-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AimYDYSpnWD0MNb+Mw1AvZlTkdDDv1WIhxZFuc6GloE5WHJoTCATxFd9zm4Aa3dD fD+PuPr8j/4onWUBiAfa+g== 0000950152-96-001688.txt : 19960425 0000950152-96-001688.hdr.sgml : 19960425 ACCESSION NUMBER: 0000950152-96-001688 CONFORMED SUBMISSION TYPE: S-6EL24/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960424 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 2 CENTRAL INDEX KEY: 0000820914 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6EL24/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-62795 FILM NUMBER: 96549974 BUSINESS ADDRESS: STREET 1: ONE NATIONWIDE PLZ STREET 2: C/O NATIONWIDE LIFE INSURANCE CO CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 614-249-7111 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 S-6EL24/A 1 NATIONWIDE VLI SEPARATE ACCOUNT 2 1 REGISTRATION NO. 33-62795 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- PRE-EFFECTIVE AMENDMENT NO. 3 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) ------------------- Title and amount of securities being registered: Single premium variable life insurance policies. Such policies are not issued in predetermined amounts or units. The Registrant elects to register an indefinite number of securities by this registration statement in accordance with Rule 24f-2 under the Investment Company Act of 1940. Pursuant to Paragraph (a)(3) thereof, a non-refundable fee in the amount of $500.00 accompanies this registration. Approximate date of proposed public offering: (As soon as practicable after the effective date of this Registration Statement). / / Check box if it is proposed that this filing will become effective on (date) at (time) pursuant to Rule 487. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall therefore become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 1 of 90 2 CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS - ----------- --------------------- 1........................................ Nationwide Life Insurance Company The Variable Account 2........................................ Nationwide Life Insurance Company 3........................................ Custodian of Assets 4........................................ Distribution of The Policies 5........................................ The Variable Account 6........................................ Not Applicable 7........................................ Not Applicable 8........................................ Not Applicable 9........................................ Legal Proceedings 10........................................ Information About The Policies; How The Cash Value Varies; Right to Exchange for a Fixed Benefit Policy; Reinstatement; Other Policy Provisions 11........................................ Investments of The Variable Account 12........................................ The Variable Account 13........................................ Policy Charges Reinstatement 14........................................ Underwriting and Issuance - Premium Payments Minimum Requirements for Issuance of a Policy 15........................................ Investments of the Variable Account; Premium Payments 16........................................ Underwriting and Issuance - Allocation of Cash Value 17........................................ Surrendering The Policy for Cash 18........................................ Reinvestment 19........................................ Not Applicable 20........................................ Not Applicable 21........................................ Policy Loans 22........................................ Not Applicable 23........................................ Not Applicable 24........................................ Not Applicable 25........................................ Nationwide Life Insurance Company 26........................................ Not Applicable 27........................................ Nationwide Life Insurance Company 28........................................ Company Management 29........................................ Company Management 30........................................ Not Applicable 31........................................ Not Applicable 32........................................ Not Applicable 33........................................ Not Applicable 34........................................ Not Applicable 35........................................ Nationwide Life Insurance Company 36........................................ Not Applicable 37........................................ Not Applicable 38........................................ Distribution of The Policies 39........................................ Distribution of The Policies 40........................................ Not Applicable 41(a)..................................... Distribution of The Policies 42........................................ Not Applicable 43........................................ Not Applicable 44........................................ How The Cash Value Varies 45........................................ Not Applicable
3
N-8B-2 ITEM CAPTION IN PROSPECTUS - ----------- --------------------- 46........................................ How The Cash Value Varies 47........................................ Not Applicable 48........................................ Custodian of Assets 49........................................ Not Applicable 50........................................ Not Applicable 51........................................ Summary of The Policies; Information About The Policies 52........................................ Substitution of Securities 53........................................ Taxation of The Company 54........................................ Not Applicable 55........................................ Not Applicable 56........................................ Not Applicable 57........................................ Not Applicable 58........................................ Not Applicable 59........................................ Financial Statements
4 NATIONWIDE LIFE INSURANCE COMPANY Home Office P.O. Box 182150 One Nationwide Plaza Columbus, Ohio 43218-2150 (800) 547-7548, TDD (800) 238-3035 MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES* ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2 The Life Insurance Policies offered by this prospectus are variable life insurance policies (collectively referred to as the "Policies"). The Policies are designed to provide life insurance coverage on the Insured named in the Policy. The Policies may also provide a Cash Surrender Value if the Policy is surrendered during the lifetime of the Insured. The Death Benefit and Cash Value of the Policies may vary to reflect the experience of the Nationwide VLI Separate Account-2 (the "Variable Account") or the Fixed Account to which Cash Values are allocated. The Policies described in this prospectus may meet the definition of a "modified endowment contract" under Section 7702A of the Internal Revenue Code (the "Code"). The Code provides for taxation in the same manner as annuities for surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions from modified endowment contracts. Any distribution is taxable to the extent the Cash Value of the Policy exceeds, at the time of the distribution, the premiums paid into the Policy. The Code also provides for a 10% tax penalty on the taxable portion of such distributions. That penalty is applicable unless the distribution is 1) paid after the Policy Owner is 59 1/2 or disabled; or 2) the distribution is part of an annuity to the Policy Owner as defined in the Code. (See "Tax Matters.") It may not be advantageous to replace existing insurance with Policies described in this prospectus. It may also be disadvantageous to purchase a Policy to obtain additional insurance protection if the purchaser already owns another variable life insurance policy. The Policies may not be advantageous for persons who may wish to make policy loans or withdrawals prior to attaining age 59 1/2. (See "Tax Matters.") *The contract is titled a "Flexible Premium Variable Life Insurance Policy" in Texas. The Policy Owner may allocate premiums and Cash Value to one or more of the sub-accounts of the Variable Account and the Fixed Account. The assets of each sub-account will be used to purchase, at net asset value, shares of a designated underlying Mutual Fund in the following series of the underlying variable account Mutual Fund options: DREYFUS OPPENHEIMER VARIABLE ACCOUNT FUNDS: -Dreyfus Stock Index Fund -Bond Fund -Dreyfus Socially Responsible Growth Fund -Global Securities Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND: -Multiple Strategies Fund -High Income Portfolio** STRONG SPECIAL FUND II, INC.: -Equity-Income Portfolio -Special Fund II -Growth Portfolio STRONG VARIABLE INSURANCE FUNDS, INC.: -Overseas Portfolio -International Stock Fund II FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: -Discovery Fund II, Inc. -Asset Manager Portfolio TCI PORTFOLIOS, INC.: -Contrafund Portfolio -TCI Growth NATIONWIDE SEPARATE ACCOUNT TRUST: -TCI Balanced -Capital Appreciation Fund -TCI International -Money Market Fund VAN ECK WORLDWIDE INSURANCE TRUST: -Government Bond Fund -Gold and Natural Resources Fund -Small Company Fund -Worldwide Bond Fund -Total Return Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST TRUST: -American Capital Real Estate Securities Fund -Limited Maturity Bond Portfolio WARBURG PINCUS TRUST -Growth Portfolio -International Equity Portfolio -Partners Portfolio -Small Company Growth Portfolio
** The High Income Portfolio may invest in lower quality debt securities commonly referred to as junk bonds. 1 5 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH. INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL. The Company (Nationwide Life Insurance Company) guarantees that the Death Benefit for a Policy will never be less than the Specified Amount stated on the Policy data pages as long as the Policy is in force. There is no guaranteed Cash Surrender Value. If the Cash Surrender Value is insufficient to cover the charges under the Policy, the Policy will lapse. This prospectus generally describes only that portion of the Cash Value allocated to the Variable Account. For a brief summary of the Fixed Account Option, see "The Fixed Account Option." The date of this Prospectus is May 1, 1996. 2 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 proceeds due on the Insured's death are paid. CASH VALUE- The sum of the value of Policy assets in the Variable Account, Fixed Account and any associated value in the Policy Loan Account. CASH SURRENDER VALUE- The Policy's Cash Value, less any indebtedness under the Policy, less any Surrender Charge. CODE- The Internal Revenue Code of 1986, as amended. COMPANY- Nationwide Life Insurance Company. DEATH PROCEEDS- Amount of money payable to the Beneficiary if the Insured dies while the Policy is in force. FIXED ACCOUNT- An investment option which is funded by the General Account of the Company. GENERAL ACCOUNT- All assets of the Company other than those of the Variable Account or those of other separate accounts that have been or may be established by the Company. GUIDELINE SINGLE PREMIUM- The amount of single premium calculated in accordance with the provisions of the Code. It represents the single premium required to mature the Policy under guaranteed mortality and expense charges, and an interest rate of 6%. INSURED- The person whose life is covered by the Policy, and who is named on the Policy Data Page. MATURITY DATE- The Policy Anniversary on or following the Insured's 100th birthday. MONTHLY ANNIVERSARY DATE- The same day as the Policy Date for each succeeding month. MUTUAL FUNDS- The underlying mutual funds which correspond to the sub-accounts of the Variable Account. NET ASSET VALUE- The worth of one share of a Mutual Fund as calculated at the end of each business day. Net Asset Value is computed by adding the value of all portfolio holdings, plus other assets, deducting liabilities and then dividing the result by the number of shares outstanding. POLICY ANNIVERSARY- An anniversary of the Policy Date. POLICY CHARGES- All deductions made from the value of the Variable Account, or the Policy Cash Value. POLICY DATE- The date the provisions of the Policy take effect, as shown on the Policy Owner's Policy data page. POLICY LOAN ACCOUNT- The Portion of the Cash Value which results from Policy Loans. POLICY OWNER- The person designated in the Policy application as the Owner. POLICY YEAR- Each year commencing with the Policy Date and each Policy Date anniversary thereafter. SPECIFIED AMOUNT- A dollar amount used to determine the Death Benefit under a Policy. It is shown on the Policy Data Page. SURRENDER CHARGE- An amount deducted from the Cash Value if the Policy is surrendered. VALUATION DATE- Each day both the New York Stock Exchange and the Company's Home Office is open for business or any other day during which there is a sufficient degree of trading such that the current net asset value of the Accumulated Units might be materially affected. VALUATION PERIOD- A period commencing with the close of business on the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. VARIABLE ACCOUNT- Nationwide VLI Separate -2, a separate investment account of Nationwide Life Insurance Company. 3 7 TABLE OF CONTENTS GLOSSARY OF TERMS........................................................................ 3 SUMMARY OF THE POLICIES.................................................................. 6 Variable Life Insurance......................................................... 6 The Variable Account and its Sub-Accounts....................................... 6 The Fixed Account............................................................... 6 Deductions and Charges.......................................................... 6 Premiums........................................................................ 8 NATIONWIDE LIFE INSURANCE COMPANY........................................................ 8 THE VARIABLE ACCOUNT..................................................................... 8 Investments of the Variable Account............................................. 8 Dreyfus......................................................................... 9 Fidelity's Variable Insurance Products Fund..................................... 10 Fidelity's Variable Insurance Products Fund II.................................. 10 Nationwide Separate Account Trust............................................... 11 Neuberger & Berman Advisers Management Trust.................................... 11 Oppenheimer Variable Account Funds.............................................. 12 Strong Special Fund II, Inc..................................................... 12 Strong Variable Insurance Funds, Inc............................................ 12 TCI Portfolios, Inc., a member of the Twentieth Century Family of Mutual Funds.. 13 Van Eck Worldwide Insurance Trust............................................... 13 Van Kampen American Capital Life Investment Trust............................... 14 Warburg Pincus Trust............................................................ 14 Reinvestment.................................................................... 14 Transfers....................................................................... 14 Dollar Cost Averaging........................................................... 15 Substitution of Securities...................................................... 15 Voting Rights................................................................... 16 INFORMATION ABOUT THE POLICIES........................................................... 16 Underwriting and Issuance....................................................... 16 -Minimum Requirements for Issuance of a Policy.................................. 16 -Premium Payments............................................................... 16 -Allocation of Cash Value....................................................... 17 -Short-Term Right to Cancel Policy.............................................. 17 POLICY CHARGES........................................................................... 17 Deductions from Premiums........................................................ 17 Monthly Deductions.............................................................. 17 -Cost of Insurance Charge....................................................... 18 -Administrative Expense Charge.................................................. 18 -Tax Expense Charge............................................................. 18 -Mortality and Expense Risk Charge.............................................. 18 Surrender Charges............................................................... 19 HOW THE CASH VALUE VARIES................................................................ 19 How the Investment Experience is Determined..................................... 19 Net Investment Factor........................................................... 20 Valuation of Assets............................................................. 20 Determining the Cash Value...................................................... 20 Valuation Periods and Valuation Dates........................................... 20 SURRENDERING THE POLICY FOR CASH......................................................... 20 Right to Surrender.............................................................. 20 Cash Surrender Value............................................................ 21 Partial Surrenders.............................................................. 21 Maturity Proceeds............................................................... 21 Income Tax Withholding.......................................................... 21 POLICY LOANS............................................................................. 22 Taking a Policy Loan............................................................ 22 Effect on Investment Performance................................................ 22 Interest........................................................................ 22 Effect on Death Benefit and Cash Value.......................................... 22 Repayment....................................................................... 23 HOW THE DEATH BENEFIT VARIES............................................................. 23
4 8 -Calculation of the Death Benefit............................................... 23 -Proceeds Payable on Death...................................................... 24 RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY............................................. 24 CHANGES OF INVESTMENT POLICY............................................................. 24 GRACE PERIOD............................................................................. 24 REINSTATEMENT............................................................................ 24 THE FIXED ACCOUNT OPTION................................................................. 24 OTHER POLICY PROVISIONS.................................................................. 25 Policy Owner.................................................................... 25 Beneficiary..................................................................... 25 Assignment...................................................................... 25 Incontestability................................................................ 25 Error in Age or Sex............................................................. 25 Suicide......................................................................... 25 Nonparticipating Policies....................................................... 26 LEGAL CONSIDERATIONS..................................................................... 26 DISTRIBUTION OF THE POLICIES............................................................. 26 CUSTODIAN OF ASSETS...................................................................... 26 TAX MATTERS.............................................................................. 26 Policy Proceeds................................................................. 26 Taxation of the Company......................................................... 27 Other Considerations............................................................ 28 THE COMPANY.............................................................................. 28 COMPANY MANAGEMENT....................................................................... 28 Directors of the Company........................................................ 29 Executive Officers of the Company............................................... 29 OTHER CONTRACTS ISSUED BY THE COMPANY.................................................... 30 STATE REGULATION......................................................................... 30 REPORTS TO POLICY OWNERS................................................................. 30 ADVERTISING.............................................................................. 30 LEGAL PROCEEDINGS........................................................................ 31 EXPERTS.................................................................................. 31 REGISTRATION STATEMENT................................................................... 31 LEGAL OPINIONS........................................................................... 31 APPENDIX................................................................................. 32 FINANCIAL STATEMENTS..................................................................... 43
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. 5 9 THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. SUMMARY OF THE POLICIES VARIABLE LIFE INSURANCE The variable life insurance Policies offered by Nationwide Life Insurance Company (the "Company") are similar in many ways to fixed-benefit whole life insurance. As with fixed-benefit whole life insurance, the Owner of the Policy pays a premium for life insurance coverage on the person insured. Also like fixed-benefit whole life insurance, the Policies may provide for a Cash Surrender Value which is payable if the Policy is terminated during the Insured's lifetime. (As with fixed-benefit whole life insurance, the Cash Surrender Value during the early Policy years may be substantially lower than the premiums paid.) However, the Policies differ from fixed-benefit whole life insurance in several respects. Unlike fixed-benefit whole life insurance, the Death Benefit and Cash Value of the Policies may increase or decrease to reflect the investment performance of the Variable Account sub-accounts or the Fixed Account to which Cash Values are allocated. (See "How the Death Benefit Varies.") There is no guaranteed Cash Surrender Value. (See "How the Cash Value Varies.") If the Cash Surrender Value is insufficient to pay Policy Charges, the Policy will lapse. THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS The Company places the Policy's Cash Value in the Nationwide VLI Separate Account-2 and/or the Fixed Account (the "Variable Account") at the time the Policy is issued. The Policy Owner selects the sub-accounts of the Variable Account into which the Cash Value will be allocated. (See "Allocation of Cash Value.") When the Policy is issued, the Cash Value will be allocated to the Nationwide Separate Account Trust Money Market Fund Sub-Account (for any Cash Value allocated to a Sub-Account on the application) or the Fixed Account until the expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. (See "Short-Term Right to Cancel Policy.") Assets of each sub-account are invested at net asset value in shares of a corresponding underlying Mutual Fund option. For a description of the underlying Mutual Fund options and their investment objectives, see "Investments of the Variable Account." The Policy Owner also can have Cash Value allocated to the Fixed Account. THE FIXED ACCOUNT The Fixed Account is funded by the assets of the Company's General Account. Cash Values allocated to the Fixed Account are credited with interest daily at a rate declared by the Company. The interest rate declared is at the Company's sole discretion, but may never be less than an effective annual rate of 3%. DEDUCTIONS AND CHARGES The Company deducts certain charges from the Cash Value of the Policy. These charges are made for administrative expenses, state premium taxes, federal taxes, providing life insurance protection and assuming the mortality and expense risks. The Company deducts a monthly charge for the cost of insurance, administrative charges, premium tax, and federal tax from the Policy's Cash Value attributable to the Variable Account and Fixed Account. The Company also deducts on a monthly basis from the Cash Value attributable to the Variable Account, a charge to provide for mortality and expense risks. For Policies which are surrendered in the first 9 Policy Years, the Company deducts a Surrender Charge not to exceed 10% of the initial Premium Payment. This includes a charge for deferred sales expenses and premium tax recovery. The sales surrender charge will never exceed 7.5% of the initial premium payments. For a complete discussion of all charges, deductions and reductions of charges, see "Charges and Other Deductions." Underlying Mutual Fund shares are purchased at net asset value, which reflects the deduction of investment management fees and certain other expenses. The management fees are charged by each underlying Mutual Fund's investment adviser for managing the underlying Mutual Fund and selecting its portfolio of securities. Other underlying Mutual Fund expenses can include such items as interest expense on loans and contracts with transfer agents, custodians, and other companies that provide services to the underlying Mutual Fund. The management fees and other expenses for each underlying Mutual Fund for its most recently completed fiscal year, expressed as a percentage of the underlying Mutual Fund's average assets, are as follows: 6 10
- ---------------------------------------------------------------------------------------------------- Management Fees Other Expenses Total Expenses - ---------------------------------------------------------------------------------------------------- Dreyfus Stock Index Fund 0.27% 0.12% 0.39% - ---------------------------------------------------------------------------------------------------- Dreyfus Socially Responsible Growth Fund 0.69% 0.58% 1.27% - ---------------------------------------------------------------------------------------------------- Fidelity VIP Fund-Equity-Income Portfolio 0.51% 0.10% 0.61% - ---------------------------------------------------------------------------------------------------- Fidelity VIP Fund-Growth Portfolio 0.61% 0.09% 0.70% - ---------------------------------------------------------------------------------------------------- Fidelity VIP Fund-High Income Portfolio 0.60% 0.11% 0.71% - ---------------------------------------------------------------------------------------------------- Fidelity VIP Fund-Overseas Portfolio 0.76% 0.15% 0.91% - ---------------------------------------------------------------------------------------------------- Fidelity VIP Fund II-Asset Manager Portfolio 0.71% 0.08% 0.79% - ---------------------------------------------------------------------------------------------------- Fidelity VIP Fund II-Contrafund Portfolio 0.61% 0.11% 0.72% - ---------------------------------------------------------------------------------------------------- NSAT-Capital Appreciation Fund 0.50% 0.04% 0.54% - ---------------------------------------------------------------------------------------------------- NSAT-Government Bond Fund 0.50% 0.01% 0.51% - ---------------------------------------------------------------------------------------------------- NSAT-Money Market Fund 0.50% 0.02% 0.52% - ---------------------------------------------------------------------------------------------------- NSAT-Small Company Fund 1.00% 0.25% 1.25% - ---------------------------------------------------------------------------------------------------- NSAT-Total Return Fund 0.50% 0.01% 0.51% - ---------------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust- 0.84% 0.10% 0.94% Growth Portfolio - ---------------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust- 0.65% 0.10% 0.75% Limited Maturity Bond Portfolio - ---------------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust- 0.85% 0.30% 1.15% Partners Portfolio - ---------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds-Bond Fund 0.75% 0.05% 0.80% - ---------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds-Global 0.74% 0.15% 0.89% Securities Fund - ---------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds-Multiple 0.74% 0.03% 0.77% Strategies Fund - ---------------------------------------------------------------------------------------------------- Strong Variable Insurance Funds, Inc. -Discovery 1.00% 0.31% 1.31% Fund II, Inc. - ---------------------------------------------------------------------------------------------------- Strong Variable Insurance Funds, 1.00% 0.97% 1.97% Inc.-International Stock Fund II - ---------------------------------------------------------------------------------------------------- Strong Special Fund II, Inc. 1.00% 0.20% 1.20% - ---------------------------------------------------------------------------------------------------- TCI Portfolios, Inc.-TCI Balanced 1.00% 0.00% 1.00% - ---------------------------------------------------------------------------------------------------- TCI Portfolios, Inc.-TCI Growth 1.00% 0.00% 1.00% - ---------------------------------------------------------------------------------------------------- TCI Portfolios, Inc.-TCI International 1.50% 0.00% 1.50% - ---------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust-Gold and Natural 0.80% 0.16% 0.96% Resources - ---------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust-Worldwide Bond 0.79% 0.15% 0.94% Fund - ---------------------------------------------------------------------------------------------------- Van Kampen American Capital Life Investment 1.00% 1.90% 2.90% Trust-Real Estate Securities Portfolio - ---------------------------------------------------------------------------------------------------- Warburg Pincus Trust-International Equity Portfolio 1.00% 0.44% 1.44% - ---------------------------------------------------------------------------------------------------- Warburg Pincus Trust-Small Company Growth Portfolio 0.90% 0.35% 1.25% - ----------------------------------------------------------------------------------------------------
The Mutual Fund expenses shown above are assessed at the underlying Mutual Fund level and are not direct charges against the Variable Account or reductions in Cash Value. These underlying Mutual Fund expenses are taken into consideration in computing each underlying Mutual Fund's Net Asset Value, which is the share price used to calculate the Variable Account's unit value. The management fees and other expenses, some of which are subject to fee waivers or expense reimbursements. are more fully described in the prospectuses for each individual underlying Mutual Fund. The management fees and other expenses, some of which are subject to fee waivers or expense reimbursements, are more fully described in the prospectus for each underlying Mutual Fund. The information relating to the underlying Mutual Fund expenses was provided by the underlying Mutual Fund and was not independently verified by the Company. 7 11 PREMIUMS The minimum premium for which a Policy may be issued is $10,000 for issue ages 0-70 and $50,000 for issue ages 71-80. A Policy may be issued to an insured up to age 80. For a limited time, the Policy Owner has a right to cancel the Policy and receive a full refund of premiums paid. (See "Short-Term Right to Cancel Policy.") NATIONWIDE LIFE INSURANCE COMPANY The Company is a stock life insurance company organized under the laws of the State of Ohio in March, 1929. The Company is a member of the Nationwide Insurance Enterprise of companies which includes Nationwide Mutual Insurance Company, Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity Company and Nationwide General Insurance Company and their affiliated companies. The Company's home office is at One Nationwide Plaza, Columbus, Ohio 43216. The Company offers a complete line of life insurance, including annuities and accident and health insurance. It is admitted to do business in the District of Columbia, Puerto Rico, and in all states. (For additional information, see "The Company.") THE VARIABLE ACCOUNT The Nationwide VLI Separate Account-2 (the "Variable Account"), was established by a resolution of the Company's Board of Directors on May 7, 1987, pursuant to the provisions of Ohio law. The Company has caused the Variable Account to be registered with the Securities and Exchange Commission as a unit investment trust pursuant to the provisions of the Investment Company Act of 1940. Nationwide Life Insurance Company Inc., One Nationwide Plaza, Columbus, Ohio 43216 serves as depositor for the Variable Account. Nationwide Financial Services, Inc., of One Nationwide Plaza, Columbus, Ohio 43216 serves as principal underwriter for the Variable Account. Such registration does not involve supervision of the management of the Variable Account or the Company by the Securities and Exchange Commission. The Variable Account is a separate investment account of the Company and as such, is not chargeable with the liabilities arising out of any other business the Company may conduct. The Company does not guarantee the investment performance of the Variable Account. The Death Benefit and Cash Value under the Policy may vary with the investment performance of the investments in the Variable Account. (See "How the Death Benefit Varies", and "How the Cash Value Varies.") Premium payments and Cash Value are allocated within the Variable Account among one or more sub-accounts. The assets of each sub-account are used to purchase shares of the underlying Mutual Fund options designated by the Policy Owner. Thus, the investment performance of a Policy depends upon the investment performance of the underlying Mutual Fund options designated by the Policy Owner. INVESTMENTS OF THE VARIABLE ACCOUNT At the time of application, the Policy Owner elects to have the Cash Value allocated among one or more of the Variable Account sub-accounts and the Fixed Account. (See "Allocation of Cash Value.") When the policy is issued, the Policy's Cash Value not allocated to the Fixed Account is placed in the Nationwide Separate Account Trust Money Market sub-account until expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. (See "Short-Term Right to Cancel Policy.") At the expiration of this period, shares of the underlying Mutual Funds specified by the Policy Owner are purchased at net asset value for the respective sub-account(s). Such election is subject to any minimum premium limitations which may be imposed by the underlying Mutual Fund option(s). In addition, no less than 5% of premium may be allocated to any one sub-account or the Fixed Account. The Policy Owner may change the allocation of Cash Value or may transfer Cash Value from one sub-account to another, subject to such terms and conditions as may be imposed by each underlying Mutual Fund option and as set forth in this prospectus. (See "Transfers", "Allocation of Cash Value" and "Short-Term Right to Cancel Policy.") Additional Premium Deposits, upon acceptance, will be allocated to the Nationwide Separate Account Trust Money Market Fund unless the Policy Owner specifies otherwise. (See "Premium Deposits.") Premium Deposits will be held only while the Company obtains information necessary to evaluate the risk. Following the underwriting process, the Company will either issue the policy or refund deposits within 5 days from the date thereof. 8 12 Each of the underlying Mutual Fund options is a series of registered investment companies which receive investment advice from a registered investment adviser: 1) Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment Advisors; 2) Dreyfus Socially Responsible Growth Fund, Inc., managed by Dreyfus Corporation; 3) Fidelity Variable Insurance Products Fund, managed by Fidelity Management & Research Company; and, 4) Fidelity Variable Insurance Products Fund II, managed by Fidelity Management & Research Company. 5) The Nationwide Separate Account Trust, managed by Nationwide Financial Services, Inc.; 6) Neuberger & Berman Advisers Management Trust, managed by Neuberger & Berman Management Incorporated; 7) Oppenheimer Variable Account Funds, managed by Oppenheimer Management Corporation; 8) Strong Special Fund II, Inc., managed by Strong Capital Management, Inc.; 9) Strong Variable Insurance Funds, Inc., managed by Strong Capital Management, Inc.; 10) TCI Portfolios, Inc., managed by Investors Research Corporation, an affiliate of Twentieth Century Companies; 11) Van Eck Worldwide Insurance Trust, managed by Van Eck Associates Corporation; 12) Van Kampen American Capital Life Investment Trust managed by Van Kampen American Capital Asset Management, Inc. 13) Warburg Pincus Trust, managed by Warburg Pincus Counsellors, Inc. A summary of investment objectives is contained in the description of each underlying Mutual Fund below. These underlying Mutual Fund options are available only to serve as the underlying investment for variable annuity and variable life contracts issued through separate accounts of life insurance companies which may or may not be affiliated, also known as "mixed and shared funding." There are certain risks associated with mixed and shared funding, which is disclosed in the underlying Mutual Funds' prospectuses. A full description of the underlying Mutual Funds, their investment policies and restrictions, risks and charges are contained in the prospectuses of the respective underlying Mutual Funds. A prospectus for the underlying Mutual Fund option(s) being considered must accompany this prospectus and should be read in conjunction herewith. DREYFUS - - DREYFUS STOCK INDEX FUND The Dreyfus Stock Index Fund, Inc. is an open-end, non-diversified, management investment company. It was incorporated under Maryland law on January 24, 1989, and commenced operations on September 29, 1989. Wells Fargo Nikko Investment Advisors serves as the Fund's index fund manager. As of May 1, 1994, the Dreyfus Life and Annuity Index Fund began doing business as the Dreyfus Stock Index Fund. Investment Objective: To provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. - - THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified, management investment company. It was incorporated under Maryland law on July 20, 1992, and commenced operations on October 7, 1993. The Dreyfus Corporation serves as the Fund's investment advisor. Tiffany Capital Advisors, Inc. serves as the Fund's sub-investment adviser and provides day-to-day management of the Fund's portfolio. Investment Objective: The Fund's primary goal is to provide capital growth through equity investment in companies that, in the opinion of the Fund's management, not only meet traditional investment standards, but which also show evidence that they conduct their business in a manner that contributes to the enhancement of the quality of life in America. Current income is secondary to the primary goal. 9 13 FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND The Fund is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. The Fund's shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's manager. - - HIGH INCOME PORTFOLIO Investment Objective: To obtain a high level of current income by investing primarily in high-risk, high-yielding, lower rated fixed-income securities, while also considering growth of capital. The Fund's manager will seek high current income normally by investing the Fund's assets as follows: - at least 65% in income-producing debt securities and preferred stocks, including convertible securities, zero coupon securities, and mortgage-backed and asset-based securities; - up to 20% in common stocks and other equity securities when consistent with the Fund's primary objective or acquired as part of a unit combining fixed-income and equity securities. Higher yields are usually available on securities that are lower-rated or that are unrated. Lower-rated securities are usually defined as Ba or lower by Moody's; BB or lower by Standard & Poor's and may be deemed to be of a speculative nature. The Fund may also purchase lower-quality bonds such as those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor protection for payment of principal and interest (commonly referred to as "junk bonds"). For a further discussion of lower-rated securities, please see the "Risks of Lower-Rated Debt Securities" section of the Fund's prospectus. - - EQUITY-INCOME PORTFOLIO Investment Objective: To seek reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR also will consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. - - GROWTH PORTFOLIO Investment Objective: Seeks to achieve capital appreciation. This Portfolio will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the Portfolio. Many securities which FMR believes would have the greatest potential may be regarded as speculative, and investment in the Portfolio may involve greater risk than is inherent in other underlying mutual funds. It is also important to point out that the Portfolio makes most sense for you if you can afford to ride out changes in the stock market, because it invests primarily in common stocks. FMR also can make temporary investments in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. - - OVERSEAS PORTFOLIO Investment Objective: To seek long term growth of capital primarily through investments in foreign securities. The Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II The Fund is an open-end, diversified, management investment company organized as a Massachusetts business trust on March 21, 1988. The fund's shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. FMR is the Fund's manager. - - ASSET MANAGER PORTFOLIO Investment Objective: To seek to obtain high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term fixed income instruments. - - CONTRAFUND PORTFOLIO Investment Objective: To seek capital appreciation by investing primarily in companies that the fund manager believes to be undervalued due to an overly pessimistic appraisal by the public. This strategy can lead to investments in domestic or foreign companies, small and large, many of which may not be 10 14 well known. The fund primarily invests in common stock and securities convertible into common stock, but it has the flexibility to invest in any type of security that may produce capital appreciation. NATIONWIDE SEPARATE ACCOUNT TRUST Nationwide Separate Account Trust (the "Trust") is a diversified open-end management investment company created under the laws of Massachusetts. The Trust offers shares in the five separate Mutual Funds listed below, each with its own investment objectives. Currently, shares of the Trust will be sold only to life insurance company separate accounts to fund the benefits under variable life insurance policies or variable annuity contracts issued by life insurance companies. The assets of the Trust are managed by Nationwide Financial Services, Inc., of One Nationwide Plaza, Columbus, Ohio 43216, a wholly-owned subsidiary of Nationwide Life Insurance Company. - - CAPITAL APPRECIATION FUND Investment Objective: The Fund is designed for investors who are interested in long-term growth. The Fund seeks to meet its objective primarily through a diversified portfolio of the common stock of companies which the investment manager determines have a better-than-average potential for sustained capital growth over the long term. - - MONEY MARKET FUND Investment Objective: To seek as high a level of current income as is considered consistent with the preservation of capital and liquidity by investing primarily in money market instruments. - - GOVERNMENT BOND FUND Investment Objective: To provide as high a level of income as is consistent with capital preservation through investing primarily in bonds and securities issued or backed by the U.S. Government, its agencies or instrumentalities. - - SMALL COMPANY FUND Investment Objective: The Fund seeks long-term growth of capital by investing primarily in equity securities of domestic and foreign companies with market capitalizations of less than $1 billion at the time of purchase. Nationwide Financial Services, Inc. ("NFS"), the Fund's adviser, has employed a group of sub-advisers each of which will manage a portion of the Fund's portfolio. These sub-advisers are the Dreyfus Corporation, Neuberger & Berman, L.P., Pictet International Management Limited, Van Eck Associates Corporation, Strong Capital Management, Inc. and Warburg, Pincus Counsellors, Inc. These sub-advisers were chosen because they utilize a number of different investment styles when investing in small company stocks. By utilizing a number of different investment styles, NFS hopes to increase prospects for investment return and to reduce market risk and volatility. - - TOTAL RETURN FUND Investment Objective: To obtain a reasonable long-term total return (i.e., earnings growth plus potential dividend yield) on invested capital from a flexible combination of current return and capital gains through investments in common stocks, convertible issues, money market instruments and bonds, with a primary emphasis on common stocks. NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST Neuberger & Berman Advisers Management Trust is an open-end diversified management investment company established as a Massachusetts business trust on December 14, 1983. Shares of the Trust are offered in connection with certain variable annuity contracts and variable life insurance policies issued through life insurance company separate accounts and are also offered directly to qualified pension and retirement plans outside of the separate account context. The investment adviser is Neuberger & Berman Management Incorporated. - - LIMITED MATURITY BOND PORTFOLIO Investment Objective: To provide the high level of current income, consistent with low risk to principal and liquidity, and secondarily, its total return. It seeks to achieve its objectives through investments in a diversified portfolio of fixed and variable rate debt securities and seeks to increase income and preserve or enhance total return by actively managing average portfolio maturity in light of market conditions and trends. The portfolio invests in securities which are at lease investment grade and does not invest in junk bonds. 