed by the Underlying Mutual Fund options, see the prospectuses of the
respective Underlying Mutual Funds.
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. (The Company may reduce this sales loading
at its sole discretion.) The total sales load actually deducted from any Policy
will be equal to the sum of the 3.5% front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also deducts a charge for state premium taxes equal to 2.5% of all
premium payments.
7
<PAGE> 11
The Company also deducts the following charges from the Policy's Cash Value on
the Policy Date and each subsequent Monthly Anniversary Day:
1. monthly cost of insurance; plus
2. monthly cost of any additional benefits provided by riders to the
Policy; plus
3. a current administrative expense charge of $5. This charge may
be increased at the sole discretion of the Company but may not
exceed $7.50.
The Company also deducts on a daily basis from the assets of the Variable
Account a charge to provide for mortality and expense risks. This charge is
equal on an annual basis to 0.80% of the Variable Account assets.
For Policies which are surrendered during the first nine Policy Years, the
Company deducts a Surrender Charge. This Surrender Charge is comprised of an
Underwriting Surrender Charge and a Sales Surrender Charge. The initial
Surrender Charge varies by issue age, sex and underwriting classification and
is calculated based on the initial Specified Amount. The following table
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a Standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
Underlying Mutual Fund shares are purchased at net asset value, which reflects
the deduction of investment management fees and certain other expenses. The
management fees are charged by each Underlying Mutual Fund's investment adviser
for managing the Underlying Mutual Fund and selecting its portfolio of
securities. Other Underlying Mutual Fund expenses can include such items as
interest expense on loans and contracts with transfer agents, custodians, and
other companies that provide services to the Underlying Mutual Fund. The
management fees and other expenses for each Underlying Mutual Fund, for its
most recently completed fiscal year, expressed as a percentage of the
Underlying Mutual Fund's average assets, are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Management Total
Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Variable Portfolios, Inc. - 1.00% 0.00% 1.00%
American Century VP Balanced
- ---------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, Inc. - 1.00% 0.00% 1.00%
American Century VP Capital Appreciation
- ---------------------------------------------------------------------------------------------------------
Fidelity VIP-Equity-Income Portfolio 0.51% 0.07% 0.58%
- ---------------------------------------------------------------------------------------------------------
Fidelity VIP-Growth Portfolio 0.61% 0.08% 0.69%
- ---------------------------------------------------------------------------------------------------------
Fidelity VIP-High Income Portfolio 0.59% 0.12% 0.71%
- ---------------------------------------------------------------------------------------------------------
Fidelity VIP-Overseas Portfolio 0.76% 0.17% 0.93%
- ---------------------------------------------------------------------------------------------------------
Fidelity VIP II-Asset Manager Portfolio 0.64% 0.10% 0.74%
- ---------------------------------------------------------------------------------------------------------
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-Total Return Fund 0.50% 0.02% 0.52%
- ---------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers 0.83% 0.09% 0.92%
Management Trust-Growth Portfolio
- ---------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management 0.65% 0.13% 0.78%
Trust-Limited Maturity Bond Portfolio
- ---------------------------------------------------------------------------------------------------------
Oppenheimer-Bond Fund 0.74% 0.04% 0.78%
- ---------------------------------------------------------------------------------------------------------
Oppenheimer-Multiple Strategies 0.73% 0.04% 0.77%
- ---------------------------------------------------------------------------------------------------------
Strong Discovery Fund II, Inc. 1.00% 0.22% 1.22%
- ---------------------------------------------------------------------------------------------------------
Strong Special Fund II, Inc. 1.00% 0.17% 1.17%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Management Total
Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Eck-Worldwide Bond Fund 1.00% 0.08 1.08%
- ---------------------------------------------------------------------------------------------------------
Van Eck-Worldwide Hard Assets Fund 1.00% 0.08% 1.08%
- ---------------------------------------------------------------------------------------------------------
</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. None of
the above Underlying Mutual Funds are subject to 12b-1 fees. The following
Underlying Mutual Funds are subject to fee waivers and/or expense reimbursement
arrangements:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FUND EXPENSES WITHOUT REIMBURSEMENT OR WAIVER
- ------------------------------------------------------------------------------------------------------------
<S> <C>
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 In the event that aggregate expenses of the Fund exceed .40 of 1% of the
Growth Fund 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 - The Adviser has voluntarily agreed subject to revision or termination to
Equity-Income Portfolio 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 The Adviser has voluntarily agreed subject to revision or termination to
Portfolio 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 - The Adviser has voluntarily agreed subject to revision or termination to
High-Income Portfolio 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: 1.00% imposed on September 19, 1985. 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 - Overseas The Adviser has voluntarily agreed subject to revision or termination to
Portfolio 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.
- ------------------------------------------------------------------------------------------------------------
Warburg Pincus Trust - The Management Fees, Other Expenses and Total Portfolio Operating Expenses
International Equity are net of any fee waivers or expense reimbursements. Without such waivers or
Portfolio 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 The Management Fees, Other Expenses and Total Portfolio Operating Expenses
Company Growth Portfolio 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 was not independently verified by the Company.
9
<PAGE> 13
PREMIUMS
The minimum Initial Premium for which a Policy may be issued is $2,000. A
Policy may be issued to an insured up to age 75.
For a limited time, the Policy Owner has a right to cancel the Policy and
receive a full refund of premiums paid (see "Short-Term Right to Cancel
Policy").
The Initial Premium is due on the Policy Date. It will be credited on the
initial investment date. Any due and unpaid monthly deductions will be
subtracted from the Cash Value at this time. Insurance will not be effective
until the Initial Premium is paid. The Initial Premium is shown on the Policy
data page.
Premiums, other than the Initial Premium may be made at any time while your
Policy is in force subject to the limits described below. During the first five
Policy Years, the total premium payments less any Policy Indebtedness must be
greater than or equal to the Minimum Premium in order for the Policy to
continue in force. The Minimum Premium is equal to the monthly Minimum Premium
multiplied by the number of completed policy months. The monthly Minimum
Premium is shown on the Policy data page.
The Company will send Scheduled Premium payment reminder notices to you. The
Company will send them according to the premium mode shown on the Policy data
page.
You may pay the Initial Premium to us at the Company's home office or to an
authorized agent. All premiums after the first are payable at our home office.
Premium receipts will be furnished upon request.
Each premium must be at least equal to the monthly Minimum Premium. The Company
reserves the right to require satisfactory evidence of insurability before
accepting any additional premium payment which results in any increase in the
net amount at risk. Also, the Company will refund any portion of any premium
payment which is determined to be in excess of the premium limit established by
law to qualify your Policy as a contract for life insurance. The Company may
also require that any existing Policy Indebtedness is repaid prior to accepting
any additional premium payments.
NATIONWIDE LIFE INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. The Company is a member of the Nationwide
Insurance Enterprise which includes Nationwide Mutual Insurance Company,
Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company,
Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty
Company, National Casualty Company, West Coast Life Insurance Company,
Scottsdale Indemnity Company and Nationwide General Insurance Company. The
Company's home office is at One Nationwide Plaza, Columbus, Ohio 43216.
The Company offers a complete line of life insurance, including annuities and
accident and health insurance. It is admitted to do business in all states, the
District of Columbia, and Puerto Rico (for additional information, see "The
Company").
THE VARIABLE ACCOUNT
Variable Account was established by a resolution of the Company's Board of
Directors, on May 7,1987, pursuant to the provisions of Ohio law. The Company
has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of
the Investment Company Act of 1940. Nationwide Life Insurance Company, One
Nationwide Plaza, Columbus, Ohio 43216 serves as Trustee for the Trust.
Nationwide 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 with the investment performance of the investments in the
Variable Account (see "How the Death Benefit Varies" and "How the Cash Value
Varies").
Net Premium payments and Cash Value are allocated within the Variable Account
among one or more sub-accounts (see "Tax Matters"). The assets of each
sub-account are used to purchase shares of the Underlying Mutual Funds
designated by the Policy Owner. Thus, the investment performance of a Policy
depends upon the investment performance of the Underlying Mutual Funds
designated by the Policy Owner.
10
<PAGE> 14
INVESTMENTS OF THE VARIABLE ACCOUNT
At the time of application, the Policy Owner elects to have the Net Premiums
allocated among one or more of the Variable Account sub-accounts and the Fixed
Account (see "Allocation of Cash Value"). During the period in which the Policy
Owner may exercise his or her short-term right to cancel the Policy, all Net
Premiums not allocated to the Fixed Account are placed in the Nationwide
Separate Account Trust Money Market Fund sub-account. At the end of this
period, the Cash Value in that sub-account will be transferred to the Variable
Account sub-accounts based on the Underlying Mutual Fund allocation factors.
Any subsequent Net Premiums received after this period will be allocated based
on the Underlying Mutual Fund allocation factors.
No less than 5% of Net Premiums may be allocated to any one sub-account or the
Fixed Account. The Policy Owner may change the allocation of Net Premiums or
may transfer Cash Value from one sub-account to another, subject to such terms
and conditions as may be imposed by each Underlying Mutual Fund option and as
set forth in this prospectus (see "Transfers", "Allocation of Cash Value" and
"Short-Term Right to Cancel Policy").
These Underlying Mutual Fund options are available only to serve as the
underlying investment for variable annuity and variable life contracts issued
through separate accounts of life insurance companies which may or may not be
affiliated, also known as "mixed and shared funding." There are certain risks
associated with mixed and shared funding, which are disclosed in the Underlying
Mutual Funds' prospectuses. A full description of the Underlying Mutual Fund
options, their investment policies and restrictions, risks and charges are
contained in the prospectuses of the respective Underlying Mutual Funds.
Additional Premium payments, upon acceptance, will be allocated to the
Nationwide Separate Account Trust Money Market Fund unless the Policy Owner
specifies otherwise (see "Premium Payments").
Each of the Underlying Mutual Funds is a registered investment company which
receives investment advice from a registered investment adviser:
1) American Century Variable Portfolios, Inc., managed by American
Century Investment Management, Inc., an affiliate of American
Century Companies, Inc.;
2) Fidelity Variable Insurance Products Fund, managed by Fidelity
Management & Research Company;
3) Fidelity Variable Insurance Products Fund II, managed by Fidelity
Management & Research Company;
4) The Nationwide Separate Account Trust, managed by Nationwide
Advisory Services, Inc.;
5) The Neuberger & Berman Advisers Management Trust, managed by
Neuberger & Berman Management Incorporated;
6) Oppenheimer Variable Account Funds, managed by Oppenheimer
Management Corporation;
7) Strong Special Fund II, Inc., managed by Strong Capital Management,
Inc.;
8) Strong Variable Insurance Funds, Inc. managed by Strong Capital
Management, Inc.; and
9) Van Eck Worldwide Insurance Trust (Formerly Van Eck
Investment Trust), managed by Van Eck Associates Corporation.
A summary of investment objectives is contained in the description of each
Underlying Mutual Fund option below. More detailed information may be found in
the current prospectus for each Underlying Mutual Fund. A prospectus for the
Underlying Mutual Fund option(s) being considered must accompany this
prospectus and should be read in conjunction herewith.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., MEMBER OF THE AMERICAN CENTURYSM
INVESTMENTS
American Century Variable Portfolios, Inc. (formerly TCI Portfolios, Inc.) was
organized as a Maryland corporation in 1987 (formerly known as TCI Portfolios,
Inc.). 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, the Fund 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.
11
<PAGE> 15
A minimum of 25% of the fixed income portion of the fund will be invested
in fixed income senior securities. There can be no assurance that the
Fund will achieve its investment objective.
- - 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.
(Although the Statement of Additional Information concerning American
Century Variable Portfolios, Inc., refers to redemptions of securities
in kind under certain conditions, all surrendering or redeeming Contract
Owners will receive cash from the Company.)
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on November 13, 1981. The Fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. FMR is the Fund's manager.
- - 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: To obtain a high level of current income by
investing primarily in high-risk, high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital. The
Fund's manager will seek high current income normally by investing the
Fund's assets as follows:
- at least 65% in income-producing debt securities and preferred stocks,
including convertible securities, zero coupon securities, and
mortgage-backed and asset-backed securities;
- up to 20% in common stocks and other equity securities when consistent
with the Fund's primary objective or acquired as part of a unit
combining fixed-income and equity securities.
Higher yields are usually available on securities that are lower-rated or that
are unrated. Lower-rated securities are usually defined as Ba or lower by
Moody's; BB or lower by Standard & Poor's and may be deemed to be of a
speculative nature. The Fund's may also purchase lower-quality bonds such as
those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor
protection for payment of principal and interest (commonly referred to as "junk
bonds"). For a further discussion of lower-rated securities, please see the
"Risks of Lower-Rated Debt Securities" section of the Fund's prospectus.
- - 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.
12
<PAGE> 16
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fund is an open-end, diversified, management investment company organized
as a Massachusetts business trust on March 21, 1988. The fund's shares are
purchased by insurance companies to fund benefits under variable insurance and
annuity policies. Fidelity Management and Research Company (FMR) is the Fund's
manager.
- - ASSET MANAGER PORTFOLIO
Investment Objective: To seek to obtain high total return with reduced
risk over the long-term by allocating its assets among domestic and
foreign stocks, bonds and short-term fixed income instruments.
NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Separate Account Trust (the "Trust") is a diversified open-end
management investment company created under the laws of Massachusetts. The
Trust offers shares in the four separate Funds listed below, each with its own
investment objective. Currently, shares of the Trust will be sold only to life
insurance company separate accounts to fund the benefits under variable
insurance policies or variable annuity Contracts issued by life insurance
companies. The assets of the Trust are managed by Nationwide Advisory Services,
Inc., One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary of
Nationwide Life Insurance Company.
- - CAPITAL APPRECIATION FUND
Investment Objective: The Fund is designed for investors who are
interested in long-term growth. The Fund seeks to meet its objective
primarily through a diversified portfolio of the common stock of
companies which the investment manager determines have a
better-than-average potential for sustained capital growth over the long
term.
- - 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.
- - TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return
(i.e., earnings growth plus potential dividend yield) on invested
capital from a flexible combination of current return and capital gains
through investments in common stocks, convertible issues, money market
instruments and bonds with a primary emphasis on common stocks.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust is an open-end diversified
management investment company established as a Massachusetts business trust on
December 14, 1983. Shares of the Trust are offered in connection with certain
variable annuity contracts and variable life insurance policies issued through
life insurance company separate accounts and are also offered to qualified
pension and retirement plans outside of the separate account context. The
investment adviser is Neuberger & Berman Management Incorporated.
- - 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.
13
<PAGE> 17
OPPENHEIMER VARIABLE ACCOUNT FUNDS
The Oppenheimer Variable Account Funds is an open-ended, diversified management
investment company organized as a Massachusetts business trust in 1984. Shares
of the Funds are sold only to provide benefits under variable life insurance
policies and variable annuity contracts. Oppenheimer Management Corporation is
the Funds' Investment advisor.
- - OPPENHEIMER BOND FUND
Investment Objective: Primarily to seek a high level of current
income from investment in high yield fixed-income securities rated
"Baa" or better by Moody's or "BBB" or better by Standard & Poor's.
Secondarily, the Fund seeks capital growth when consistent with its
primary objective.
- - OPPENHEIMER MULTIPLE STRATEGIES FUND
Investment Objective: To seek a total investment return (which includes
current income and capital appreciation in the value of its shares) from
investments in common stocks and other equity securities, bonds and
other debt securities, and "money market" securities.
STRONG SPECIAL FUND II, INC.
The Strong Special Fund II, Inc. ("Special Fund II") is a diversified,
open-end management company commonly called a mutual fund. The Special
Fund II was incorporated in Wisconsin and may only be purchased by the
separate accounts of insurance companies for the purpose of funding variable
annuity contracts and variable life insurance policies. Strong Capital
Management, Inc. (the "Advisor") is the investment advisor to the fund.
Investment Objective: To seek capital appreciation through
investments in a diversified portfolio of equity securities.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Variable Insurance Funds, Inc. ("Corporation") is an
open-end management investment company commonly referred to as a mutual
fund. Incorporated in the State of Wisconsin, the Corporation has been
authorized to issue shares of common stock and series and classes of series of
common stock. The Strong Discovery Fund II, Inc. ("Fund") is offered by the
Corporation to insurance company separate accounts for the purpose of
funding variable life insurance policies and variable annuity contracts.
Strong Capital Management, Inc. is the investment advisor to the Fund.
- - DISCOVERY FUND II, INC.
Investment Objective: To seek maximum capital appreciation through
investments in a diversified portfolio of securities. The Fund normally
emphasizes investment in equity securities and may invest up to 100% of
its total assets in equity securities including common stocks, preferred
stocks and securities convertible into common or preferred stocks.
Although the Fund normally emphasizes investment in equity securities,
the Fund has the flexibility to invest in any type of security that the
Advisor believes has the potential for capital appreciation including up
to 100% of its total assets in debt obligations, including intermediate
to long-term corporate or U.S. government debt securities.
VAN ECK WORLDWIDE INSURANCE TRUST (FORMERLY VAN ECK INVESTMENT TRUST)
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a "business trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Shares of the 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.
- - WORLDWIDE HARD ASSETS FUND (FORMERLY GOLD AND NATURAL RESOURCES FUND)
Investment Objective: To seek long-term capital appreciation by
investing globally, primarily in "Hard Assets Securities." Hard assets
are tangible, finite assets, such as real estate, energy, timber, and
industrial and precious metals. Income is a secondary consideration.
- - WORLDWIDE BOND FUND (FORMERLY GLOBAL BOND FUND)
Investment Objective: To seek high total return through a flexible
policy of investing globally, primarily in debt securities. The Fund
does not invest in junk bonds.
14
<PAGE> 18
REINVESTMENT
The Underlying Mutual Fund options described above have as a policy the
distribution of dividends in the form of additional shares (or fractions
thereof) of the Underlying Mutual Funds. The distribution of additional shares
will not affect the number of Accumulation Units attributable to a particular
Policy (see "Allocation of Cash Value").
TRANSFERS
The Policy Owner may request a transfer of up to 100% of the Cash Value from
the Variable Account to the Fixed Account. The Policy Owner's Cash Value in
each sub-account will be determined as of the date the transfer request is
received in the home office in good order. The Company reserves the right to
restrict transfers to the Fixed Account to 25% of the Cash Value.
The Policy Owner may annually transfer a portion of the value of the Fixed
Account to the Variable Account and a portion of the Variable Account to the
Fixed Account, without penalty or adjustment. The Company reserves the right to
limit the amount of Cash Value transferred out of the Fixed Account each Policy
Year. Transfers from the Fixed Account must be made within 30 days after the
termination date of the interest rate guarantee period.
Transfers among the sub-accounts may be made once per Valuation Date and may be
made either in writing or, in states allowing such transfers, by telephone. The
Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include any or all
of the following, or such other procedures as the Company may, from time to
time, deem reasonable: requesting identifying information, such as name,
contract number, Social Security number, and/or personal identification number;
tape recording all telephone transactions; and providing written confirmation
thereof to both the Policy owner and any agent of record at the last address of
record. Although failure to follow reasonable procedures may result in the
Company's liability for any losses due to unauthorized or fraudulent telephone
transfers, the Company will not be liable for following instructions
communicated by telephone which it reasonably believes to be genuine. The
Company may withdraw the telephone exchange privilege upon 30 days written
notice to Policy Owners.
Policy Owners who have entered into a Dollar Cost Averaging Agreement with the
Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account
to the Variable Account under the terms of that agreement.
DOLLAR COST AVERAGING
The Policy Owner may direct the Company to automatically transfer from the
Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio
sub-account to any other sub-account within the Variable Account on a monthly
basis. This service is intended to allow the Policy Owner to utilize Dollar
Cost Averaging, a long-term investment program which provides for regular,
level investments over time. The Company makes no guarantees that Dollar Cost
Averaging, will result in a profit or protect against loss in a declining
market. To qualify for Dollar Cost Averaging, there must be a minimum total
Cash Value, less policy indebtedness, of $15,000. Transfers for purposes of
Dollar Cost Averaging can only be made from the Money Market sub-account, Fixed
Account, or the Limited Maturity Bond Portfolio sub-account. The minimum
monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost
Averaging monthly transfers from the Fixed Account must be equal to or less
than 1/30th of the Fixed Account value when the Dollar Cost Averaging program
is requested. Transfers out of the Fixed Account, other than for Dollar Cost
Averaging, may be subject to certain additional restrictions (see "Transfers").
A written election of this service, on a form provided by the Company, must be
completed by the Policy Owner in order to begin transfers. Once elected,
transfers from the Money Market sub-account, Fixed Account, or the Limited
Maturity Bond Portfolio sub-account will be processed monthly until either the
value in the Money Market sub-account, Fixed Account, or the Limited Maturity
Bond Portfolio sub-account is completely depleted or the Policy Owner instructs
the Company in writing to cancel the monthly transfers.
The Company reserves the right to discontinue offering Dollar Cost Averaging
upon 30 days' written notice to Policy Owners however, any such discontinuation
would not affect Dollar Cost Averaging programs already commenced. The Company
also reserves the right to assess a processing fee for this service.
15
<PAGE> 19
SUBSTITUTION OF SECURITIES
If shares of the above Underlying Mutual Fund options should no longer be
available for investment by the Variable Account or, if in the judgment of the
Company's management further investment in such Underlying Mutual Funds should
become inappropriate in view of the purposes of the Policy, the Company may
substitute shares of another Underlying Mutual Fund for shares already
purchased or to be purchased in the future by Net Premium payments under the
Policy. No substitution of securities in the Variable Account may take place
without prior approval of the Securities and Exchange Commission, and under
such requirements as it and any state insurance department may impose.
VOTING RIGHTS
Voting rights under the Policies apply only with respect to Cash Value
allocated to the sub-accounts of the Variable Account.
In accordance with its view of present applicable law, the Company will vote
the shares of the Underlying Mutual Funds held in the Variable Account at
regular and special meetings of the shareholders of the Underlying Mutual Funds
in accordance with instructions received from Policy Owners. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended
or if the present interpretation thereof should change, and as a result the
Company determines that it is permitted to vote the shares of the Underlying
Mutual Funds in its own right, the Company may elect to do so.
The Policy Owner shall have the voting interest under a Policy. The number of
shares in each sub-account for which the Policy Owner may give voting
instructions is determined by dividing any portion of the Policy's Cash Value
derived from participation in that Underlying Mutual Fund by the net asset
value of one share of that Underlying Mutual Fund.
The number of shares which a person has a right to vote will be determined as
of a date chosen by the Company, but not more than 90 days prior to the meeting
of the Underlying Mutual Fund. Voting instructions will be solicited by written
communication prior to such meeting.
The Company will vote Underlying Mutual Fund shares in accordance with
instructions received from the Policy Owners. Underlying Mutual Fund shares
held by the Company or by the Variable Account as to which no timely
instructions are received will be voted by the Company in the same proportion
as the voting instructions which are received.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to investments of the Variable Account, the Funds'
proxy material and a form with which to give such voting instructions.
Notwithstanding contrary Policy Owner voting instructions, the Company may vote
Underlying Mutual Fund shares in any manner necessary to enable the Underlying
Mutual Fund to: (1) make or refrain from making any change in the investments
or investment policies for any of the Underlying Mutual Fund options, if
required by an insurance regulatory authority; (2) refrain from making any
change in the investment policies or any investment adviser or principal
underwriter of any portfolio which may be initiated by Policy Owners or the
Underlying Mutual Fund's Board of Directors, provided the Company's disapproval
of the change is reasonable and, in the case of a change in the investment
policies or investment adviser, based on a good faith determination that such
change would be contrary to state law or otherwise inappropriate in light of
the portfolio's objective and purposes; or (3) enter into or refrain from
entering into any advisory agreement or underwriting contract, if required by
any insurance regulatory authority.
INFORMATION ABOUT THE POLICIES
UNDERWRITING AND ISSUANCE
- -Minimum Requirements for Issuance of a Policy
The Policies are designed to generally permit the payment of the Guideline
Single Premium in five annual installments for death benefit Option 1 and five
annual Guideline Level Premiums under death benefit Option 2. At issue, the
Policy Owner selects a Scheduled Premium level. This Scheduled Premium is used
to determine the initial Specified Amount. The minimum Scheduled Premium is
$2,000. Policies may be issued to Insureds with issue ages 75 or younger.
Before issuing any Policy, the Company requires satisfactory evidence of
insurability which may include a medical examination.
16
<PAGE> 20
- -Premium Payments
The Initial Premium for a Policy is payable in full at the Company's home
office. The effective date of insurance coverage and is dependent upon
completion of all underwriting requirements, payment of the Initial Premium,
and delivery of the Policy while the Insured is still living.
Premiums, other than the Initial Premium, may be made at any time while the
Policy is in force subject to the limits described below. During the first 5
Policy Years, the total premium payments less any Policy Indebtedness must be
greater than or equal to the Minimum Premium requirement in order for the
Policy to continue in force. The Minimum Premium requirement is equal to the
monthly Minimum Premium multiplied by the number of completed policy months.
The monthly Minimum Premium is shown on the Policy data page.
Each premium payment must be at least equal to the monthly Minimum Premium.
Additional premium payments may be made at any time while the Policy is in
force. However, the Company reserves the right to require satisfactory evidence
of insurability before accepting any additional premium payment which results
in an increase in the net amount at risk. Also, the Company will refund any
portion of any premium payment which is determined to be in excess of the
premium limit established by law to qualify the Policy as a contract for life
insurance. The Company may also require that any existing Policy Indebtedness
is repaid prior to accepting any additional premium payments. Additional
premium payments or other changes to the contract, may jeopardize the Policy's
non-modified endowment contract status. The Company will monitor premiums paid
and other policy transactions and will notify the Policy Owner when
non-modified endowment contract status is in jeopardy by such additional
premiums (see "Tax Matters").