11 15 - - GROWTH PORTFOLIO Investment Objective: The Portfolio seeks capital growth through investments in common stocks of companies that the investment adviser believes will have above average earnings or otherwise provide investors with above average potential for capital appreciation. To maximize this potential, the investment adviser may also utilize, from time to time, securities convertible into common stocks, warrants and options to purchase such stocks. - - PARTNERS PORTFOLIO Investment Objective: To seek capital growth. This portfolio will seek to achieve its objective by investing primarily in the common stock of established companies. Its investment program seeks securities believed to be undervalued based on fundamentals such as low price-to-earnings ratios, consistent cash flows, and support from asset values. The objective of the Partners Portfolio is not fundamental and can be changed by the Trustees of the Trust without shareholder approval. Shareholders will, however, receive at least 30 days prior notice thereof. There is no assurance the investment objective will be met. OPPENHEIMER VARIABLE ACCOUNT FUNDS The Oppenheimer Variable Account Funds is an open-ended, diversified management investment company organized as a Massachusetts business trust in 1984. Shares of the Funds are sold only to provide benefits under variable life insurance policies and variable annuity contracts. Oppenheimer Management Corporation is the Funds' investment advisor. - - BOND FUND Investment Objective: Primarily to seek a high level of current income from investment in high yield fixed-income securities rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. Secondarily, the fund seeks capital growth when consistent with its primary objective. - - GLOBAL SECURITIES FUND Investment Objective: To seek long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations which are considered to have appreciation possibilities. Current income is not an objective. These securities may be considered to be speculative. - - MULTIPLE STRATEGIES FUND Investment Objective: To seek a total investment return (which includes current income and capital appreciation in the value of its shares) from investments in common stocks and other equity securities, bonds and other debt securities, and "money market" securities. STRONG SPECIAL FUND II, INC. The Strong Special Fund II, Inc. ("Special Fund II") is a diversified, open-end management company commonly called a Mutual Fund. The Special Fund II was incorporated in Wisconsin and may only be purchased by the separate accounts of insurance companies for the purpose of funding variable annuity contracts and variable life policies. Strong Capital Management, Inc. (the "Advisor") is the investment advisor for the fund. - - SPECIAL FUND II, INC. Investment Objective: To seek capital appreciation through investments in a diversified portfolio of equity securities. STRONG VARIABLE INSURANCE FUNDS, INC. The Strong Variable Insurance Funds, Inc. is a diversified, open-end management company commonly called a mutual fund. The Strong Discovery Fund II, Inc. ("Discovery Fund II") and the Strong International Stock Fund II (the "International Stock Fund II") were separately incorporated in Wisconsin and may only be purchased by the separate accounts of insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Strong Capital Management, Inc. is the investment advisor for each of the Funds. - - INTERNATIONAL STOCK FUND II Investment Objective: To seek capital growth by investing primarily in the equity securities of issuers located outside the United States. 12 16 - - DISCOVERY FUND II, INC. Investment Objective: To seek maximum capital appreciation through investments in a diversified portfolio of securities. The fund normally emphasizes investment in equity securities and may invest up to 100% of its total assets in equity securities including common stocks, preferred stocks and securities convertible into common or preferred stocks. Although the Fund normally emphasizes investment in equity securities, the fund has the flexibility to invest in any type of security that its advisor believes has the potential for capital appreciation including up to 100% of its total assets in debt obligations, including intermediate to long-term corporate or U.S. government debt securities. TCI PORTFOLIOS, INC., MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS TCI Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a diversified, open-end management company, designed only to provide investment vehicles for variable annuity and variable life insurance products of insurance companies. A member of the Twentieth Century Family of Mutual Funds, TCI Portfolios is managed by Investors Research Corporation. - - TCI BALANCED Investment Objective: Capital growth and current income. The fund will seek to achieve its objective by maintaining approximately 60% of the assets of the fund in common stocks (including securities convertible into common stocks and other equity equivalents) that are considered by management to have better-than-average prospects for appreciation and approximately 40% in fixed income securities. There can be no assurance that the Fund will achieve its investment objective. - - TCI GROWTH Investment Objective: Capital growth. The fund will seek to achieve its objective by investing in common stocks (including securities convertible into common stocks and other equity equivalents) that meet certain fundamental and technical standards of selection and have, in the opinion of the fund's investment manager, better than average potential for appreciation. The fund tries to stay fully invested in such securities, regardless of the movement of stock prices generally. The fund may invest in cash and cash equivalents temporarily or when it is unable to find common stocks meeting its criteria of selection. It may purchase securities only of companies that have a record of at least three years continuous operation. There can be no assurance that the Fund will achieve its investment objective. - - TCI INTERNATIONAL Investment Objective: To seek capital growth. The fund will seek to achieve its investment objective by investing primarily in securities of foreign companies that meet certain fundamental and technical standards of selection and, in the opinion of the investment manager, have potential for appreciation. Under normal conditions, the fund will invest at least 65% of its assets in common stocks or other equity securities of issuers from at least three countries outside the United States. Securities of United States issuers may be included in the portfolio from time to time. Although the primary investment of the fund will be common stocks (defined to include depository receipts for common stocks), the fund may also invest in other types of securities consistent with the fund's objective. When the manager believes that the total return potential of other securities equals or exceeds the potential return of common stocks, the fund may invest up to 35% of its assets in such other securities. There can be no assurance that the fund will achieve its objectives. (Although the Statement of Additional Information concerning TCI Portfolios, Inc., refers to redemptions of securities in kind under certain conditions, all surrendering or redeeming Contract Owners will receive cash from the Company.) VAN ECK WORLDWIDE INSURANCE TRUST Van Eck Worldwide Insurance Trust is an open-end management investment company organized as a "business trust" under the laws of the Commonwealth of Massachusetts on January 7, 1987. Shares of the Trust are offered only to separate accounts of various insurance companies to fund benefits of variable insurance and annuity policies. The assets of the Trust are managed by Van Eck Associates Corporation. - - GOLD AND NATURAL RESOURCES FUND Investment Objective: To seek long-term capital appreciation by investing in equity and debt securities of companies engaged in the exploration, development, production and distribution of gold and other natural resources, such as strategic and other metals, minerals, forest products, oil, natural gas and coal. Current income is not an objective. 13 17 - - WORLDWIDE BOND FUND Investment Objective: To seek high total return through a flexible policy of investing globally, primarily in debt securities. The debt securities in which the fund will invest will be primarily high grade; the fund will not invest in junk bonds. VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST The Van Kampen American Capital Life Investment Trust is an open-end diversified management investment company organized as a Massachusetts business trust on June 3, 1985. The Trust offers shares in separate funds which are sold only to insurance companies to provide funding for variable life insurance policies and variable annuity contracts. Van Kampen American Capital Asset Management, Inc. serves as the Fund's investment adviser. - - REAL ESTATE SECURITIES FUND Investment Objective: To seek long-term capital growth by investing in a portfolio of securities of companies operating in the real estate industry ("Real Estate Securities"). Current income is a secondary consideration. Real Estate Securities include equity securities, including common stocks and convertible securities, as well as non-convertible preferred stocks and debt securities of real estate industry companies. A "real estate industry company" is a company that derives at least 50% of its assets (marked to market), gross income or net profits from the ownership, construction, management or sale of residential, commercial or industrial real estate. Under normal market conditions, at least 65% of the Fund's total assets will be invested in Real Estate Securities, primarily equity securities of real estate investment trusts. The Fund may invest up to 25% of its total assets in securities issued by foreign issuers, some or all of which may also be Real Estate Securities. There can be no assurance that the Fund will achieve its investment objective. WARBURG PINCUS TRUST The Warburg Pincus Trust ("Trust") is an open-end management investment company organized in March 1995 as a business trust under the laws of The Commonwealth of Massachusetts. The Trust offers its shares to insurance companies for allocation to separate accounts for the purpose of funding variable annuity and variable life contracts. Trust portfolios are managed by Warburg, Pincus Counsellors, Inc. ("Counsellors.") - - INTERNATIONAL EQUITY PORTFOLIO Investment Objective: To seek long-term capital appreciation by investing primarily in a broadly diversified portfolio of equity securities of companies, wherever organized, that in the judgment of "Counsellors" have their principal business activities and interests outside the United States. The Portfolio will ordinarily invest substantially all of its assets, but no less than 65% of its total assets, in common stocks, warrants and securities convertible into or exchangeable for common stocks. The Portfolio intends to invest principally in the securities of financially strong companies with opportunities for growth within growing international economies and markets through increased earning power and improved utilization or recognition of assets. - - SMALL COMPANY GROWTH PORTFOLIO Investment Objective: To seek capital growth by investing in a portfolio of equity securities of small-sized domestic companies. The Portfolio ordinarily will invest at least 65% of its total assets in common stocks or warrants of small-sized companies (i.e., companies having stock market capitalizations of between $25 million and $1 billion at the time of purchase) that represent attractive opportunities for capital growth. The Portfolio intends to invest primarily in companies whose securities are traded on domestic stock exchanges or in the over-the-counter market. The Portfolio's investments will be made on the basis of their equity characteristics and securities ratings generally will not be a factor in the selection process. REINVESTMENT The Funds described above have as a policy the distribution of dividends in the form of additional shares (or fractions thereof) of the mutual funds. The distribution of additional shares will not affect the number of Accumulation Units attributable to a particular Policy. (See "Allocation of Cash Value.") TRANSFERS The Policy Owner may transfer Cash Value among the sub-accounts of the Variable Account and the Fixed Account. A transfer will take effect on the date of receipt of written notice at the Company's Home Office. Transfer requests must be in a written form acceptable to the Company. 14 18 After the First Policy Anniversary, the Policy Owner may annually request a transfer of up to 100% of the Cash Value from the Variable Account to the Fixed Account. The Policy Owner's Cash Value in each Sub-Account will be determined as of the date the transfer request is received in the Home Office in good order. The Company reserves the right to restrict transfers to the Fixed Account to 25% of the Cash Value. The Policy Owner may annually transfer a portion of the value of the Fixed Account to the Variable Account without penalty or adjustment. The Company reserves the right to limit the amount of Cash Value transferred out of the Fixed Account each Policy Year. Transfers from the Fixed Account must be made within 30 days after the termination date of the interest rate guarantee period. Transfers among the sub-accounts may be made once per Valuation Date and may be made either in writing or, in states allowing such transfers, by telephone. The Company will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures may include any or all of the following, or such other procedures as the Company may, from time to time, deem reasonable: requesting identifying information, such as name, contract number, Social Security number, and/or personal identification number; tape recording all telephone transactions; and providing written confirmation thereof to both the Policy Owner and any agent of record at the last address of record. Although failure to follow reasonable procedures may result in the Company's liability for any losses due to unauthorized or fraudulent telephone transfers, the Company will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine. Any losses incurred pursuant to actions taken by the Company in reliance on telephone instructions reasonably believed to be genuine shall be borne by the Contract Owner. The Company may withdraw the telephone exchange privilege upon 30 days written notice to Policy Owners. Policy Owners who have entered into a Dollar Cost Averaging Agreement with the Company (see "Dollar Cost Averaging" below) may transfer from the Fixed Account to the Variable Account under the terms of that agreement. DOLLAR COST AVERAGING The Policy Owner may direct the Company to automatically transfer from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account to any other sub-account within the Variable Account on a monthly basis. This service is intended to allow the Policy Owner to utilize Dollar Cost Averaging, a long-term investment program which provides for regular, level investments over time. The Company makes no guarantees that Dollar Cost Averaging, will result in a profit or protect against loss in a declining market. To qualify for Dollar Cost Averaging, there must be a minimum total Cash Value, less policy indebtedness, of $15,000. Transfers for purposes of Dollar Cost Averaging can only be made from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account. The minimum monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost Averaging monthly transfers from the Fixed Account must be equal to or less than 1/30th of the Fixed Account value when the Dollar Cost Averaging program is requested. Transfers out of the Fixed Account, other than for Dollar Cost Averaging, may be subject to certain additional restrictions. (See "Transfers.") A written election of this service, on a form provided by the Company, must be completed by the Policy Owner in order to begin transfers. Once elected, transfers from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account will be processed monthly until either the value in the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account is completely depleted or the Policy Owner instructs the Company in writing to cancel the monthly transfers. The Company reserves the right to discontinue offering Dollar Cost Averaging upon 30 days' written notice to Policy Owners however, any such discontinuation would not affect Dollar Cost Averaging programs already commenced. The Company also reserves the right to assess a processing fee for this service. SUBSTITUTION OF SECURITIES If shares of the underlying Mutual Fund options described in this prospectus should no longer be available for investment by the Variable Account or, if in the judgment of the Company's management further investment in such underlying Mutual Funds should become inappropriate in view of the purposes of the Policy, the Company may substitute shares of another underlying Mutual Fund for shares already purchased or to be purchased in the future by premium payments under the Policy. No substitution of securities in the Variable Account may take place without prior approval of the Securities and Exchange Commission, and under such requirements as it and any state insurance department may impose. 15 19 VOTING RIGHTS Voting rights under the Policies apply with respect to Cash Value allocated to the sub-accounts of the Variable Account. In accordance with its view of present applicable law, the Company will vote the shares of the underlying Mutual Funds held in the Variable Account at regular and special meetings of the shareholders of the underlying Mutual Funds in accordance with instructions received from Policy Owners. However, if the Investment Company Act of 1940 or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote the shares of the underlying Mutual Funds in its own right, the Company may elect to do so. The Policy Owner shall have the voting interest under a Policy. The number of shares in each sub-account for which the Policy Owner may give voting instructions is determined by dividing any portion of the Policy's Cash Value derived from participation in that underlying Mutual Fund by the net asset value of one share of that underlying Mutual Fund. The number of shares which a person has a right to vote will be determined as of a date chosen by the Company, but not more than 90 days prior to the meeting of the underlying Mutual Fund. Voting instructions will be solicited by written communication prior to such meeting. Underlying Mutual Fund shares held in the Variable Account as to which no timely instructions are received will be voted by the Company in the same proportion as the voting instructions which are received. Each person having a voting interest in the Variable Account will receive periodic reports relating to investments of the Variable Account, the underlying Mutual Funds' proxy material and a form with which to give such voting instructions. Notwithstanding contrary Policy Owner voting instructions, the Company may vote underlying Mutual Fund shares in any manner necessary to enable the underlying Mutual Fund to (1) make or refrain from making any change in the investments or investment policies for any of the underlying Mutual Funds, if required by an insurance regulatory authority; (2) refrain from making any change in the investment policies or any investment adviser or principal underwriter of any portfolio which may be initiated by Policy Owners or the underlying Mutual Fund's Board of Directors, provided the Company's disapproval of the change is reasonable and, in the case of a change in the investment policies or investment adviser, based on a good faith determination that such change would be contrary to state law or otherwise inappropriate in light of the portfolio's objective and purposes; or (3) enter into or refrain from entering into any advisory agreement or underwriting contract, if required by any insurance regulatory authority. INFORMATION ABOUT THE POLICIES UNDERWRITING AND ISSUANCE - -Minimum Requirements for Issuance of a Policy Underwriting for these Policies is designed to group applicants into classifications which can be expected to produce mortality experience consistent with the actuarial structure for that class. The Company uses the following methods of underwriting: (a) simplified underwriting not routinely requiring a physical examination, and (b) medical or paramedical underwriting which requires such an examination. (See "How the Death Benefit Varies.") The Company reserves the right to request a medical examination on any applicant where an affirmative response to one of the medical questions of the application requires additional underwriting by the Company. The minimum amount of initial premium that will be accepted by the Company is $10,000 for issue ages 0-70 and $50,000 for issue ages 71-80. Policies may be issued to Insureds issue ages 80 or younger. Before issuing any Policy, the Company requires evidence of insurability satisfactory to it, which may include a medical examination. - -Premium Deposits The initial premium for a Policy is payable in full at the Company's Home Office. The minimum amount of initial premium required is $10,000 for issue ages 0-70 and $50,000 for issue ages 71-80. The Specified Amount of Death Benefit is determined by treating the initial premium as equal to 100% of the Guideline Single Premium. The effective date of permanent insurance coverage is dependent upon completion of all 16 20 underwriting requirements, payment of the initial premium, and delivery of the Policy while the insured is still living. The Policy is primarily intended to be a single premium policy with a limited ability to make additional payments. Subsequent premium payments under the Policy are permitted under the following circumstances: 1. an additional premium payment is required to keep the Policy in force (see "Grace Period"); or 2. except in Virginia, additional premium payments of at least $1,000 may be made at any time provided the premium limits prescribed by the Internal Revenue Service to qualify the Policy as a life insurance contract are not violated. Deposits of additional premiums if accepted, may increase the Specified Amount of Insurance. However, the Company reserves the right to require satisfactory evidence of insurability before accepting any additional premium payment which results in an increase in the net amount at risk. The Company may require that any existing Policy indebtedness is repaid prior to accepting any additional premium payments. Additional Premium Deposits, upon acceptance, will be allocated to the Nationwide Separate Account Trust Money Market Fund unless the Policy Owner specifies otherwise. The Company will not accept a subsequent premium deposit which would result in total premiums paid exceeding the premium limitations prescribed by the Internal Revenue Service to qualify the Policy as a life insurance contract. - -Allocation of Cash Value At the time a Policy is issued, its Cash Value will be based on the Nationwide Separate Account Trust Money Market Fund sub-account value or the Fixed Account as if the Policy had been issued and the premium invested on the date the premium was received in good order by the Company. When the Policy is issued, the Cash Value will be allocated to the Nationwide Separate Account Trust Money Market Fund sub-account (for any Cash Value allocated to a Sub-Account on the Application) or the Fixed Account until the expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. At the expiration of the period in which the Policy Owner may exercise his or her short term right to cancel the Policy, shares of the underlying Mutual Funds specified by the Policy Owner are purchased at net asset value for the respective sub-account(s). The Policy Owner may change the allocation of Cash Value or may transfer Cash Value from one sub-account to another, subject to such terms and conditions as may be imposed by each underlying Mutual Fund and as set forth in the prospectus. Cash Value allocated to the Fixed Account at the time of application may not be transferred prior to the first Policy Anniversary. (See "Transfers" and "Investments of the Variable Account.") The designation of investment allocations will be made by the prospective Policy Owner at the time of application for a Policy. The Policy Owner may change the way in which future premiums are allocated by giving written notice to the Company. All percentage allocations must be in whole numbers, and must be at least 5%. The sum of allocations must equal 100%. - -Short-Term Right to Cancel Policy A Policy may be returned for cancellation and a full refund of premium within 10 days after the Policy is received, within 45 days after the application for insurance is signed, or within 10 days after the Company mails or delivers a Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or delivered to the registered representative who sold it, or the Company. Immediately after such mailing or delivery, the Policy will be deemed void from the beginning. The Company will refund the total premiums paid within seven days after it receives the Policy. POLICY CHARGES DEDUCTIONS FROM PREMIUMS No deduction is made from any premium at the time of payment. 100% of each premium payment is applied to the Cash Value. MONTHLY DEDUCTIONS On the Policy Date and on each Monthly Anniversary Date, the Company will deduct an amount to cover charges and expenses incurred in connection with the Policy. Generally, this Monthly Deduction will be deducted on a pro-rata basis from the Cash Value in each Sub-account and the Fixed Account. The amount of the Monthly Deductions will vary from month to month. If the Cash Surrender Value is not sufficient to cover 17 21 the Monthly Deduction which is due, the Policy may lapse (see "Grace Period"). The Monthly Deductions are comprised of the following charges: -Cost of Insurance Charge Immediately after the Policy is issued, the Death Benefit will be substantially greater than the initial premium payment. While the Policy is in force, prior to the Maturity Date, the Death Benefit will always be greater than the Cash Value. To enable the Company to pay this excess of the Death Benefit over the Cash Value, a monthly cost of insurance charge is deducted. Currently, this charge is deducted monthly and is equal to an annual rate of 0.65% multiplied by the Cash Value. On a current basis, for policy years 11 and later, this monthly charge is anticipated to be reduced to the Cash Value multiplied by an annual rate of 0.30% if the Cash Surrender Value is $100,000 or more. For substandard policies, these annual rates are increased. In no event will this current monthly deduction for the cost of insurance exceed the guaranteed monthly cost of insurance charges. Guaranteed cost of insurance charges will not exceed the cost based on the guaranteed cost of insurance rate multiplied by the Policy's net amount at risk. The net amount at risk is equal to the Death Benefit minus the Cash Value. Guaranteed cost of insurance rates for standard issues are based on the 1980 Commissioner's Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for substandard issues are based on appropriate percentage multiples of the 1980 CSO. These mortality tables are sex distinct. -Administrative Expense Charge The Company deducts a monthly Administrative Expense Charge to reimburse it for expenses related to the issuance and maintenance of the Policies including underwriting, establishing policy records, accounting and record keeping, and periodic reporting to Policy Owners. This charge is designed only to reimburse the Company for its actual administrative expenses. In the aggregate, the Company expects that the charges for administrative costs will be approximately equal to the related expenses. This monthly charge is equal to an annual rate of 0.30% multiplied by the Policy's Cash Value. On a current basis, for Policy Years 11 and later, this monthly charge is anticipated to be reduced to an annual rate of 0.15% multiplied by the Cash Value, provided the Cash Surrender Value is greater than or equal to $100,000. This Administrative Expense Charge is subject to a $10 per month minimum. -Tax Expense Charge During the first ten policy years, the Company makes a Monthly Deduction to compensate for certain taxes which are incurred by the Company including premium taxes imposed by various states and local jurisdictions and for federal taxes imposed under Section 848 of the Internal Revenue Code. This monthly charge is equal to an annual rate of 0.50% multiplied by the Policy's Cash Value. This charge is deducted monthly and includes a premium tax component equal to an annual rate of 0.30% and a federal tax component equal to an annual rate of 0.20%. The Company expects to pay an average state premium tax of approximately 2.5% of premiums for all states, although such tax rates can generally range from 0% to 4%. The Company does not anticipate to make a profit from this monthly Tax Expense Charge. The Company does not currently assess any charge for income taxes incurred by the Company as a result of the operations of the Sub-accounts of the Variable Account. (See "Taxation of the Company.") The Company reserves the right to assess a charge for such taxes against the Variable Account if the Company determines that such taxes will be incurred. -Mortality and Expense Risk Charge The Company assumes certain risks for guaranteeing the mortality and expense charges. The mortality risk assumed under the Policies is that the Insured may not live as long as expected. The expense risk assumed is that the actual expenses incurred in issuing and administering the Policies may be greater than expected. In addition, the Company assumes risks associated with the nonrecovery of policy issue, underwriting and other administrative expenses due to Policies which lapse or are surrendered during the early policy years. To compensate the Company for assuming these risks, a monthly charge for mortality and expense risks is deducted on a pro-rata basis from the Cash Value in each Variable Account Sub-account. This monthly charge is equal to an annual rate of 0.90% multiplied by the Cash Value attributable to the 18 22 Variable Account. To the extent that future levels of mortality and expenses are less than or equal to those expected, the Company may realize a profit from these charges. SURRENDER CHARGES The Company will deduct a surrender charge from the Policy's Cash Value for any Policy which is surrendered during the first nine policy years. The surrender charge is comprised of two components: a sales surrender charge and a premium tax surrender charge. The Company incurs certain sales and other distribution expenses at the time the Policies are issued. The majority of these expenses consist of commissions paid for the sale or these policies. Premium taxes are generally incurred by the Company at the time the Policies are issued. These surrender charges are designed to recover a portion of these expenses. The Company does not expect to profit from these surrender charges. Unrecovered expenses are borne by the Company's general assets which may include profits, if any, from the monthly mortality and expense risk charges (see "Monthly Deductions"). Certain surrenders may result in adverse tax consequences (see "Tax Matters"). Maximum surrender charges are shown in the following table:
Surrender Charge as a Percent of Completed Policy Years Initial Premium Payment ---------------------- ----------------------- 0 10.0% 1 10.0 2 9.0 3 8.0 4 7.0 5 6.0 6 5.0 7 4.0 8 3.0 9+ 0.0
Approximately 75% of the total surrender charges are for the recovery of sales expenses and 25% for the recovery of premium taxes. In no event will the sales surrender charge exceed 7.5% of the total premium payments. The amount of the sales surrender charge may be eliminated when the Policies are issued to an officer, director, former director, partner, employee, or retired employee of the Company; an employee of the General Distributor of the Policies, Nationwide Financial Services, Inc., or an employee of an affiliate of the Company or the General Distributor, or, a duly appointed representative of the Company who receives no commission as a result of the purchase. Elimination of the sales surrender charge will be permitted by the Company only in those situations where the Company does not incur sales expenses normally associated with sales of a Policy. In no event will the elimination of any sales surrender charge be permitted where such elimination will be unfairly discriminatory to any person. HOW THE CASH VALUE VARIES On any date during the Policy Year, the Cash Value equals the Cash Value on the preceding Valuation Date, plus any premium applied since the previous Valuation Date, plus or minus any investment results, and less any Policy Charges. There is no guaranteed Cash Value. The Cash Value will vary with the investment experience of the Variable Account and/or the daily crediting of interest in the Fixed Account and Policy Loan Account depending on the allocation of Cash Value by the Policy Owner. HOW THE INVESTMENT EXPERIENCE IS DETERMINED The Cash Value in each sub-account is converted to Accumulation Units of that sub-account. The conversion is accomplished by dividing the amount of Cash Value allocated to a sub-account by the value of an Accumulation Unit for the sub-account of the Valuation Period during which the allocation occurs. The value of an Accumulation Unit for each sub-account was arbitrarily set initially at $10 when the underlying Mutual Fund shares in that sub-account were available for purchase. The value for any subsequent Valuation Period is determined by multiplying the Accumulation Unit value for each sub-account for the immediately preceding Valuation Period by the Net Investment Factor for the sub-account during the subsequent Valuation 19 23 Period. The value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. The number of Accumulation Units will not change as a result of investment experience. NET INVESTMENT FACTOR The Net Investment Factor for any Valuation Period is determined by dividing (a) by (b) where: (a) is the net of: (1) the Net Asset Value per share of the underlying Mutual Fund option held in the sub-account determined at the end of the current Valuation Period, plus (2) the per share amount of any dividend or capital gain distributions made by the underlying Mutual Fund option held in the sub-account if the "ex-dividend" date occurs during the current Valuation Period. (b) is the net of: (1) The Net Asset Value per share of the underlying Mutual Fund held in the Sub-Account determined at the end of the immediately preceding Valuation Period, plus or minus, (2) the per share charge or credit, if any, for any taxes reserved for in the immediately preceding Valuation Period. (See "Charge for Tax Provisions.") For underlying Mutual Fund options that credit dividends on a daily basis and pay such dividends once a month, the Net Investment Factor allows for the monthly reinvestment of these daily dividends. The Net Investment Factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease. It should be noted that changes in the Net Investment Factor may not be directly proportional to changes in the net asset value of underlying Mutual Fund shares because of any charge or credit for tax reserves. VALUATION OF ASSETS Underlying Mutual Fund shares in the Variable Account will be valued at their Net Asset Value. DETERMINING THE CASH VALUE The sum of the value of all Variable Account Accumulation Units attributable to the Policy, amounts credited to the Fixed Account, and any associated value in the Policy Loan Account is the Cash Value. The number of Accumulation Units credited per each sub-account are determined by dividing the net amount allocated to the sub-account by the Accumulation Unit Value for the sub-account for the Valuation Period during which the premium is received by the Company. In the event part or all of the Cash Value is surrendered or charges or deductions are made against the Cash Value, generally an appropriate number of Accumulation Units from the Variable Account and an appropriate amount from the Fixed Account will be deducted in the same proportion that the Policy Owner's interest in the Variable Account and the Fixed Account bears to the total Cash Value. The Cash Value in the Fixed Account and the Policy Loan Account is credited with interest daily at an effective annual rate which the Company periodically declares. The annual effective rate credited to the Fixed Account will never be less than 3%. The annual effective rate credited to the Policy Loan Account will never be less than 4%. Upon request, the Company will inform the Policy Owner of the then applicable rates for each account. VALUATION PERIODS AND VALUATION DATES A Valuation Period is the period commencing at the close of business on the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. A Valuation Date is each day that the New York Stock Exchange and the Company's home office is open for business or any other day during which there is sufficient degree of trading that the current net asset value of the Accumulation Units might be materially affected. SURRENDERING THE POLICY FOR CASH RIGHT TO SURRENDER The Policy Owner may surrender the Policy in full at any time while the Insured is living and receive its Cash Surrender Value. The cancellation will be effective as of the date the Company receives a proper written request for cancellation and the Policy. Such written request must be signed and, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific 20 24 Stock Exchange, or by a Commercial Bank or Savings and Loan, which is a member of the Federal Deposit Insurance Corporation. In some cases, the Company may require additional documentation of a customary nature. CASH SURRENDER VALUE The Cash Surrender Value increases or decreases daily to reflect the investment experience of the Variable Account and the daily crediting of interest in the Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the Policy's Cash Value, next computed after the date the Company receives a proper written request for surrender of the Policy, minus any charges, indebtedness or other deductions due on that date, which may also include a Surrender Charge. PARTIAL SURRENDERS Partial surrenders, not subject to Surrender Charges, will be permitted if they satisfy the following requirements: 1. The partial surrender request is in writing and the request is signed by the Policy Owner or an authorized party of the Policy Owner; and 2. The maximum partial surrender in any Policy Year, not subject to Surrender Charges, is limited to the maximum of: (i) 10% of the total premium payments; and (ii) 100% of cumulative earnings (Cash Value less total premium payments less any existing policy indebtedness); 3. Such partial surrenders must not result in a reduction of the Cash Surrender Value below $10,000; and 4. After such partial surrender, the Policy continues to qualify as life insurance. All partial surrenders will be next computed after the date the Company receives a proper written request. When a partial surrender is made, the Cash Value is reduced by the amount of the partial surrender. Also, the Specified Amount is reduced by the amount of the partial surrender unless the Death Benefit is based on the applicable percentage of the Cash Value. In such a case, a Partial Surrender will decrease the Specified Amount by the amount by which the Partial Surrender exceeds the difference between the Death Benefit and the Specified Amount. Partial surrender amounts must be first deducted from the values in the Variable sub-accounts. Partial surrenders will be deducted from the Fixed Account only to the extent that insufficient values are available in the Variable sub-accounts. Other Surrenders not meeting the above conditions, will be subject to the imposition of Surrender Charges. 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 100th birthday. The maturity proceeds will be payable to the Policy Owner on the Maturity Date provided the Policy is still in force. The Maturity Proceeds will be equal to the amount of the Policy's Cash Value, less any indebtedness. INCOME TAX WITHHOLDING Federal law requires the Company to withhold income tax from any portion of surrender proceeds that is subject to tax, unless the Policy Owner advises the Company, in writing, of his or her request not to withhold. If the Policy Owner requests that the Company not withhold taxes, or if the taxes withheld are insufficient, the Policy Owner may be liable for payment of an estimated tax. The Policy Owner should consult his or her tax advisor. In certain employer-sponsored life insurance arrangements, including equity split dollar arrangements, Participants may be required to report for income tax purposes, one or more of the following: (1) the value each year of the life insurance protection provided; (2) an amount equal to any employer-paid premiums; or (3) some or all of the amount by which the current value of the Contract exceeds the employer's interest in the contract. Participants should consult with the sponsor or the administrator of the Plan, and/or with their personal tax or legal advisers, to determine the tax consequences, if any, of their employer-sponsored life insurance arrangements. 21 25 POLICY LOANS TAKING A POLICY LOAN The Policy Owner may take a loan using the Policy as security. During the first year, maximum Policy indebtedness is limited to 50% of the Cash Value less any Surrender Charge. Thereafter, maximum policy indebtedness is limited to 90% of the Cash Value less any Surrender Charge. The Company will not grant a loan for an amount less than $1,000 ($200 in Connecticut, $250 in Oregon, $500 in New Jersey and $500 in New York). Should the Death Benefit become payable, the Policy be surrendered, or the Policy mature while a loan is outstanding, the amount of Policy indebtedness will be deducted from the Death Benefit, Cash Surrender Value or the Maturity Value, respectively. Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Value less any Surrender Charge in the sub-accounts and 100% of the Cash Value less any Surrender Charge in the Fixed Account. Any request for a Policy loan must be in written form satisfactory to the Company. The request must be signed and, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings and Loan which is a member of the Federal Deposit Insurance Corporation. Certain Policy loans may result in currently taxable income and tax penalties. (See "Tax Matters.") EFFECT ON INVESTMENT PERFORMANCE When a loan is made, an amount equal to the amount of the loan is transferred from the Variable Account to the Policy Loan Account. If the assets relating to a Policy are held in more than one sub-account, withdrawals from sub-accounts will be made in proportion to the assets in each Variable Sub-account at the time of the loan. Policy Loans will be transferred from the Fixed Account only when insufficient amounts are available in the Variable Sub-accounts. The amount taken out of the Variable Account will not be affected by the Variable Account's investment experience while the loan is outstanding. INTEREST Amounts transferred to the Policy Loan Account will earn interest daily from the date of transfer. Total policy indebtedness is comprised of two components: (i) Preferred Loans and (ii) Regular Loans. The amount of the loan account that is less than or equal to the Cash Value less the total premium payments will be treated as a Preferred Loan. Any additional loaned amounts will be treated as Regular Loans. Preferred and Regular Loan amounts will be determined once a year, as well as at any time a new loan is requested. All loaned amounts in year 1 will be treated as Regular Loans. On a current basis, preferred indebtedness will be credited interest daily at an annual effective rate of 6%, and Regular indebtedness will be credited interest daily at an annual effective rate of 4%. The credited rate for all policy indebtedness is guaranteed never to be lower than 4%. This earned interest is transferred from the Policy Loan Account to a Variable Account or the Fixed Account on each Policy Anniversary as well as at any time a new loan is requested. It will be allocated according to the Fund Allocation Factors in effect at the time of the transfer. The loan interest rate is 6% per year for all policy indebtedness. Interest is charged daily and is payable at the end of each Policy Year as well as at any time a new loan is requested. Unpaid interest will be added to the existing policy indebtedness as of the due date and will be charged interest at the same rate as the rest of the indebtedness. Whenever the total loan indebtedness plus accrued interest exceeds the Cash Value less any Surrender Charges, the Company will send a notice to the Policy Owner and the assignee, if any. The Policy will terminate without value 61 days after the mailing of the notice unless a sufficient repayment is made during that period. A repayment is sufficient if it is large enough to reduce the total loan indebtedness plus accrued interest to an amount equal to the total Cash Value less any Surrender Charges plus an amount sufficient to continue the Policy in force for 3 months. EFFECT ON DEATH BENEFIT AND CASH VALUE A Policy loan, whether or not repaid, will have a permanent effect on the Death Benefit and Cash Value because the investment results of the Variable Account or the Fixed Account will apply only to the non-loaned portion of the Cash Value. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the Variable Account or the Fixed Account while the loan is outstanding, the effect could be favorable or unfavorable. 22 26 REPAYMENT All or part of a loan may be repaid at any time while the Policy is in force during the insured's lifetime. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Loan repayments will be credited to the Variable Sub-accounts and the Fixed Account in proportion to the Policy Owner's Premium allocation in effect at the time of the repayment. Each repayment may not be less than $1,000. The Company reserves the right to require that any loan repayments resulting from Policy Loans transferred from the Fixed Account must be first allocated to the Fixed Account. HOW THE DEATH BENEFIT VARIES - -Calculation of the Death Benefit At issue, the Specified Amount is determined by treating the initial premium as equal to 100% of the Guideline Single Premium. Guideline Single Premiums vary by attained age, sex, underwriting classification, and total premium payments. The following table illustrates representative initial Specified Amounts.