ALLOCATION OF CASH VALUE
At the time a Policy is issued, its Cash Value will be based on the Nationwide
Separate Account Trust Money Market Fund sub-account value or the Fixed Account
as if the Policy had been issued and the Initial Net Premium invested on the
date such premium was received in good order by the Company. When the Policy is
issued, the Net Premiums will be allocated to the Nationwide Separate Account
Trust Money Market Fund sub-account (for any Net Premiums allocated to a
sub-account on the Application) or the Fixed Account until the expiration of
the period in which the Policy Owner may exercise his or her short-term right
to cancel the Policy. Net Premiums not designated for the Fixed Account will be
placed in the Nationwide Separate Account Trust Money Market Sub-Account. At
the expiration of the period in which the Policy Owner may exercise his or her
short term right to cancel the Policy, shares of the Underlying Mutual Fund
options specified by the Policy Owner are purchased at net asset value for the
respective sub-account(s). The Policy Owner may change the allocation of Net
Premiums or may transfer Cash Value from one sub-account to another, subject to
such terms and conditions as may be imposed by each Underlying Mutual Fund
option and as set forth in the prospectus. Net Premiums allocated to the Fixed
Account at the time of application may not be transferred prior to the first
Policy Anniversary (see "Transfers" and "Investments of the Variable Account").
The designation of investment allocations will be made by the prospective
Policy Owner at the time of application for a Policy. The Policy Owner may
change the way in which future Net Premiums are allocated by giving written
notice to the Company. All percentage allocations must be in whole numbers, and
must be at least 5%. The sum of allocations must equal 100%.
SHORT-TERM RIGHT TO CANCEL POLICY
A Policy may be returned for cancellation and a full refund of premium within
10 days after the Policy is received, within 45 days after the application for
insurance is signed, or within 10 days after the Company mails or delivers a
Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or
delivered to the registered representative who sold it, or to the Company.
Immediately after such mailing or delivery, the Policy will be deemed void from
the beginning. The Company will refund the total premiums paid within seven
days after it receives the Policy.
POLICY CHARGES
DEDUCTIONS FROM PREMIUMS
The Company deducts a sales load from each premium payment received not to
exceed 3.5% of each premium payment. (The Company may reduce this sales loading
at its sole discretion.) The total sales load actually deducted from any Policy
will be equal to the sum of the 3.5% front-end sales load plus any sales
surrender charge that may be deducted from Policies that are surrendered.
The Company also pays any state premium taxes attributable to a particular
policy when incurred by the Company. The Company expects to pay an average
state premium tax rate of approximately 2.5% of premiums for all states,
although such tax rates generally can range from 0% to 4%. To reimburse the
Company for the payment of state premium taxes associated with the Policies,
the Company deducts a charge for state premium taxes equal to 2.5% of all
premium payments received. This charge may be more or less
17
<PAGE> 21
than the amount actually assessed by the state in which a particular Policy
Owner lives. The Company does not expect to make a profit from this charge.
SURRENDER CHARGES
The Company will deduct a Surrender Charge from the Policy's Cash Value for any
Policy surrendered during the first nine Policy Years. The initial Surrender
Charge varies by issue age, sex and underwriting classification and is
calculated based on the initial Specified Amount. The following table
illustrates the initial Surrender Charge per $1,000 of initial Specified Amount
for Policies which are issued on a standard basis (see Appendix 1 for specific
examples). Special guaranteed maximum Surrender Charges apply in Pennsylvania
(see Appendix 1).
<TABLE>
<CAPTION>
Issue Male Female Male Female
Age Non-Tobacco Non-Tobacco Standard Standard
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
35 7.260 6.712 8.559 7.373
45 11.159 10.160 13.244 11.151
55 15.275 13.375 18.373 14.686
65 23.821 20.553 27.943 22.165
</TABLE>
The Surrender Charge is comprised of two components: an underwriting surrender
charge and sales surrender charge. The underwriting surrender charge varies by
issue age in the following manner:
<TABLE>
<CAPTION>
Issue Charge per $1,000 of
Age Initial Specified Amount
<S> <C>
0-39 $3.50
40-59 $5.00
60-75 $6.50
</TABLE>
The underwriting surrender charge is designed to cover the administrative
expenses associated with underwriting and issuing the Policy, including the
costs of processing applications, conducting medical exams, determining
insurability and the Insured's underwriting class, and establishing policy
records. The Company does not expect to profit from the underwriting surrender
charges. The Surrender Charge may be insufficient to recover certain expenses
related to the sale of the Policies. Unrecovered expenses are born by the
company's general assets which may include profits, if any, from mortality and
expense risk charges (see "Deductions from the Sub-Accounts"). Additional
premiums and/or income earned on assets in the Variable Account or partial
surrenders have no effect on these charges. The remainder of the Surrender
Charge which is not attributable to the underwriting surrender charge component
represents the sales surrender charge component. The purpose of the sales
surrender charge component is to reimburse the Company for some of the expenses
incurred in the distribution of the Policies. The Company also deducts 3.5% of
each premium for sales load (see "Deductions from Premiums").
- -Reductions to Surrender Charges
The Surrender Charges are reduced in subsequent Policy Years in the following
manner:
<TABLE>
<CAPTION>
Surrender Charge Surrender Charge
Completed as a % of Initial Completed as a % of Initial
Policy Years Surrender Charges Policy Years Surrender Charges
------------ ----------------- ------------ -----------------
<S> <C> <C> <C>
0 100% 5 85%
1 100% 6 80%
2 100% 7 75%
3 95% 8 50%
4 90% 9+ 0%
</TABLE>
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see
Appendix 1).
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
18
<PAGE> 22
3. monthly administrative expense charge.
These deductions will be charged proportionately to the Cash Value in each
Variable Account sub-account and the Fixed Account.
- -Monthly Cost of Insurance
The monthly cost of insurance charge for each policy month is determined by
multiplying the monthly cost of insurance rate by the net amount at risk. The
net amount at risk is the difference between the death benefit and the Policy's
Cash Value, each calculated at the beginning of the policy month.
If death benefit Option 1 is in effect and there have been increases in the
Specified Amount, then the Cash Value shall first be considered a part of the
initial Specified Amount. If the Cash Value exceeds the initial Specified
Amount, it shall then be considered a part of the additional increases in
Specified Amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the Policy.
Guaranteed cost of insurance rates for Policies issued on a simplified basis
are based on the 1980 Commissioners Extended Term Mortality Table, Age Last
Birthday (1980 CET). Guaranteed cost of insurance rates for Policies issued on
a preferred basis are based on the 1980 Commissioners Standard Ordinary
Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance
rates for Policies issued on a substandard basis are based on appropriate
percentage multiples of the 1980 CSO. These mortality tables are sex distinct.
In addition, separate mortality tables will be used for standard and
non-tobacco.
For Policies issued in Texas, guaranteed cost of insurance rates for
Standard-Simplified issues ("Special Class-Simplified" in Texas) are based on
130% of the 1980 Commissioners Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rates for Policies issued on a simplified or preferred basis will not
exceed the rates in the appropriate table. The cost of insurance rates per
$1,000 of net amount at risk is less for Policies issued on a preferred basis
as compared to a simplified basis.
The rate class of an Insured may affect the cost of insurance rate. The Company
currently places Insureds into both standard rate classes and substandard
classes that involve a higher mortality risk. In an otherwise identical Policy,
an Insured in the standard rate class will have a lower cost of insurance than
an Insured in a rate class with higher mortality risks. The Company may also
issue certain Policies on a 'Simplified Issue' basis to certain categories of
individuals. Due to the underwriting criteria established for Policies issued
on a Simplified Issue basis, actual rates for healthy individuals will be
higher than the current cost of insurance rates being charged under otherwise
identical Policies that are issued on a Preferred basis.
- -Monthly Administrative Charge
The Company deducts a monthly Administrative Expense Charge to reimburse it for
certain expenses related to maintenance of the Policies, accounting and record
keeping and periodic reporting to Policy Owners. This charge is designed only
to reimburse the Company for certain actual administrative expenses. The
Company does not expect to recover from this charge any amount in excess of
aggregate maintenance expenses. Currently, this charge is $5 per month. The
Company may at its sole discretion increase this charge. However, the Company
guarantees that this charge will never exceed $7.50 per month.
DEDUCTIONS FROM THE SUB-ACCOUNTS
The Company assumes certain risks for guaranteeing the mortality and expense
charges. The mortality risk assumed under the Policies is that the Insured may
not live as long as expected. The expense risk assumed is that the actual
expenses incurred in issuing and administering the Policies may be greater than
expected. In addition, the Company assumes risks associated with the
non-recovery of policy issue, underwriting and other administrative expenses
due to Policies which lapse or are surrendered in the early Policy Years.
To compensate the Company for assuming these risks associated with the
Policies, the Company deducts a daily Mortality and Expense Risk Charge from
the assets of the sub-accounts of the Variable Account. This charge is
equivalent to an annual effective rate of 0.80% of the daily net assets of the
Variable Account. To the extent that future levels of mortality and expenses
are less than or equal to those expected, the Company may realize a profit from
this charge. The Surrender Charge may be insufficient to recover certain
expenses related to the sale of the Policies. Unrecovered expenses are born by
the Company's general assets which may include profits, if any, from mortality
and expense risk charges (see "Surrender Charges").
The Company does not currently assess any charge for income taxes incurred by
the Company as a result of the operations of the sub-accounts of the Variable
Account (see "Taxation of the Company"). The Company
19
<PAGE> 23
reserves the right to assess a charge for such taxes against the Variable
Account if the Company determines that such taxes will be incurred.
HOW THE CASH VALUE VARIES
On any date during the Policy Year, the Cash Value equals the Cash Value on the
preceding Valuation Date, plus any Net Premium applied since the previous
Valuation Date, minus any partial surrenders, plus or minus any investment
results, and less any Policy Charges.
There is no guaranteed Cash Value. The Cash Value will vary with the investment
experience of the Variable Account and/or the daily crediting of interest in
the Fixed Account and Policy Loan Account depending on the allocation of Cash
Value by the Policy Owner.
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The Cash Value in each sub-account is converted to Accumulation Units of that
sub-account. The conversion is accomplished by dividing the amount of Cash
Value allocated to a sub-account by the value of an Accumulation Unit for the
sub-account of the Valuation Period during which the allocation occurs.
The value of an Accumulation Unit for each sub-account was arbitrarily set
initially at $10 when the mutual fund shares in that sub-account were available
for purchase. The value for any subsequent Valuation Period is determined by
multiplying the Accumulation Unit value for each sub-account for the
immediately preceding Valuation Period by the Net Investment Factor for the
sub-account during the subsequent Valuation Period. The value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period. The number of Accumulation Units will not change as a result of
investment experience.
NET INVESTMENT FACTOR
The Net Investment Factor for any Valuation Period is determined by dividing
(a) by (b) and subtracting (c) from the result where:
(a) is the net of:
(1) the net asset value per share of the Underlying Mutual Fund held
in the sub-account determined at the end of the current Valuation
Period, plus
(2) the per share amount of any dividend or capital gain
distributions made by the Underlying Mutual Fund held in the
sub-account if the "ex-dividend" date occurs during the current
Valuation Period.
(b) is the net of:
(1) the net asset value per share of the Underlying Mutual Fund held
in the Sub-Account determined at the end of the immediately
preceding Valuation Period, plus or minus
(2) the per share charge or credit, if any, for any taxes reserved
for is the immediately preceding Valuation Period (see "Charge
For Tax Provisions").
(c) is a factor representing the daily Mortality and Expense Risk Charge
deducted from the Variable Account. Such factor is equal to an annual
rate of .80% of the daily net asset value of the Variable Account.
For Underlying Mutual Fund options that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for the
monthly reinvestment of these daily dividends.
The Net Investment Factor may be greater or less than one; therefore, the value
of an Accumulation Unit may increase or decrease. It should be noted that
changes in the Net Investment Factor may not be directly proportional to
changes in the net asset value of Underlying Mutual Fund shares, because of the
deduction for Mortality and Expense Risk Charge, and any charge or credit for
tax reserves.
VALUATION OF ASSETS
Underlying Mutual Fund shares in the Variable Account will be valued at their
net asset value.
DETERMINING THE CASH VALUE
The sum of the value of all Variable Account Accumulation Units attributable to
the Policy and amounts credited to the Fixed Account is the Cash Value. The
number of Accumulation Units credited per each sub-account are determined by
dividing the net amount allocated to the sub-account by the Accumulation Unit
Value for the sub-account for the Valuation Period during which the premium is
received by the Company. In the event part or all of the Cash Value is
surrendered or changes or deductions are made against the Cash Value, an
appropriate number of Accumulation Units from the Variable Account and an
appropriate amount
20
<PAGE> 24
from the Fixed Account will be deducted in the same proportion that the Policy
Owner's interest in the Variable Account and the Fixed Account bears to the
total Cash Value.
The Cash Value in the Fixed Account and the Policy Loan Account is credited
with interest daily at an effective annual rate which the Company periodically
declares. The annual effective rate will never be less than 4%. Upon request,
the Company will inform the Policy Owner of the then applicable rates for each
account.
VALUATION PERIODS AND VALUATION DATES
A Valuation Period is the period commencing at the close of business on the New
York Stock Exchange and ending at the close of business for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock Exchange
and the Company's Home Office are open for business or any other day during
which there is sufficient degree of trading that the current net asset value of
the Accumulation Units might be materially affected.
SURRENDERING THE POLICY FOR CASH
RIGHT TO SURRENDER
The Policy Owner may surrender the Policy in full at any time while the Insured
is living and receive its Cash Surrender Value. The cancellation will be
effective as of the date the Company receives a proper written request for
cancellation and the Policy. Such written request must be signed and, where
permitted, the signature guaranteed by a member firm of the New York, American,
Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a Commercial
Bank or a Savings and Loan, which is a member of the Federal Deposit Insurance
Corporation. In some cases, the Company may require additional documentation of
a customary nature.
CASH SURRENDER VALUE
The Cash Surrender Value increases or decreases daily to reflect the investment
experience of the Variable Account and the daily crediting of interest in the
Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the
Policy's Cash Value, next computed after the date the Company receives a proper
written request for surrender and the Policy, minus any charges, Indebtedness
or other deductions due on that date, which may also include a Surrender
Charge.
PARTIAL SURRENDERS
After the Policy has been in force for 5 Policy Years, the Policy Owner may
request a partial surrender. Partial surrenders will be permitted only if they
satisfy the following requirements:
1. The maximum partial surrender in any Policy Year is limited to
10% of the total premium payments;
2. The minimum partial surrender is $500; and
3. After the partial surrender, the Policy continues to qualify as
life insurance.
When a partial surrender is made, the Cash Value is reduced by the amount of
the partial surrender. Under Death Benefit Option 1, the Specified Amount is
reduced by the amount of the partial surrender, unless the death benefit is
based on the applicable percentage of Cash Value. In such a case, a partial
surrender will decrease the Specified Amount by the amount by which the partial
surrender exceeds the difference between the death benefit and Specified
Amount.
Surrender charges will be waived for any partial surrenders which satisfy the
above conditions. Certain partial surrenders may result in currently taxable
income and tax penalties (see "Tax Matters").
MATURITY PROCEEDS
The Maturity Date is the Policy Anniversary on or next following the Insured's
95th birthday. The maturity proceeds will be payable to the Policy Owner on the
Maturity Date provided the Policy is still in force. The Maturity Proceeds will
be equal to the amount of the Policy's Cash Value, less any Indebtedness.
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.
21
<PAGE> 25
If the Policy Owner requests that the Company not withhold taxes, or if the
taxes withheld are insufficient, the Policy Owner may be liable for payment of
an estimated tax. The Policy Owner should consult his or her tax advisor.
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, Participants may be required to report for income
tax purposes, one or more of the following: (1) the value each year of the life
insurance protection provided, (2) an amount equal to any employer-paid
premiums; or (3) some or all of the amount by which the current value exceeds
the employer's interest in the Contract. Participants should consult with the
sponsor or the administrator of the Plan, and/or with their personal tax or
legal adviser, to determine the tax consequences, if any, of their
employer-sponsored life insurance arrangements.
POLICY LOANS
TAKING A POLICY LOAN
After the first Policy Year, the Policy Owner may take a Policy loan using the
Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash
Surrender Value less interest due on the next Policy Anniversary. Maximum
policy indebtedness, in Texas, is limited to 90% of the Cash Surrender Value in
the sub-accounts and 100% of the Cash Surrender Value in the Fixed Account less
interest due on the next Policy Anniversary. The Company will not grant a loan
for an amount less than $1,000 ($200 in Connecticut, $500 in New York). Should
the Death Proceeds become payable, the Policy be surrendered, or the Policy
mature while a loan is outstanding, the amount of Policy Indebtedness will be
deducted from the death benefit, Cash Surrender Value or the maturity value,
respectively.
Any request for a Policy loan must be in written form satisfactory to the
Company. The request must be signed and, where permitted, the signature
guaranteed by a member firm of the New York, American, Boston, Midwest,
Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings
and Loan which is a member of the Federal Deposit Insurance Corporation.
Certain policy loans may result in currently taxable income and tax penalties
(see "Tax Matters").
EFFECT ON INVESTMENT PERFORMANCE
When a loan is made, an amount equal to the amount of the loan is transferred
from the Variable Account to the Policy Loan Account. If the assets relating to
a Policy are held in more than one sub-account, withdrawals from sub-accounts
will be made in proportion to the assets in each Variable sub-account at the
time of the loan. Policy loans will be transferred from the Fixed Account only
when insufficient amounts are available in the Variable sub-accounts. The
amount taken out of the Variable Account will not be affected by the Variable
Account's investment experience while the loan is outstanding.
INTEREST
Amounts transferred to the Policy Loan Account will earn interest daily from
the date of transfer.
Policy loans will be currently credited interest daily at an annual effective
rate of 5.1%. This rate is guaranteed never to be lower than 4%. The Company
may change the current interest crediting rate on Policy loans at any time at
its sole discretion. This earned interest is transferred from the Policy Loan
Account to a Variable Account or the Fixed Account on each Policy Anniversary
or at the time of loan repayment. It will be allocated according to the Fund
allocation factors in effect at the time of the transfer.
The loan interest rate is 6% per year for all Policy loans. Interest is charged
daily and is payable at the end of each Policy Year or at the time of loan
repayment. Unpaid interest will be added to the existing Policy Indebtedness as
of the due date and will be charged interest at the same rate as the rest of the
Indebtedness. Whenever the total Policy Indebtedness exceeds the Cash Value less
any Surrender Charges, the Company will send a notice to the Policy Owner and
the assignee, if any. The Policy will terminate without value 61 days after the
mailing of the notice unless a sufficient repayment is made during that period.
A repayment is sufficient if it is large enough to reduce the total Policy
Indebtedness to an amount equal to the total Cash Value less any Surrender
Charges plus an amount sufficient to continue the Policy in force for 3 months.
EFFECT ON DEATH BENEFIT AND CASH VALUE
A Policy loan, whether or not repaid, will have a permanent effect on the Death
Benefit and Cash Value because the investment results of the Variable Account
or the Fixed Account will apply only to the non-loaned portion of the Cash
Value. The longer the loan is outstanding, the greater the effect is likely to
be. Depending on the investment results of the Variable Account or the Fixed
Account while the loan is outstanding, the effect could be favorable or
unfavorable.
22
<PAGE> 26
REPAYMENT
All or part of the Indebtedness may be repaid at any time while the Policy is
in force during the Insured's lifetime. Any payment intended as a loan
repayment, rather than a premium payment, must be identified as such. Loan
repayments will be credited to the Variable sub-accounts and the Fixed Account
in proportion to the Policy Owner's Fund allocation factors in effect at the
time of the repayment. Each repayment may not be less than $1,000 ($50 in
Connecticut and New York). The Company reserves the right to require that any
loan repayments resulting from Policy loans transferred from the Fixed Account
must be first allocated to the Fixed Account.
HOW THE DEATH BENEFIT VARIES
CALCULATION OF THE DEATH BENEFIT
At issue, the Policy Owner selects a desired Scheduled Premium level. The
Scheduled Premium is used to determine the initial Specified Amount. Under
death benefit Option 1, the initial Specified Amount is determined by treating
the Scheduled Premium as 20% of the Guideline Single Premium. Under death
benefit Option 2, the initial Specified Amount is determined by treating the
Scheduled Premium as the Guideline Level Premium. For either death benefit
option, the initial Specified Amount will be set at such a level such that
payment of the Scheduled Premiums will not result in the Policy being
classified as a modified endowment contract (see "Tax Matters").
The following table illustrates the Initial Specified Amount that results from a
$2,000 Scheduled Premium payment.
<TABLE>
<CAPTION>
Male Female
Issue Non-Tobacco Non-Tobacco
Age Option 1 Option 2 Option 1 Option 2
<S> <C> <C> <C> <C>
30 $85,779 $75,378 $99,541 $93,577
35 $68,165 $61,559 $79,212 $76,497
40 $54,111 $50,082 $63,070 $62,320
45 $43,165 $40,605 $50,599 $50,633
50 $34,675 $32,791 $40,824 $40,958
55 $28,136 $26,852 $33,171 $32,949
60 $23,176 $22,867 $27,141 $26,301
65 $19,474 $19,474 $22,369 $22,168
</TABLE>
Generally, for a given Scheduled Premium, the initial Specified Amount is
greater for non-tobacco than standard and females than males. The Specified
Amount is shown in the Policy.
While the Policy is in force, the death benefit will never be less than the
Specified Amount. The death benefit may vary with the Cash Value of the Policy,
which depends on investment performance.
The Policy Owner may choose one of two death benefit options. Under Option 1,
the death benefit will be the greater of the Specified Amount or the Applicable
Percentage of Cash Value. Under Option 1, the amount of the death benefit will
ordinarily not change for several years to reflect the investment performance
and may not change at all. If investment performance is favorable the amount of
death benefit may increase. To see how and when investment performance will
begin to affect death benefits, please see the illustrations located in the
prospectus. Under Option 2, the death benefit will be the greater of the
Specified Amount plus the Cash Value, or the Applicable Percentage of Cash
Value and will vary directly with the investment performance.
The term "Applicable Percentage" means:
1. 250% when the Insured is Attained Age 40 or less at the beginning
of a Policy Year, and
2. when the Insured is above Attained Age 40, the percentage shown
in the "Applicable Percentage of Cash Value Table" shown below.
23
<PAGE> 27
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGE OF CASH VALUE TABLE
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
--- ------------- --- ------------- --- -------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
41 243% 61 128% 81 105%
42 236% 62 126% 82 105%
43 229% 63 124% 83 105%
44 222% 64 122% 84 105%
45 215% 65 120% 85 105%
46 209% 66 119% 86 105%
47 203% 67 118% 87 105%
48 197% 68 117% 88 105%
49 191% 69 116% 89 105%
50 185% 70 115% 90 105%
51 178% 71 113% 91 104%
52 171% 72 111% 92 103%
53 164% 73 109% 93 102%
54 157% 74 107% 94 101%
55 150% 75 105% 95 100%
56 146% 76 105%
57 142% 77 105%
58 138% 78 105%
59 134% 79 105%
</TABLE>
PROCEEDS PAYABLE ON DEATH
The actual Proceeds payable on the Insured's death will be the death benefit as
described above, less any Policy Indebtedness and less any unpaid Policy
Charges. Under certain circumstances, the Death Proceeds may be adjusted (see
"Incontestability", "Error in Age or Sex" and "Suicide").
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may exchange the Policy for a flexible premium adjustable life
insurance policy offered by the Company on the Policy Date. The benefits for
the new policy will not vary with the investment experience of a separate
account. The exchange must be elected within 24 months from the Policy Date.
No evidence of insurability will be required.
The Policy Owner and Beneficiary under the new policy will be the same as those
under the exchanged Policy on the effective date of the exchange. The new
policy will have a death benefit on the exchange date not more than the death
benefit of the original Policy immediately prior to the exchange date. The new
policy will have the same Policy Date and issue age as the original Policy. The
initial Specified Amount and any increases in Specified Amount will have the
same rate class as those of the original Policy. Any Indebtedness may be
transferred to the new policy.
The exchange may be subject to an equitable adjustment in rates and values to
reflect variances, if any, in the rates and values between the two Policies.
After adjustment, if any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of the Variable
Account. The Company must inform the Policy Owners and obtain all necessary
regulatory approvals. Any change must be submitted to the various state
insurance departments which may disapprove it if deemed detrimental to the
interests of the Policy Owners or if it renders the Company's operations
hazardous to the public. If a Policy Owner objects, the Policy may be converted
to a substantially comparable General Account life insurance policy offered by
the Company on the life of the Insured. The Policy Owner has the later of 60
days (6 months in Pennsylvania) from the date of the investment policy change
or 60 days (6 months in Pennsylvania) from being informed of such change to
make this conversion. The Company will not require evidence of insurability for
this conversion.
24
<PAGE> 28
The new policy will not be affected by the investment experience of any
separate account. The new policy will be for an amount of insurance not
exceeding the death benefit of the Policy converted on the date of such
conversion.
GRACE PERIOD
- -First Five Policy Years
This Policy will not lapse during the first five Policy Years provided
that on each Monthly Anniversary Day (1) is greater than or equal to (2)
where:
(1) Is the sum of all premiums paid to date minus any Policy
Indebtedness; and
(2) Is the sum of monthly Minimum Premiums since the Policy Date
including the monthly Minimum Premium for the current Monthly
Anniversary Day.
If (1) is less than (2), a Grace Period of 61 days from the Monthly Anniversary
Day will be allowed for the payment of sufficient premium to satisfy the
Minimum Premium requirement. If sufficient premium is not paid by the end of
the Grace Period, the Policy will lapse. The Policy will be terminated with the
return of any available Cash Surrender Value. The Cash Surrender Value will be
calculated as of the beginning of the Grace Period. The Policy Owner may also
elect in writing to have the Policy placed on Extended Term Insurance.
- -Policy Years Six and After
If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to
cover the current monthly deduction for insurance costs, administrative
expenses and other benefits, a Grace Period of 61 days from the Monthly
Anniversary Day will be allowed for the payment of sufficient premium to cover
the current monthly deduction plus an amount equal to three times the current
monthly deduction.