$10,000 Single Premium $25,000 Single Premium $50,000 Single Premium Issue Age Male Female Male Female Male Female --- ---- ------ ---- ------ ---- ------ 35 $62,031 $76,231 $155,077 $190,577 $310,154 $381,154 40 49,883 61,337 124,707 153,343 249,413 306,685 45 40,437 49,825 101,903 124,562 202,186 249,124 50 33,079 40,742 82,698 101,854 165,397 203,708 55 27,358 33,531 68,396 83,828 136,791 167,655 60 22,964 27,734 57,410 69,335 114,821 138,671 65 19,579 23,052 48,948 57,631 97,895 115,261
Generally, for a given premium payment, the initial Specified Amount is greater for females than males. The Specified Amount is shown in the Policy. While the Policy is in force, the Death Benefit will never be less than the Specified Amount or the Applicable Percentage of Cash Value. The Death Benefit may vary with the Cash Value of the Policy, which depends on investment performance. The amount of Death Benefit will ordinarily not change for several years to reflect investment performance and may not change at all. If investment performance is favorable, the amount of Death Benefit may increase. The Applicable Percentage of Cash Value varies by attained age.
Applicable Percentage of Cash Value Factors Attained Percentage Attained Percentage Attained Percentage Age of Cash Value Age of Cash Value Age of Cash Value --- ------------- --- ------------- --- ------------- 0-40 250% 60 130% 80 105% 41 243% 61 128% 81 105% 42 236% 62 126% 82 105% 43 229% 63 124% 83 105% 44 222% 64 122% 84 105% 45 215% 65 120% 85 105% 46 209% 66 119% 86 105% 47 203% 67 118% 87 105% 48 197% 68 117% 88 105% 49 191% 69 116% 89 105% 50 185% 70 115% 90 105% 51 178% 71 113% 91 104% 52 171% 72 111% 92 103% 53 164% 73 109% 93 102% 54 157% 74 107% 94 101% 55 150% 75 105% 95 101% 56 146% 76 105% 96 101% 57 142% 77 105% 97 101% 58 138% 78 105% 98 101% 59 134% 79 105% 99 101% 100 100%
23 27 - -Proceeds Payable on Death The actual Death Proceeds payable on the Insured's death will be the Death Benefit as described above, less any outstanding Policy loans and less any unpaid Policy Charges. Under certain circumstances, the Proceeds may be adjusted. (See "Incontestability", "Error in Age or Sex", and "Suicide.") RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY During the first 24 months following policy issue, there is an unconditional right to transfer all of the Cash Value in the Variable Account to the Fixed Account. CHANGES OF INVESTMENT POLICY The Company may materially change the Investment Policy of the Variable Account. The Company must inform the Policy Owner and obtain all necessary regulatory approvals. Any change must be submitted to the various state insurance departments which may disapprove it if deemed detrimental to the interests of the policy holders or if it renders the Company's operations hazardous to the public. If a Policy Owner objects, there is an unconditional right to transfer all of the Cash Value in the Variable Account to the Fixed Account. The Policy Owner has the later of 60 days (6 months in Pennsylvania) from the date of the Investment Policy change or 60 days (6 months in Pennsylvania) from being informed of such change to make this transfer. GRACE PERIOD If the Cash Surrender Value in the Policy is insufficient to pay the monthly deductions, Policy loan interest, or other charges which become due but are unpaid, a grace period of 61 days will be allowed for payment of sufficient premium to continue the Policy in force. The Company will notify the Policy Owner of the amount required to continue the Policy in force. If the required amount is not received within 61 days of the notice, the Policy will terminate without value. If the Insured dies during the Grace Period, the Company will pay the Death Proceeds. REINSTATEMENT If the Grace Period ends and the Policy Owner has neither paid the required premium nor surrendered the Policy for its Cash Surrender Value, the Policy Owner may reinstate the Policy by: 1. submitting a written request at any time within 3 years after the end of the Grace Period and prior to the Maturity Date: 2. providing evidence of insurability satisfactory to the Company; 3. paying sufficient premium to cover all policy charges that were due and unpaid during the Grace Period; 4. paying additional premiums at least equal to 3 times the guaranteed cost of insurance charges; and 5. repaying any indebtedness against the Policy which existed at the end of the Grace Period. The effective date of a reinstated Policy will be the Monthly Anniversary Day on or next following the date the application for reinstatement is approved by us. If your Policy is reinstated, the Cash Value on the date of reinstatement, but prior to applying any premiums or loan repayments received, will be set equal to the appropriate Surrender Charge. Such Surrender Charge will be based on the length of time from the date of premium payments to the effective date of the reinstatement. Unless the Policy Owner has provided otherwise, the allocation of the amount of the Surrender Charge, additional premium payments, and any loan repayments will be based on the underlying Mutual Fund Allocation factors in effect at the start of the Grace Period. THE FIXED ACCOUNT OPTION Because of exemptive and exclusionary provisions, interests in Nationwide's General Account have not been registered under the Securities Act of 1933 and the General Account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the General Account nor any interests therein are subject to the provisions of these Acts, and Nationwide has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this prospectus relating to the Fixed Account option. Disclosures regarding the General Account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. 24 28 As explained earlier, a Policy Owner may elect to allocate or transfer all or part of the Cash Value to the Fixed Account and the amount allocated or transferred becomes part of Nationwide's general assets (General Account). Nationwide's General Account consists of all assets of the Company other than those in the Variable Account and in other separate accounts that have been or may be established by the Company. Subject to applicable law, the Company has sole discretion over the investment of the assets of the General Account, and Policy Owners do not share in the investment experience of those assets. The Company guarantees that the part of the Cash Value invested under the Fixed Account option will accrue interest daily at an effective annual rate that the Company declares periodically. The Fixed Account crediting rate will not be less than an effective annual rate of 3%. Upon request and in the annual statement the Company will inform a Policy Owner of the then applicable rate. The Company is not obligated to credit interest at a higher rate. OTHER POLICY PROVISIONS POLICY OWNER While the Insured is living, all rights in this Policy are vested in the Policy Owner named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a Contingent Policy Owner or a new Policy Owner while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's Home Office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. The Company may require that the Policy be submitted for endorsement before making a change. If the Policy Owner is other than the Insured and names no contingent owner, and dies before the Insured, the Policy Owner's rights in this Policy belong to the Policy Owner's estate. BENEFICIARY The Beneficiary(ies) shall be as named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a new Beneficiary while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's Home Office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. If any Beneficiary predeceases the Insured, that Beneficiary's interest passes to any surviving beneficiary, unless otherwise provided. Multiple beneficiaries will be paid in equal shares, unless otherwise provided. If no named Beneficiary survives the Insureds, the proceeds shall be paid to the Policy Owner or the Policy Owner's estate. ASSIGNMENT While the Insured is living, the Policy Owner may assign his or her rights in the Policy. The assignment must be in writing, signed by the Policy Owner and recorded by the Company at its Home Office. The Company is not responsible for any assignment not submitted for recording, nor is the Company responsible for the sufficiency or validity of any assignment. The assignment will be subject to any Indebtedness owed to the Company before it was recorded. INCONTESTABILITY The Company will not contest a Death Benefit based on representations in any written application when such benefit has been in force, during the lifetime of the Insured, for two years. ERROR IN AGE OR SEX If the Insured's age, sex or both, as stated in the application, are incorrect, the affected benefits will be adjusted to reflect the correct age, sex, or both. SUICIDE If the Insured dies by suicide within two years from the Policy Date, the Company will pay no more than the sum of the premiums, less any unpaid loan. If the Insured dies by suicide within two years from the date an application is accepted for an increase in the Specified Amount, the Company will pay no more than the amount paid for such additional benefit. 25 29 NONPARTICIPATING POLICIES The Policies are nonparticipating. This means that they do not participate in any dividend distribution of the Company's surplus. LEGAL CONSIDERATIONS On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v. Norris that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. This decision applies only to benefits derived from premiums made on or after August 1, 1983. The Policies offered by this prospectus are based upon actuarial tables which distinguish between men and women and thus the Policies provide different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of Norris on any employment related insurance or benefit program before purchasing this Policy. DISTRIBUTION OF THE POLICIES The Policies will be sold by licensed insurance agents in those states where the Policies may lawfully be sold. Such agents will be registered representatives of broker dealers registered under the Securities Exchange Act of 1934 who are members of the National Association of Securities Dealers, Inc. (NASD). The Policies will be distributed by the General Distributor, Nationwide Financial Services, Inc. ("NFS"), One Nationwide Plaza, Columbus, Ohio 43216. NFS is a corporation which was organized under the laws of the State of Ohio on April 8, 1965. NFS is both a broker-dealer and registered investment adviser. As such, it is the principal underwriter for several open-end investment companies and for a number of separate accounts issued by the Company and Nationwide Life and Annuity Insurance Company ("NLAIC") to fund the benefits of variable insurance and annuity polices. NFS also currently acts as the investment adviser and/or administrator for the mutual fund portfolios sold through NFS's registered representatives and for some of the mutual fund portfolios which act as underlying investment options for the variable insurance and annuity policies issued by the Company or NLAIC. NFS acts as general distributor for the Nationwide Multi-Flex Variable Account, Nationwide DC Variable Account, Nationwide Variable Account - II, Nationwide Variable Account - 5, Nationwide Variable Account - 6, Nationwide Variable Account - 8, Nationwide VA Separate Account - A, Nationwide VA Separate Account - - B, Nationwide VA Separate Account - C, Nationwide VL Separate Account - A, Nationwide VLI Separate Account - 2, Nationwide VLI Separate Account - 3, NACo Variable Account and the Nationwide Variable Account, all of which are separate investment accounts of the Company or its affiliates. NFS is a wholly owned subsidiary of the Company. NFS also acts as principal underwriter for the Nationwide Investing Foundation, Nationwide Separate Account Trust, Financial Horizons Investment Trust, and Nationwide Investing Foundation II, which are open-end management investment companies. Gross commissions paid by the Company on the sale of these Policies plus fees for marketing services are not more than 6.75% of the premiums paid. CUSTODIAN OF ASSETS The Company serves as the Custodian of the assets of the Variable Account. TAX MATTERS POLICY PROCEEDS Section 7702 of the Code provides that if certain tests are met, a Policy will be treated as a life insurance policy for federal tax purposes. The Company will monitor compliance with these tests. The Policy should thus receive the same Federal income tax treatment as fixed benefit life insurance. As a result, the life insurance proceeds payable under a Policy are excludable from gross income of the beneficiary under Section 101 of the Code. The Policies described in this prospectus, meet the definition of "modified endowment contracts" under Section 7702A of the Code. The Code defines modified endowment contracts as those policies issued or materially changed after June 21, 1988 on which the total premiums paid during the first seven years exceed the amount that would have been paid if the policy provided for paid up benefits after seven level annual premiums. The policies offered in this prospectus typically fall within this definition. The Code provides for taxation of surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions from modified 26 30 endowment contracts in the same way annuities are taxed. Any distribution is taxable to the extent the Cash Value of the Policy exceeds, at the time of the distribution, the premiums paid into the Policy. The Code generally provides for a 10% tax penalty on the taxable portion of such distributions. That penalty is applicable unless the distribution is 1) paid after the Policy Owner is 59 1/2 or disabled; or 2) the distribution is part of an annuity to the Policy Owner as defined in the Code. Even though exchanges under Section 1035 of the Code qualify as material changes, certain exchanges of pre-June 22, 1988 policies may retain their non-modified endowment status. Therefore, the policies offered by this prospectus may or may not be issued as modified endowment contracts. The Company will monitor premiums paid and will notify the Policy Owner when the policy's non-modified endowment status is in jeopardy. If a policy is not a modified endowment contract, a cash distribution during the first fifteen years after a policy is issued which causes a reduction in death benefits may still become fully or partially taxable to the Owner pursuant to Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this potential effect and seek further information before initiating any changes in the terms of the policy. Under certain conditions, a policy may become a modified endowment as a result of certain material changes or a reduction in benefits as defined by Section 7702A(c) of the Code. In addition to meeting the tests required under Sections 7702, Section 817(h) of the Code requires that the investments of separate accounts such as the Variable Account be adequately diversified. Regulations issued by the Secretary of the Treasury, set the standards for measuring the adequacy of this diversification. To be adequately diversified, each sub-account of the Variable Account must meet certain tests. The Company believes that the investments of the Variable Account meet the applicable diversification standards. The regulations provide that a variable life policy which does not satisfy the diversification standards will not be treated as life insurance under Section 7702 of the Internal Revenue Code, unless the failure to satisfy regulations was inadvertent, the failure is corrected, and the Policy Owner or the Company pays an amount to the Internal Revenue Service. The amount will be based on the tax that would have been paid by the Policy Owner if the income, for the period the policy was not diversified, had been received by the Policy Owner. If the failure to diversify is not corrected in this manner, the Policy Owner of the life policy will be deemed the owner of the underlying securities and will be taxed on the earnings of his or her account. The Company will monitor compliance with these regulations and, to the extent necessary, will change the objectives or assets of the sub-account investments to remain in compliance. Representatives of the Internal Revenue Service have suggested, from time to time, that the number of underlying Mutual Funds available or the number of transfer opportunities available under a variable product may be relevant in determining whether the product qualifies for the desired tax treatment. No formal guidance has been issued in this area. Should the Secretary of the Treasury issue additional rules or regulations limiting the number of funds, transfers between funds, exchanges of funds or changes in investment objectives of funds such that the Policy would no longer qualify as life insurance under Section 7702 of the Code, the Company will take whatever steps are available to remain in compliance. A total surrender or cancellation of the Policy by lapse may have adverse tax consequences depending on the circumstances. If the amount received by the Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the Policy, the excess generally will be treated as taxable income, regardless of whether or not the Policy is a modified endowment contract. Generally the taxable portion of any Distribution from a Contract to a nonresident alien of the United States is subject to tax withholding at a rate equal to thirty percent (30%) of such amount or, if applicable, a lower treaty rate. A payment may not be subject to withholding where the recipient sufficiently establishes that such payment is effectively connected to the recipient's conduct of a trade or business in the united States and such payment is includable in the recipient's gross income. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each Policy Owner or Beneficiary. TAXATION OF THE COMPANY The Company is taxed as a life insurance company under the Code. Since the Variable Account is not a separate entity from the Company and its operations form a part of the Company, it will not be taxed separately as a "regulated investment company" under Sub-chapter M of the Code. Investment income and realized capital gains on the assets of the Variable Account are reinvested and taken into account in determining the value of Accumulation Units. As a result, such investment income and realized capital gains are automatically applied to increase reserves under the Policies. 27 31 The Company does not initially expect to incur any Federal income tax liability that would be chargeable to the Variable Account. Based upon these expectations, no charge is currently being made against the Variable Account for federal income taxes. If, however, the Company determines that on a separate company basis such taxes may be incurred, it reserves the right to assess a charge for such taxes against the Variable Account. The Company may also incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If they increase, however, charges for such taxes may be made. OTHER CONSIDERATIONS The foregoing discussion is general and is not intended as tax advice. Counsel and other competent advisors should be consulted for more complete information. This discussion is based on the Company's understanding of Federal income tax laws as they are currently interpreted by the Internal Revenue Service. No representation is made as to the likelihood of continuation of these current laws and interpretations. THE COMPANY The Company is a life insurance company writing life, accident and health insurance, and annuities in all states and the District of Columbia. The Company issues variable annuity contracts through other segregated investment accounts. This is the only business in which the Company is engaged. The Company markets its Policies through independent insurance brokers, general agents, and registered representatives of registered NASD broker/dealer firms. The Company, in common with other insurance companies, is subject to regulation and supervision by the regulatory authorities of the states in which it is licensed to do business. A license from the state insurance department is a prerequisite to the transaction of insurance business in that state. In general, all states have statutory administrative powers. Such regulation relates, among other things, to licensing of insurers and their agents, the approval of policy forms, the methods of computing reserves, the form and content of statutory financial statements, the amount of policyholders' and stockholders' dividends, and the type of distribution of investments permitted. The Company operates in the highly competitive field of life insurance. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States, and a large number of them compete with the registrant in the sale of insurance policies. As is customary in insurance company groups, employees are shared with the other insurance companies in the group. In addition to its direct salaried employees, the Company shares employees with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. The Company serves as depositor for the Nationwide Variable Account, Nationwide Variable Account - II, Nationwide Variable Account - 3, Nationwide Variable Account - 4, Nationwide Variable Account - 5, Nationwide Variable Account - 6, Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account - 8, MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI Separate Account, Nationwide VLI Separate Account - 2, Nationwide VLI Separate Account - 3, the NACo Variable Account and the DC Variable Account, each of which is a registered investment company. The Company does not presently own or lease any materially important physical properties when its property holdings are viewed in relation to its total assets. The Company shares home office, other facilities and equipment with Nationwide Mutual Insurance Company. COMPANY MANAGEMENT Nationwide Life Insurance Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity Company and Nationwide General Insurance Company and their affiliated companies comprise the Nationwide Insurance Enterprise. The companies comprising the Nationwide Insurance Enterprise have substantially common boards of directors and officers. Nationwide Corporation is the sole shareholder of the Company. 28 32 DIRECTORS OF THE COMPANY
Director Name Since Principal Occupation ---- ----- -------------------- Lewis J. Alphin 1993 Farm Owner and Operator (1) Keith W. Eckel 1996 Partner and Manager, Fred W. Eckel Sons and Eckel Farms, Inc. (1) Willard J. Engel 1994 General Manager Lyon County Cooperative Oil Company (1) Fred C. Finney 1992 Owner and Operator, Moreland Fruit Farm; Operator, Melrose Orchard (1) Charles L. Fuellgraf, Jr. * + 1969 Chief Executive Officer, Fuellgraf Electric Company, Electrical Construction and Engineering Services (1) Joseph J. Gasper*+ 1996 President and Chief Operating Officer, Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company Henry S. Holloway *+ 1986 Farm Owner and Operator (1) D. Richard McFerson *+ 1988 Chairman and Chief Executive Officer, Nationwide Insurance Enterprise (2) David O. Miller *+ 1985 Farm Owner and Land Developer; President, Owen Potato Farm, Inc.; Partner, M&M Enterprises (1) C. Ray Noecker 1994 Farm Owner and Operator (1) James F. Patterson + 1989 Vice President, Pattersons, Inc. ; President, Patterson Farms, Inc. (1) Arden L. Shisler *+ 1984 Partner and Manager, Sweetwater Beef Farms; President and Chief Executive Officer, K&B Transport, Inc. (1) Robert L. Stewart 1989 Farm Owner and Operator; Owner, Sunnydale Mining (1) Nancy C. Thomas * 1986 Farm Owner and Operator, Da-Ma-Lor Farms (1) Harold W. Weihl 1990 Farm Owner and Operator, Weihl Farm (1)
*Member, Executive Committee +Member, Investment Committee 1) Principal occupation for last five years. 2) Prior to assuming this current position, Messrs. McFerson and Gasper held other executive management positions with the companies. Each of the directors is a director of the other major insurance affiliates of the Nationwide Insurance Enterprise, except Mr. Gasper who is a director only of the Company and Nationwide Life Insurance Company. Messrs. McFerson and Gasper are directors of Nationwide Financial Services, Inc., a registered broker-dealer. Messrs. Holloway, McFerson, Miller, Patterson and Shisler are directors of Nationwide Corporation. Messrs. Fuellgraf, McFerson, Ms. Thomas and Mr. Weihl are trustees of Nationwide Investing Foundation, a registered investment company. Mr. McFerson is trustee of Nationwide Separate Account Trust, Financial Horizons Investment Trust and Nationwide Investing Foundation II, registered investment companies. Mr. Engel is a director of Western Cooperative Transport. EXECUTIVE OFFICERS OF THE COMPANY
NAME OFFICE HELD - ---- ----------- D. Richard McFerson Chairman and Chief Executive Officer-Nationwide Insurance Enterprise Joseph J. Gasper President and Chief Operating Officer Gordon E. McCutchan Executive Vice President, Law and Corporate Services and Secretary Robert A. Oakley Executive Vice President-Chief Financial Officer Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
29 33 James E. Brock Senior Vice President - Investment Product Operations W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary Richard A. Karas Senior Vice President - Sales and Financial Services Mark A. Folk Vice President and Treasurer
Mr. Gasper is also President and Chief Operating Officer of Nationwide Life and Annuity Insurance Company. Mr. Galloway is also an officer of Nationwide Mutual Insurance Company and Nationwide Life and Annuity Insurance Company. Each of the other officers listed above is also an officer of each of the companies comprising the Nationwide Insurance Enterprise. Each of the executive officers listed above has been associated with the registrant in an executive capacity for more than the past five years, except Mr. Folk who joined the Registrant in 1993. From 1983-1993, Mr. Folk served as a partner in the accounting firm KPMG Peat Marwick LLP. OTHER CONTRACTS ISSUED BY THE COMPANY The Company does presently and will, from time to time, offer variable contracts and policies with benefits which vary in accordance with the investment experience of a separate account of the Company. STATE REGULATION The Company is subject to the laws of Ohio governing insurance companies and to regulation by the Ohio Insurance Department. An annual statement in a prescribed form is filed with the Insurance Department each year covering the operation of the Company for the preceding year and its financial condition as of the end of such year. Regulation by the Insurance Department includes periodic examination to determine the Company's contract liabilities and reserves so that the Insurance Department may certify the items are correct. The Company's books and accounts are subject to review by the Insurance Department at all times and a full examination of its operations is conducted periodically by the National Association of Insurance Commissioners. Such regulation does not, however, involve any supervision of management or investment practices or policies. In addition, the Company is subject to regulation under the insurance laws of other jurisdictions in which it may operate. REPORTS TO POLICY OWNERS The Company will mail to the Policy Owner, at the last known address of record, an annual statement showing current policy values, transactions since the last statement, policy loan information, and any other information required by federal or state laws or regulations. Policy Owners will also be sent annual and semi-annual reports containing financial statements for the Variable Account as required by the 1940 Act. In addition, Policy Owners will receive statements of significant transactions, such as change in Specified Amount, changes in future premium allocation, transfers among sub-accounts, premium payments, loans, increase in loan principal, loan repayments, unpaid loan interest added to principal, reinstatement and termination. ADVERTISING The Company is ranked and rated by independent financial rating services, among which are Moody's, Standard & Poor's and A.M. Best Company. The purpose of these ratings is to reflect the financial strength or claims-paying ability of the Company. The ratings are not intended to reflect the investment experience or financial strength of the Variable Account. The Company may advertise these ratings from time to time. In addition, the Company may include in certain advertisements endorsements in the form of a list of organizations, individuals or other parties which recommend the Company or the Contracts. Furthermore, the Company may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs based on selected tax brackets or discussions of alternative investment vehicles and general economic conditions. 30 34 LEGAL PROCEEDINGS There are no material legal proceedings, other than ordinary routine litigation incidental to the business to which the Company and the Variable Account are parties or to which any of their property is the subject. The General Distributor, Nationwide Financial Services, Inc., is not engaged in any material litigation of any nature. EXPERTS The financial statements and schedules included herein have been included herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing. REGISTRATION STATEMENT A Registration Statement has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the Policies offered hereby. This prospectus does not contain all the information set forth in the Registration Statement and amendments thereto and exhibits filed as a part thereof, to all of which reference is hereby made for further information concerning the Variable Account, the Company, and the Policies offered hereby. Statements contained in this prospectus as to the content of Policies and other legal instruments are summaries. For a complete statement of the terms thereof, reference is made to such instruments as filed. LEGAL OPINIONS Legal matters in connection with the Policies described herein are being passed upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216. All the members of such firm are employed by the Nationwide Mutual Insurance Company. 31 35 APPENDIX ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS The illustrations in this prospectus have been prepared to help show how values under the Policies change with investment performance. The illustrations illustrate how Cash Values, Cash Surrender Values and Death Benefits under a Policy would vary over time if the hypothetical gross investment rates of return were a uniform annual effective rate of either 0%, 6% or 12%. If the hypothetical gross investment rate of return averages 0%, 6%, or 12% over a period of years, but fluctuates above or below those averages for individual years, the Cash Values, Cash Surrender Values and Death Benefits may be different. For hypothetical returns of 0% and 6%, the illustrations also illustrate when the Cash Surrender Values falls to zero, at which time additional Premium Payments would be required to continue the Policy in force. The illustrations also assume there is no Policy Indebtedness, no additional Premium Payments are made and no Cash Values are allocated to the Fixed Account. The amounts shown for the Cash Value, Cash Surrender Value and Death Benefit as of each Policy Anniversary reflect the fact that the net investment return on the assets held in the sub-accounts is lower than the gross return. This is due to the deduction of underlying Mutual Fund investment advisory fees and other expenses which are equivalent to an annual effective rate of 0.90%. This effective rate is based on the average of the fund expenses for the preceding year for all underlying mutual fund options available under the policy as of January 1, 1996. Taking account of the underlying Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -0.90%, 5.1%, and 11.1% respectively. The illustrations also reflect the fact that the Company makes monthly charges for providing insurance protection, recovering taxes, providing for administrative expenses, and assuming mortality and expense risks. Current values reflect current charges and guaranteed values reflect the maximum charges guaranteed in the Policy. The values shown are for policies which are issued as standard. Policies issued on a substandard basis would result in lower Cash Values and Death Benefits than those illustrated. In addition, the illustrations reflect the fact that no charges for federal or state income taxes are currently made against the Variable Account. If such a charge is made in the future, it will require a higher gross investment return than illustrated in order to produce the net after-tax returns shown in the illustrations. Upon request, the Company will furnish a comparable illustration based on the proposed Insured's age, sex, rating classification and Premium Payment requested. 32 36 $10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 65 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 10,500 9,582 8,582 19,579 10,160 9,160 19,579 10,738 9,738 19,579 2 11,025 9,176 8,176 19,579 10,324 9,324 19,579 11,540 10,540 19,579 3 11,576 8,782 7,882 19,579 10,493 9,593 19,579 12,411 11,511 19,579 4 12,155 8,401 7,601 19,579 10,667 9,867 19,579 13,358 12,558 19,579 5 12,763 8,030 7,330 19,579 10,846 10,146 19,579 14,386 13,686 19,579 6 13,401 7,671 7,071 19,579 11,030 10,430 19,579 15,503 14,903 19,579 7 14,071 7,323 6,823 19,579 11,218 10,718 19,579 16,717 16,217 19,579 8 14,775 6,985 6,585 19,579 11,413 11,013 19,579 18,041 17,641 20,025 9 15,513 6,657 6,357 19,579 11,612 11,312 19,579 19,501 19,201 21,256 10 16,289 6,339 6,339 19,579 11,818 11,818 19,579 21,104 21,104 22,582 15 20,789 5,018 5,018 19,579 13,271 13,271 19,579 32,367 32,367 33,986 20 26,533 3,854 3,854 19,579 14,983 14,983 19,579 49,517 49,517 51,993 25 33,864 2,830 2,830 19,579 17,000 17,000 19,579 75,690 75,690 79,475 30 43,219 1,928 1,928 19,579 19,380 19,380 19,579 116,668 116,668 117,834
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 33 37 $10,000 INITIAL PREMIUM: $19,579 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 65 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 10,500 9,381 8,381 19,579 9,962 8,962 19,579 10,544 9,544 19,579 2 11,025 8,734 7,734 19,579 9,896 8,896 19,579 11,130 10,130 19,579 3 11,576 8,052 7,152 19,579 9,799 8,899 19,579 11,767 10,867 19,579 4 12,155 7,329 6,529 19,579 9,664 8,864 19,579 12,462 11,662 19,579 5 12,763 6,557 5,857 19,579 9,486 8,786 19,579 13,225 12,525 19,579 6 13,401 5,724 5,124 19,579 9,255 8,655 19,579 14,069 13,469 19,579 7 14,071 4,815 4,315 19,579 8,960 8,460 19,579 15,008 14,508 19,579 8 14,775 3,810 3,410 19,579 8,585 8,185 19,579 16,063 15,663 19,579 9 15,513 2,686 2,386 19,579 8,112 7,812 19,579 17,258 16,958 19,579 10 16,289 1,418 1,418 19,579 7,519 7,519 19,579 18,628 18,628 19,932 15 20,789 (*) (*) (*) 1,805 1,805 19,579 28,480 28,480 29,904 20 26,533 (*) (*) (*) (*) (*) (*) 43,419 43,419 45,590 25 33,864 (*) (*) (*) (*) (*) (*) 65,149 65,149 68,407 30 43,219 (*) (*) (*) (*) (*) (*) 98,541 98,541 99,527
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 34 38 $10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 45 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 10,500 9,582 8,582 40,437 10,160 9,160 40,437 10,738 9,738 40,437 2 11,025 9,176 8,176 40,437 10,324 9,324 40,437 11,540 10,540 40,437 3 11,576 8,782 7,882 40,437 10,493 9,593 40,437 12,411 11,511 40,437 4 12,155 8,401 7,601 40,437 10,667 9,867 40,437 13,358 12,558 40,437 5 12,763 8,030 7,330 40,437 10,846 10,146 40,437 14,386 13,686 40,437 6 13,401 7,671 7,071 40,437 11,030 10,430 40,437 15,503 14,903 40,437 7 14,071 7,323 6,823 40,437 11,218 10,718 40,437 16,717 16,217 40,437 8 14,775 6,985 6,585 40,437 11,413 11,013 40,437 18,035 17,635 40,437 9 15,513 6,657 6,357 40,437 11,612 11,312 40,437 19,468 19,168 40,437 10 16,289 6,339 6,339 40,437 11,818 11,818 40,437 21,024 21,024 40,437 15 20,789 5,018 5,018 40,437 13,271 13,271 40,437 31,910 31,910 42,759 20 26,533 3,854 3,854 40,437 14,983 14,983 40,437 49,033 49,033 59,820 25 33,864 2,830 2,830 40,437 17,000 17,000 40,437 75,219 75,219 87,254 30 43,219 1,928 1,928 40,437 19,377 19,377 40,437 116,172 116,172 124,304
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 35 39 $10,000 INITIAL PREMIUM: $40,437 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 10,500 9,501 8,501 40,437 10,080 9,080 40,437 10,658 9,658 40,437 2 11,025 8,999 7,999 40,437 10,150 9,150 40,437 11,370 10,370 40,437 3 11,576 8,494 7,594 40,437 10,211 9,311 40,437 12,139 11,239 40,437 4 12,155 7,984 7,184 40,437 10,260 9,460 40,437 12,972 12,172 40,437 5 12,763 7,467 6,767 40,437 10,297 9,597 40,437 13,874 13,174 40,437 6 13,401 6,941 6,341 40,437 10,318 9,718 40,437 14,852 14,252 40,437 7 14,071 6,402 5,902 40,437 10,320 9,820 40,437 15,911 15,411 40,437 8 14,775 5,849 5,449 40,437 10,301 9,901 40,437 17,062 16,662 40,437 9 15,513 5,276 4,976 40,437 10,256 9,956 40,437 18,310 18,010 40,437 10 16,289 4,680 4,680 40,437 10,181 10,181 40,437 19,668 19,668 40,437 15 20,789 1,317 1,317 40,437 9,512 9,512 40,437 29,386 29,386 40,437 20 26,533 (*) (*) (*) 7,315 7,315 40,437 45,090 45,090 55,010 25 33,864 (*) (*) (*) 1,889 1,889 40,437 69,171 69,171 80,238 30 43,219 (*) (*) (*) (*) (*) (*) 106,265 106,265 113,704
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 36 40 $25,000 INITIAL PREMIUM: $101,093 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 45 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 26,250 24,132 21,632 101,093 25,583 23,083 101,093 27,034 24,534 101,093 2 27,562 23,289 20,789 101,093 26,182 23,682 101,093 29,244 26,744 101,093 3 28,941 22,472 20,222 101,093 26,798 24,548 101,093 31,645 29,395 101,093 4 30,388 21,679 19,679 101,093 27,432 25,432 101,093 34,253 32,253 101,093 5 31,907 20,911 19,161 101,093 28,083 26,333 101,093 37,086 35,336 101,093 6 33,502 20,165 18,665 101,093 28,753 27,253 101,093 40,164 38,664 101,093 7 35,178 19,442 18,192 101,093 29,441 28,191 101,093 43,503 42,253 101,093 8 36,936 18,740 17,740 101,093 30,149 29,149 101,093 47,120 46,120 101,093 9 38,783 18,059 17,309 101,093 30,877 30,127 101,093 51,037 50,287 101,093 10 40,722 17,399 17,399 101,093 31,626 31,626 101,093 55,280 55,280 101,093 15 51,973 14,756 14,756 101,093 36,610 36,610 101,093 84,709 84,709 113,510 20 66,332 12,428 12,428 101,093 42,475 42,475 101,093 131,806 131,806 160,803 25 84,659 10,379 10,379 101,093 49,301 49,301 101,093 206,582 206,582 239,635 30 108,049 8,575 8,575 101,093 57,224 57,224 101,093 323,780 323,780 346,445
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 37 41 $100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 65 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 105,000 96,708 86,708 195,791 102,511 92,511 195,791 108,313 98,313 195,791 2 110,250 93,524 83,524 195,791 105,084 95,084 195,791 117,318 107,318 195,791 3 115,762 90,446 81,446 195,791 107,723 98,723 195,791 127,071 118,071 195,791 4 121,551 87,468 79,468 195,791 110,427 102,427 195,791 137,635 129,635 195,791 5 127,628 84,589 77,589 195,791 113,200 106,200 195,791 149,077 142,077 195,791 6 134,010 81,804 75,804 195,791 116,042 110,042 195,791 161,470 155,470 195,791 7 140,710 79,111 74,111 195,791 118,955 113,955 195,791 174,903 169,903 197,641 8 147,746 76,507 72,507 195,791 121,942 117,942 195,791 189,597 185,597 210,452 9 155,133 73,988 70,988 195,791 125,004 122,004 195,791 205,646 202,646 224,154 10 162,889 71,553 71,553 195,791 128,142 128,142 195,791 223,212 223,212 238,837 15 207,893 62,060 62,060 195,791 152,505 152,505 195,791 349,845 349,845 367,337 20 265,330 53,828 53,828 195,791 181,501 181,501 195,791 548,319 548,319 575,735 25 338,635 46,687 46,687 195,791 216,010 216,010 226,810 859,393 859,393 902,362 30 432,194 40,493 40,493 195,791 257,079 257,079 259,650 1,346,944 1,346,944 1,360,414