- -All Policy Years
The Company will send such a notice at the start of the Grace Period to the
Policy Owner's last known address. If the Insured dies during the Grace Period,
the Company will pay the Death Proceeds.
REINSTATEMENT
If the Grace Period ends and the Policy Owner has neither paid the required
premium nor surrendered the Policy for its Cash Surrender Value, the Policy
Owner may reinstate the Policy by:
1. submitting a written request at any time within 3 years after the
end of the Grace Period and prior to the Maturity Date:
2. providing evidence of insurability satisfactory to the Company;
3. paying sufficient premium to cover all Policy Charges that were due and
unpaid during the Grace Period;
4. paying sufficient premium to keep the Policy in force for 3 months from
the date of reinstatement; and
5. paying or reinstating any Indebtedness against the Policy which existed
at the end of the Grace Period.
The effective date of a reinstated Policy will be the Monthly Anniversary Day
on or next following the date the application for reinstatement is approved by
us. If your Policy is reinstated, the Cash Value on the date of reinstatement,
but prior to applying any premiums or loan repayments received, will be set
equal to the lesser of:
(1) the Cash Value at the end of the Grace Period; or
(2) the Surrender Charge for the Policy Year in which the Policy was
reinstated.
Unless the Policy Owner has provided otherwise, all amounts will be allocated
based on the Fund allocation factors in effect at the start of the Grace
Period.
THE FIXED ACCOUNT OPTION
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
25
<PAGE> 29
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 4%. Upon request the Company will inform a Policy
Owner of the then applicable rate. The Company is not obligated to credit
interest at a higher rate.
CHANGES IN EXISTING INSURANCE COVERAGE
The Policy Owner may request certain changes in the insurance coverage under
the Policy. Any request must be in writing and received at the Company's home
office. No change will take effect unless the Cash Surrender Value, after the
change, is sufficient to keep the Policy in force for at least 3 months.
SPECIFIED AMOUNT INCREASES
After the fifth Policy Year, the Policy Owner may request an increase to the
Specified Amount. Any increase will be subject to the following conditions:
(1) the request must be applied for in writing;
(2) satisfactory evidence of insurability must be provided;
(3) the increase must be for a minimum of $10,000;
(4) the Cash Surrender Value is sufficient to continue the Policy in
force for at least 3 months; and
(5) age limits are the same as a new issue.
Any approved increase will have an effective date of the Monthly Anniversary
Day on or next following the date the Company approves the supplemental
application. The Company reserves the right to limit the number of Specified
Amount increases to one each Policy Year.
SPECIFIED AMOUNT DECREASES
After the fifth Policy Year, the Policy Owner may also request a decrease to
the Specified Amount. Any approved decrease will be effective on the Monthly
Anniversary Day on or next following the date the Company receives the request.
Any such decrease shall reduce insurance in the following order:
(1) against insurance provided by the most recent increase;
(2) against the next most recent increases successively; and
(3) against insurance provided under the original application.
The Company reserves the right to limit the number of Specified Amount
decreases to one each Policy Year. The Company will refuse a request for a
decrease which would:
(1) reduce the Specified Amount to less than $10,000; or
(2) disqualify the Policy as a contract for life insurance.
CHANGES IN THE DEATH BENEFIT OPTION
After the fifth Policy Year, the Policy Owner may change the death benefit
option under the Policy. If the change is from Option 1 to Option 2, the
Specified Amount will be decreased by the amount of the Cash Value. If the
change is from Option 2 to Option 1, the Specified Amount will be increased by
the amount of the Cash Value. The Company reserves the right to require
evidence of insurability for either change (from Option 1 to Option 2 only in
New York). The effective date of the change will be the Monthly Anniversary
Day on or next following the date the Company approves the request for change.
Only one change of option is permitted per Policy Year. A change in death
benefit option will not be permitted if it results in the total premiums paid
exceeding the then current maximum premium limitations prescribed by the
Internal Revenue Service to qualify the Policy as a life insurance contract.
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<PAGE> 30
OTHER POLICY PROVISIONS
POLICY OWNER
While the Insured is living, all rights in this Policy are vested in the Policy
Owner named in the application or as subsequently changed, subject to
assignment, if any.
The Policy Owner may name a contingent Policy Owner or a new Policy Owner while
the Insured is living. Any change must be in a written form satisfactory to the
Company and recorded at the Company's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by the Company before it was recorded. The Company may require
that the Policy be submitted for endorsement before making a change.
If the Policy Owner is other than the Insured and names no contingent Policy
Owner, and dies before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or as subsequently
changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the Insured is living. Any
change must be in a written form satisfactory to the Company and recorded at
the Company's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by the
Company before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
named Beneficiary survives the Insureds, the Death Proceeds shall be paid to
the Policy Owner or the Policy Owner's estate.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his or her rights in
the Policy. The assignment must be in writing, signed by the Policy Owner and
recorded by the Company at its home office. Any assignment will not affect any
payments made or actions taken by the Company before it was recorded. The
Company is not responsible for any assignment not submitted for recording, nor
is the Company responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness owed to the Company before
it was recorded.
INCONTESTABILITY
The Company will not contest payment of the Death Proceeds based on the initial
Specified Amount after the Policy has been in force during the Insured's
lifetime for 2 years from the Policy Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not contest payment of the
Death Proceeds based on such an increase after it has been in force during the
Insured's lifetime for 2 years from its effective date.
ERROR IN AGE OR SEX
If the age or sex of the Insured has been misstated, the affected benefits will
be adjusted. The amount of the death benefit will be (1) multiplied by (2) and
then the result added to (3), where:
(1) is the amount of the death benefit at the time of the Insured's
death reduced by the amount of the Cash Value at the time of the
Insured's death;
(2) is the ratio of the monthly cost of insurance applied in the
policy month of death and the monthly cost of insurance that
should have been applied at the true age and sex in the policy
month of death; and
(3) is the Cash Value at the time of the Insured's death.
SUICIDE
If the Insured dies by suicide, while sane or insane, within two years from the
Policy Date, the Company will pay no more than the sum of the premiums paid,
less any Indebtedness. If the Insured dies by suicide, while sane or insane,
within two years from the date an application is accepted for an increase in
the Specified Amount, the Company will pay no more than the amount paid for
such additional benefit.
27
<PAGE> 31
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
LEGAL CONSIDERATIONS
On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v.
Norris that certain annuity benefits provided by employers' retirement and
fringe benefit programs may not vary between men and women on the basis of sex.
This decision applies only to benefits derived from contributions made on or
after August 1, 1983. The Policies offered by this prospectus are based upon
actuarial tables which distinguish between men and women and thus the Policies
provide different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with
legal counsel, the impact of Norris on any employment related insurance or
benefit program before purchasing this Policy.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by licensed insurance agents in those states where
the Policies may lawfully be sold. Such agents will be registered
representatives of broker dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
(NASD). The Policies will be distributed by the General Distributor, Nationwide
Advisory Services, Inc. NAS acts as general distributor for the Nationwide
Multi-Flex Variable Account, Nationwide DC Variable Account, Nationwide
DCVA-II, Nationwide Variable Account-II, Nationwide Variable Account-5,
Nationwide Variable Account-6, Nationwide Variable Account-8, Nationwide VA
Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate
Account-C, Nationwide VL Separate Account-A, Nationwide VL Separate Account-B,
Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, NACo
Variable Account and the Nationwide Variable Account, all of which are separate
investment accounts of the Company or its affiliates. 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, all
of which are open-end management investment companies.
Gross first year commissions paid by the Company on the sale of these Policies
plus fees for marketing services provided by the General Distributor are not
more than 26% of the Scheduled Premium plus 5% of any excess premium payments.
Gross renewal commissions paid by the Company will not exceed 5% of actual
premium payments.
CUSTODIAN OF ASSETS
The Company serves as the Custodian of the assets of the Variable Account.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance policy for federal tax purposes. The Company
will monitor compliance with these tests. The Policy should thus receive the
same federal income tax treatment as fixed benefit life insurance. As a result,
the Death Proceeds payable under a Policy are excludable from gross income of
the beneficiary under Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those
policies issued or materially changed after June 21, 1988, on which the total
premiums paid during the first seven years exceed the amount that would have
been paid if the policy provided for paid up benefits after seven level annual
premiums (see "Information about the Policies"). The Code provides for taxation
of surrenders, partial surrenders, loans, collateral assignments and other
pre-death distributions from modified endowment contracts (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.
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
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<PAGE> 32
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. 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 excludible from gross income.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Code requires that the investments of Separate Accounts such as the
Variable Account be adequately diversified. Regulations under 817(h) provide
that a variable life policy failing 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 in his or account.
Representatives of the Internal Revenue Service have suggested, from time to
time, that the number of Underlying Mutual Funds available or the number of
transfer opportunities available under a variable product may be relevant in
determining whether the product qualifies for the desired tax treatment. No
formal guidance has been issued in this area. Should the Secretary of the
Treasury issue additional rules or regulations limiting the number of
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 may have adverse tax
consequences depending on the circumstances. If the amount received by the
Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the
Policy, the excess will generally be treated as taxable income, regardless of
whether or not the Policy is a modified endowment contract.
- - Federal Estate and Generation-Skipping Transfer Taxes
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, an estate of less than $600,000 (inclusive of
certain predeath gifts) will not incur a federal estate tax liability. In
addition, an unlimited marital deduction may be available for federal estate
tax purposes, for certain amounts that pass to the surviving spouse.
When the Insured dies, the death benefit will generally be included in the
lnsured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the Insured's estate; or (2) the Insured held any "incident of
ownership" in the Policy at death or at any time within three years of death.
An incident of ownership is, in general, any right that may be exercised by the
Policy, such as the right to borrow on the Policy, or the right to name a new
Beneficiary.
If the Policy Owner (whether or not he or she is the Insured) transfers
ownership of the Policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such Policy Owner transfers the Policy to
someone two or more generations younger than the Policy Owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the
taxable amount being the value of the policy.
Similarly, if the Beneficiary is two or more generations younger than the
Insured, the payment of the Death Proceeds at the death of the Insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
Treasury Department, the Company may be required to withhold a portion of the
Death Proceeds and pay them directly to the Internal Revenue Service as the
GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to
the complexity of these rules, the Policy Owner should consult with counsel and
other competent advisors regarding these taxes,
- - Non-Resident Aliens
Distributions to nonresident aliens ("NRAs") are generally subject to federal
income tax and tax withholding, at
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<PAGE> 33
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. Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the value of Accumulation Units. As a result,
such investment income and realized capital gains are automatically applied to
increase reserves under the Policies.
The Company does not initially expect to incur any Federal income tax liability
that would be chargeable to the Variable Account. Based upon these
expectations, no charge is currently being made against the Variable Account
for federal income taxes. If, however, the Company determines that on a
separate company basis such taxes may be incurred, it reserves the right to
assess a charge for such taxes against the Variable Account.
The Company may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
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.
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<PAGE> 34
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,
MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI
Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, the NACo Variable Account, 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 agents, the
approval of policy forms, the methods of computing reserves, the form and
content of statutory financial statements, the amount of policyholders' and
stockholders' dividends, and the type of distribution of investments permitted.
The Company operates in the highly competitive field of life insurance. There
are approximately 2,300 stock, mutual and other types of insurers in the life
insurance business in the United States, and a large number of them compete
with the registrant in the sale of insurance policies.
As is customary in insurance company groups, employees are shared with the
other insurance companies in the group. In addition to its direct salaried
employees, the Company shares employees with Nationwide Mutual Insurance
Company and Nationwide Mutual Fire Insurance Company.
The Company does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. The Company shares home office, other facilities and equipment with
Nationwide Mutual Insurance Company.
COMPANY MANAGEMENT
Nationwide Life Insurance Company, together with Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity
Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and
Casualty Insurance Company, National Casualty Company, West Coast Life
Insurance Company, Scottsdale Indemnity Company and Nationwide General
Insurance Company and their affiliated companies comprise the Nationwide
Insurance Enterprise.
The companies comprising the Nationwide Insurance Enterprise have
substantially common boards of directors and officers. Nationwide
Financial Services, Inc. is the sole shareholder of Nationwide Life.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Director
Name Since Principal Occupation
---- ----- --------------------
<S> <C> <C>
Lewis J. Alphin 1993 Farm Owner and Operator (1)
Keith W. Eckel 1996 Partner, 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)
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
Director
Name Since Principal Occupation
---- ----- --------------------
<S> <C> <C>
Joseph J. Gasper*+ 1996 President and Chief Operating Officer, Nationwide Life Insurance
Company and Nationwide Life and Annuity Insurance Company. (2)
Henry S. Holloway *+ 1986 Farm Owner and Operator (1)
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)
</TABLE>
*Member, Executive Committee +Member, Investment Committee
1) Principal occupation for last five years.
2) Prior to assuming this current position, Messrs. McFerson and Gasper
held other executive management positions with the companies.