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 38 42 $100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 65 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 105,000 96,708 86,708 195,791 102,511 92,511 195,791 108,313 98,313 195,791 2 110,250 93,524 83,524 195,791 105,084 95,084 195,791 117,318 107,318 195,791 3 115,762 90,446 81,446 195,791 107,723 98,723 195,791 127,071 118,071 195,791 4 121,551 87,468 79,468 195,791 110,427 102,427 195,791 137,635 129,635 195,791 5 127,628 84,589 77,589 195,791 113,200 106,200 195,791 149,077 142,077 195,791 6 134,010 81,804 75,804 195,791 116,042 110,042 195,791 161,470 155,470 195,791 7 140,710 79,111 74,111 195,791 118,955 113,955 195,791 174,903 169,903 197,641 8 147,746 76,507 72,507 195,791 121,942 117,942 195,791 189,597 185,597 210,452 9 155,133 73,988 70,988 195,791 125,004 122,004 195,791 205,646 202,646 224,154 10 162,889 71,553 71,553 195,791 128,142 128,142 195,791 223,212 223,212 238,837 15 207,893 62,060 62,060 195,791 152,505 152,505 195,791 349,845 349,845 367,337 20 265,330 53,828 53,828 195,791 181,501 181,501 195,791 548,319 548,319 575,735 25 338,635 46,687 46,687 195,791 216,010 216,010 226,810 859,393 859,393 902,362 30 432,194 40,493 40,493 195,791 257,079 257,079 259,650 1,346,944 1,346,944 1,360,414
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 39 43 $100,000 INITIAL PREMIUM: $195,791 SPECIFIED AMOUNT MALE: SIMPLIFIED ISSUE: AGE 65 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 105,000 94,724 84,724 195,791 100,554 90,554 195,791 106,387 96,387 195,791 2 110,250 89,180 79,180 195,791 100,888 90,888 195,791 113,303 103,303 195,791 3 115,762 83,324 74,324 195,791 100,974 91,974 195,791 120,837 111,837 195,791 4 121,551 77,095 69,095 195,791 100,776 92,776 195,791 129,095 121,095 195,791 5 127,628 70,416 63,416 195,791 100,242 93,242 195,791 138,201 131,201 195,791 6 134,010 63,182 57,182 195,791 99,301 93,301 195,791 148,306 142,306 195,791 7 140,710 55,257 50,257 195,791 97,861 92,861 195,791 159,604 154,604 195,791 8 147,746 46,469 42,469 195,791 95,804 91,804 195,791 172,343 168,343 195,791 9 155,133 36,605 33,605 195,791 92,985 89,985 195,791 186,774 183,774 203,583 10 162,889 25,406 25,406 195,791 89,242 89,242 195,791 202,728 202,728 216,919 15 207,893 (*) (*) (*) 50,882 50,882 195,791 313,490 313,490 329,165 20 265,330 (*) (*) (*) (*) (*) (*) 479,062 479,062 503,016 25 338,635 (*) (*) (*) (*) (*) (*) 718,814 718,814 754,755 30 432,194 (*) (*) (*) (*) (*) (*) 1,087,242 1,087,242 1,098,114
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 40 44 $100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT MALE: REGULAR ISSUE: AGE 55 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 105,000 96,708 86,708 273,583 102,511 92,511 273,583 108,313 98,313 273,583 2 110,250 93,524 83,524 273,583 105,084 95,084 273,583 117,318 107,318 273,583 3 115,762 90,446 81,446 273,583 107,723 98,723 273,583 127,071 118,071 273,583 4 121,551 87,468 79,468 273,583 110,427 102,427 273,583 137,635 129,635 273,583 5 127,628 84,589 77,589 273,583 113,200 106,200 273,583 149,077 142,077 273,583 6 134,010 81,804 75,804 273,583 116,042 110,042 273,583 161,470 155,470 273,583 7 140,710 79,111 74,111 273,583 118,955 113,955 273,583 174,893 169,893 273,583 8 147,746 76,507 72,507 273,583 121,942 117,942 273,583 189,433 185,433 273,583 9 155,133 73,988 70,988 273,583 125,004 122,004 273,583 205,181 202,181 273,583 10 162,889 71,553 71,553 273,583 128,142 128,142 273,583 222,260 222,260 273,583 15 207,893 62,060 62,060 273,583 152,505 152,505 273,583 348,353 348,353 404,090 20 265,330 53,828 53,828 273,583 181,501 181,501 273,583 545,981 545,981 584,200 25 338,635 46,687 46,687 273,583 216,010 216,010 273,583 855,728 855,728 898,515 30 432,194 40,493 40,493 273,583 257,079 257,079 273,583 1,341,201 1,341,201 1,408,261
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT THE CURRENT CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 41 45 $100,000 INITIAL PREMIUM: $273,583 SPECIFIED AMOUNT MALE: REGULAR ISSUE: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN ----------------------- ----------------------- ----------------------- PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 105,000 95,428 85,428 273,583 101,237 91,237 273,583 107,048 97,048 273,583 2 110,250 90,746 80,746 273,583 102,348 92,348 273,583 114,641 104,641 273,583 3 115,762 85,934 76,934 273,583 103,319 94,319 273,583 122,842 113,842 273,583 4 121,551 80,971 72,971 273,583 104,133 96,133 273,583 131,721 123,721 273,583 5 127,628 75,827 68,827 273,583 104,766 97,766 273,583 141,357 134,357 273,583 6 134,010 70,462 64,462 273,583 105,188 99,188 273,583 151,838 145,838 273,583 7 140,710 64,827 59,827 273,583 105,356 100,356 273,583 163,262 158,262 273,583 8 147,746 58,861 54,861 273,583 105,222 101,222 273,583 175,751 171,751 273,583 9 155,133 52,500 49,500 273,583 104,733 101,733 273,583 189,449 186,449 273,583 10 162,889 45,670 45,670 273,583 103,829 103,829 273,583 204,536 204,536 273,583 15 207,893 2,162 2,162 273,583 93,673 93,673 273,583 312,923 312,923 362,991 20 265,330 (*) (*) (*) 56,926 56,926 273,583 480,735 480,735 514,386 25 338,635 (*) (*) (*) (*) (*) (*) 743,388 743,388 780,557 30 432,194 (*) (*) (*) (*) (*) (*) 1,136,014 1,136,014 1,192,815
ASSUMPTIONS: (1) NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT THE GUARANTEED CHARGES DESCRIBED IN THE "MONTHLY DEDUCTIONS" AND "SURRENDER CHARGES" SECTIONS OF THE PROSPECTUS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS THE AVERAGE FUND EXPENSE DESCRIBED IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY NATIONWIDE LIFE OR THE TRUST THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. 42 46 1 - -------------------------------------------------------------------------------- Independent Auditors' Report The Board of Directors and Contract Owners of Nationwide VLI Separate Account-2 Nationwide Life Insurance Company: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide VLI Separate Account-2 as of December 31, 1995, and the related statements of operations and changes in contract owners' equity and schedules of changes in unit value for each of the years in the three year period then ended. These financial statements and schedules of changes in unit value are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules of changes in unit value based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules of changes in unit value are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian and the transfer agents of the underlying mutual funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and schedules of changes in unit value referred to above present fairly, in all material respects, the financial position of Nationwide VLI Separate Account-2 as of December 31, 1995, and the results of its operations and its changes in contract owners' equity and the schedules of changes in unit value for each of the years in the three year period then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Columbus, Ohio February 6, 1996 - -------------------------------------------------------------------------------- 2 ================================================================================ NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1995 ASSETS: Investments at market value: The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) 62,614 shares (cost $1,038,589) ............................................ $ 1,083,848 Dreyfus Stock Index Fund (DryStkIx) 271,861 shares (cost $4,342,422) ........................................... 4,676,009 Fidelity VIP - Equity-Income Portfolio (FidEqInc) 1,479,252 shares (cost $24,428,367) ........................................ 28,505,182 Fidelity VIP - Growth Portfolio (FidGro) 1,134,365 shares (cost $33,508,734) ........................................ 33,123,460 Fidelity VIP - High Income Portfolio (FidHiInc) 825,519 shares (cost $9,365,281) ........................................... 9,947,503 Fidelity VIP - Overseas Portfolio (FidOSeas) 676,060 shares (cost $10,850,506) .......................................... 11,526,815 Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr) 1,172,533 shares (cost $16,833,524) ........................................ 18,514,290 Fidelity VIP-II - Contrafund Portfolio (FidContP) 195,404 shares (cost $2,668,754) ........................................... 2,692,665 Nationwide SAT - Capital Appreciation Fund (NWCapApp) 212,307 shares (cost $2,582,301) ........................................... 2,861,899 Nationwide SAT - Government Bond Fund (NWGvtBd) 467,280 shares (cost $4,984,922) ........................................... 5,308,298 Nationwide SAT - Money Market Fund (NWMyMkt) 25,831,056 shares (cost $25,831,056) ....................................... 25,831,056 Nationwide SAT - Small Company Fund (NWSmCoFd) 30,450 shares (cost $339,903) .............................................. 347,742 Nationwide SAT - Total Return Fund (NWTotRet) 1,926,298 shares (cost $20,615,292) ........................................ 22,229,482 Neuberger & Berman - Growth Portfolio (NBGro) 351,272 shares (cost $8,083,142) ........................................... 9,083,899 Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat) 211,743 shares (cost $2,994,517) ........................................... 3,114,733 Neuberger & Berman - Partners Portfolio (NBPart) 216,170 shares (cost $2,643,081) ........................................... 2,859,928 Oppenheimer - Bond Fund (OppBdFd) 342,871 shares (cost $3,867,584) ........................................... 4,059,588 Oppenheimer - Global Securities Fund (OppGlSec) 397,052 shares (cost $5,971,306) ........................................... 5,955,777 Oppenheimer - Multiple Strategies Fund (OppMult) 349,048 shares (cost $4,730,069) ........................................... 5,078,650 Strong VIP - Strong Discovery Fund II, Inc. (StDisc2) 403,468 shares (cost $4,727,581) ........................................... 5,422,616 Strong VIP - Strong International Stock Fund II, Inc. (StIntStk2) 9,631 shares (cost $97,747) ................................................ 98,431 Strong VIP - Strong Special Fund II, Inc. (StSpec2) 672,585 shares (cost $10,088,689) .......................................... 11,460,850 TCI Portfolios - TCI Balanced (TCIBal) 217,142 shares (cost $1,372,140) ........................................... 1,528,680 TCI Portfolios - TCI Growth (TCIGro) 868,667 shares (cost $8,887,302) ........................................... 10,476,124 TCI Portfolios - TCI International (TCIInt) 208,270 shares (cost $1,082,648) ........................................... 1,110,078 Van Eck - Gold and Natural Resources Fund (VEGoldNR) 244,680 shares (cost $3,489,920) ........................................... 3,528,286 Van Eck - Worldwide Bond Fund (VEWrldBd) 182,821 shares (cost $1,985,685) ........................................... 2,036,622 Van Kampen American Capital - Real Estate Securities Fund (VKACRESec) 28,825 shares (cost $299,720) .............................................. 309,583 Warburg Pincus - International Equity Portfolio (WPIntEq) 158,334 shares (cost $1,656,897) ........................................... 1,686,256 Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr) 273,996 shares (cost $3,188,845) ........................................... 3,427,686 ------------ Total assets ........................................................... 237,886,036 ACCOUNTS PAYABLE ................................................................ 816,393 ------------ CONTRACT OWNERS' EQUITY ......................................................... $237,069,643 ============
3 Contract owners' equity represented by:
UNITS UNIT VALUE --------- ---------- Single Premium contracts issued prior to April 16, 1990: Fidelity VIP - Equity-Income Portfolio ....................................... 13,681 $26.373971 $ 360,822 Fidelity VIP - Growth Portfolio .............................................. 9,046 30.259267 273,725 Fidelity VIP - High Income Portfolio ......................................... 3,417 21.685282 74,099 Fidelity VIP - Overseas Portfolio ............................................ 9,048 17.526172 158,577 Fidelity VIP-II - Asset Manager Portfolio .................................... 1,075 18.081878 19,438 Nationwide SAT - Government Bond Fund ........................................ 2,984 19.357639 57,763 Nationwide SAT - Money Market Fund ........................................... 9,556 14.287454 136,531 Nationwide SAT - Total Return Fund ........................................... 1,195 22.138653 26,456 Neuberger & Berman - Growth Portfolio ........................................ 5,776 22.976381 132,712 Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 4,610 15.906671 73,330 Oppenheimer - Global Securities Fund ......................................... 1,656 11.503363 19,050 Strong VIP - Strong Special Fund II, Inc. .................................... 319 18.309087 5,841 TCI Portfolios - TCI Growth .................................................. 8,480 25.381408 215,234 Van Eck - Gold and Natural Resources Fund .................................... 4,617 12.839256 59,279 Van Eck - Worldwide Bond Fund ................................................ 23 14.458585 333 Van Kampen American Capital - Real Estate Securities Fund .................... 4,203 10.784280 45,326 Single Premium contracts issued on or after April 16, 1990: The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 10,235 14.242220 145,769 Dreyfus Stock Index Fund ..................................................... 57,341 13.621789 781,087 Fidelity VIP - Equity-Income Portfolio ....................................... 508,482 21.648958 11,008,105 Fidelity VIP - Growth Portfolio .............................................. 435,011 20.999607 9,135,060 Fidelity VIP - High Income Portfolio ......................................... 124,646 22.388295 2,790,611 Fidelity VIP - Overseas Portfolio ............................................ 299,548 12.667544 3,794,537 Fidelity VIP-II - Asset Manager Portfolio .................................... 354,042 17.721708 6,274,229 Fidelity VIP-II - Contrafund Portfolio ....................................... 63,736 11.071965 705,683 Nationwide SAT - Capital Appreciation Fund ................................... 16,446 14.444672 237,557 Nationwide SAT - Government Bond Fund ........................................ 221,416 16.104612 3,565,819 Nationwide SAT - Money Market Fund ........................................... 1,202,213 12.028786 14,461,163 Nationwide SAT - Small Company Fund .......................................... 18,120 11.410311 206,755 Nationwide SAT - Total Return Fund ........................................... 136,950 19.154939 2,623,269 Neuberger & Berman - Growth Portfolio ........................................ 167,819 16.264834 2,729,548 Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 80,410 13.684722 1,100,388 Neuberger & Berman - Partners Portfolio ...................................... 59,329 13.495873 800,697 Oppenheimer - Bond Fund ...................................................... 91,827 16.056725 1,474,441 Oppenheimer - Global Securities Fund ......................................... 103,965 11.413379 1,186,592 Oppenheimer - Multiple Strategies Fund ....................................... 124,127 16.404926 2,036,294 Strong VIP - Strong Discovery Fund II, Inc. .................................. 130,968 16.214896 2,123,632 Strong VIP - Strong International Stock Fund II, Inc. ........................ 2,862 10.226632 29,269 Strong VIP - Strong Special Fund II, Inc. .................................... 162,203 18.074367 2,931,717 TCI Portfolios - TCI Balanced ................................................ 38,974 12.914886 503,345 TCI Portfolios - TCI Growth .................................................. 229,772 17.116040 3,932,787 TCI Portfolios - TCI International ........................................... 41,356 10.403803 430,260 Van Eck - Gold and Natural Resources Fund .................................... 118,139 14.230388 1,681,164 Van Eck - Worldwide Bond Fund ................................................ 55,939 14.170551 792,686 Van Kampen American Capital - Real Estate Securities Fund .................... 12,834 10.765797 138,168 Warburg Pincus - International Equity Portfolio .............................. 68,691 10.661502 732,349 Warburg Pincus - Small Company Growth Portfolio .............................. 93,602 12.430586 1,163,528 Multiple Payment contracts and Flexible Premium contracts: The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 65,138 14.401809 938,105 Dreyfus Stock Index Fund ..................................................... 282,759 13.775382 3,895,113 Fidelity VIP - Equity-Income Portfolio ....................................... 771,429 22.215745 17,137,870 Fidelity VIP - Growth Portfolio .............................................. 1,116,041 21.256059 23,722,633 Fidelity VIP - High Income Portfolio ......................................... 339,950 20.852993 7,088,975 Fidelity VIP - Overseas Portfolio ............................................ 554,741 13.645033 7,569,459 Fidelity VIP-II - Asset Manager Portfolio .................................... 764,633 15.982529 12,220,769 Fidelity VIP-II - Contrafund Portfolio ....................................... 179,024 11.099135 1,987,012 Nationwide SAT - Capital Appreciation Fund ................................... 178,373 14.713230 2,624,443 Nationwide SAT - Government Bond Fund ........................................ 112,463 14.984933 1,685,251 Nationwide SAT - Money Market Fund ........................................... 887,531 11.714295 10,396,800 Nationwide SAT - Small Company Fund .......................................... 12,345 11.420759 140,989 Nationwide SAT - Total Return Fund ........................................... 1,076,286 18.192762 19,580,615 Neuberger & Berman - Growth Portfolio ........................................ 389,800 15.962482 6,222,175 Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 148,223 13.096811 1,941,249 Neuberger & Berman - Partners Portfolio ...................................... 151,517 13.591346 2,059,320 Oppenheimer - Bond Fund ...................................................... 170,613 15.164813 2,587,314 Oppenheimer - Global Securities Fund ......................................... 411,619 11.542134 4,750,962 Oppenheimer - Multiple Strategies Fund ....................................... 188,985 16.100377 3,042,730 Strong VIP - Strong Discovery Fund II, Inc. .................................. 199,781 16.514850 3,299,353 Strong VIP - Strong International Stock Fund II, Inc. ........................ 6,756 10.236021 69,155 Strong VIP - Strong Special Fund II, Inc. .................................... 463,043 18.408627 8,523,986 TCI Portfolios - TCI Balanced ................................................ 77,950 13.155049 1,025,436 TCI Portfolios - TCI Growth .................................................. 391,898 16.149061 6,328,785 TCI Portfolios - TCI International ........................................... 64,755 10.477472 678,469 Van Eck - Gold and Natural Resources Fund .................................... 114,539 15.612002 1,788,183 Van Eck - Worldwide Bond Fund ................................................ 93,956 13.253457 1,245,242 Van Kampen American Capital - Real Estate Securities Fund .................... 11,685 10.792212 126,107 Warburg Pincus - International Equity Portfolio .............................. 89,255 10.687672 953,928 Warburg Pincus - Small Company Growth Portfolio .............................. 181,701 12.461074 2,264,190 ====== ========== ------------ $237,069,643 ============
See accompanying notes to financial statements. =============================================================================== 4 ================================================================================ NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------- ------------ ------------ INVESTMENT ACTIVITY: Reinvested capital gains and dividends ......................... $ 6,764,208 3,376,057 974,676 ------------- ------------ ------------ Gain (loss) on investments: Proceeds from redemption of mutual fund shares ............ 163,574,836 184,340,809 115,961,691 Cost of mutual fund shares sold ........................... (154,208,870) (184,441,475) (113,135,035) ------------- ------------ ------------ Realized gain (loss) on investments ....................... 9,365,966 (100,666) 2,826,656 Change in unrealized gain (loss) on investments ........... 17,134,325 (3,604,010) 1,224,589 ------------- ------------ ------------ Net gain (loss) on investments ....................... 26,500,291 (3,704,676) 4,051,245 ------------- ------------ ------------ Net investment activity ......................... 33,264,499 (328,619) 5,025,921 ------------- ------------ ------------ EQUITY TRANSACTIONS: Purchase payments received from contract owners ................ 106,694,208 77,172,455 31,008,045 Surrenders (note 2d) ........................................... (4,970,867) (1,308,994) (559,275) Death benefits (note 4) ........................................ (143,265) (15,398) (360,580) Policy loans (net of repayments) (note 5) ...................... (2,529,830) (2,980,396) (1,781,013) ------------- ------------ ------------ Net equity transactions ......................... 99,050,246 72,867,667 28,307,177 ------------- ------------ ------------ EXPENSES: Deductions for surrender charges (note 2d) ..................... (364,725) (116,899) (24,490) Redemptions to pay cost of insurance charges and administrative charges (notes 2b and 2c) .............. (14,110,656) (5,382,393) (1,539,443) Deductions for asset charges (note 3) .......................... (1,747,342) (879,737) (430,173) ------------- ------------ ------------ Total expenses .................................. (16,222,723) (6,379,029) (1,994,106) ------------- ------------ ------------ NET CHANGE IN CONTRACT OWNERS' EQUITY .............................. 116,092,022 66,160,019 31,338,992 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........................ 120,977,621 54,817,602 23,478,610 ------------- ------------ ------------ CONTRACT OWNERS' EQUITY END OF PERIOD .............................. $ 237,069,643 120,977,621 54,817,602 ============= =========== ==========
See accompanying notes to financial statements. =============================================================================== 5 ================================================================================ NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations The Nationwide VLI Separate Account-2 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on May 7, 1987. The Account has been registered as a unit investment trust under the Investment Company Act of 1940. The Company offers Modified Single Premium and Flexible Premium Variable Life Insurance Policies through the Account. The primary distribution for the contracts is through the brokerage community; however, other distributors may be utilized. (b) The Contracts Prior to December 31, 1990, only contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees, were offered for purchase. Beginning December 31, 1990, contracts with a front-end sales charge, a contingent deferred sales charge and certain other fees, are offered for purchase. See note 2 for a discussion of policy charges, and note 3 for asset charges. Contract owners may invest in the following: The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro); Dreyfus Stock Index Fund (DryStkIx)(formerly Dreyfus Life and Annuity Index Fund, Inc. (DLAI)); Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP); Fidelity VIP - Equity-Income Portfolio (FidEqInc) Fidelity VIP - Growth Portfolio (FidGro) Fidelity VIP - High Income Portfolio (FidHiInc) Fidelity VIP - Overseas Portfolio (FidOSeas) Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II); Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr) Fidelity VIP-II - Contrafund Portfolio (FidContP) Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed for a fee by an affiliated investment advisor); Nationwide SAT - Capital Appreciation Fund (NWCapApp) Nationwide SAT - Government Bond Fund (NWGvtBd) Nationwide SAT - Money Market Fund (NWMyMkt) Nationwide SAT - Small Company Fund (NWSmCoFd) Nationwide SAT - Total Return Fund (NWTotRet) Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger & Berman); Neuberger & Berman - Growth Portfolio (NBGro) Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat) Neuberger & Berman - Partners Portfolio (NBPart) Funds of the Oppenheimer Variable Account Funds (Oppenheimer); Oppenheimer - Bond Fund (OppBdFd) Oppenheimer - Global Securities Fund (OppGlSec) Oppenheimer - Multiple Strategies Fund (OppMult) Funds of the Strong Variable Insurance Products Funds (Strong VIP); Strong VIP - Strong Discovery Fund II, Inc. (StDisc2) Strong VIP - Strong International Stock Fund II, Inc. (StIntStk2) Strong VIP - Strong Special Fund II, Inc. (StSpec2) 6 Portfolios of the TCI Portfolios, Inc. (TCI Portfolios); TCI Portfolios - TCI Balanced (TCIBal) TCI Portfolios - TCI Growth (TCIGro) TCI Portfolios - TCI International (TCIInt) Funds of the Van Eck Worldwide Insurance Trust (Van Eck) (formerly Van Eck Investment Trust); Van Eck - Gold and Natural Resources Fund (VEGoldNR) Van Eck - Worldwide Bond Fund (VEWrldBd) (formerly Van Eck - Global Bond Fund (VEGlobBd)) Fund of the Van Kampen American Capital Life Investment Trust (Van Kampen American Capital); Van Kampen American Capital - Real Estate Securities Fund (VKACRESec) Portfolios of the Warburg Pincus Trust (Warburg Pincus); Warburg Pincus - International Equity Portfolio (WPIntEq) Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr) At December 31, 1995, contract owners have invested in all of the above funds. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain policy charges (see notes 2 and 3). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. (c) Security Valuation, Transactions and Related Investment Income The market value of the underlying mutual funds is based on the closing net asset value per share at December 31, 1995. Fund purchases and sales are accounted for on the trade date (date the order to buy or sell is executed). The cost of investments sold is determined on a specific identification basis, and dividends (which include capital gain distributions) are accrued as of the ex-dividend date. (d) Federal Income Taxes The operations of the Account form a part of, and are taxed with, the operations of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code. Currently, no charge is being made to the Account for Federal income taxes, or reserves for such taxes, which may be attributed to the Account. However, the Company reserves the right to make such charges in the future. (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) POLICY CHARGES (a) Deductions from Premiums On multiple payment contracts and flexible premium contracts, the Company deducts a charge for state premium taxes equal to 2.5% of all premiums received to cover the payment of these premium taxes. The Company also deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. The Company may at its sole discretion reduce this sales loading. (b) Cost of Insurance A cost of insurance charge is assessed monthly against each contract by liquidating units. The amount of the charge is based upon age, sex, rate class and net amount at risk (death benefit less total contract value). (c) Administrative Charges For single premium contracts, the Company deducts an annual administrative charge which is determined as follows: Contracts issued prior to April 16, 1990: Purchase payments totalling less than $25,000 - $10/month Purchase payments totalling $25,000 or more - none 7 Contracts issued on or after April 16, 1990: Purchase payments totalling less than $25,000 - $90/year ($65/year in New York) Purchase payments totalling $25,000 or more - $50/year For multiple payment contracts, the Company currently deducts a monthly administrative charge of $5 (may deduct up to $7.50, maximum) to recover policy maintenance, accounting, record keeping and other administrative expenses. For flexible premium contracts, the Company currently deducts a monthly administrative charge of $25 during the first policy year and $5 per month thereafter (may deduct up to $7.50, maximum) to recover policy maintenance, accounting, record keeping and other administrative expenses. Additionally, the Company deducts an increase charge of $2.04 per year per $1,000 applied to any increase in the specified amount during the first 12 months after the increase becomes effective. The above charges are assessed against each contract by liquidating units. (d) Surrenders Policy surrenders result in a redemption of the contract value from the Account and payment of the surrender proceeds to the contract owner or designee. The surrender proceeds consist of the contract value, less any outstanding policy loans, and less a surrender charge, if applicable. The charge is determined according to contract type. For single premium contracts, the charge is determined based upon a specified percentage of the original purchase payment. For single premium contracts issued prior to April 16, 1990, the charge is 8% in the first year and declines to 0% after the ninth year. For single premium contracts issued on or after April 16, 1990, the charge is 8.5% in the first year, and declines to 0% after the ninth year. For multiple payment contracts and flexible premium contracts, the amount charged is based upon a specified percentage of the initial surrender charge, which varies by issue age, sex and rate class. The charge is 100% of the initial surrender charge in the first year, declining to 0% after the ninth year. The Company may waive the surrender charge for certain contracts in which the sales expenses normally associated with the distribution of a contract are not incurred. (3) ASSET CHARGES For single premium contracts, the Company deducts a charge from the contract to cover mortality and expense risk charges related to operations, and to recover policy maintenance and premium tax charges. For contracts issued prior to April 16, 1990, the charge is equal to an annual rate of .95% during the first ten policy years, and .50% thereafter. A reduction of charges on these contracts is possible in policy years six through ten for those contracts achieving certain investment performance criteria. For single premium contracts issued on or after April 16, 1990, the charge is equal to an annual rate of 1.30% during the first ten policy years, and 1.00% thereafter. For multiple payment contracts and flexible premium contracts the Company deducts a charge equal to an annual rate of .80%, with certain exceptions, to cover mortality and expense risk charges related to operations. The above charges are assessed through the daily unit value calculation. (4) DEATH BENEFITS Death benefits result in a redemption of the contract value from the Account and payment of the death benefit proceeds, less any outstanding policy loans (and policy charges), to the legal beneficiary. The excess of the death benefit proceeds over the contract value on the date of death is paid by the Company's general account. (5) POLICY LOANS (NET OF REPAYMENTS) Contract provisions allow contract owners to borrow up to 90% (50% during first year of single premium contracts) of a policy's cash surrender value. For single premium contracts issued prior to April 16, 1990, 6.5% interest is due and payable annually in advance. For single premium contracts issued on or after April 16, 1990, multiple payment contracts and flexible premium contracts, 6% interest is due and payable in advance on the policy anniversary when there is a loan outstanding on the policy. 8 At the time the loan is granted, the amount of the loan is transferred from the Account to the Company's general account as collateral for the outstanding loan. Collateral amounts in the general account are credited with the stated rate of interest in effect at the time the loan is made, subject to a guaranteed minimum rate. Loan repayments result in a transfer of collateral, including interest, back to the Account. (6) SCHEDULE I Schedule I presents the components of the change in the unit values, which are the basis for determining contract owners' equity. This schedule is presented for each series, as applicable, in the following format: - Beginning unit value - Jan. 1 - Reinvested dividends and capital gains (This amount reflects the increase in the unit value due to dividend and capital gain distributions from the underlying mutual funds.) - Unrealized gain (loss) (This amount reflects the increase (decrease) in the unit value resulting from the market appreciation (depreciation) of the underlying mutual funds.) - Asset charges (This amount reflects the decrease in the unit value due to the charges discussed in note 3.) - Ending unit value - Dec. 31 - Percentage increase (decrease) in unit value. =============================================================================== 9 =============================================================================== Schedule I NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
FIDEQINC FIDGRO FIDHIINC FIDOSEAS -------- ------ -------- -------- 1995 Beginning unit value - Jan. 1 $19.708533 22.566466 18.151674 16.131866 - ------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains 1.542607 .124738 1.314664 .123427 - ------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 5.341041 7.828480 2.410020 1.428229 - ------------------------------------------------------------------------------------------------------------ Asset charges (.218210) (.260417) (.191076) (.157350) - ------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $26.373971 30.259267 21.685282 17.526172 - ------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* 34% 34% 19% 9% ============================================================================================================ 1994 Beginning unit value - Jan. 1 $18.583057 22.785679 18.612185 16.009316 - ------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains 1.395798 1.371061 1.706032 .082663 - ------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) (.087894) (1.381165) (1.991707) .196908 - ------------------------------------------------------------------------------------------------------------ Asset charges (.182428) (.209109) (.174836) (.157021) - ------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $19.708533 22.566466 18.151674 16.131866 - ------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* 6% (1)% (2)% 1% ============================================================================================================ 1993 Beginning unit value - Jan. 1 $15.870837 19.270345 15.591886 11.777024 - ------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .463717 .428707 1.282532 .275295 - ------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 2.415095 3.287237 1.901458 4.091447 - ------------------------------------------------------------------------------------------------------------ Asset charges (.166592) (.200610) (.163691) (.134450) - ------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $18.583057 22.785679 18.612185 16.009316 - ------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* 17% 18% 19% 36% ============================================================================================================
FIDASMGR NWGVTBD NWMYMKT NWTOTRET -------- ------- ------- -------- 1995 Beginning unit value - Jan. 1 15.607540 16.457035 13.652006 17.312690 - ---------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .327932 1.167149 .768745 1.720678 - ---------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 2.304058 1.903991 .000000 3.293404 - ---------------------------------------------------------------------------------------------------------- Asset charges (.157652) (.170536) (.133297) (.188119) - ---------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 18.081878 19.357639 14.287454 22.138653 - ---------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 16% 18% 5% 28% ========================================================================================================== 1994 Beginning unit value - Jan. 1 16.778042 17.168348 13.267517 17.291720 - ---------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .815806 1.079469 .512535 .875020 - ---------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (1.832732) (1.633239) .000000 (.688478) - ---------------------------------------------------------------------------------------------------------- Asset charges (.153576) (.157543) (.128046) (.165572) - ---------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 15.607540 16.457035 13.652006 17.312690 - ---------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (7)% (4)% 3% 0% ========================================================================================================== 1993 Beginning unit value - Jan. 1 13.992516 15.826033 13.035884 15.738275 - ---------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .649736 1.013212 .357335 .643850 - ---------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 2.280467 .488744 .000000 1.067081 - ---------------------------------------------------------------------------------------------------------- Asset charges (.144677) (.159641) (.125702) (.157486) - ---------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 16.778042 17.168348 13.267517 17.291720 - ---------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* 20% 8% 2% 10% ==========================================================================================================
* An annualized rate of return cannot be determined as asset charges do not include the policy charges discussed in note 2. 10 Schedule I, Continued NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NBGRO NBLTDMAT OPPGLSEC STSPEC2 TCIGRO ---------- --------- --------- --------- --------- 1995 Beginning unit value - Jan. 1 $17.608267 14.475203 11.358489 14.690448 19.544976 - ------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .623265 .804090 .298934 .761035 .022491 - ------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 4.945641 .771696 (.045712) 3.013032 6.032555 - ------------------------------------------------------------------------------------------------------- Asset charges (.200792) (.144318) (.108348) (.155428) (.218614) - ------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $22.976381 15.906671 11.503363 18.309087 25.381408 - ------------------------------------------------------------------------------------------------------- Percentage increase (decrease) unit value*(a) 30% 10% 1% 25% 30% ======================================================================================================= 1994 Beginning unit value - Jan. 1 $18.709214 14.635617 12.162716 14.315226 19.964524 - ------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains 2.255334 .618309 .214436 .411358 .002137 - ------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (3.185612) (.641424) (.903773) .103258 (.236035) - ------------------------------------------------------------------------------------------------------- Asset charges (.170669) (.137299) (.114890) (.139394) (.185650) - ------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $17.608267 14.475203 11.358489 14.690448 19.544976 - ------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value*(a) (6)% (1)% (7)% 3% (2)% ======================================================================================================= 1993 Beginning unit value - Jan. 1 $17.686598 13.856975 ** ** 18.270571 - ------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .409995 .569917 .049805 - ------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .782366 .345457 1.825395 - ------------------------------------------------------------------------------------------------------- Asset charges (.169745) (.136732) (.181247) - ------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $18.709214 14.635617 19.964524 - ------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value*(a) 6% 6% 9% =======================================================================================================
VEGOLDNR VEWRLDBD VKACRESEC --------- --------- --------- 1995 Beginning unit value - Jan. 1 11.677805 12.443161 10.000000 - ---------------------------------------------------------------------------- Reinvested dividends and capital gains .115292 1.008475 .092106 - ---------------------------------------------------------------------------- Unrealized gain (loss) 1.160549 1.138120 .740132 - ---------------------------------------------------------------------------- Asset charges (.114390) (.131171) (.047958) - ---------------------------------------------------------------------------- Ending unit value - Dec. 31 12.839256 14.458585 10.784280 - ---------------------------------------------------------------------------- Percentage increase (decrease) unit value*(a) 10% 16% 8%(b) ============================================================================ 1994 Beginning unit value - Jan. 1 12.382561 12.729709 ** - ---------------------------------------------------------------------------- Reinvested dividends and capital gains .062321 .051271 - ---------------------------------------------------------------------------- Unrealized gain (loss) (.652194) (.220753) - ---------------------------------------------------------------------------- Asset charges (.114883) (.117066) - ---------------------------------------------------------------------------- Ending unit value - Dec. 31 11.677805 12.443161 - ---------------------------------------------------------------------------- Percentage increase (decrease) in unit value*(a) (6)% (2)% ============================================================================ 1993 Beginning unit value - Jan. 1 7.583732 ** ** - ---------------------------------------------------------------------------- Reinvested dividends and capital gains .035765 - ---------------------------------------------------------------------------- Unrealized gain (loss) 4.857738 - ---------------------------------------------------------------------------- Asset charges (.094674) - ---------------------------------------------------------------------------- Ending unit value - Dec. 31 12.382561 - ---------------------------------------------------------------------------- Percentage increase (decrease) in unit value*(a) 63% ============================================================================
* An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. ** This investment option was not available or was not utilized. 11 =============================================================================== Schedule I, Continued NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
DRYSRGRO DRYSTKLX FIDEQINC FIDGRO FIDHIINC FIDOSEAS FIDASMGR ---------- ----------- ---------- ---------- ---------- ---------- ---------- 1995 Beginning unit value - Jan. 1 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115 - ---------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .392053 .36133 1.269479 .086841 1.361583 .089493 .322418 - ---------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 3.289798 3.326196 4.390826 5.444880 2.491513 1.033414 2.260958 - ---------------------------------------------------------------------------------------------------------------------------------- Asset charges (.161906) (.154595) (.245506) (.247716) (.270417) (.155890) (.211783) - ---------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $14.242220 13.621789 21.648958 20.999607 22.388295 12.667544 17.721708 - ---------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 33% 35% 33% 34% 19% 8% 15% ================================================================================================================================== 1994 Beginning unit value - Jan. 1 $10.702403 10.131165 15.360584 15.923752 19.350153 11.652241 16.559029 - ---------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .276372 .283260 1.152726 .957853 1.773098 .060146 .804872 - ---------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.117327) (.195255) (.073161) (.966373) (2.069306) .144272 (1.806726) - ---------------------------------------------------------------------------------------------------------------------------------- Asset charges (.139173) (.130321) (.205990) (.199630) (.248329) (.156132) (.207060) - ---------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115 - ---------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 0% 0% 6% (1)% (3)% 0% (7)% ================================================================================================================================== 1993 Beginning unit value - Jan. 1 ** $10.000000 13.165400 13.515048 16.267831 8.602313 13.859040 - ---------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains 1.497818 .383884 .300564 1.337665 .201014 .643313 - ---------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (1.334006) 2.000061 2.300317 1.977956 2.983042 2.252405 - ---------------------------------------------------------------------------------------------------------------------------------- Asset charges (.032647) (.188761) (.192177) (.233299) (.134128) (.195729) - ---------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.131165 15.360584 15.923752 19.350153 11.652241 16.559029 - ---------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 1%(b) 17% 18% 19% 35% 19% ==================================================================================================================================
FIDCONTP NWCAPAPP NWGVTBD --------- --------- --------- 1995 Beginning unit value - Jan. 1 10.000000 11.312336 13.739287 - ---------------------------------------------------------------------------- Reinvested dividends and capital gains .142783 .642275 .972265 - ---------------------------------------------------------------------------- Unrealized gain (loss) .998389 2.653961 1.587542 - ---------------------------------------------------------------------------- Asset charges (.069207) (.163900) (.194482) - ---------------------------------------------------------------------------- Ending unit value - Dec. 31 11.071965 14.444672 16.104612 - ---------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 11%(b) 28% 17% ============================================================================ 1994 Beginning unit value - Jan. 1 ** 11.563943 14.383265 - ---------------------------------------------------------------------------- Reinvested dividends and capital gains .182742 .902346 - ---------------------------------------------------------------------------- Unrealized gain (loss) (.286826) (1.366016) - ---------------------------------------------------------------------------- Asset charges (.147523) (.180308) - ---------------------------------------------------------------------------- Ending unit value - Dec. 31 11.312336 13.739287 - ---------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (2)% (4)% ============================================================================ 1993 Beginning unit value - Jan. 1 ** 10.688742 13.305926 - ---------------------------------------------------------------------------- Reinvested dividends and capital gains .260088 .849957 - ---------------------------------------------------------------------------- Unrealized gain (loss) .755302 .410720 - ---------------------------------------------------------------------------- Asset charges (.140189) (.183338) - ---------------------------------------------------------------------------- Ending unit value - Dec. 31 11.563943 14.383265 - ---------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 8% 8% ============================================================================
* An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. ** This investment option was not available or was not utilized. =============================================================================== 12 =============================================================================== Schedule I, Continued NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NWMYMKT NWSMCOFD NWTOTRET NBGRO NBLTDMAT NBPART OPPBDFD ----------- ---------- ---------- ---------- ---------- ----------- ---------- 1995 Beginning unit value - Jan. 1 $11.534440 10.000000 15.031721 12.508337 12.496729 10.018146 13.903136 - --------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .648458 .017459 1.489410 .442496 .693794 .081860 .956955 - --------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 1.418328 2.856936 3.508824 .664378 3.550382 1.391543 - --------------------------------------------------------------------------------------------------------------------------------- Asset charges (.154112) (.025476) (.223128) (.194823) (.170179) (.154515) (.194909) - --------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $12.028786 11.410311 19.154939 16.264834 13.684722 13.495873 16.056725 - --------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 4% 14%(b) 27% 30% 10% 35% 15% ================================================================================================================================= 1994 Beginning unit value - Jan. 1 $11.249231 ** 15.066007 13.336899 12.679406 10.000000 14.362878 - --------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .433762 .760244 1.607088 .535454 .000000 .809172 - --------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 (.597472) (2.269450) (.555628) .072562 (1.086058) - --------------------------------------------------------------------------------------------------------------------------------- Asset charges (.148553) (.197058) (.166200) (.162503) (.054416) (.182856) - --------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $11.534440 15.031721 12.508337 12.496729 10.018146 13.903136 - --------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 3% 0% (6)% (1)% 0%(b) (3)% ================================================================================================================================= 1993 Beginning unit value - Jan. 1 $11.092030 ** 13.761364 12.652864 12.047601 ** 12.872824 - --------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .303567 .561430 .293188 .495297 .894915 - --------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 .931322 .556715 .298894 .774891 - --------------------------------------------------------------------------------------------------------------------------------- Asset charges (.146366) (.188109) (.165868) (.162386) (.179752) - --------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $11.249231 15.066007 13.336899 12.679406 14.362878 - --------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 1% 9% 5% 5% 12% =================================================================================================================================
OPPGLSEC OPPMULT STDISC2 ---------- ---------- ---------- 1995 Beginning unit value - Jan. 1 11.309050 13.693997 12.144445 - ------------------------------------------------------------------------------- Reinvested dividends and capital gains .297396 1.103154 .211667 - ------------------------------------------------------------------------------- Unrealized gain (loss) (.045694) 1.805769 4.042004 - ------------------------------------------------------------------------------- Asset charges (.147373) (.197994) (.183220) - ------------------------------------------------------------------------------- Ending unit value - Dec. 31 11.413379 16.404926 16.214896 - ------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 1% 20% 34% =============================================================================== 1994 Beginning unit value - Jan. 1 12.152136 14.148115 13.003547 - ------------------------------------------------------------------------------- Reinvested dividends and capital gains .214078 .720350 .971167 - ------------------------------------------------------------------------------- Unrealized gain (loss) (.900362) (.993926) (1.670283) - ------------------------------------------------------------------------------- Asset charges (.156802) (.180542) (.159986) - ------------------------------------------------------------------------------- Ending unit value - Dec. 31 11.309050 13.693997 12.144445 - ------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (7)% (3)% (7)% =============================================================================== 1993 Beginning unit value - Jan. 1 10.000000 12.362293 10.796269 - ------------------------------------------------------------------------------- Reinvested dividends and capital gains .000000 .546245 .809234 - ------------------------------------------------------------------------------- Unrealized gain (loss) 2.187580 1.411883 1.546688 - ------------------------------------------------------------------------------- Asset charges (.035444) (.172306) (.148644) - ------------------------------------------------------------------------------- Ending unit value - Dec. 31 12.152136 14.148115 13.003547 - ------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 22%(b) 14% 20% ===============================================================================
* An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. ** This investment option was not available or was not utilized. 13 Schedule I, Continued NATIONWIDE VLI SEPARATE ACCOUNT-2 SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990 SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
STINTSTK2 STSPEC2 TCIBAL TCIGRO TCIINT VEGOLDNR VEWRLDBD ----------- --------- ---------- ---------- ---------- ---------- --------- 1995 Beginning unit value - Jan. 1 $10.000000 14.552799 10.801955 13.226279 9.392654 12.988341 12.237880 - -------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .041085 .753037 .305779 .015219 .000000 .127947 .990055 - -------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .209467 2.978850 1.961461 4.076606 1.136602 1.287916 1.118852 - -------------------------------------------------------------------------------------------------------------------------------- Asset charges (.023920) (.210319) (.154309) (.202064) (.125453) (.173816) (.176236) - -------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.226632 18.074367 12.914886 17.116040 10.403803 14.230388 14.170551 - -------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value*(a) 2%(b) 24% 20% 29% 11% 10% 16% ================================================================================================================================ 1994 Beginning unit value - Jan. 1 ** $14.230663 10.876445 13.557427 10.000000 13.820369 12.563474 - -------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .407898 .260556 .001450 .000000 .069418 .050533 - -------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .103521 (.194370) (.160376) (.554327) (.726294) (.218292) - -------------------------------------------------------------------------------------------------------------------------------- Asset charges (.189283) (.140676) (.172222) (.053019) (.175152) (.157835) - -------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $14.552799 10.801955 13.226279 9.392654 12.988341 12.237880 - -------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value*(a) 2% (1)% (2)% (6)%(b) (6)% (3)% ================================================================================================================================ 1993 Beginning unit value - Jan. 1 ** $11.518529 10.232336 12.451309 ** 8.494453 11.809827 - -------------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .057229 .193813 .033826 .039957 .949184 - -------------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 2.823424 .587650 1.241015 5.430795 (.037350) - -------------------------------------------------------------------------------------------------------------------------------- Asset charges (.168519) (.137354) (.168723) (.144836) (.158187) - -------------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $14.230663 10.876445 13.557427 13.820369 12.563474 - -------------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value*(a) 24% 6% 9% 63% 6% ================================================================================================================================
VKACRESEC WPINTEQ WPSMCOGR ---------- ---------- ---------- 1995 Beginning unit value - Jan. 1 10.000000 10.000000 10.000000 - ------------------------------------------------------------------------------ Reinvested dividends and capital gains .091962 .077347 .000000 - ------------------------------------------------------------------------------ Unrealized gain (loss) .739397 .650501 2.501606 - ------------------------------------------------------------------------------ Asset charges (.065562) (.066346) (.071020) - ------------------------------------------------------------------------------ Ending unit value - Dec. 31 10.765797 10.661502 12.430586 - ------------------------------------------------------------------------------ Percentage increase (decrease) in unit value*(a) 8%(b) 7%(b) 24%(b) ============================================================================== 1994 Beginning unit value - Jan. 1 ** ** ** - ------------------------------------------------------------------------------ Reinvested dividends and capital gains - ------------------------------------------------------------------------------ Unrealized gain (loss) - ------------------------------------------------------------------------------ Asset charges - ------------------------------------------------------------------------------ Ending unit value - Dec. 31 - ------------------------------------------------------------------------------ Percentage increase (decrease) in unit value*(a) ============================================================================== 1993 Beginning unit value - Jan. 1 ** ** ** - ------------------------------------------------------------------------------ Reinvested dividends and capital gains - ------------------------------------------------------------------------------ Unrealized gain (loss) - ------------------------------------------------------------------------------ Asset charges - ------------------------------------------------------------------------------ Ending unit value - Dec. 31 - ------------------------------------------------------------------------------ Percentage increase (decrease) in unit value*(a) ==============================================================================
* An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. ** This investment option was not available or was not utilized. 14 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
DrySRGro DryStkIx FidEqInc FidGro FidHiInc -------- -------- -------- ------ -------- 1995 Beginning unit value - Jan. 1 $10.788547 10.151919 16.576413 15.828463 17.428943 - ------------------------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .396430 .364933 1.297971 .087506 1.262495 - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 3.317353 3.354508 4.496038 5.494030 2.316172 - ------------------------------------------------------------------------------------------------------------------------------------ Asset charges (.100521) (.095978) (.154677) (.153940) (.154617) - ------------------------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $14.401809 13.775382 22.215745 21.256059 20.852993 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 33% 36% 34% 34% 20% ==================================================================================================================================== 1994 Beginning unit value - Jan. 1 $10.715005 10.143796 15.606442 15.958341 17.844401 - ------------------------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .278073 .284601 1.172669 .960381 1.635883 - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) (.118575) (.195976) (.073581) (.966828) (1.910067) - ------------------------------------------------------------------------------------------------------------------------------------ Asset charges (.085956) (.080502) (.129117) (.123431) (.141274) - ------------------------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $10.788547 10.151919 16.576413 15.828463 17.428943 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 1% 0% 6% (1)% (2)% ==================================================================================================================================== 1993 Beginning unit value - Jan. 1 $10.000000 10.000000 13.308899 13.476298 14.926526 - ------------------------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .031142 1.499665 .389191 .299849 1.227974 - ------------------------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) .703426 (1.335764) 2.026087 2.300419 1.821967 - ------------------------------------------------------------------------------------------------------------------------------------ Asset charges (.019563) (.020105) (.117735) (.118225) (.132066) - ------------------------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 $10.715005 10.143796 15.606442 15.958341 17.844401 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 7%(b) 1%(b) 17% 18% 20% ====================================================================================================================================
FidOSeas FidAsMgr FidContP NWCapApp NWGvtBd -------- -------- -------- -------- ------- 1995 Beginning unit value - Jan. 1 12.540728 13.774855 10.000000 11.465403 12.720514 - ------------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .095965 .289466 .143118 .653781 .903001 - ------------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 1.111417 2.035460 .998657 2.696528 1.472503 - ------------------------------------------------------------------------------------------------------------------------ Asset charges (.103077) (.117252) (.042640) (.102482) (.111085) - ------------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 13.645033 15.982529 11.099135 14.713230 14.984933 - ------------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 9% 16% 11%(b) 28% 18% ======================================================================================================================== 1994 Beginning unit value - Jan. 1 12.426854 14.785784 ** 11.662121 13.250482 - ------------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .064174 .719044 .184927 .833925 - ------------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) .152413 (1.615920) (.289863) (1.261429) - ------------------------------------------------------------------------------------------------------------------------ Asset charges (.102713) (.114053) (.091782) (.102464) - ------------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 12.540728 13.774855 11.465403 12.720514 - ------------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 1% (7)% (2)% (4)% ======================================================================================================================== 1993 Beginning unit value - Jan. 1 9.128094 12.312732 ** 10.725293 12.196370 - ------------------------------------------------------------------------------------------------------------------------ Reinvested dividends and capital gains .213405 .571816 .261975 .781559 - ------------------------------------------------------------------------------------------------------------------------ Unrealized gain (loss) 3.173177 2.008516 .761628 .376228 - ------------------------------------------------------------------------------------------------------------------------ Asset charges (.087822) (.107280) (.086775) (.103675) - ------------------------------------------------------------------------------------------------------------------------ Ending unit value - Dec. 31 12.426854 14.785784 11.662121 13.250482 - ------------------------------------------------------------------------------------------------------------------------ Percentage increase (decrease) in unit value* (a) 36% 20% 9% 9% ========================================================================================================================
* An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. ** This investment option was not available or was not utilized. 15 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NWMyMkt NWSmCoFd NWTotRet NBGro NBLtdMat ------- -------- -------- ----- -------- 1995 Beginning unit value - Jan. 1 $11.176411 10.000000 14.205723 12.214794 11.900389 - ----------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .629782 .017475 1.413734 .432461 .661221 - ----------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 1.418968 2.703396 3.432609 .635177 - ----------------------------------------------------------------------------------------------------------------------------- Asset charges (.091898) (.015684) (.130091) (.117382) (.099976) - ----------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $11.714295 11.420759 18.192762 15.962482 13.096811 - ----------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 5% 14%(b) 28% 31% 10% ============================================================================================================================= 1994 Beginning unit value - Jan. 1 $10.845265 ** 14.167308 12.959107 12.014277 - ----------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .419275 .717782 1.562441 .507651 - ----------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 (.565055) (2.207122) (.526553) - ----------------------------------------------------------------------------------------------------------------------------- Asset charges (.088129) (.114312) (.099632) (.094986) - ----------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $11.176411 14.205723 12.214794 11.900389 - ----------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 3% 0% (6)% (1)% ============================================================================================================================= 1993 Beginning unit value - Jan. 1 $10.639809 ** 12.875439 12.232618 11.358230 - ----------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .291848 .527331 .283612 .467224 - ----------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .000000 .873117 .541815 .283278 - ----------------------------------------------------------------------------------------------------------------------------- Asset charges (.086392) (.108579) (.098938) (.094455) - ----------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.845265 14.167308 12.959107 12.014277 - ----------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 2% 10% 6% 6% =============================================================================================================================
NBPart OppBdFd OppGlSec OppMult StDisc2 ------ ------- -------- ------- ------- 1995 Beginning unit value - Jan. 1 $10.038887 13.065574 11.379737 13.372968 12.307607 - ------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .082096 .902009 .299595 1.079776 .215562 - ------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 3.565899 1.310232 (.045711) 1.766931 4.106245 - ------------------------------------------------------------------------------------------------------------------------- Asset charges (.095536) (.113002) (.091487) (.119298) (.114564) - ------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.591346 15.164813 11.542134 16.100377 16.514850 - ------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 35% 16% 1% 20% 34% ========================================================================================================================= 1994 Beginning unit value - Jan. 1 $10.000000 13.430475 12.167250 13.747705 13.112678 - ------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .000000 .759284 .214589 .702216 .983647 - ------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .072401 (1.018698) (.905246) (.968729) (1.689193) - ------------------------------------------------------------------------------------------------------------------------- Asset charges (.033514) (.105487) (.096856) (.108224) (.099525) - ------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.038887 13.065574 11.379737 13.372968 12.307607 - ------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 0% (3)% (6)% (3)% (6)% ========================================================================================================================= 1993 Beginning unit value - Jan. 1 ** $11.976650 10.000000 11.952042 10.832134 - ------------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .835328 .000000 .529802 .814568 - ------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .721678 2.189077 1.368631 1.557980 - ------------------------------------------------------------------------------------------------------------------------- Asset charges (.103181) (.021827) (.102770) (.092004) - ------------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $13.430475 12.167250 13.747705 13.112678 - ------------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 12% 22%(b) 15% 21% =========================================================================================================================
* An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. ** This investment option was not available or was not utilized. 16 SCHEDULE I, CONTINUED NATIONWIDE VLI SEPARATE ACCOUNT-2 MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS SCHEDULES OF CHANGES IN UNIT VALUES YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
StIntStk2 StSpec2 TCIBal TCIGro TCIInt --------- ------- ------- ------ ------ 1995 Beginning unit value - Jan. 1 $10.000000 14.748256 10.948128 12.417011 9.412116 - ----------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .041121 .764407 .310910 .014289 .000000 - ----------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .209625 3.027469 1.992508 3.834812 1.142911 - ----------------------------------------------------------------------------------------------------------------------- Asset charges (.014725) (.131505) (.096497) (.117051) (.077555) - ----------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $10.236021 18.408627 13.155049 16.149061 10.477472 - ----------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 2%(b) 25% 20% 30% 11% ======================================================================================================================= 1994 Beginning unit value - Jan. 1 ** $14.350073 10.968814 12.664593 10.000000 - ----------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .412806 .263602 .001356 .000000 - ----------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) .103139 (.196764) (.149703) (.555221) - ----------------------------------------------------------------------------------------------------------------------- Asset charges (.117762) (.087524) (.099235) (.032663) - ----------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $14.748256 10.948128 12.417011 9.412116 - ----------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 3% 0% (2)% (6)%(b) ======================================================================================================================= 1993 Beginning unit value - Jan. 1 ** $11.556788 10.267347 11.572833 ** - ----------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .057587 .195102 .031592 - ----------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 2.840017 .591395 1.156915 - ----------------------------------------------------------------------------------------------------------------------- Asset charges (.104319) (.085030) (.096747) - ----------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 $14.350073 10.968814 12.664593 - ----------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 24% 7% 9% =======================================================================================================================
VEGoldNR VEWrldBd VKACRESec WPIntEq WPSmCoGr -------- -------- --------- ------- -------- 1995 Beginning unit value - Jan. 1 14.178501 11.388987 10.000000 10.000000 10.000000 - ----------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .140115 .923751 .092168 .077521 .000000 - ----------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 1.410450 1.041904 .740443 .651025 2.504833 - ----------------------------------------------------------------------------------------------------------------------- Asset charges (.117064) (.101185) (.040399) (.040874) (.043759) - ----------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 15.612002 13.253457 10.792212 10.687672 12.461074 - ----------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 10% 16% 8%(b) 7%(b) 25%(b) ======================================================================================================================= 1994 Beginning unit value - Jan. 1 15.011706 11.633841 ** ** ** - ----------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .075618 .046884 - ----------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) (.791458) (.201583) - ----------------------------------------------------------------------------------------------------------------------- Asset charges (.117365) (.090155) - ----------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 14.178501 11.388987 - ----------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) (6)% (2)% ======================================================================================================================= 1993 Beginning unit value - Jan. 1 9.180337 10.880964 ** ** ** - ----------------------------------------------------------------------------------------------------------------------- Reinvested dividends and capital gains .043340 .876895 - ----------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) 5.884613 (.034094) - ----------------------------------------------------------------------------------------------------------------------- Asset charges (.096584) (.089924) - ----------------------------------------------------------------------------------------------------------------------- Ending unit value - Dec. 31 15.011706 11.633841 - ----------------------------------------------------------------------------------------------------------------------- Percentage increase (decrease) in unit value* (a) 64% 7% =======================================================================================================================
* An annualized rate of return cannot be determined as: (a) Asset charges do not include the policy charges discussed in note 2; and (b) This investment option was not utilized for the entire year indicated. ** This investment option was not available. See note 6. - -------------------------------------------------------------------------------- 47 1 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Nationwide Life Insurance Company: We have audited the consolidated financial statements of Nationwide Life Insurance Company (a wholly owned subsidiary of Nationwide Corporation) and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Participating insurance and the related surplus are discussed in note 12. The Company and its counsel are of the opinion that the ultimate ownership of the participating surplus in excess of the contemplated equitable policyholder dividends belongs to the shareholder. The accompanying consolidated financial statements are presented on such basis. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. In 1994, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. In 1993, the Company adopted the provisions of SFAS No. 109, Accounting for Income Taxes and SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. KPMG Peat Marwick LLP Columbus, Ohio February 26, 1996 2 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Balance Sheets December 31, 1995 and 1994 (000's omitted)
ASSETS 1995 1994 ------ ----------------- ---------------- Investments (notes 5, 8 and 9): Securities available-for-sale, at fair value: Fixed maturities (cost $13,438,630 in 1995; $8,318,865 in 1994) $ 14,167,377 8,045,906 Equity securities (cost $27,362 in 1995; $18,372 in 1994) 33,718 24,713 Fixed maturities held-to-maturity, at amortized cost (fair value $3,602,310 in 1994) - 3,688,787 Mortgage loans on real estate 4,786,599 4,222,284 Real estate 239,089 252,681 Policy loans 370,908 340,491 Other long-term investments 67,280 63,914 Short-term investments (note 13) 45,732 131,643 ----------- ----------- 19,710,703 16,770,419 ----------- ----------- Cash 10,485 7,436 Accrued investment income 239,881 220,540 Deferred policy acquisition costs 1,094,195 1,064,159 Deferred Federal income tax -- 36,515 Other assets 795,169 790,603 Assets held in Separate Accounts (note 8) 18,763,678 12,222,461 ----------- ----------- $40,614,111 31,112,133 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Future policy benefits and claims (notes 6 and 8) 18,200,128 16,321,461 Policyholders' dividend accumulations 353,554 338,058 Other policyholder funds 71,155 72,770 Accrued Federal income tax (note 7): Current 34,064 13,126 Deferred 238,877 - ----------- ----------- 272,941 13,126 ----------- ----------- Other liabilities 284,143 235,778 Liabilities related to Separate Accounts (note 8) 18,763,678 12,222,461 ----------- ----------- 37,945,599 29,203,654 ----------- ----------- Shareholder's equity (notes 3, 4, 5, 7, 12 and 13): Capital shares, $1 par value. Authorized 5,000 shares, issued and outstanding 3,815 shares 3,815 3,815 Additional paid-in capital 673,782 622,753 Retained earnings 1,606,607 1,401,579 Unrealized gains (losses) on securities available-for-sale, net 384,308 (119,668) ----------- ----------- 2,668,512 1,908,479 ----------- ----------- Commitments and contingencies (notes 9 and 15) $40,614,111 31,112,133 =========== =========== See accompanying notes to consolidated financial statements.