Each of the directors is a director of the other major insurance affiliates of
the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only
of the Company and Nationwide Life Insurance Company. Messrs. McFerson and
Gasper are directors of Nationwide 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
<TABLE>
<CAPTION>
NAME OFFICE HELD
- ---- -----------
<S> <C>
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
</TABLE>
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life and
Annuity Insurance Company. Mr. Galloway is also an officer of Nationwide Mutual
Insurance Company and Nationwide Life and Annuity Insurance Company. Each of
the other officers listed above is also an officer of each of the companies
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<PAGE> 36
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 1993-1996.
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.
REPORTS TO POLICY OWNERS
The Company will mail to the Policy Owner, at the last known address of record,
an annual statement showing the amount of the current death benefit, the Cash
Value, and Cash Surrender Value, premiums paid and monthly charges deducted
since the last report, the amounts invested in the Fixed Account and in the
Variable Account and in each sub-account of the Variable Account, and any
Policy Indebtedness.
Policy Owners will also be sent annual and semi-annual reports containing
financial statements for the Variable Account as required by the 1940 Act.
In addition, Policy Owners will receive statements of significant transactions,
such as changes in Specified Amount, changes in death benefit option, changes
in future premium allocation, transfers among sub-accounts, premium payments,
loans, loan repayments, reinstatement and termination.
ADVERTISING
The Company is also ranked and rated by independent financial rating services,
among which are Moody's, Standard & Poor's and A.M. Best Company. The purpose
of these ratings is to reflect the financial strength or claims-paying ability
of the Company. The ratings are not intended to reflect the investment
experience or financial strength of the Variable Account. The Company may
advertise these ratings from time to time. In addition, the Company may include
in certain advertisements endorsements in the form of a list of organizations,
individuals or other parties which recommend the Company or the Contracts .
Furthermore, the Company may occasionally include in advertisements comparisons
of currently taxable and tax deferred investment programs based on selected tax
brackets or discussions of alternative investment vehicles and general economic
conditions.
LEGAL PROCEEDINGS
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 October 1996, a policyholder of Nationwide Life
filed a complaint in Alabama state court against Nationwide Life and an agent
of Nationwide Life (Wayne M. King v. Nationwide Life Insurance Company and
Danny Nix), related to the sale of a whole life policy on a "vanishing premium"
basis and seeking unspecified compensatory and punitive damages. 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.
33
<PAGE> 37
This lawsuit is in an early stage and has not been certified as a class action.
Nationwide Life intends to defend these cases 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.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being passed
upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216. All
the members of such firm are employed by the Nationwide Mutual Insurance
Company.
34
<PAGE> 38
APPENDIX 1
ILLUSTRATION OF
SURRENDER CHARGES
Example 1: A female non-tobacco, age 45, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $50,599. She now wishes to
surrender the Policy during the first Policy year. By using the initial
surrender charge table reproduced below, (also see "Surrender Charges") the
total surrender charge per thousand multiplied by the Specified Amount
expressed in thousands equals the total surrender charge of $514.09 ($10.160 x
50.599 = $514.09).
Example 2: A male non-tobacco, age 35, purchases a Policy with a Scheduled
Premium of $2,000 yielding a Specified Amount of $68,165. He now wants to
surrender the Policy in the sixth Policy Year. The total initial surrender
value is calculated using the method illustrated above. (Specified Amount in
thousands $68.165 x 7.260 = 494.88 total first year surrender charge.) Because
the fifth Policy Year has been completed, the total initial surrender charge is
reduced by multiplying it by the applicable percentage factor from the
"Reductions to Surrender Charges" table below (Also see "Reductions to
Surrender Charges"). In this case, $494.88 x 85% = $420.65.
Initial Surrender Charge per $1,000 of initial Specified Amount for policies
which are issued on a standard basis.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
- ---------------------------------------------------------------------------------------------------------------
35 7.260 6.712 8.559 7.373
- ---------------------------------------------------------------------------------------------------------------
45 11.159 10.160 13.244 11.151
- ---------------------------------------------------------------------------------------------------------------
55 15.275 13.375 18.373 14.686
- ---------------------------------------------------------------------------------------------------------------
65 23.821 20.553 27.943 22.165
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Reductions to Surrender Charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 100% 5 85%
- ------------------------------------------------------------------------------------------------------------------
1 100% 6 80%
- ------------------------------------------------------------------------------------------------------------------
2 100% 7 75%
- ------------------------------------------------------------------------------------------------------------------
3 95% 8 50%
- ------------------------------------------------------------------------------------------------------------------
4 90% 9+ 0%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The current Surrender Charges are the same for all states. However, in
Pennsylvania the guaranteed maximum Surrender Charges are 8% higher than those
shown. In addition, the guaranteed maximum Surrender Charge in subsequent years
in Pennsylvania are reduced in the following manner:
<TABLE>
<CAPTION>
SURRENDER CHARGE SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
------------ ----------------- ------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
0 100% 5 83% 10 46%
1 98% 6 75% 11 37%
2 95% 7 70% 12 28%
3 92% 8 65% 13 14%
4 88% 9 55% 14+ 0%
</TABLE>
The illustrations of current values are the same for Pennsylvania. However, the
guaranteed maximum Surrender Charges are slightly higher in Pennsylvania. If
this contract is issued in Pennsylvania, please contact the home office for an
illustration.
The Company has no plans to change the current Surrender Charges.
35
<PAGE> 39
APPENDIX 2
ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS
The illustrations in this prospectus have been prepared to help show how values
under the Policies change with investment performance. The illustrations
illustrate how Cash Values, Cash Surrender Values and death benefits under a
Policy would vary over time if the hypothetical gross investment rates of
return were a uniform annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%, 6% or 12% over a
period of years, but fluctuates above or below those averages for individual
years, the Cash Values, Cash Surrender Values and death benefits may be
different. For hypothetical returns of 0% and 6%, the illustrations also
illustrate when the Policies would go into default, at which time additional
premium payments would be required to continue the Policy in force. The
illustrations also assume there is no Policy Indebtedness, no additional
premium payments are made, no Cash Values are allocated to the Fixed Account,
and there are no changes in the Specified Amount or death benefit option.
The amounts shown for the Cash Value, Cash Surrender Value and death benefit as
of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross return. This is due
to the daily charges made against the assets of the sub-accounts for assuming
mortality and expense risks. The mortality and expense risk charges are
equivalent to an annual effective rate of .80% of the daily net asset value of
the Variable Account. In addition, the net investment returns also reflect the
deduction of Fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 1.00% of the daily net asset value of
the Variable Account. This effective rate is based on the average of the fund
expenses for the preceding year for all Mutual Fund options available under the
policy as of April 30, 1996.
Considering current charges for mortality and expense risks and Fund expenses,
gross annual rates of return of 0%, 6% and 12% correspond to net investment
experience at constant annual rates of -1.80%, 4.20% and 10.20%.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as standard (including non-tobacco). Policies issued on a substandard
basis would result in lower Cash Values and Death benefits than those
illustrated.
In addition, the illustrations reflect the fact that the Company deducts a
monthly administrative charge at the beginning of each Policy Month. This
monthly administrative expense charge is $5 and is guaranteed not to exceed
$7.50. Current values reflect a current monthly administrative expense charge
of $5 and guaranteed values reflect the $7.50 maximum monthly administrative
charge under the Policy. The illustrations also reflect the fact that no
charges for federal or state income taxes are currently made against the
Variable Account. If such a charge is made in the future, it will require a
higher gross investment return than illustrated in order to produce the net
after-tax returns shown in the illustrations.
Upon request, the Company will furnish a comparable illustration based on the
proposed Insured's age, sex, smoking classification, rating classification and
premium payment requested.
36
<PAGE> 40
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- -------------------------- ---------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,668 1,186 43,165 1,773 1,292 43,165 1,879 1,397 43,165
2 2,000 4,305 3,307 2,825 43,165 3,620 3,139 43,165 3,947 3,465 43,165
3 2,000 6,620 4,915 4,433 43,165 5,544 5,062 43,165 6,225 5,743 43,165
4 2,000 9,051 6,495 6,037 43,165 7,549 7,091 43,165 8,734 8,277 43,165
5 2,000 11,604 8,044 7,611 43,165 9,636 9,203 43,165 11,499 11,066 43,165
6 0 12,184 7,707 7,298 43,165 9,844 9,434 43,165 12,468 12,059 43,165
7 0 12,793 7,363 6,977 43,165 10,049 9,664 43,165 13,530 13,144 43,165
8 0 13,433 7,009 6,648 43,165 10,252 9,891 43,165 14,693 14,331 43,165
9 0 14,105 6,646 6,405 43,165 10,452 10,211 43,165 15,970 15,729 43,165
10 0 14,810 6,270 6,270 43,165 10,647 10,647 43,165 17,371 17,371 43,165
15 0 18,901 4,172 4,172 43,165 11,510 11,510 43,165 26,820 26,820 43,165
20 0 24,124 1,433 1,433 43,165 11,959 11,959 43,165 42,382 42,382 51,706
25 0 30,788 (*) (*) (*) 11,388 11,388 43,165 67,360 67,360 78,138
30 0 39,295 (*) (*) (*) 8,375 8,375 43,165 107,288 107,288 114,798
35 0 50,151 (*) (*) (*) (*) (*) (*) 171,712 171,712 180,297
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
37
<PAGE> 41
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- -------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,575 1,094 43,165 1,678 1,196 43,165 1,780 1,299 43,165
2 2,000 4,305 3,118 2,636 43,165 3,420 2,939 43,165 3,736 3,254 43,165
3 2,000 6,620 4,627 4,146 43,165 5,231 4,749 43,165 5,885 5,403 43,165
4 2,000 9,051 6,105 5,647 43,165 7,113 6,656 43,165 8,249 7,791 43,165
5 2,000 11,604 7,549 7,116 43,165 9,070 8,637 43,165 10,852 10,419 43,165
6 0 12,184 7,099 6,690 43,165 9,133 8,723 43,165 11,636 11,227 43,165
7 0 12,793 6,632 6,246 43,165 9,176 8,791 43,165 12,485 12,100 43,165
8 0 13,433 6,143 5,781 43,165 9,198 8,837 43,165 13,405 13,044 43,165
9 0 14,105 5,627 5,386 43,165 9,192 8,951 43,165 14,401 14,160 43,165
10 0 14,810 5,082 5,082 43,165 9,154 9,154 43,165 15,481 15,481 43,165
15 0 18,901 1,733 1,733 43,165 8,288 8,288 43,165 22,508 22,508 43,165
20 0 24,124 (*) (*) (*) 5,399 5,399 43,165 33,826 33,826 43,165
25 0 30,788 (*) (*) (*) (*) (*) (*) 52,553 52,553 60,962
30 0 39,295 (*) (*) (*) (*) (*) (*) 82,040 82,040 87,783
35 0 50,151 (*) (*) (*) (*) (*) (*) 129,233 129,233 135,695
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
38
<PAGE> 42
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- ------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,670 1,217 42,276 1,776 1,322 42,381 1,881 1,428 42,486
2 2,000 4,305 3,306 2,853 43,911 3,619 3,166 44,225 3,945 3,492 44,551
3 2,000 6,620 4,906 4,453 45,512 5,533 5,080 46,138 6,210 5,757 46,816
4 2,000 9,051 6,472 6,041 47,077 7,519 7,089 48,124 8,697 8,266 49,302
5 2,000 11,604 8,000 7,592 48,605 9,578 9,170 50,183 11,423 11,015 52,028
6 2,000 14,284 9,491 9,106 50,096 11,712 11,327 52,317 14,414 14,029 55,020
7 2,000 17,098 10,944 10,582 51,549 13,924 13,561 54,529 17,695 17,333 58,301
8 2,000 20,053 12,359 12,019 52,964 16,214 15,875 56,820 21,295 20,955 61,900
9 2,000 23,156 13,736 13,509 54,341 18,588 18,361 59,193 25,244 25,018 65,850
10 2,000 26,414 15,072 15,072 55,677 21,043 21,043 61,649 29,576 29,576 70,182
15 2,000 45,315 21,328 21,328 61,934 34,889 34,889 75,494 58,723 58,723 99,328
20 2,000 69,439 26,366 26,366 66,971 51,122 51,122 91,728 105,084 105,084 145,690
25 2,000 100,227 29,734 29,734 70,339 69,680 69,680 110,285 178,686 178,686 219,292
30 2,000 139,522 30,537 30,537 71,143 89,915 89,915 130,520 295,140 295,140 335,746
35 2,000 189,673 27,631 27,631 68,237 110,666 110,666 151,271 479,373 479,373 519,978
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE> 43
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- -------------------------- -------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,579 1,126 42,184 1,681 1,228 42,287 1,784 1,331 42,389
2 2,000 4,305 3,118 2,665 43,723 3,420 2,966 44,025 3,734 3,281 44,339
3 2,000 6,620 4,616 4,163 45,221 5,216 4,763 45,821 5,865 5,412 46,470
4 2,000 9,051 6,072 5,641 46,677 7,071 6,640 47,676 8,195 7,764 48,800
5 2,000 11,604 7,485 7,077 48,091 8,985 8,577 49,591 10,741 10,334 51,347
6 2,000 14,284 8,854 8,469 49,459 10,959 10,574 51,565 13,524 13,139 54,130
7 2,000 17,098 10,176 9,814 50,781 12,993 12,630 53,598 16,564 16,202 57,170
8 2,000 20,053 11,448 11,108 52,053 15,083 14,743 55,689 19,883 19,543 60,488
9 2,000 23,156 12,666 12,440 53,272 17,229 17,003 57,835 23,505 23,278 64,110
10 2,000 26,414 13,828 13,828 54,434 19,429 19,429 60,035 27,456 27,456 68,062
15 2,000 45,315 18,689 18,689 59,294 31,176 31,176 71,781 53,297 53,297 93,902
20 2,000 69,439 21,506 21,506 62,111 43,754 43,754 84,359 93,070 93,070 133,675
25 2,000 100,227 21,252 21,252 61,857 55,986 55,986 96,591 153,879 153,879 194,485
30 2,000 139,522 16,189 16,189 56,794 65,535 65,535 106,140 246,274 246,274 286,879
35 2,000 189,673 3,371 3,371 43,976 67,920 67,920 108,526 385,475 385,475 426,080
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
40
<PAGE> 44
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- ------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,291 3,019 114,019 4,558 3,286 114,019 4,825 3,553 114,019
2 5,000 10,763 8,507 7,234 114,019 9,306 8,034 114,019 10,138 8,866 114,019
3 5,000 16,551 12,646 11,373 114,019 14,251 12,979 114,019 15,987 14,715 114,019
4 5,000 22,628 16,712 15,503 114,019 19,405 18,196 114,019 22,433 21,224 114,019
5 5,000 29,010 20,700 19,555 114,019 24,772 23,626 114,019 29,532 28,387 114,019
6 0 30,460 19,975 18,893 114,019 25,447 24,365 114,019 32,163 31,082 114,019
7 0 31,983 19,232 18,214 114,019 26,127 25,109 114,019 35,047 34,029 114,019
8 0 33,582 18,468 17,514 114,019 26,811 25,857 114,019 38,211 37,257 114,019
9 0 35,261 17,685 17,049 114,019 27,500 26,864 114,019 41,688 41,052 114,019
10 0 37,024 16,873 16,873 114,019 28,186 28,186 114,019 45,506 45,506 114,019
15 0 47,254 12,337 12,337 114,019 31,571 31,571 114,019 71,267 71,267 114,019
20 0 60,309 6,421 6,421 114,019 34,445 34,445 114,019 113,599 113,599 138,591
25 0 76,971 (*) (*) (*) 35,716 35,716 114,019 181,626 181,626 210,686
30 0 98,237 (*) (*) (*) 32,871 32,871 114,019 290,627 290,627 310,971
35 0 125,378 (*) (*) (*) 20,885 20,885 114,019 466,657 466,657 489,989
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE> 45
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- -------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,159 2,886 114,019 4,422 3,149 114,019 4,685 3,413 114,019
2 5,000 10,763 8,235 6,962 114,019 9,018 7,746 114,019 9,834 8,561 114,019
3 5,000 16,551 12,229 10,956 114,019 13,798 12,526 114,019 15,496 14,223 114,019
4 5,000 22,628 16,142 14,933 114,019 18,770 17,561 114,019 21,727 20,518 114,019
5 5,000 29,010 19,974 18,829 114,019 23,944 22,798 114,019 28,589 27,444 114,019
6 0 30,460 19,078 17,996 114,019 24,402 23,320 114,019 30,945 29,864 114,019
7 0 31,983 18,147 17,129 114,019 24,839 23,821 114,019 33,514 32,496 114,019
8 0 33,582 17,174 16,220 114,019 25,247 24,293 114,019 36,314 35,360 114,019
9 0 35,261 16,151 15,514 114,019 25,619 24,983 114,019 39,369 38,732 114,019
10 0 37,024 15,069 15,069 114,019 25,947 25,947 114,019 42,703 42,703 114,019
15 0 47,254 8,481 8,481 114,019 26,597 26,597 114,019 64,815 64,815 114,019
20 0 60,309 (*) (*) (*) 24,190 24,190 114,019 101,107 101,107 123,350
25 0 76,971 (*) (*) (*) 14,938 14,938 114,019 159,556 159,556 185,085
30 0 98,237 (*) (*) (*) (*) (*) (*) 252,154 252,154 269,805
35 0 125,378 (*) (*) (*) (*) (*) (*) 400,851 400,851 420,893
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 46
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- ----------------------------
CASH NET CASH NET CASH NET
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,306 3,151 107,827 4,573 3,418 108,094 4,841 3,685 108,362
2 5,000 10,763 8,526 7,371 112,047 9,325 8,170 112,847 10,157 9,002 113,678
3 5,000 16,551 12,658 11,502 116,179 14,261 13,105 117,782 15,993 14,838 119,515
4 5,000 22,628 16,704 15,606 120,225 19,388 18,291 122,909 22,404 21,307 125,926
5 5,000 29,010 20,657 19,618 124,179 24,707 23,667 128,228 29,439 28,400 132,961
6 5,000 35,710 24,522 23,540 128,043 30,227 29,245 133,748 37,164 36,182 140,685
7 5,000 42,746 28,293 27,369 131,815 35,953 35,029 139,474 45,643 44,718 149,164
8 5,000 50,133 31,971 31,105 135,493 41,890 41,024 145,411 54,950 54,084 158,471
9 5,000 57,889 35,558 34,980 139,079 48,048 47,471 151,569 65,171 64,593 168,692
10 5,000 66,034 39,046 39,046 142,567 54,428 54,428 157,949 76,389 76,389 179,910
15 5,000 113,287 55,493 55,493 159,014 90,520 90,520 194,042 152,000 152,000 255,521
20 5,000 173,596 69,077 69,077 172,598 133,213 133,213 236,734 272,686 272,686 376,207
25 5,000 250,567 78,844 78,844 182,366 182,703 182,703 286,224 465,021 465,021 568,542
30 5,000 348,804 82,881 82,881 186,402 238,011 238,011 341,532 770,716 770,716 874,238
35 5,000 474,182 78,731 78,731 182,252 297,141 297,141 400,662 1,256,583 1,256,583 1,360,104
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 47
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- ---------------------------
CASH NET CASH NET CASH NET
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,180 3,024 107,701 4,443 3,288 107,964 4,706 3,551 108,227
2 5,000 10,763 8,262 7,107 111,783 9,046 7,890 112,567 9,861 8,705 113,382
3 5,000 16,551 12,248 11,092 115,769 13,813 12,658 117,334 15,507 14,351 119,028
4 5,000 22,628 16,134 15,036 119,655 18,750 17,652 122,271 21,691 20,593 125,212
5 5,000 29,010 19,920 18,880 123,441 23,858 22,819 127,380 28,465 27,425 131,986
6 5,000 35,710 23,602 22,620 127,123 29,142 28,160 132,663 35,883 34,901 139,405
7 5,000 42,746 27,175 26,251 130,696 34,601 33,677 138,122 44,005 43,081 147,526
8 5,000 50,133 30,634 29,768 134,156 40,236 39,370 143,757 52,894 52,027 156,415
9 5,000 57,889 33,974 33,396 137,495 46,046 45,468 149,567 62,619 62,042 166,140
10 5,000 66,034 37,187 37,187 140,708 52,030 52,030 155,551 73,258 73,258 176,779
15 5,000 113,287 51,171 51,171 154,692 84,551 84,551 188,072 143,444 143,444 246,965
20 5,000 173,596 60,809 60,809 164,330 120,924 120,924 224,445 253,129 253,129 356,650
25 5,000 250,567 64,135 64,135 167,656 159,381 159,381 262,902 423,868 423,868 527,389
30 5,000 348,804 57,829 57,829 161,350 196,058 196,058 299,579 688,770 688,770 792,291
35 5,000 474,182 36,319 36,319 139,840 223,193 223,193 326,714 1,098,021 1,098,021 1,201,543
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE> 48
DEATH BENEFIT OPTION 1
$20,000 ANNUAL
PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- ----------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,219 12,612 301,625 18,290 13,683 301,625 19,362 14,755 301,625
2 20,000 43,050 34,140 29,533 301,625 37,351 32,744 301,625 40,691 36,083 301,625
3 20,000 66,203 50,782 46,175 301,625 57,238 52,630 301,625 64,217 59,610 301,625
4 20,000 90,513 67,147 62,770 301,625 77,990 73,613 301,625 90,181 85,804 301,625
5 20,000 116,038 83,219 79,072 301,625 99,636 95,490 301,625 118,836 114,689 301,625
6 0 121,840 80,411 76,495 301,625 102,519 98,603 301,625 129,664 125,748 301,625
7 0 127,932 77,510 73,824 301,625 105,434 101,748 301,625 141,575 137,889 301,625
8 0 134,329 74,485 71,030 301,625 108,359 104,904 301,625 154,679 151,223 301,625
9 0 141,045 71,326 69,022 301,625 111,293 108,990 301,625 169,121 166,817 301,625
10 0 148,097 68,037 68,037 301,625 114,247 114,247 301,625 185,075 185,075 301,625
15 0 189,014 48,054 48,054 301,625 128,364 128,364 301,625 294,478 294,478 341,595
20 0 241,235 17,507 17,507 301,625 138,985 138,985 301,625 472,509 472,509 505,585
25 0 307,884 (*) (*) (*) 141,234 141,234 301,625 760,267 760,267 798,281
30 0 392,947 (*) (*) (*) 124,862 124,862 301,625 1,217,535 1,217,535 1,278,412
35 0 501,511 (*) (*) (*) 59,677 59,677 301,625 1,935,318 1,935,318 2,032,083
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
45
<PAGE> 49
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------ ------------------------- -----------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,081 11,474 301,625 17,117 12,510 301,625 18,155 13,548 301,625
2 20,000 43,050 31,805 27,198 301,625 34,883 30,275 301,625 38,086 33,479 301,625
3 20,000 66,203 47,188 42,581 301,625 53,347 48,740 301,625 60,015 55,408 301,625
4 20,000 90,513 62,237 57,860 301,625 72,558 68,181 301,625 84,184 79,807 301,625
5 20,000 116,038 76,955 72,808 301,625 92,570 88,423 301,625 110,875 106,728 301,625
6 0 121,840 72,607 68,691 301,625 93,579 89,663 301,625 119,426 115,509 301,625
7 0 127,932 67,951 64,265 301,625 94,347 90,661 301,625 128,709 125,023 301,625
8 0 134,329 62,922 59,466 301,625 94,816 91,360 301,625 138,800 135,345 301,625
9 0 141,045 57,453 55,149 301,625 94,923 92,619 301,625 149,795 147,491 301,625
10 0 148,097 51,472 51,472 301,625 94,602 94,602 301,625 161,814 161,814 301,625
15 0 189,014 10,890 10,890 301,625 83,750 83,750 301,625 243,970 243,970 301,625
20 0 241,235 (*) (*) (*) 42,243 42,243 301,625 385,307 385,307 412,279
25 0 307,884 (*) (*) (*) (*) (*) (*) 612,829 612,829 643,471
30 0 392,947 (*) (*) (*) (*) (*) (*) 963,397 963,397 1,011,567
35 0 501,511 (*) (*) (*) (*) (*) (*) 1,486,642 1,486,642 1,560,974
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
46
<PAGE> 50
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- -------------------------- ----------------------------
CASH NET CASH NET CASH NET
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,271 13,125 288,733 18,342 14,195 289,804 19,413 15,266 290,875
2 20,000 43,050 34,168 30,021 305,630 37,371 33,224 308,833 40,702 36,555 312,164
3 20,000 66,203 50,702 46,556 322,164 57,123 52,977 328,585 64,064 59,918 335,526
4 20,000 90,513 66,864 62,925 338,326 77,613 73,674 349,075 89,694 85,755 361,156
5 20,000 116,038 82,622 78,890 354,084 98,834 95,102 370,296 117,783 114,051 389,245
6 20,000 142,840 97,989 94,465 369,451 120,824 117,299 392,286 148,588 145,063 420,050
7 20,000 170,982 112,959 109,641 384,421 143,600 140,283 415,062 182,370 179,052 453,832
8 20,000 200,531 127,503 124,393 398,965 167,163 164,053 438,625 219,397 216,287 490,859
9 20,000 231,558 141,620 139,547 413,082 191,536 189,463 462,998 259,988 257,915 531,450
10 20,000 264,136 155,325 155,325 426,787 216,763 216,763 488,225 304,517 304,517 575,979
15 20,000 453,150 218,239 218,239 489,701 357,592 357,592 629,054 602,578 602,578 874,040
20 20,000 694,385 265,419 265,419 536,881 518,819 518,819 790,281 1,072,248 1,072,248 1,343,710
25 20,000 1,002,269 291,795 291,795 563,257 697,917 697,917 969,379 1,812,137 1,812,137 2,083,599
30 20,000 1,395,216 290,557 290,557 562,019 889,293 889,293 1,160,756 2,979,455 2,979,455 3,250,917
35 20,000 1,896,726 249,775 249,775 521,237 1,079,693 1,079,693 1,351,155 4,822,266 4,822,266 5,093,728
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
47
<PAGE> 51
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
-------------------------- ------------------------ ----------------------------
CASH NET CASH NET CASH NET
ANNUAL PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,184 12,038 287,646 17,220 13,073 288,682 18,257 14,110 289,719
2 20,000 43,050 31,877 27,730 303,339 34,940 30,794 306,402 38,128 33,982 309,590
3 20,000 66,203 47,072 42,926 318,534 53,168 49,022 324,630 59,765 55,618 331,227
4 20,000 90,513 61,751 57,812 333,213 71,898 67,958 343,360 83,317 79,378 354,779