3 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Statements of Income Years ended December 31, 1995, 1994 and 1993 (000's omitted)
1995 1994 1993 --------------- -------------- ------------- Revenues (note 16): Traditional life insurance premiums $ 274,957 209,538 215,715 Accident and health insurance premiums 509,658 324,524 312,655 Universal life and investment product policy charges 307,676 239,021 188,057 Net investment income (note 5) 1,482,980 1,289,501 1,204,426 Realized gains (losses) on investments (notes 5 and 13) 836 (16,384) 113,673 ---------- ---------- ---------- 2,576,107 2,046,200 2,034,526 ---------- ---------- ---------- Benefits and expenses: Benefits and claims 1,656,287 1,279,763 1,236,906 Provision for policyholders' dividends on participating policies (note 12) 48,074 46,061 53,189 Amortization of deferred policy acquisition costs 93,044 94,744 102,134 Other operating costs and expenses 458,970 352,402 329,396 ---------- ---------- ---------- 2,256,375 1,772,970 1,721,625 ---------- ---------- ---------- Income before Federal income tax expense and cumulative effect of changes in accounting principles 319,732 273,230 312,901 ---------- ---------- ---------- Federal income tax expense (note 7): Current 103,464 79,847 75,124 Deferred 3,790 9,657 31,634 ---------- ---------- ---------- 107,254 89,504 106,758 ---------- ---------- ---------- Income before cumulative effect of changes in accounting principles 212,478 183,726 206,143 Cumulative effect of changes in accounting principles, net (note 3) -- -- 5,365 ---------- ---------- ---------- Net income $ 212,478 183,726 211,508 ========== ========== ========== See accompanying notes to consolidated financial statements.
4 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Statements of Shareholder's Equity Years ended December 31, 1995, 1994 and 1993 (000's omitted)
Unrealized gains (losses) Additional on securities Total Capital paid-in Retained available-for- shareholder's shares capital earnings sale, net equity ----------- ----------- ----------- ----------------- --------------- 1993: Balance, beginning of year $ 3,815 311,753 1,024,150 90,524 1,430,242 Capital contributions -- 111,000 -- -- 111,000 Dividends paid to shareholder -- -- (17,805) -- (17,805) Net income -- -- 211,508 -- 211,508 Unrealized losses on equity securities, net -- -- -- (83,777) (83,777) ---------- ---------- ---------- ---------- ---------- Balance, end of year $ 3,815 422,753 1,217,853 6,747 1,651,168 ========== ========== ========= ========== ========== 1994: Balance, beginning of year 3,815 422,753 1,217,853 6,747 1,651,168 Capital contribution -- 200,000 -- -- 200,000 Net income -- -- 183,726 -- 183,726 Adjustment for change in accounting for certain investments in debt and equity securities, net (note 3) -- -- -- 216,915 216,915 Unrealized losses on securities available- for-sale, net -- -- -- (343,330) (343,330) ---------- ---------- ---------- ---------- ---------- Balance, end of year $ 3,815 622,753 1,401,579 (119,668) 1,908,479 ========== ========== ========== ========== ========== 1995: Balance, beginning of year 3,815 622,753 1,401,579 (119,668) 1,908,479 Capital contribution (note 13) -- 51,029 -- (4,111) 46,918 Dividends paid to shareholder -- -- (7,450) -- (7,450) Net income -- -- 212,478 -- 212,478 Unrealized gains on securities available- for-sale, net -- -- -- 508,087 508,087 ---------- ---------- ---------- ---------- ---------- Balance, end of year $ 3,815 673,782 1,606,607 384,308 2,668,512 ========== ========== ========== ========== ========== See accompanying notes to consolidated financial statements.
5 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Consolidated Statements of Cash Flows Years ended December 31, 1995, 1994 and 1993 (000's omitted)
1995 1994 1993 -------------- ------------ ----------- Cash flows from operating activities: Net income $ 212,478 183,726 211,508 Adjustments to reconcile net income to net cash provided by operating activities: Capitalization of deferred policy acquisition costs (349,456) (264,434) (191,994) Amortization of deferred policy acquisition costs 93,044 94,744 102,134 Amortization and depreciation 10,319 6,207 11,156 Realized losses (gains) on invested assets, net 717 15,949 (113,648) Deferred Federal income tax expense (benefit) 4,023 (2,166) (6,006) Increase in accrued investment income (19,341) (29,654) (4,218) Increase in other assets (3,227) (112,566) (549,277) Increase in policy liabilities 198,200 1,038,641 509,370 Increase in policyholders' dividend accumulations 15,496 15,372 17,316 Increase in accrued Federal income tax payable 20,938 832 16,838 Increase in other liabilities 48,365 17,826 26,958 Other, net (20,556) (19,303) (11,745) ----------- ----------- ------------ Net cash provided by operating activities 211,000 945,174 18,392 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 706,442 579,067 -- Proceeds from sale of securities available-for-sale 131,420 247,876 247,502 Proceeds from maturity of fixed maturities held-to-maturity 633,173 516,003 1,192,093 Proceeds from sale of fixed maturities -- -- 33,959 Proceeds from repayments of mortgage loans on real estate 215,134 220,744 146,047 Proceeds from sale of real estate 48,477 46,713 23,587 Proceeds from repayments of policy loans and sale of other invested assets 79,620 134,998 59,643 Cost of securities available-for-sale acquired (2,232,047) (2,569,672) (12,550) Cost of fixed maturities held-to-maturity acquired (669,449) (675,835) (2,016,831) Cost of mortgage loans on real estate acquired (821,078) (627,025) (475,336) Cost of real estate acquired (10,970) (15,962) (8,827) Policy loans issued and other invested assets acquired (92,904) (118,012) (76,491) ----------- ----------- ------------ Net cash used in investing activities (2,012,182) (2,261,105) (887,204) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from capital contributions 46,918 200,000 111,000 Dividends paid to shareholder (7,450) -- (17,805) Increase in universal life and investment product account balances 3,202,135 3,640,958 2,249,740 Decrease in universal life and investment product account balances (1,523,283) (2,449,580) (1,458,504) ----------- ----------- ----------- Net cash provided by financing activities 1,718,320 1,391,378 884,431 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (82,862) 75,447 15,619 Cash and cash equivalents, beginning of year 139,079 63,632 48,013 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 56,217 139,079 63,632 =========== =========== =========== See accompanying notes to consolidated financial statements.
6 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements December 31, 1995, 1994 and 1993 (000's omitted) (1) ORGANIZATION AND DESCRIPTION OF BUSINESS Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary of Nationwide Corporation (Corp.). Wholly-owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC) (formerly known as Financial Horizons Life Insurance Company), West Coast Life Insurance Company (WCLIC), Employers Life Insurance Company of Wausau and subsidiaries (ELICW), National Casualty Company (NCC) and Nationwide Financial Services, Inc. (NFS). NLIC and its subsidiaries are collectively referred to as "the Company." NLIC, NLAIC, WCLIC and ELICW are life and accident and health insurers and NCC is a property and casualty insurer. The Company is licensed in all 50 states, the District of Columbia, the Virgin Islands and Puerto Rico. The Company offers a full range of life insurance, health insurance and annuity products through exclusive agents, brokers and other distribution channels and is subject to competition from other insurers throughout the United States. The Company is subject to regulation by the Insurance Departments of states in which it is licensed, and undergoes periodic examinations by those departments. The following is a description of the most significant risks facing life and health insurers and how the Company mitigates those risks: LEGAL/REGULATORY RISK is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the insurer in pricing its products. That is, regulatory initiatives designed to reduce insurer profits, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those currently recorded in the consolidated financial statements. The Company mitigates this risk by offering a wide range of products and by operating throughout the United States, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of this risk. CREDIT RISK is the risk that issuers of securities owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining sound reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible. INTEREST RATE RISK is the risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) which differ from statutory accounting practices prescribed or permitted by regulatory authorities. See note 4. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs, valuation allowances for mortgage loans on real estate and real estate investments and the liability for future policy benefits and claims. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. (a) CONSOLIDATION POLICY The December 31, 1995 consolidated financial statements include the accounts of NLIC and its wholly owned subsidiaries NLAIC, WCLIC, ELICW, NCC and NFS. The December 31, 1994 and 1993 consolidated financial statements include the accounts of NLIC, NLAIC, WCLIC, NCC and NFS. The December 31, 1994 consolidated balance sheet also includes the accounts of ELICW, which was acquired by NLIC effective December 31, 1994. See Note 13. All significant intercompany balances and transactions have been eliminated. (b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES The Company is required to classify its fixed maturity securities and equity securities as either held-to-maturity, available-for-sale or trading. Fixed maturity securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity and are stated at amortized cost. Fixed maturity securities not classified as held-to-maturity and all equity securities are classified as available-for-sale and are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs and deferred Federal income tax, reported as a separate component of shareholder's equity. The adjustment to deferred policy acquisition costs represents the change in amortization of deferred policy acquisition costs that would have been required as a charge or credit to operations had such unrealized amounts been realized. The Company has no fixed maturity securities classified as held-to-maturity or trading as of December 31, 1995. Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. The measurement of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered to be impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate are included in interest income in the period received. Real estate is carried at cost less accumulated depreciation and valuation allowances. Other long-term investments are carried on the equity basis, adjusted for valuation allowances. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. In March, 1995, the Financial Accounting Standards Board (FASB) issued STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 - ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS 121). SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The statement is effective for fiscal years beginning after December 15, 1995 and earlier application is permitted. Previously issued consolidated financial statements shall not be restated. The Company will adopt SFAS 121 in 1996 and the impact on the consolidated financial statements is not expected to be material. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (c) REVENUES AND BENEFITS TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life, limited-payment life, term life and certain annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future policy benefits and the deferral and amortization of policy acquisition costs. UNIVERSAL LIFE AND INVESTMENT PRODUCTS: Universal life products include universal life, variable universal life and other interest-sensitive life insurance policies. Investment products consist primarily of individual and group deferred annuities, annuities without life contingencies and guaranteed investment contracts. Revenues for universal life and investment products consist of asset fees, cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. Policy benefits and claims that are charged to expense include benefits and claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. ACCIDENT AND HEALTH INSURANCE: Accident and health insurance premiums are recognized as revenue over the terms of the policies. Policy claims are charged to expense in the period that the claims are incurred. (d) DEFERRED POLICY ACQUISITION COSTS The costs of acquiring new business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable agency expenses have been deferred. For traditional life and individual health insurance products, these deferred policy acquisition costs are predominantly being amortized with interest over the premium paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue was estimated using the same assumptions as were used for computing liabilities for future policy benefits. For universal life and investment products, deferred policy acquisition costs are being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset fees, cost of insurance, policy administration and surrender charges. For years in which gross profits are negative, deferred policy acquisition costs are amortized based on the present value of gross revenues. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b). (e) SEPARATE ACCOUNTS Separate Account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. The investment income and gains or losses of these accounts accrue directly to the contractholders. The activity of the Separate Accounts is not reflected in the consolidated statements of income and cash flows except for the fees the Company receives for administrative services and risks assumed. (f) FUTURE POLICY BENEFITS Future policy benefits for traditional life and individual health insurance policies have been calculated using a net level premium method based on estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the time the policies were issued, rather than the assumptions prescribed by state regulatory authorities. See note 6. Future policy benefits for annuity policies in the accumulation phase, universal life and variable universal life policies have been calculated based on participants' contributions plus interest credited less applicable contract charges. 9 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Future policy benefits and claims for collectively renewable long-term disability policies (primarily discounted at 5.2%) and group long-term disability policies (primarily discounted at 5.5%) are the present value of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. The impact of reserve discounting is not material. Future policy benefits and claims on other group health insurance policies are not discounted. (g) PARTICIPATING BUSINESS Participating business represents approximately 45% (45% in 1994 and 48% in 1993) of the Company's ordinary life insurance in force, 72% (72% in 1994 and 1993) of the number of policies in force, and 39% (41% in 1994 and 45% in 1993) of life insurance premiums. The provision for policyholder dividends is based on current dividend scales. Future dividends are provided for ratably in future policy benefits based on dividend scales in effect at the time the policies were issued. Dividend scales are approved by the Board of Directors. Income attributable to participating policies in excess of policyholder dividends is accounted for as belonging to the shareholder. See note 12. (h) FEDERAL INCOME TAX NLIC, NLAIC, WCLIC and NCC file a consolidated Federal income tax return with Nationwide Mutual Insurance Company (NMIC), the majority shareholder of Corp. Through 1994, ELICW filed a consolidated Federal income tax return with Employers Insurance of Wausau A Mutual Company. Beginning in 1995, ELICW files a separate Federal income tax return. In 1993, the Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES, which required a change from the deferred method of accounting for income tax of APB Opinion 11 to the asset and liability method of accounting for income tax. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. The Company has reported the cumulative effect of the change in method of accounting for income tax in the 1993 consolidated statement of income. See note 3. (i) REINSURANCE CEDED Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. (j) CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers all short-term investments with original maturities of three months or less to be cash equivalents. 10 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (k) RECLASSIFICATION Certain items in the 1994 and 1993 consolidated financial statements have been reclassified to conform to the 1995 presentation. (3) CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1994, the Company changed its method of accounting for certain investments in debt and equity securities in connection with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. As of January 1, 1994, the Company classified fixed maturity securities with amortized cost and fair value of $6,593,844 and $7,024,736, respectively, as available-for-sale and recorded the securities at fair value. Previously, these securities were recorded at amortized cost. The effect as of January 1, 1994 has been recorded as a direct credit to shareholder's equity as follows:
Excess of fair value over amortized cost of fixed maturity securities available-for-sale $ 430,892 Adjustment to deferred policy acquisition costs (97,177) Deferred Federal income tax (116,800) --------- $ 216,915 ========= During 1993, the Company adopted accounting principles in connection with the issuance of two accounting standards by the FASB. The effect as of January 1, 1993, the date of adoption, has been recognized in the 1993 consolidated statement of income as the cumulative effect of changes in accounting principles, as follows: Asset/liability method of recognizing income tax (note 2(h)) $ 26,344 Accrual method of recognizing postretirement benefits other than pensions (net of tax benefit of $11,296) (note 11) (20,979) -------- $ 5,365 ========
(4) BASIS OF PRESENTATION The consolidated financial statements have been prepared in accordance with GAAP. Annual Statements for NLIC and NLAIC, WCLIC, ELICW and NCC, filed with the Department of Insurance of the State of Ohio (the Department), California Department of Insurance, Wisconsin Insurance Department and Michigan Bureau of Insurance, respectively, are prepared on the basis of accounting practices prescribed or permitted by such regulatory authorities. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company has no material permitted statutory accounting practices. The statutory capital shares and surplus of NLIC as reported to regulatory authorities as of December 31, 1995, 1994 and 1993 was $1,363,031, $1,262,861 and $992,631, respectively. The statutory net income of NLIC as reported to regulatory authorities for the years ended December 31, 1995, 1994 and 1993 was $86,529, $76,532 and $185,943, respectively. 11 LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (5) INVESTMENTS An analysis of investment income by investment type follows for the years ended December 31:
1995 1994 1993 ------------- ------------ ------------ Gross investment income: Securities available-for-sale: Fixed maturities $ 772,589 674,346 -- Equity securities 1,436 550 7,230 Fixed maturities held-to-maturity 232,692 193,009 800,255 Mortgage loans on real estate 410,965 376,783 364,810 Real estate 39,222 40,280 39,684 Short-term investments 12,249 6,990 5,080 Other 61,701 42,831 33,832 ---------- ---------- ---------- Total investment income 1,530,854 1,334,789 1,250,891 Less investment expenses 47,874 45,288 46,465 ---------- ---------- ---------- Net investment income $1,482,980 1,289,501 1,204,426 ========== ========== ==========
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
1995 1994 1993 --------------- ------------- -------------- Securities available-for-sale: Fixed maturities $ 6,792 (7,120) -- Equity securities 3,435 1,427 129,728 Fixed maturities -- -- 20,225 Mortgage loans on real estate (7,312) (20,462) (28,241) Real estate and other (2,079) 9,771 (8,039) -------- -------- -------- $ 836 (16,384) 113,673 ======== ======== ========
The components of unrealized gains (losses) on securities available-for-sale, net, were as follows as of December 31:
1995 1994 --------------- ------------- Gross unrealized gains (losses) $ 735,103 (266,618) Adjustment to deferred policy acquisition costs (143,851) 82,525 Deferred Federal income tax (206,944) 64,425 --------- --------- $ 384,308 (119,668) ========= =========
An analysis of the change in gross unrealized gains (losses) on securities available-for-sale and fixed maturities held-to-maturity follows for the years ended December 31:
1995 1994 1993 --------------- ------------- ------------- Securities available-for-sale: Fixed maturities $ 1,001,706 (703,851) -- Equity securities 15 (1,990) (128,837) Fixed maturities held-to-maturity 86,477 (421,427) 223,392 ----------- ----------- ----------- $ 1,088,198 (1,127,268) 94,555 =========== =========== ===========
12 LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The amortized cost and estimated fair value of securities available-for-sale were as follows as of December 31, 1995:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value -------------- ------------ ------------- --------------- Fixed maturities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 438,109 36,714 (53) 474,770 Obligations of states and political subdivisions 9,742 1,252 (1) 10,993 Debt securities issued by foreign governments 162,442 9,641 (66) 172,017 Corporate securities 8,902,494 524,796 (30,561) 9,396,729 Mortgage-backed securities 3,925,843 196,645 (9,620) 4,112,868 --------- ----------- ----------- ----------- Total fixed maturities 13,438,630 769,048 (40,301) 14,167,377 Equity securities 27,362 6,441 (85) 33,718 ---------- ----------- ----------- ----------- $13,465,992 775,489 (40,386) 14,201,095 =========== =========== ============ ===========
The amortized cost and estimated fair value of securities available-for-sale and fixed maturities held-to-maturity were as follows as of December 31, 1994:
Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ------------- ------------- ------------- --------------- SECURITIES AVAILABLE-FOR-SALE Fixed maturities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 393,156 1,794 (18,941) 376,009 Obligations of states and political subdivisions 2,202 55 (21) 2,236 Debt securities issued by foreign governments 177,910 872 (9,205) 169,577 Corporate securities 4,201,738 50,405 (128,698) 4,123,445 Mortgage-backed securities 3,543,859 18,125 (187,345) 3,374,639 ---------- ---------- ---------- --------- Total fixed maturities 8,318,865 71,251 (344,210) 8,045,906 Equity securities 18,372 6,637 (296) 24,713 ---------- ---------- ---------- --------- $8,337,237 77,888 (344,506) 8,070,619 ========== ========= ========== ========= FIXED MATURITY SECURITIES HELD-TO-MATURITY Obligations of states and political subdivisions $ 11,613 92 (255) 11,450 Debt securities issued by foreign governments 16,131 111 (39) 16,203 Corporate securities 3,661,043 34,180 (120,566) 3,574,657 ---------- ---------- ---------- --------- $3,688,787 34,383 (120,860) 3,602,310 ========== ========== ========== =========
13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated cost fair value ----------- ------------ FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE - -------------------------------------------- Due in one year or less $ 641,490 647,639 Due after one year through five years 5,365,703 5,623,126 Due after five years through ten years 2,477,457 2,609,262 Due after ten years 1,028,137 1,174,482 ----------- ----------- 9,512,787 10,054,509 Mortgage-backed securities 3,925,843 4,112,868 ----------- ----------- $13,438,630 14,167,377 =========== ===========
Proceeds from the sale of securities available-for-sale during 1995 and 1994 were $131,420 and $247,876, respectively, while proceeds from sales of investments in fixed maturity securities during 1993 were $33,959. Gross gains of $7,197 ($3,406 in 1994 and $2,413 in 1993) and gross losses of $2,309 ($21,866 in 1994 and $39 in 1993) were realized on those sales. During 1995, the Company transferred fixed maturity securities classified as held-to-maturity with amortized cost of $27,929 to available-for-sale securities due to evidence of a significant deterioration in the issuer's creditworthiness. The transfer of those fixed maturity securities resulted in a gross unrealized loss of $4,285. As permitted by the FASB's Special Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November, 1995, the Company transferred all of its fixed maturity securities previously classified as held-to-maturity to available-for-sale. As of December 14, 1995, the date of transfer, the fixed maturity securities had amortized cost of $3,705,644, resulting in a gross unrealized gain of $171,531. Investments that were non-income producing for the twelve month period preceding December 31, 1995 amounted to $28,958 ($11,513 for 1994) and consisted of $8,228 (none in 1994) in fixed maturity securities, $14,740 ($11,111 in 1994) in real estate and $5,990 ($402 in 1994) in other long-term investments. Real estate is presented at cost less accumulated depreciation of $30,931 in 1995 ($29,275 in 1994) and valuation allowances of $26,250 in 1995 ($27,330 in 1994). Other long-term investments are presented net of valuation allowances of $457 as of December 31, 1995. There were no such valuation allowances as of December 31, 1994. As of December 31, 1995, the recorded investment of mortgage loans on real estate considered to be impaired (under STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN as amended by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURE) was $44,995, which includes $23,975 of impaired mortgage loans on real estate for which the related valuation allowance was $5,276 and $21,020 of impaired mortgage loans on real estate for which there was no valuation allowance. During 1995, the average recorded investment in impaired mortgage loans on real estate was approximately $22,621 and interest income recognized on those loans was $416, which is equal to interest income recognized using a cash-basis method of income recognition. 14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Activity in the valuation allowance account for mortgage loans on real estate is summarized for the year ended December 31, 1995:
1995 -------- Allowance, beginning year $ 47,892 Additions charged to operations 7,653 Direct write-downs charged against the allowance (4,850) -------- Allowance, end of year $ 50,695 ========
Foresclosures of mortgage loans on real estate were $37,187 in 1994 and mortgage loans on real estate in process of foreclosure or in-substance foreclosed as of December 31, 1994 totaled $19,878, which approximated fair value. Fixed maturity securities with an amortized cost of $13,982 and $11,137 as of December 31, 1995 and 1994, respectively, were on deposit with various regulatory agencies as required by law. (6) FUTURE POLICY BENEFITS AND CLAIMS The liability for future policy benefits for investment contracts represents approximately 82% and 81% of the total liability for future policy benefits as of December 31, 1995 and 1994, respectively. The average interest rate credited on investment product policies was approximately 6.5%, 6.5% and 7.0% for the years ended December 31, 1995, 1994 and 1993, respectively. The liability for future policy benefits for traditional life insurance and individual health insurance policies has been established based upon the following assumptions: INTEREST RATES: Interest rates vary as follows:
Health Year of issue Life Insurance insurance -------------- ------------------------------------------------------------ --------------- 1995 7.6%, not graded - permanent contracts with loan provisions 4.5% 7.7%, not graded - all other contracts 1984-1994 6.0% to 10.5%, not graded 5.0% to 6.0% 1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6% 3.5% to 6.0% 1965 and prior generally lower than post 1965 issues 3.5% to 4.0%
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. 15 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Activity in the liability for unpaid claims and claim adjustment expenses is summarized for the years ended December 31:
1995 1994 1993 ---------- ---------- --------- Balance, beginning of year $ 637,998 592,180 760,209 Less reinsurance recoverables 438,761 430,720 547,683 --------- --------- --------- Net balance, beginning of year 199,237 161,460 212,526 --------- --------- --------- Incurred related to: Current year 425,907 273,299 309,721 Prior years (17,203) (26,156) (26,248) --------- --------- --------- Total incurred 408,704 247,143 283,473 --------- --------- --------- Paid related to: Current year 290,605 175,700 208,978 Prior years 111,353 73,889 125,561 --------- --------- --------- Total paid 401,958 249,589 334,539 --------- --------- --------- Unpaid claims of acquired companies 2,542 40,223 -- --------- --------- --------- Net balance, end of year 208,525 199,237 161,460 Plus reinsurance recoverables 491,321 438,761 430,720 --------- --------- --------- Balance, end of year $ 699,846 637,998 592,180 ========= ========= =========
Reinsurance recoverables include amounts from affiliates, as discussed in note 13, of $477,912, $430,936, $430,278 and $534,983 as of December 31, 1995, 1994, 1993 and 1992, respectively. The provision for claims and claim adjustment expenses for prior years decreased in each of the three years ended December 31, 1995 due to lower-than-anticipated costs to settle accident and health insurance claims. (7) FEDERAL INCOME TAX The tax effects of temporary differences that give rise to significant components of the net deferred tax asset (liability) as of December 31, 1995 and 1994 are as follows:
1995 1994 -------- -------- Deferred tax assets: Future policy benefits $ 179,916 124,044 Fixed maturity securities available-for-sale -- 95,536 Liabilities in Separate Accounts 129,120 94,783 Mortgage loans on real estate and real estate 26,062 25,632 Other policyholder funds 7,752 7,137 Other assets and other liabilities 47,215 57,528 --------- --------- Total gross deferred tax assets 390,065 404,660 --------- --------- Deferred tax liabilities: Deferred policy acquisition costs 312,616 317,224 Fixed maturity securities available-for-sale 266,184 -- Equity securities available-for-sale and other long-term investments 3,431 3,620 Other 46,711 47,301 --------- --------- Total gross deferred tax liabilities 628,942 368,145 --------- --------- $(238,877) 36,515 ========= =========