5 20,000 116,038 75,889 72,157 347,351 91,116 87,384 362,578 108,945 105,213 380,407
6 20,000 142,840 89,459 85,934 360,921 110,807 107,282 382,269 136,821 133,297 408,283
7 20,000 170,982 102,431 99,114 373,893 130,950 127,633 402,413 167,134 163,817 438,596
8 20,000 200,531 114,758 111,648 386,220 151,507 148,397 422,969 200,069 196,959 471,531
9 20,000 231,558 126,392 124,318 397,854 172,434 170,361 443,896 235,832 233,759 507,294
10 20,000 264,136 137,288 137,288 408,750 193,690 193,690 465,152 274,652 274,652 546,114
15 20,000 453,150 179,287 179,287 450,749 303,404 303,404 574,866 524,459 524,459 795,921
20 20,000 694,385 193,401 193,401 464,863 410,516 410,516 681,978 897,812 897,812 1,169,274
25 20,000 1,002,269 165,230 165,230 436,692 495,149 495,149 766,611 1,449,402 1,449,402 1,720,864
30 20,000 1,395,216 76,531 76,531 347,993 527,482 527,482 798,944 2,262,330 2,262,330 2,533,792
35 20,000 1,896,726 (*) (*) (*) 454,371 454,371 725,833 3,451,917 3,451,917 3,723,379
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
48
<PAGE> 52
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- -----------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,618 11,732 205,135 17,673 12,786 205,135 18,728 13,842 205,135
2 20,000 43,050 32,941 28,054 205,135 36,092 31,206 205,135 39,372 34,485 205,135
3 20,000 66,203 48,992 44,105 205,135 55,327 50,441 205,135 62,184 57,297 205,135
4 20,000 90,513 64,779 60,137 205,135 75,440 70,798 205,135 87,442 82,800 205,135
5 20,000 116,038 80,339 75,941 205,135 96,529 92,131 205,135 115,498 111,100 205,135
6 0 121,840 76,906 72,753 205,135 98,778 94,625 205,135 125,708 121,555 205,135
7 0 127,932 73,232 69,323 205,135 100,961 97,052 205,135 136,997 133,088 205,135
8 0 134,329 69,291 65,627 205,135 103,072 99,407 205,135 149,534 145,869 205,135
9 0 141,045 65,045 62,602 205,135 105,098 102,654 205,135 163,519 161,076 205,135
10 0 148,097 60,430 60,430 205,135 107,010 107,010 205,135 179,187 179,187 205,135
15 0 189,014 29,550 29,550 205,135 114,133 114,133 205,135 287,698 287,698 302,083
20 0 241,235 (*) (*) (*) 113,840 113,840 205,135 460,496 460,496 483,521
25 0 307,884 (*) (*) (*) 94,478 94,478 205,135 731,738 731,738 768,325
30 0 392,947 (*) (*) (*) 15,855 15,855 205,135 1,166,147 1,166,147 1,177,808
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
49
<PAGE> 53
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------ ------------------------- -------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,205 9,319 205,135 15,188 10,302 205,135 16,174 11,288 205,135
2 20,000 43,050 28,074 23,187 205,135 30,954 26,067 205,135 33,958 29,072 205,135
3 20,000 66,203 41,640 36,754 205,135 47,385 42,499 205,135 53,624 48,737 205,135
4 20,000 90,513 54,939 50,297 205,135 64,586 59,944 205,135 75,496 70,854 205,135
5 20,000 116,038 67,999 63,601 205,135 82,675 78,277 205,135 99,971 95,573 205,135
6 0 121,840 61,657 57,503 205,135 81,451 77,297 205,135 106,042 101,889 205,135
7 0 127,932 54,577 50,668 205,135 79,596 75,686 205,135 112,561 108,652 205,135
8 0 134,329 46,582 42,917 205,135 76,953 73,288 205,135 119,588 115,924 205,135
9 0 141,045 37,460 35,016 205,135 73,337 70,894 205,135 127,215 124,772 205,135
10 0 148,097 26,972 26,972 205,135 68,532 68,532 205,135 135,581 135,581 205,135
15 0 189,014 (*) (*) (*) 15,446 15,446 205,135 198,356 198,356 208,274
20 0 241,235 (*) (*) (*) (*) (*) (*) 311,439 311,439 327,011
25 0 307,884 (*) (*) (*) (*) (*) (*) 480,207 480,207 504,217
30 0 392,947 (*) (*) (*) (*) (*) (*) 746,244 746,244 753,706
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
50
<PAGE> 54
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
<TABLE>
<CAPTION>
CURRENT VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------- ------------------------- ---------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,547 11,908 211,285 17,594 12,955 212,332 18,642 14,003 213,381
2 20,000 43,050 32,613 27,974 227,351 35,722 31,083 230,460 38,957 34,318 233,695
3 20,000 66,203 48,191 43,552 242,929 54,391 49,752 249,129 61,097 56,458 255,836
4 20,000 90,513 63,246 58,839 257,984 73,579 69,172 268,318 85,205 80,798 279,943
5 20,000 116,038 77,770 73,595 272,509 93,294 89,119 288,032 111,462 107,287 306,201
6 20,000 142,840 91,757 87,814 286,496 113,540 109,596 308,278 140,070 136,127 334,809
7 20,000 170,982 105,157 101,446 299,895 134,280 130,569 329,019 171,208 167,497 365,947
8 20,000 200,531 117,963 114,484 312,701 155,519 152,040 350,258 205,115 201,636 399,853
9 20,000 231,558 130,153 127,834 324,892 177,246 174,926 371,984 242,039 239,720 436,778
10 20,000 264,136 141,679 141,679 336,418 199,420 199,420 394,159 282,225 282,225 476,963
15 20,000 453,150 190,197 190,197 384,936 318,421 318,421 513,160 545,952 545,952 740,690
20 20,000 694,385 216,571 216,571 411,309 444,024 444,024 638,763 949,833 949,833 1,144,572
25 20,000 1,002,269 212,426 212,426 407,165 566,208 566,208 760,946 1,568,052 1,568,052 1,762,790
30 20,000 1,395,216 167,420 167,420 362,158 669,255 669,255 863,994 2,516,798 2,516,798 2,711,536
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
51
<PAGE> 55
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
<TABLE>
<CAPTION>
GUARANTEED VALUES
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
-------------------------- ------------------------- ----------------------------
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,065 9,426 208,804 15,033 10,394 209,771 16,003 11,364 210,741
2 20,000 43,050 27,434 22,795 222,172 30,225 25,586 224,964 33,136 28,497 227,875
3 20,000 66,203 40,082 35,444 234,821 45,548 40,910 240,287 51,479 46,840 246,217
4 20,000 90,513 51,978 47,571 246,716 60,962 56,555 255,700 71,106 66,699 265,844
5 20,000 116,038 63,071 58,896 257,810 76,406 72,231 271,145 92,083 87,908 286,822
6 20,000 142,840 73,294 69,351 268,032 91,798 87,855 286,537 114,461 110,518 309,200
7 20,000 170,982 82,559 78,848 277,298 107,032 103,321 301,771 138,276 134,565 333,014
8 20,000 200,531 90,758 87,279 285,497 121,972 118,493 316,710 163,539 160,060 358,278
9 20,000 231,558 97,782 95,462 292,520 136,475 134,155 331,213 190,265 187,945 385,003
10 20,000 264,136 103,541 103,541 298,279 150,410 150,410 345,149 218,487 218,487 413,225
15 20,000 453,150 111,282 111,282 306,020 207,629 207,629 402,368 384,589 384,589 579,328
20 20,000 694,385 73,398 73,398 268,136 226,517 226,517 421,255 595,047 595,047 789,786
25 20,000 1,002,269 (*) (*) (*) 168,760 168,760 363,499 843,370 843,370 1,038,109
30 20,000 1,395,216 (*) (*) (*) (*) (*) (*) 1,119,536 1,119,536 1,314,275
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE
PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A
PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
52
<PAGE> 56
<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> 57
<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> 58
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 7 to Form S-6 Registration Statement
comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 97 pages.
Representations and Undertakings.
Accountants' Consent.
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C> <C>
1. Power of Attorney dated April 2, 1997. Attached hereto.
2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for the
authorizing the establishment of the Registrant, Nationwide VLI Separate Account-2 (File No. 811-5311), and
adopted hereby incorporated herein by reference.
3. Distribution Contracts Included with the Registration Statement on Form N-8B-2 for the
Nationwide VLI Separate Account-2 (File No. 811-5311), and
hereby incorporated herein by reference.
4. Form of Security Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein by reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for the
Nationwide VLI Separate Account-2 (File No. 811-5311), and
hereby incorporated herein by reference.
6. Application form of Security Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein by reference.
7. Opinion of Counsel Included with Pre-Effective Amendment No. 1 and hereby
incorporated herein by reference.
</TABLE>
<PAGE> 59
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and the Company hereby make the following representations and
undertakings:
(a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 (the "Act"). The Registrant and the
Company elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act
with respect to the Policies described in the prospectus. The Policies
have been designed in such a way as to qualify for the exemptive relief
from various provisions of the Act afforded by Rule 6e-3(T).
(b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the
deduction of the mortality and expense risk charges ("risk charges")
assumed by the Company under the Policies. The Company represents that
the risk charges are within the range of industry practice for
comparable policies and reasonable in relation to all of the risks
assumed by the issuer under the Policies. Actuarial memoranda
demonstrating the reasonableness of these charges are maintained by the
Company, and will be made available to the Securities and Exchange
Commission (the "Commission") on request.
(c) The Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the separate account will benefit
the separate account and the contractholders and will keep and make
available to the Commission on request a memorandum setting forth the
basis for this representation.
(d) The Company represents that the separate account will invest only in
management investment companies which have undertaken to have a board of
directors, a majority of whom are not interested persons of the company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in
that section.
(f) That the fees and charges deducted under the Contract in the aggregate
are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
<PAGE> 60
ACCOUNTANTS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide VLI Separate Account-2:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Columbus, Ohio
April 24, 1997
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NATIONWIDE VLI SEPARATE ACCOUNT-2, certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment No. 7 and has duly caused this Post-Effective
Amendment No. 7 to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City
of Columbus, and State of Ohio, on this 24th day of April, 1997.
NATIONWIDE VLI SEPARATE ACCOUNT-2
-----------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE INSURANCE COMPANY
Attest: ---------------------------------
(Sponsor)
/s/ W. SIDNEY DRUEN By: /s/ JOSEPH P. RATH
- ---------------------------------- ----------------------------------
W. Sidney Druen Joseph P. Rath
Assistant Secretary Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7 has been signed below by the following persons in the
capacities indicated on the 24th day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ LEWIS J. ALPHIN Director
- --------------------------------------
Lewis J. Alphin
/s/ KEITH W. ECKEL Director
- --------------------------------------
Keith W. Eckel
/s/ WILLARD J. ENGEL Director
- --------------------------------------
Willard J. Engel
/s/ FRED C. FINNEY Director
- --------------------------------------
Fred C. Finney
/s/ CHARLES L. FUELLGRAF, JR. Director
- --------------------------------------
Charles L. Fuellgraf, Jr.
/s/ JOSEPH J. GASPER President/Chief Operating
- -------------------------------------- Officer and Director
Joseph J. Gasper
/s/ HENRY S. HOLLOWAY Chairman of the Board
- -------------------------------------- and Director
Henry S. Holloway
/s/ DIMON RICHARD McFERSON Chairman and Chief Executive Officer
- -------------------------------------- Nationwide Insurance Enterprise and Director
Dimon Richard McFerson
/s/ DAVID O. MILLER Director
- --------------------------------------
David O. Miller
/s/ C. RAY NOECKER Director
- --------------------------------------
C. Ray Noecker
/s/ ROBERT A. OAKLEY Executive Vice President-
- -------------------------------------- Financial Officer
Robert A. Oakley
/s/ JAMES F. PATTERSON Director By: /s/ JOSEPH P. RATH
- -------------------------------------- ---------------------------------
James F. Patterson Joseph P. Rath, Attorney-in-Fact
/s/ ARDEN L. SHISLER Director
- --------------------------------------
Arden L. Shisler
/s/ ROBERT L. STEWART Director
- --------------------------------------
Robert L. Stewart
/s/ NANCY C. THOMAS Director
- --------------------------------------
Nancy C. Thomas
/s/ HAROLD W. WEIHL Director
- --------------------------------------
Harold W. Weihl
</TABLE>
<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 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, 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 2nd day of April, 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>