16 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The Company has determined that valuation allowances are not necessary as of December 31, 1995, 1994 and 1993 based on its analysis of future deductible amounts. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. All future deductible amounts can be offset by future taxable amounts or recovery of Federal income tax paid within the statutory carryback period. In addition, for future deductible amounts for securities available-for-sale, affiliates of the Company which are included in the same consolidated Federal income tax return hold investments that could be sold for capital gains that could offset capital losses realized by the Company should securities available-for-sale be sold at a loss. Total Federal income tax expense for the years ended December 31, 1995, 1994 and 1993 differs from the amount computed by applying the U.S. Federal income tax rate to income before tax as follows:
1995 1994 1993 ---------------------- ---------------------- ---------------------- Amount % Amount % Amount % --------------- ----- -------------- ------ ------------- ------- Computed (expected) tax expense $ 111,906 35.0 $ 95,631 35.0 $ 109,515 35.0 Tax exempt interest and dividends received deduction (137) (0.1) (194) (0.1) (2,322) (0.7) Current year increase in U.S. Federal income tax rate -- -- -- -- 1,704 0.5 Other, net (4,515) (1.4) (5,933) (2.1) (2,139) (0.7) --------- ---- --------- ---- --------- ---- Total (effective rate of each year) $ 107,254 33.5 $ 89,504 32.8 $ 106,758 34.1 ========= ==== ========= ==== ========= ====
Total Federal income tax paid was $75,309, $87,576 and $58,286 during the years ended December 31, 1995, 1994 and 1993, respectively. Prior to 1984, the Life Insurance Company Income Tax Act of 1959 as amended by the Deficit Reduction Act of 1984 (DRA), permitted the deferral from taxation of a portion of statutory income under certain circumstances. In these situations, the deferred income was accumulated in the Policyholders' Surplus Account (PSA). Management considers the likelihood of distributions from the PSA to be remote; therefore, no Federal income tax has been provided for such distributions in the consolidated financial statements. The DRA eliminated any additional deferrals to the PSA. Any distributions from the PSA, however, will continue to be taxable at the then current tax rate. The balance of the PSA was approximately $35,344 as of December 31, 1995. (8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) requires disclosure of fair value information about existing on and off-balance sheet financial instruments. SFAS 107 defines the fair value of a financial instrument as the amount at which the financial instrument could be exchanged in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and,in many cases, could not be realized in the immediate settlement of the instruments. SFAS 107 excludes certain assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. 17 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from SFAS 107 disclosures, estimated fair value of policy reserves on life insurance contracts are provided to make the fair value disclosures more meaningful. The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following methods and assumptions were used by the Company in estimating its fair value disclosures: CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed maturity securities is based on quoted market prices, where available. For fixed maturity securities not actively traded, fair value is estimated using values obtained from independent pricing services or, in the case of private placements, is estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets held in Separate Accounts is based on quoted market prices. The fair value of liabilities related to Separate Accounts is the amount payable on demand. MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair value for mortgages in default is the estimated fair value of the underlying collateral. INVESTMENT CONTRACTS: Fair value for the Company's liabilities under investment type contracts is disclosed using two methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are disclosures for individual life, universal life and supplementary contracts with life contingencies for which the estimated fair value is the amount payable on demand. Also included are disclosures for the Company's limited payment policies, which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Carrying amount and estimated fair value of financial instruments subject to SFAS 107 and policy reserves on life insurance contracts were as follow as of December 31, 1995 and 1994:
1995 1994 -------------------------- ------------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ----------- ----------- ----------- ----------- ASSETS - ------ Investments: Securities available-for-sale: Fixed maturities $14,167,377 14,167,377 8,045,906 8,045,906 Equity securities 33,718 33,718 24,713 24,713 Fixed maturities held-to-maturity -- -- 3,688,787 3,602,310 Mortgage loans on real estate 4,786,599 5,169,805 4,222,284 4,173,284 Policy loans 370,908 370,908 340,491 340,491 Short-term investments 45,732 45,732 131,643 131,643 Cash 10,485 10,485 7,436 7,436 Assets held in Separate Accounts 18,763,678 18,763,678 12,222,461 12,222,461 LIABILITIES - ----------- Investment contracts 13,561,943 13,221,724 12,189,894 11,657,556 Policy reserves on life insurance contacts 3,695,814 3,659,074 3,170,085 2,934,384 Policyholders' dividend accumulations 353,554 353,554 338,058 338,058 Other policyholder funds 71,155 71,155 72,770 72,770 Liabilities related to Separate Accounts 18,763,678 18,224,933 12,222,461 11,807,331
(9) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES -------------------------------------------- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business through management of its investment portfolio. These financial instruments include commitments to extend credit in the form of loans. These instruments involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. Commitments to fund fixed rate mortgage loans on real estate are agreements to lend to a borrower, and are subject to conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a deposit. Commitments extended by the Company are based on management's case-by-case credit evaluation of the borrower and the borrower's loan collateral. The underlying mortgage property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to lend no more than 80% of collateral value. Should the commitment be funded, the Company's exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for all unfunded commitments. Commitments on mortgage loans on real estate of $361,974 extending into 1996 were outstanding as of December 31, 1995. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly commercial mortgage loans on real estate to customers throughout the United States. The Company has a diversified portfolio with no more than 20% (22% in 1994) in any geographic area and no more than 2% (2% in 1994) with any one borrower. 19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The summary below depicts loans by remaining principal balance as of December 31, 1995 and 1994:
Apartment Office Warehouse Retail & other Total --------- --------- --------- --------- --------- 1995: East North Central $ 140,732 110,361 534,814 184,201 970,108 East South Central 23,978 15,653 183,790 84,588 308,009 Mountain -- 18,940 144,156 48,727 211,823 Middle Atlantic 124,079 72,201 183,562 18,383 398,225 New England 9,594 39,526 153,644 1 202,765 Pacific 190,628 239,687 395,914 107,650 933,879 South Atlantic 101,904 74,731 458,355 279,692 914,682 West North Central 134,866 14,205 81,521 37,586 268,178 West South Central 69,143 99,618 194,717 272,323 635,801 --------- --------- --------- --------- --------- $ 794,924 684,922 2,330,473 1,033,151 4,843,470 ========= ========= ========= ========= Less valuation allowances and unamortized discount 56,871 --------- Total mortgage loans on real estate, net $4,786,599 =========
Apartment Office Warehouse Retail & other Total --------- --------- --------- --------- --------- 1994: East North Central $ 109,233 103,499 540,686 191,489 944,907 East South Central 24,298 10,803 127,845 76,897 239,843 Mountain 3,150 13,770 140,358 39,682 196,960 Middle Atlantic 61,299 53,285 140,847 30,111 285,542 New England 10,536 43,282 139,131 4 192,953 Pacific 195,393 210,930 397,911 68,768 873,002 South Atlantic 87,150 81,576 424,150 210,354 803,230 West North Central 127,760 11,766 80,854 4,738 225,118 West South Central 51,013 84,796 184,923 194,788 515,520 --------- --------- --------- --------- --------- $ 669,832 613,707 2,176,705 816,831 4,277,075 ========= ========= ========= ========= Less valuation allowances and unamortized discount 54,791 --------- Total mortgage loans on real estate, net $4,222,284 =========
(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. 20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Effective December 31, 1995, the Nationwide Insurance Companies and Affiliates Retirement Plan was merged with the Farmland Mutual Insurance Company Employees' Retirement Plan and the Wausau Insurance Companies Pension Plan to form the Nationwide Insurance Enterprise Retirement Plan. Immediately prior to the merger, the plans were amended to provide consistent benefits for service after January 1, 1996. These amendments had no significant impact on the accumulated benefit obligation or projected benefit obligation as of December 31, 1995. Pension costs charged to operations by the Company during the years ended December 31, 1995, 1994 and 1993 were $14,105, $10,451 and $6,702, respectively. The Company's net accrued pension expense as of December 31, 1995 and 1994 was $1,376 and $1,836, respectively. The net periodic pension cost for the Nationwide Insurance Companies and Affiliates Retirement Plan as a whole for the years ended December 31, 1995, 1994 and 1993 follows:
1995 1994 1993 --------- --------- --------- Service cost (benefits earned during the period) $ 64,524 64,740 47,694 Interest cost on projected benefit obligation 95,283 73,951 70,543 Actual return on plan assets (249,294) (21,495) (105,002) Net amortization and deferral 143,353 (62,150) 20,832 --------- --------- --------- $ 53,866 55,046 34,067 ========= ========= =========
Basis for measurements, net periodic pension cost:
1995 1994 1993 --------- --------- --------- Weighted average discount rate 7.50% 5.75% 6.75% Rate of increase in future compensation levels 6.25% 4.50% 4.75% Expected long-term rate of return on plan assets 8.75% 7.00% 7.50%
Information regarding the funded status of the Nationwide Insurance Enterprise Retirement Plan as a whole as of December 31, 1995 (post-merger) and the Nationwide Insurance Companies and Affiliates Retirement Plan as of December 31, 1995 (pre-merger) and 1994 follows:
Post-merger Pre-merger 1995 1995 1994 ----------- ----------- ----------- Accumulated benefit obligation: Vested $ 1,236,730 1,002,079 914,850 Nonvested 26,503 8,998 7,570 ----------- ----------- ----------- $ 1,263,233 1,011,077 922,420 =========== =========== =========== Net accrued pension expense: Projected benefit obligation for services rendered to date $ 1,780,616 1,447,522 1,305,547 Plan assets at fair value 1,738,004 1,508,781 1,241,771 ----------- ----------- ----------- Plan assets (less than) in excess of projected benefit obligation (42,612) 61,259 (63,776) Unrecognized prior service cost 42,845 42,850 46,201 Unrecognized net (gains) losses (63,130) (86,195) 39,408 Unrecognized net obligation (asset) at transition 41,305 (19,841) (21,994) ----------- ----------- ----------- $ (21,592) (1,927) (161) =========== =========== ===========
21 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Basis for measurements, funded status of plan:
Post-merger Pre-merger 1995 1995 1994 --------------- --------------- --------------- Weighed average discount rate 6.00% 6.00% 7.50% Rate of increase in future compensation levels 4.25% 4.25% 6.25%
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested in group annuity contracts of NLIC and ELICW. Prior to the merger, the assets of the Nationwide Insurance Companies and Affiliates Retirement Plan were invested in a group annuity contract of NLIC. (11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS ------------------------------------------- In addition to the defined benefit pension plan, the Company, together with other affiliated companies, participates in life and health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits are contributory and generally available to full time employees who have attained age 55 and have accumulated 15 years of service with the Company after reaching age 40. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Company's portion of the per-participant cost of the postretirement health care benefits. These caps can increase annually, but not more than three percent. The Company's policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in group annuity contracts of NLIC. Effective January 1, 1993, the Company adopted the provisions of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106 - EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106), which requires the accrual method of accounting for postretirement life and health care insurance benefits based on actuarially determined costs to be recognized over the period from the date of hire to the full eligibility date of employees who are expected to qualify for such benefits. The Company elected to immediately recognize its estimated accumulated postretirement benefit obligation as of January 1, 1993. Accordingly, a noncash charge of $32,275 ($20,979 net of related income tax benefit) was recorded in the 1993 consolidated statement of income as a cumulative effect of a change in accounting principle. See note 3. The adoption of SFAS 106, including the cumulative effect of the change in accounting principle, increased the expense for postretirement benefits by $35,277 to $36,544 in 1993. Certain affiliated companies elected to amortize their initial transition obligation over periods ranging from 10 to 20 years. The Company's accrued postretirement benefit expense as of December 31, 1995 and 1994 was $51,490 and $36,001, respectively, and the net periodic postretirement benefit cost (NPPBC) for 1995 and 1994 was $8,269 and $4,627, respectively. The amount of NPPBC for the plan as a whole for the years ended December 31, 1995, 1994 and 1993 was as follows:
1995 1994 1993 -------- -------- -------- Service cost - benefits attributed to employee service during the year $ 6,235 8,586 7,090 Interest cost on accumulated postretirement benefit obligation 14,151 14,011 13,928 Actual return on plan assets (2,657) (1,622) -- Amortization of unrecognized transition obligation of affiliates 2,966 568 568 Net amortization and deferral (1,619) 1,622 -- -------- -------- -------- $ 19,076 23,165 21,586 ======== ======== ========
22 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued Information regarding the funded status of the plan as a whole as of December 31, 1995 and 1994 follows:
1995 1994 --------- --------- Accrued postretirement benefit expense: Retirees $ 88,680 76,677 Fully eligible, active plan participants 28,793 22,013 Other active plan participants 90,375 59,089 --------- --------- Accumulated postretirement benefit obligation (APBO) 207,848 157,779 Plan assets at fair value 54,325 49,012 --------- --------- Plan assets less than accumulated postretirement benefit obligation (153,523) (108,767) Unrecognized transition obligation of affiliates 1,827 6,577 Unrecognized net gains (1,038) (41,497) --------- --------- $(152,734) (143,687) ========= =========
Actuarial assumptions used for the measurement of the APBO as of December 31, 1995 and 1994 and the NPPBC for 1995, 1994 and 1993 were as follows:
1995 1995 1994 1994 1993 APBO NPPBC APBO NPPBC NPPBC ----------- ----------- ------------ ------------ ------------ Discount rate 6.75% 8% 8% 7% 8% Assumed health care cost trend rate: Initial rate 11% 10% 11% 12% 14% Ultimate rate 6% 6% 6% 6% 6% Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
The health care cost trend rate assumption has an effect on the amounts reported. For the plan as a whole, a one percentage point increase in the assumed health care cost trend rate would increase the APBO as of December 31, 1995 by $641 and the NPPBC for the year ended December 31, 1995 by $107. (12) REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS AND DIVIDEND RESTRICTIONS ------------------------------------------------------------- Each insurance company's state of domicile imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and each of its insurance subsidiaries exceed the minimum risk-based capital requirements. In accordance with the requirements of the New York statutes, the Company has agreed with the Superintendent of Insurance of that state that so long as participating policies and contracts are held by residents of New York, no profits on participating policies and contracts in excess of the larger of (a) ten percent of such profits or (b) fifty cents per year per thousand dollars of participating life insurance in force, exclusive of group term, as of the year-end shall inure to the benefit of the shareholder. Such New York statutes further provide that so long as such agreement is in effect, such excess of profits shall be exhibited as "participating policyholders' surplus" in annual statements filed with the Superintendent and shall be used only for the payment or apportionment of dividends to participating policyholders at least to the extent required by statute or for the purpose of making up any loss on participating policies. 23 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued In the opinion of counsel for the Company, the ultimate ownership of the entire surplus, however classified, of the Company resides with the shareholder, subject to the usual requirements under state laws and regulations that certain deposits, reserves and minimum surplus be maintained for the protection of the policyholders until all policy contracts are discharged. Based on the opinion of counsel with respect to the ownership of its surplus, the Company is of the opinion that the earnings attributable to participating policies in excess of the amounts paid as dividends to policyholders belong to the shareholder rather than the policyholders, and such earnings are so treated by the Company. The amount of shareholder's equity other than capital shares was $2,664,697, $1,904,664 and $1,647,353 as of December 31, 1995, 1994 and 1993, respectively. The amount thereof not presently available for dividends to the shareholder due to the New York restrictions was $1,503,241, $929,934 and $954,037 as of December 31, 1995, 1994 and 1993, respectively. Ohio law limits the payment of dividends to shareholders. The maximum dividend that may be paid by the Company without prior approval of the Director of the Department is limited to the greater of statutory gain from operations of the preceding calendar year or 10% of statutory shareholder's surplus as of the prior December 31. Therefore, $2,468,687 of shareholder's equity, as presented in the accompanying consolidated financial statements, is so restricted as to dividend payments in 1996. Each of NLIC's insurance company subsidiaries are limited in their payment of dividends by the state insurance department of their respective state of domicile. As of December 31, 1995, the maximum amount of shareholder's equity available for dividend payment to NLIC in 1996 by its insurance company subsidiaries without prior approval are: Nationwide Life and Annuity Insurance Company $10,143 West Coast Life Insurance Company 13,153 Employers Life Insurance Company of Wausau 10,132 National Casualty Company -- ------- $33,428 =======
(13) TRANSACTIONS WITH AFFILIATES ---------------------------- On March 1, 1995, Corp. contributed all of the outstanding shares of Farmland Life Insurance Company (Farmland) to NLIC, which then merged Farmland into WCLIC effective June 30, 1995. The contribution resulted in a direct increase to consolidated shareholder's equity of $46,918. The contribution of Farmland has been accounted for in a manner similar to a pooling of interests and accordingly, Farmland's results are included in the consolidated statements of income beginning January 1, 1995. However, prior period consolidated financial statements have not been restated due to the impact of Farmland being immaterial. Effective December 31, 1994, NLIC purchased all of the outstanding shares of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC transferred fixed maturity securities and cash with a fair value of $155,000 to WSC on December 28, 1994, which resulted in a realized loss of $19,239 on the disposition of the securities. The purchase price approximated both the historical cost basis and fair value of net assets of ELICW. ELICW has and will continue to share home office, other facilities, equipment and common management and administrative services with WSC. Certain annuity products are sold through three affiliated companies which are also subsidiaries of Corp. Total commissions and fees paid to these affiliates for the three years ended December 31, 1995 were $57,969, $50,470 and $44,577, respectively. 24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued The Company shares home office, other facilities, equipment and common management and administrative services with affiliates. The Company participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or a stated period, the securities will be repurchased by the seller at the original sales price plus a price differential. Transactions under the agreements during 1995 and 1994 were not material. During 1993, the Company sold equity securities with a market value $194,515 to NMIC, resulting in a realized gain of $122,823. With the proceeds, the Company purchased securities with a market value of $194,139 and cash of $376 from NMIC. Intercompany reinsurance contracts exist between NLIC and NMIC, NLIC and WCLIC, NLIC and NCC, WCLIC and NMIC and WCLIC and ELICW as of December 31, 1995. These contracts are immaterial to the consolidated financial statements. NCC participates in several 100% quota share reinsurance agreements with NMIC and Nationwide Mutual Fire Insurance Company, the minority shareholder of Corp. As a result of these agreements, the following assets and (liabilities) are included in the consolidated financial statements as of December 31, 1995 and 1994 for reinsurance ceded:
1995 1994 ----------- ----------- Reinsurance recoverable $ 590,379 541,289 Unearned premium reserves (112,467) (110,353) Liability for unpaid claims and claim adjustment expense (477,912) (430,936)
The ceding of reinsurance does not discharge the original insurer from primary liability to its policyholder. The insurer which assumes the coverage assumes the related liability and it is the practice of insurers to treat insured risks, to the extent of reinsurance ceded, as though they were risks for which the original insurer is not liable. Management believes the financial strength of NMIC reduces to an acceptable level any risk to NCC under these intercompany reinsurance agreements. ELICW assumes certain accident and health insurance business from Employers Insurance of Wausau A Mutual Company, an affiliate. During 1995, total premiums assumed by ELICW under the reinsurance agreement were $150,622. The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC) and California Cash Management Company (CCMC), both affiliates, under which NCMC and CCMC act as common agents in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC and CCMC were $21,644 and $92,531 as of December 31, 1995 and 1994, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. (14) BANK LINES OF CREDIT -------------------- As of December 31, 1995 and 1994, NLIC had $120,000 of confirmed but unused bank lines of credit which support a $100,000 commercial paper borrowing authorization. (15) CONTINGENCIES ------------- The Company is a defendant in various lawsuits. In the opinion of management, the effects, if any, of such lawsuits are not expected to be material to the Company's financial position or results of operations. 25 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Corporation) Notes to Consolidated Financial Statements, Continued (16) SEGMENT INFORMATION ------------------- The Company operates in the long-term savings, life insurance and accident and health insurance lines of business in the life insurance and property and casualty insurance industries. Long-term savings operations include both qualified and non-qualified annuity contracts issued to both individuals and groups. Life insurance operations include whole life, universal life, variable universal life and endowment and term life insurance issued to individuals and groups. Accident and health insurance operations also provide coverage to individuals and groups. Corporate primarily includes investments, and the related investment income, which are not specifically allocated to one of the three operating segments. In addition, realized gains and losses on all general account investments are reported as a component of the corporate segment. During 1995, the Company changed its reporting segments to better reflect the way the businesses are managed. Prior periods have been restated to reflect these changes. The following table summarizes the revenues and income (loss) before Federal income tax expense and cumulative effect of changes in accounting principles for the years ended December 31, 1995, 1994 and 1993 and assets as of December 31, 1995, 1994 and 1993, by business segment.
1995 1994 1993 ------------ ------------ ------------ Revenues: Long-term savings $ 1,406,241 1,125,013 1,048,045 Life insurance 502,885 452,795 432,343 Accident and health insurance 532,383 345,545 339,764 Corporate 134,598 122,847 214,374 ------------ ------------ ------------ $ 2,576,107 2,046,200 2,034,526 ============ ============ ============ Income (loss) before Federal income tax expense and cumulative effect of changes in accounting principles: Long-term savings 129,475 95,530 47,966 Life insurance 63,169 46,119 36,383 Accident and health insurance (12,521) 13,221 15,041 Corporate 139,609 118,360 213,511 ------------ ------------ ------------ $ 319,732 273,230 312,901 ============ ============ ============ Assets: Long-term savings 34,634,892 25,815,273 20,695,598 Life insurance 3,675,581 3,231,651 2,897,574 Accident and health insurance 307,643 291,296 297,200 Corporate 1,995,995 1,773,913 1,515,989 ------------ ------------ ------------ $ 40,614,111 31,112,133 25,406,361 ============ ============ ============
48 PART II - OTHER INFORMATION CONTENTS OF REGISTRATION STATEMENT This Form S-6 Registration Statement comprises the following papers and documents: The facing sheet. Cross-reference to items required by Form N-8B-2. The prospectus consisting of 83 pages. Representations and Undertakings. Accountants' Consent The Signatures. The following exhibits required by Forms N-8B-2 and S-6: 1. Power of Attorney dated April 4, 1996 Attached hereto. 2. Resolution of the Depositor's Board of Directors Included with the Registration authorizing the establishment of the Registrant, Statement on Form N-8B-2 for adopted the Nationwide VLI Separate Account-2, and hereby incorporated herein by reference. 3. Distribution Contracts Attached hereto. 4. Form of Security 5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for the Nationwide VLI Separate Account-2, and hereby incorporated herein by reference. 6. Application form of Security Attached hereto. 7. Opinion of Counsel Attached hereto.
49 REPRESENTATIONS AND UNDERTAKINGS The Registrant and the Company hereby make the following representations and undertakings: (a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment Company Act of 1940 (the "Act"). The Registrant and the Company elect to be governed by Rule 6e-3(T)(b)(13)(i)(B) under the Act with respect to the Policies described in the prospectus. The Policies have been designed in such a way as to qualify for the exemptive relief from various provisions of the Act afforded by Rule 6e-3(T). (b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the deduction of the mortality and expense risk charges ("risk charges") assumed by the Company under the Policies. The Company represents that the risk charges are within the range of industry practice for comparable policies and reasonable in relation to all of the risks assumed by the issuer under the Policies. Actuarial memoranda demonstrating the reasonableness of these charges are maintained by the Company, and will be made available to the Securities and Exchange Commission (the "Commission") on request. (c) The Company has concluded that there is a reasonable likelihood that the distribution financing arrangement of the separate account will benefit the separate account and the contractholders and will keep and make available to the Commission on request a memorandum setting forth the basis for this representation. (d) The Company represents that the separate account will invest only in management investment companies which have undertaken to have a board of directors, a majority of whom are not interested persons of the company, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the Registrant hereby undertakes to file with the Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. 50 ACCOUNTANTS' CONSENT The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide VLI Separate Account-2: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP Columbus, Ohio April 23, 1996 51 SIGNATURES As required by the Securities Act of 1933, the Registrant, Nationwide VLI Separate Account-2, has caused this Pre-Effective Amendment No. 3 to be signed on its behalf in the City of Columbus, and State of Ohio, on this 23rd day of April, 1996. NATIONWIDE VLI SEPARATE ACCOUNT-2 --------------------------------- (Registrant) NATIONWIDE LIFE INSURANCE COMPANY --------------------------------- (Sponsor) (Seal) Attest: W. SIDNEY DRUEN By: JOSEPH P. RATH - ------------------------- --------------------------------- W. Sidney Druen Joseph P. Rath Assistant Secretary Vice President and Associate General Counsel Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 23rd day of April, 1996.
SIGNATURE TITLE LEWIS J. ALPHIN Director - ----------------------------- Lewis J. Alphin KEITH W. ECKEL Director - ----------------------------- Keith W. Eckel WILLARD J. ENGEL Director - ----------------------------- Willard J. Engel FRED C. FINNEY Director - ----------------------------- Fred C. Finney CHARLES L. FUELLGRAF, JR. Director - ----------------------------- Charles L. Fuellgraf, Jr. JOSEPH J. GASPER President/Chief Operating - ----------------------------- Officer and Director Joseph J. Gasper HENRY S. HOLLOWAY Chairman of the Board - ----------------------------- and Director Henry S. Holloway D. RICHARD McFERSON Chairman and Chief Executive - ----------------------------- Officer-Nationwide Insurance Enterprise and Director D. Richard McFerson DAVID O. MILLER Director - ----------------------------- David O. Miller C. RAY NOECKER Director - ----------------------------- C. Ray Noecker ROBERT A. OAKLEY Executive Vice President- - ----------------------------- Chief Financial Officer Robert A. Oakley JAMES F. PATTERSON Director By: JOSEPH P. RATH - ----------------------------- -------------------------------- James F. Patterson Joseph P. Rath, Attorney-in-Fact ARDEN L. SHISLER Director - ----------------------------- Arden L. Shisler ROBERT L. STEWART Director - ----------------------------- Robert L. Stewart NANCY C. THOMAS Director - ----------------------------- Nancy C. Thomas HAROLD W. WEIHL Director - ----------------------------- Harold W. Weihl
EX-1 2 EXHIBIT 1 1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, an Ohio corporation, which has filed or will file with the Securities and Exchange Commission under the provisions of the Securities Act of 1993, as amended, various Registration Statements and amendments thereto for the registration under said Act of Individual Deferred Variable Annuity Contracts in connection with the MFS Variable Account, Nationwide Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3, Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide Multi-Flex Variable Account and Nationwide Variable Account-8; and the registration of fixed interest rate options subject to a market value adjustment offered under some or all of the aforementioned individual Variable Annuity Contracts in connection with the Nationwide Multiple Maturity Separate Account, and the registration of Group Flexible fund Retirement Contracts in connection with the Nationwide DC Variable Account, Nationwide DCVA III, and the NACo Variable Account; and the registration of Group Common Stock Variable Annuity Contracts in connection with Separate Account No. 1; and the registration of variable life insurance policies in connection with the Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3 of Nationwide Life Insurance Company, hereby constitutes and appoints D. Richard McFerson, Joseph J. Gasper, Gordon E. McCutchan, W. Sidney Druen, and Joseph P. Rath, and each of them with power to act without the others, his/her attorney, with full power of substitution and resubstitution, for and in his/her name, place and stead, in any and all capacities, to approve, and sign such Registration Statements and any and all amendments thereto, with power to affix the corporate seal of said corporation thereto and to attest said seal and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys, and each of them, full power and authority to do and perform all and every act and thing requisite to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming that which said attorneys, or any of them, may lawfully do or cause to be done by virtue hereof. This instrument may be executed in one or more counterparts. IN WITNESS WHEREOF, the undersigned have herewith set their names and seals as of this 4th day of April, 1996. /s/ Lewis J. Alphin /s/ David O. Miller - ------------------------------------- ------------------------------------- Lewis J. Alphin, Director David O. Miller, Director /s/ Keith W. Eckel /s/ C. Ray Noecker - ------------------------------------- ------------------------------------- Keith W. Eckel, Director C. Ray Noecker, Director /s/ Willard P. Engel /s/ Robert A. Oakley - ------------------------------------- ------------------------------------- Willard P. Engel, Director Robert A. Oakley, Executive Vice President and Chief Financial Officer /s/ Fred C. Finney - ------------------------------------- /s/ James F. Patterson Fred C. Finney, Director ------------------------------------- James F. Patterson, Director /s/ Charles L. Fuellgraf - ------------------------------------- /s/ Arden L. Shisler Charles L. Fuellgraf, Director ------------------------------------- Arden L. Shisler, Director /s/ Joseph J. Gasper - ------------------------------------- /s/ Robert L. Stewart Joseph J. Gasper, President and Chief ------------------------------------- Operating Officer and Director Robert L. Stewart, Director /s/ Henry S. Holloway /s/ Nancy C. Thomas - ------------------------------------- ------------------------------------- Henry S. Holloway, Chairman of the Nancy C. Thomas, Director Board, Director /s/ Harold W. Weihl /s/ D. Richard McFerson ------------------------------------- - ------------------------------------- Harold W. Weihl, Director D. Richard McFerson, Chairman and Chief Executive Officer-Nationwide Insurance Enterprise and Director EX-3 3 EXHIBIT 3 1 EXHIBIT 3 [NATIONWIDE INSURANCE LOGO] NATIONWIDE LIFE INSURANCE COMPANY Home Office: One Nationwide Plaza Columbus, Ohio 43215 PLEASE READ YOUR POLICY CAREFULLY This Policy is a legal contract between you and us. INSURING AGREEMENT: We agree to pay the Death Proceeds to the Beneficiary upon receiving proof that the Insured has died while this Policy is in force and before the Maturity Date. We agree to pay the Maturity Proceeds to you if the Insured is living on the Maturity Date. You, the Owner, and we, the Company, are bound by the conditions and provisions of this Policy. - -------------------------------------------------------------------------------- THE CASH SURRENDER VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY. IT MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE POLICY. REFER TO THE NONFORFEITURE PROVISIONS ON PAGE 11 FOR DETAILS. THERE IS NO GUARANTEED CASH SURRENDER VALUE. THE AMOUNT OR DURATION OF THE DEATH BENEFIT WILL BE VARIABLE AND DEPEND ON THE INVESTMENT EXPERIENCE OF THE POLICY. THE DEATH BENEFIT WILL NEVER BE LESS THAN THE SPECIFIED AMOUNT AS LONG AS YOUR POLICY IS IN FORCE. REFER TO THE DEATH BENEFIT PROVISIONS ON PAGE 9 FOR DETAILS. - -------------------------------------------------------------------------------- RIGHT TO EXAMINE POLICY You may return this Policy to us within (1) 10 days after you receive it, or (2) 45 days after you sign the application, or (3) 10 days after we mail or deliver the Notice of Withdrawal Right, whichever is latest. The Policy, with a written request for cancellation, must be mailed or delivered to our Home Office or to the agent who sold it to you. The returned Policy will be treated as if we never issued it and, we will refund any premium paid. - -------------------------------------------------------------------------------- If you have any questions about your Policy, contact your agent or write to our Home Office. Signed at our Home Office on the Policy Date. Secretary President MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY Limited premium flexibility Death Proceeds payable at Insured's death prior to the Maturity Date Maturity Proceeds payable on the Maturity Date Not eligible for dividends Investment experience reflected in benefits 2 Form VLO-430 POLICY DATA PAGE THIS POLICY IS ADJUSTABLE. IF IT IS ADJUSTED, NEW POLICY DATA PAGES WILL BE ISSUED. PREMIUM INFORMATION: Initial Premium $ 10,000.00 Scheduled Premium $ 10,000.00 COVERAGE INFORMATION: Initial Specified Amount $60,820.92 Maturity Date January 1, 2061 SCHEDULE OF BENEFITS
FORM COVERAGE NUMBER BENEFIT AMOUNT STARTS STOPS* - ------ ------- ------ ------ ----- VLO-430 Modified Single Premium Variable Life Initial Specified Amount $60,820.92 1/1/1996 1/1/2061 Rate Class: Standard Rate Class Multiple: 1.00
- ---------- * Coverage may expire prior to the dates shown if the Initial Premium plus any additional premiums paid are insufficient to continue coverage to such dates. Please see "Continuation of Insurance Provision". ISSUE INFORMATION: INSURED JOHN DOE INSURED'S OWNER JOHN DOE ISSUE AGE 35 POLICY NUMBER N000000000 SEX MALE POLICY DATE JANUARY 1, 1996 RATE CLASS STANDARD PAGE 3 3 INSURED JOHN DOE POLICY NUMBER N000000000 POLICY DATA PAGE LIST OF VARIABLE SUBACCOUNTS AND FUNDS
SUBACCOUNT FUND - ---------- ---- NATIONWIDE MONEY MARKET NATIONWIDE SAT MONEY MARKET FUND NATIONWIDE GOVT BOND NATIONWIDE SAT GOVERNMENT BOND FUND NATIONWIDE TOTAL RETURN NATIONWIDE SAT TOTAL RETURN FUND FIDELITY VIP HIGH INC FIDELITY VIP HIGH INCOME PORTFOLIO FIDELITY VIP EQUITY FIDELITY VIP EQUITY-INCOME PORTFOLIO FIDELITY VIP OVERSEAS FIDELITY VIP OVERSEAS PORTFOLIO FIDELITY VIP GROWTH FIDELITY VIP GROWTH PORTFOLIO TWENTIETH CENT GROWTH 20TH CENTURY TCI GROWTH PORTFOLIO NEUB/BER AMT GROWTH NEUBERGER-BERMAN AMT GROWTH PORTFOLIO NEUB/BER AMT LTD MAT BD FD NEUBERGER-BERMAN AMT LTD BD PORTFOLIO FIDELITY ASSET MANAGER FIDELITY VIP-2 ASSET MANAGER PORTFOLIO OPPENHEIMER VA BOND OPPENHEIMER VAF BOND FUND OPPENHEIMER VA MULTI STRAT OPPENHEIMER VAF MULTIPLE STRATEGIES FUND VAN ECK IT GOLD/NAT RES VAN ECK IT GOLD & NATURAL RESOURCES FUND VAN ECK IT WORLDWIDE BOND VAN ECK IT WORLDWIDE BOND FUND NATIONWIDE CAP APP NATIONWIDE SAT CAPITAL APPRECIATION FUND STRONG SPECIAL FUND II STRONG SPECIAL FUND II STRONG DISCOVERY FUND II STRONG DISCOVERY FUND II TWENTIETH CENT BALANCED 20TH CENTURY TCI BALANCED PORTFOLIO OPPEN GLOBAL SECURITIES OPPENHEIMER VAF GLOBAL SECURITIES FUND DREYFUS STOCK INDEX DREYFUS STOCK INDEX FUND DREYFUS SOC RES GROWTH DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND TWENTIETH CENT INTL 20TH CENTURY TCI INTERNATIONAL PORTFOLIO NEUB/BER AMT PART NEWUBERGER-BERMAN AMT PARTNERS PORTFOLIO AM CAP REAL EST SEC FUND AM CAP REAL ESTATE SECURITIES FUND FID VIP2 CNTRAFND PORT FIDELITY VIP-2 CONTRAFUND PORTFOLIO WARBURG PINCUS TRST INT EQ WARBURG PINCUS TRUST INT EQTY PORTFOLIO WARBURG PINCUS TRST SML CO WARBURG PINCUS TRUST SMALL CO PORTFOLIO NATIONWIDE SMALL CO FUND NATIONWIDE SAT SMALL COMPANY FUND STRONG INT'L STOCK FUND II STRONG INTERNATIONAL STOCK FUND II
PAGE 3 (CONTINUED) 4 INSURED JOHN DOE POLICY NUMBER N000000000 INVESTMENT ALLOCATION OF NET PREMIUMS PAID
FUND ALLOCATION FACTORS ON THE INITIAL OWNER'S INVESTMENT INITIAL DATE ALLOCATION -------------- ---------- FIXED FUND 25% 25% NATIONWIDE MONEY MARKET 75% 75% NATIONWIDE GOVT BOND 0% 0% NATIONWIDE TOTAL RETURN 0% 0% FIDELITY VIP HIGH INC 0% 0% FIDELITY VIP EQUITY 0% 0% FIDELITY VIP OVERSEAS 0% 0% FIDELITY VIP GROWTH 0% 0% TWENTIETH CENT GROWTH 0% 0% NEUB/BER AMT GROWTH 0% 0% NEUB/BER AMT LTD MAT BD FD 0% 0% FIDELITY ASSET MANAGER 0% 0% OPPENHEIMER VA BOND 0% 0% OPPENHEIMER VA MULTI STRAT 0% 0% VAN ECK IT GOLD/NAT RES 0% 0% VAN ECK IT WORLDWIDE BOND 0% 0% NATIONWIDE CAP APP 0% 0% STRONG SPECIAL FUND II 0% 0% STRONG DISCOVERY FUND II 0% 0% TWENTIETH CENT BALANCED 0% 0% OPPEN GLOBAL SECURITIES 0% 0% DREYFUS STOCK INDEX 0% 0% DREYFUS SOC RES GROWTH 0% 0% TWENTIETH CENT INTL 0% 0% NEUB/BER AMT PART 0% 0% AM CAP REAL EST SEC FUND 0% 0% FID VIP2 CNTRAFND PORT 0% 0% WARBURG PINCUS TRST INT EQ 0% 0% WARBURG PINCUS TRST SML CO 0% 0% NATIONWIDE SMALL CO FUND 0% 0% STRONG INT'L STOCK FUND II 0% 0% TOTAL 100% 100%
PAGE 3 (CONTINUED) 5 INSURED JOHN DOE POLICY NUMBER N000000000 POLICY DATA PAGE ADMINISTRATIVE CHARGE ANNUAL CHARGE OF 0.40% OF CASH VALUE, DEDUCTED MONTHLY, SUBJECT TO A MINIMUM OF $10 PER MONTH. TAX EXPENSE CHARGE ANNUAL CHARGE OF 0.40% OF CASH VALUE, DEDUCTED MONTHLY, IN POLICY YEARS 1-10 ONLY. MORTALITY AND EXPENSE RISK CHARGE ANNUAL CHARGE OF 0.90% OF CASH VALUE ALLOCATED TO THE VARIABLE ACCOUNT, DEDUCTED MONTHLY. SURRENDER CHARGES
POLICY SURRENDER POLICY SURRENDER YEAR CHARGE YEAR CHARGE ------ --------- ------ --------- 1 $1,000.00 6 $600.00 2 $1,000.00 7 $500.00 3 $900.00 8 $400.00 4 $800.00 9 $300.00 5 $700.00 10+ $ 0.00
GUARANTEED INTEREST CREDITING RATES (PER ANNUM) APPLIED: FIXED ACCOUNT OPTION 3.00% ALL YEARS TO FIXED ACCOUNT POLICY VALUES POLICY LOAN ACCOUNT 4.00% ALL YEARS TO ANY POLICY LOANS GUARANTEED POLICY LOAN INTEREST RATE (PER ANNUM) MAXIMUM POLICY LOAN RATE 6.00% ALL YEARS TO TOTAL POLICY INDEBTEDNESS PAGE 3 (CONTINUED) 6 INSURED JOHN DOE POLICY NUMBER N000000000 POLICY DATA PAGE TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000
ATTAINED RATE ATTAINED RATE ATTAINED RATE AGE AGE AGE - -------- ---- -------- ---- -------- ---- 0 0.21943 35 0.18101 70 3.51465 1 0.08587 36 0.19354 71 3.86703 2 0.08254 37 0.20774 72 4.27231 3 0.08087 38 0.22361 73 4.73295 4 0.07753 39 0.24199 74 5.24008 5 0.07336 40 0.26288 75 5.78471 6 0.06919 41 0.28545 76 6.35945 7 0.06502 42 0.30969 77 6.95767 8 0.06252 43 0.33646 78 7.58525 9 0.06169 44 0.36490 79 8.26195 10 0.06252 45 0.39502 80 9.01186 11 0.06753 46 0.42767 81 9.85816 12 0.07670 47 0.46201 82 10.82233 13 0.08921 48 0.49887 83 11.90240 14 0.10339 49 0.53993 84 13.07745 15 0.11841 50 0.58521 85 14.32473 16 0.13260 51 0.63807 86 15.62627 17 0.14345 52 0.69683 87 16.97619 18 0.15179 53 0.76404 88 18.37543 19 0.15680 54 0.83802 89 19.83434 20 0.15847 55 0.91795 90 21.37882 21 0.15847 56 1.00301 91 23.05177 22 0.15680 57 1.09322 92 24.93709 23 0.15346 58 1.18942 93 27.24423 24 0.15012 59 1.29417 94 30.44527 25 0.14595 60 1.41090 95 35.49222 26 0.14345 61 1.54303 96 44.51508 27 0.14261 62 1.69233 97 62.83141 28 0.14178 63 1.85974 98 83.33333 29 0.14345 64 2.04535 99 83.33333 30 0.14595 65 2.24587 100 83.33333 31 0.15012 66 2.46053 32 0.15597 67 2.68857 33 0.16265 68 2.93440 34 0.17099 69 3.20679
THE GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES SHOWN ABOVE ARE BASED ON THE COMMISSIONERS MALE 1980 STANDARD ORDINARY MORTALITY TABLE AGE LAST BIRTHDAY. ACTUAL MONTHLY COST OF INSURANCE RATES WILL BE DETERMINED BY US BASED ON OUR EXPECTATIONS AS TO FUTURE EXPERIENCES. HOWEVER, THE ACTUAL COST OF INSURANCE RATES WILL NOT BE GREATER THAN THOSE SHOWN ABOVE. BASIS OF COMPUTATION MORTALITY TABLE: COMMISSIONER'S 1980 MALE STANDARD ORDINARY MORTALITY TABLE, AGE LAST BIRTHDAY INTEREST RATE: 3.00% ANNUAL EFFECTIVE RATE PAGE 3 (CONTINUED) 7 DEFINITlONS ATTAINED AGE: Attained Age is the Issue Age plus the number of full years since your Policy was issued. ISSUE AGE: Issue Age is the Insured's age on the last birthday on or before the Policy Date. It is shown on the Policy Data Page. BENEFICIARY: The Beneficiary is the person to whom the Death Proceeds are paid when the Insured dies. The Beneficiary is named in the application, unless changed. CASH SURRENDER VALUE: The Cash Surrender Value of your Policy on any date is equal to (1), minus (2), minus (3), where: 1. is the Cash Value; 2. is any Indebtedness; and 3. is any Surrender Charge. CASH VALUE: Your Policy's Cash Value is the sum of the associated values in any Variable Account, the Fixed Account, and the Policy Loan Account. Refer to the Nonforfeiture Provision for details. COMPANY: The Company is the Nationwide Life Insurance Company. "We", "our", and "us" refer to the Company. CONTINGENT BENEFICIARY: The Contingent Beneficiary will become the Beneficiary if the named Beneficiary dies prior to the date of the death of the Insured. This Beneficiary is named in the application, unless changed. CONTINGENT OWNER: The Contingent Owner will become the Owner if the named Owner dies prior to the date of the death of the Insured. The Contingent Owner is named in the application, unless changed. DEATH PROCEEDS: The Death Proceeds means the amount of money payable to the Beneficiary if the Insured dies while your Policy is in force. Refer to the Death Benefit Provisions for details. FIXED ACCOUNT: A Fixed Account is an investment option funded by the General Account of the Company. FUND: A Fund means the underlying mutual fund in which Subaccount assets are invested. There is a Fund that corresponds to each Subaccount in a Variable Account. The Funds are listed on the Policy Data Page with the corresponding Subaccounts. GENERAL ACCOUNT: The General Account consists of all of our assets other than those held in any separate investment account. HOME OFFICE: The Home Office of the Company is at One Nationwide Plaza, Columbus, Ohio. INDEBTEDNESS: Indebtedness is any amount you owe us resulting from a policy loan; principal amount plus accrued interest. INITIAL INVESTMENT DATE: The Initial Investment Date is the later of the Policy Date or the date we receive the initial minimum premium at our Home Office. INSURED: The Insured is the person whose life is covered by this insurance Policy and is named in the application. 4 8 INTEREST RATE GUARANTEED PERIOD: The Interest Rate Guaranteed Period for each transfer to the Fixed Account is that period of time for which the current interest crediting rate is guaranteed by the Company. MATURITY DATE: The Maturity Date is the Policy Anniversary on or next following the Insured's 100th birthday. MATURITY PROCEEDS: Maturity Proceeds means the amount of money payable to you on the Maturity Date if your Policy is still in force. The Maturity Proceeds will be equal to the amount of the Cash Value, less any Indebtedness. MONTHLY ANNIVERSARY DAY: The Monthly Anniversary Day is the same day as the Policy Date for each succeeding month. OWNER: The Owner has all rights under this Policy and is named in the application unless later changed and endorsed on this Policy. "You" or "your" refer to the Owner of this Policy. POLICY ANNIVERSARY: The Policy Anniversary is the same day and month as the Policy Date for each succeeding year. POLICY DATE: The Policy Date is the date the provisions of this Policy take effect. It is shown on the Policy Data Page. Policy years and policy months are measured from the Policy Date. POLICY LOAN ACCOUNT: The Policy Loan Account is that portion of the Cash Value resulting from Policy Loans. PROCEEDS: The Proceeds means the amount payable on the Maturity Date, on the surrender of this Policy prior to the Maturity Date or on the death of the Insured. SEC: SEC means the Securities and Exchange Commission. SPECIFIED AMOUNT: Specified Amount is a dollar amount used to determine the death benefit of your Policy. It is shown on the Policy Data Page. SUBACCOUNT: A Subaccount is a part of a Variable Account. The assets in each Subaccount are invested exclusively in a specified Fund. The Subaccounts are listed on the Policy Data Page. SURRENDER CHARGE: The Surrender Charge varies by policy year as shown on the Policy Data Page. This charge will never exceed 10% of the initial premium payment. VARIABLE ACCOUNT: One or more Variable Accounts are named on the Policy Data Page. Each is a separate investment account of the Company. VALUATION DAY: A Valuation Day is each day that the New York Stock Exchange is open for trading except for customary holidays observed by us. VALUATION PERIOD: A Valuation Period is the interval of time between a Valuation Day and the next Valuation Day. It is measured from the closing of the New York Stock Exchange. 5 9 GENERAL POLICY PROVISIONS ENTIRE CONTRACT: The entire contract consists of this Policy, any endorsements, and the attached copy of any written application, including any written supplemental applications. No agent, registered representative, or other person may change this Policy or waive any of its provisions. Any agreement to alter this Policy must be in writing, signed by our President or Secretary and attached to or endorsed on your Policy. APPLICATION: All statements made in an application are considered representations and not warranties. In issuing this Policy, we have relied on the statements made in any application to be true and complete. No such statement will be used to void the Policy or to deny a claim unless that statement is a material misrepresentation. INCONTESTABILITY: We will not contest payment of the Death Proceeds based on the initial Specified Amount after this 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, we 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. SUICIDE: If the Insured commits suicide, while sane or insane, within 2 years from the Policy Date, we will not pay the Death Proceeds normally payable on the Insured's death. Instead, we will pay the Beneficiary an amount equal to all premiums paid prior to the Insured's death, less any Indebtedness. For any increase in Specified Amount requiring evidence of insurability, if the Insured commits suicide, while sane or insane, within 2 years from the effective date of any such increase, we will not pay the Death Proceeds associated with such an increase. Instead, our liability with respect to such an increase will be limited to its cost. ERROR IN AGE OR SEX: If the age or sex of the Insured has been misstated, all payments and benefits under the Policy will be those which the premium paid would have purchased at the Insured's correct age and sex. Where required, we have given the insurance regulator a detailed statement of how we will make these adjustments. PAYMENT OF PROCEEDS: Unless an optional mode of settlement is elected, the Death Proceeds will be paid in one sum to the Beneficiary. Unless an optional mode of settlement is elected, any Proceeds payable on the Maturity Date or upon surrender of this Policy will be paid in one sum to you. POSTPONEMENT OF PAYMENTS: We will pay any amount payable on surrender or policy loan within seven days after we receive your written request. We will pay any Death Proceeds within seven days after we receive proof of death and any other information we may reasonably require to pay the claim. However, such payments may be postponed if: 1. the New York Stock Exchange is closed (except for customary holiday closings); or 2. the SEC requires trading be restricted or declares an emergency; or 3. The SEC lets us defer payments for the protection of our Policy Owners. EFFECTIVE DATE OF COVERAGE: The effective date of coverage of any person insured under your Policy is as follows: 1. the Policy Date is the effective date for all coverage provided in the original application; 2. for any increase or addition to coverage, the effective date will be the Monthly Anniversary Day on or next following the date we approve the supplemental application; and 3. for any insurance that has been reinstated, the effective date is the Monthly Anniversary Day on or next following the date we approve the application for reinstatement. 6 10 TERMINATION: All coverage under your Policy will terminate when any one of the following events occurs: 1. you request in writing that the coverage terminate; 2. the Insured dies: 3. the Policy matures; or 4. the Grace Period ends. ANNUAL REPORT: Once a year, we will send you a report showing current policy values, transactions since the last report, policy loan information, and current Fund allocation factors. The report will also include any other information required by laws and regulation, both federal and state. We will mail this report to you at your last known address. NONPARTICIPATION: This is a nonparticipating Policy; no dividends are payable. Your Policy will not share in our profits or surplus earnings. CURRENCY: Any money we pay, or that is paid to us, must be in United States currency. SIGNATURE GUARANTEE: For your protection, a request for a surrender, policy loan, or a change in ownership must be signed. The Company may require the signature to be guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia, or Pacific Stock Exchange, or by a commercial bank (not a savings bank), which is a member of the Federal Deposit Insurance Corporation. In some cases, the Company may require additional documentation of a customary nature. OWNER, BENEFICIARY AND ASSIGNMENT PROVISIONS OWNERSHIP: While the Insured is living, all rights in your Policy belong to you. Your rights in your Policy belong to your estate if you die before the Insured dies and there is no Contingent Owner. You may name a Contingent Owner or a new Owner at any time while the Insured is living. If a new Owner is named, any earlier designation is automatically revoked. Any change must be in a written form satisfactory to us and recorded at our Home Office. Once recorded, the change will take effect as of the date you signed it. It will not affect any payment made or any action taken by us before it was recorded. We may require that you send us your Policy for endorsement before making a change. BENEFICIARY: The Beneficiary and Contingent Beneficiary on the Policy Date are named in the application. More than one Beneficiary or Contingent Beneficiary may be named. If more than one Beneficiary is alive when the Insured dies, we will pay them in equal shares, unless you have provided otherwise. If any Beneficiary dies before the Insured, that Beneficiary's interest will be paid to any surviving Beneficiaries or Contingent Beneficiaries according to their respective interests, unless you have provided otherwise. If no Beneficiary is living at the Insured's death, we will consider you or your estate to be the Beneficiary. While the Insured is living, you may change any Beneficiary or Contingent Beneficiary. Any change must be in a written form satisfactory to us and recorded at our Home Office. Once recorded, the change will take effect as of the date you signed it. It will not affect any payment made or action taken by us before it was recorded. We may require that you send us your Policy for endorsement before making a change. ASSIGNMENT: While the Insured is living, you may assign any or all rights under your Policy. We will not be bound by any assignment unless it is in a written form acceptable to us and is recorded at our Home Office. Any assignment will not affect any payments made or actions taken by us before we record it. We will not be responsible for the sufficiency or validity of any assignment. The assignment will be subject to any Indebtedness owed to us before it was recorded. The interest of any Beneficiary will be subject to the rights of any assignee of record at our Home Office. 7 11 PREMIUM PROVISIONS PREMIUM PAYMENTS: The initial premium is due on the Policy Date. It will be credited as of the Initial Investment Date. Insurance will not be effective until the initial premium is paid. Other premiums may be paid at anytime while your Policy is in force subject to the limits described below. You may pay the initial premium to us at our Home Office or to an authorized registered representative. All premiums after the first are payable at our Home Office. A receipt, signed by our President or Secretary, will be furnished upon request. LIMITS: The initial premium may not be less than $10,000. Future premium payments will be permitted only under the following circumstances: 1. An additional premium payment is required to keep the Policy in force subject to the Grace Period provisions. 2. Additional premium payments of at least $1,000 may be made at any time provided the premium limits prescribed by the Internal Revenue Service to qualify the Policy as a life insurance contract are not violated. Payment of additional premiums may be made at any time, and if accepted may increase the Specified Amount of insurance. However, we reserve 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. We may also require that any existing Policy Indebtedness is repaid prior to accepting any additional premium payments. GRACE PERIOD: If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to cover any contract charges which are due but unpaid, a grace period of 61 days will be allowed for the payment of sufficient premium to keep your policy in force. We will send you a notice at the start of the Grace Period at your last known address. The Grace Period will end 61 days after we mail you the notice. If sufficient premium is not paid by the end of the Grace Period, the Policy will terminate without value. A minimum of 3 times the guaranteed monthly cost of insurance charges must be paid. If the Insured dies during the Grace Period, we will pay the Death Proceeds. REINSTATEMENT: If the Grace Period has ended and you have not paid the required premium and have not surrendered your Policy for its Cash Surrender Value, you may reinstate your Policy if you: 1. submit a written request at any time within 3 years after the end of the Grace Period and prior to the Maturity Date; 2. provide evidence of insurability satisfactory to us; 3. pay sufficient premium to cover the cost of all policy charges that were due and unpaid during the Grace Period; 4. pay additional premiums at least equal to 3 times the guaranteed cost of insurance charges; and 5. repay 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 received or loan repayments, will be set equal to the appropriate Surrender Charge. Such Surrender Charge will be based on the length of time from the Policy Date to the effective date of the reinstatement. Unless you have provided otherwise, the allocation of the amount of the Surrender Charge, additional premiums, and loan repayments will be based on the Fund Allocation factors in effect at the start of the Grace Period. 8 12 DEATH BENEFIT PROVISIONS DEATH BENEFIT: If the Insured dies while the Policy is in force, your Policy will provide a death benefit. The death benefit will be the greater of: 1. the Specified Amount on the date of death; or 2. the applicable percentage of the Cash Value on the date of death. The table below gives the "Applicable Percentage" for each Attained Age. APPLICABLE PERCENTAGE OF CASH VALUE TABLE
Attained Percentage of Attained Percentage of Attained Percentage of Age Cash Value Age Cash Value Age Cash Value 0-40 250% 60 130% 80 105% 41 243% 61 128% 81 105% 42 236% 62 126% 82 105% 43 229% 63 124% 83 105% 44 222% 64 122% 84 105% 45 215% 65 120% 85 105% 46 209% 66 119% 86 105% 47 203% 67 118% 87 105% 48 197% 68 117% 88 105% 49 191% 69 116% 89 105% 50 185% 70 115% 90 105% 51 178% 71 113% 91 104% 52 171% 72 111% 92 103% 53 164% 73 109% 93 102% 54 157% 74 107% 94 101% 55 150% 75 105% 95 101% 56 146% 76 105% 96 101% 57 142% 77 105% 97 101% 58 138% 78 105% 98 101% 59 134% 79 105% 99 101% 100 100%
DEATH PROCEEDS: The actual amount of money payable to the Beneficiary if the Insured dies while your Policy is in force is called the Death Proceeds. The Death Proceeds equals (1), plus (2), minus (3), minus (4), where: 1. is the death benefit provided by your Policy; 2. is any insurance on the Insured's life that may be provided by riders to your Policy; 3. is any Indebtedness; and 4. is any due and unpaid contract charges accruing during a grace period. We will pay the Death Proceeds to the Beneficiary after we receive at our Home Office proof of death satisfactory to us and such other information as we may reasonably require. The Death Proceeds will be adjusted under certain conditions. Refer to the Incontestability, Suicide, and Error in Age or Sex Provisions. SPECIFIED AMOUNT INCREASES: Payment of additional premiums may require an increase to the Specified Amount. We reserve the right to require satisfactory evidence of insurability for any increase in the Specified Amount. In addition, the rate class and rate class multiple for the increase in Specified Amount must be identical to those on the Policy Date. 9 13 NONFORFEITURE PROVISIONS CASH VALUE: The Cash Value of your Policy is the sum of the Cash Value in each Subaccount, the Fixed Account and the Policy Loan Account. The Cash Value in each Subaccount on the Initial Investment Date is equal to the portion of the initial premium allocated to the Subaccount. The Cash Value in each Subaccount on each subsequent Valuation Day is equal to (1), plus (2), plus (3), minus (4), minus (5), minus (6), where: 1. is the Cash Value in the Subaccount on the preceding Valuation Day multiplied by its net investment factor for the current Valuation Period; 2. is any amounts allocated to the Subaccount during the current Valuation Period; 3. is any amounts transferred to the Subaccount during the current Valuation Period: 4. is any amounts transferred from the Subaccount during the current Valuation Period; 5. is the portion of any contract charges which are due and charged to the Subaccount during the current Valuation Period; and 6. is any partial surrender amounts allocated to the Subaccount during the current Valuation Period. The Cash Value in the Policy Loan Account is zero, unless you take a Policy loan. If you take a Policy loan, then the Cash Value in the Policy Loan Account on the loan date is equal to the amount of the loan. The loan amount is transferred from a Variable Account in proportion to the Cash Value in each Subaccount on the date of the loan. Loan amounts will be transferred from the Fixed Account only when insufficient amounts are available in the Variable Subaccounts. The Cash Value in the Policy Loan Account on each subsequent Valuation Day is equal to (1), plus (2), plus (3), minus (4), minus (5), where: 1. is the Cash Value in the Policy Loan Account on the preceding Valuation Day; 2. is an amount of interest earned on item (1) during the current Valuation Period; 3. is any amounts transferred to the Policy Loan Account because of additional policy loans and any due and unpaid loan interest during the current Valuation Period; 4. is the amount of any loan repayments you make during the current Valuation Period; and 5. is any amount of interest transferred from the Policy Loan Account to a Variable Account or the Fixed Account during the current Valuation Period. The Cash Value in the Fixed Account is zero unless some or all of the Cash Value is allocated to the Fixed Account. At the time of this initial allocation, the Cash Value in the Fixed Account is equal to the amount of Cash Value allocated to the Fixed Account. The Cash Value in the Fixed Account on each subsequent Valuation Day is equal to (1) plus (2) plus (3) plus (4) minus (5) minus (6), minus (7), where: 1. is the Cash Value in the Fixed Account on the preceding Valuation Day; 2. is guaranteed interest credited at an annual effective rate of 3% during the current Valuation Period; 3. is any excess interest that is credited during the current Valuation Period; 4. is any amounts allocated to the Fixed Account during the current Valuation Period; 5. is any amounts transferred from the Fixed Account during the current Valuation Period; 6. is the portion of any Policy charges which are due and charged to the Fixed Account during the current Valuation Period; and 7. is any partial surrender amounts allocated to the Fixed Account during the current Valuation Period. MORTALITY AND EXPENSE RISK CHARGE: The mortality and expense risk charge is shown on the Policy Data Pages. It will be deducted on the Policy Date and each Monthly Anniversary Day. It will be charged proportionately to the Cash Values in each Subaccount. ADMINISTRATIVE CHARGE: The administrative charge is shown on the Policy Data Pages. It will be deducted on the Policy Date and each Monthly Anniversary Day. It will be charged proportionately to the Cash Values in each Subaccount and the Fixed Account. 10 14 TAX EXPENSE CHARGE: The tax expense charge is shown on the Policy Data Pages. It will be deducted on the Policy Date and each Monthly Anniversary Day. It will be charged proportionately to the Cash Values in each Subaccount and the Fixed Account. MONTHLY COST OF INSURANCE CHARGE: A deduction may be made on the Policy Date and each Monthly Anniversary Day for the cost of insurance. This monthly deduction will be charged proportionately to the Cash Values in each Subaccount and the Fixed Account. Monthly cost of insurance charges will be determined by us from time to time, based on our expectations as to future experience. Any change in cost of insurance charges will be on a uniform basis for insureds of the same sex, Attained Age, rate class, and rate class multiple whose policies have been inforce for the same length of time. These charges will never be greater than the guaranteed maximum monthly cost of insurance charges. The guaranteed maximum monthly cost of insurance charge for each policy month is determined by multiplying the guaranteed maximum monthly cost of insurance rate by the net amount at risk. Net amount at risk is the difference between the death benefit and the Cash Value, each calculated at the beginning of the Policy month. The guaranteed maximum monthly cost of insurance rates are shown on the Policy Data Pages. The basis for these guaranteed maximum cost of insurance rates is shown in the Basis of Computation on the Policy Data Pages. INTEREST CREDITING: Any Cash Value allocated to the Policy Loan Account will be credited interest daily. The guaranteed minimum annual effective rate is 4%. Interest in excess of the minimum guaranteed rate may be used. Any Contract Value allocated to the Fixed Account will be credited interest daily. The guaranteed minimum annual effective rate is 3%. Interest in excess of the minimum guaranteed rate may be used. The current interest rate in effect at the time of transfer to the Fixed Account will be guaranteed through the end of the calendar quarter following the transfer in the next year. Annually thereafter, any excess interest rates will be guaranteed for the following twelve months. Different current interest rates may apply to the Cash Values associated with each transfer to the Fixed Account. Where required, we have filed our method for determining current interest rates with the Insurance Department of the state in which this Policy was delivered. MINIMUM LEGAL VALUES: The cash surrender, loan and other values in your Policy are at least as large as those set by law in the state where it is delivered. Where required, we have given the insurance regulator a detailed statement of how we compute values and benefits. CONTINUATION OF INSURANCE: If premium payments are not made, insurance coverage under your Policy will be continued in force until the Cash Surrender Value is insufficient to cover any policy charges which are due but unpaid, as provided in the Grace Period Provision. This provision will not continue your Policy beyond its Maturity Date. COMPLETE SURRENDER: Your Policy may be surrendered for its Cash Surrender Value at any time while it is in force. You must submit a written request on a form acceptable to us. We may also require the return of your Policy. The date of surrender will be the date we receive your written request at our Home Office. The Cash Surrender Value will be determined as of the end of the Valuation Period during which your request is received. All coverage will end on the date of surrender. PARTIAL SURRENDER: You must submit a written request. We may also request that this Policy be sent to us. When a partial surrender is made, we will reduce the Cash Value by the partial surrender amount. We will also generally reduce the Specified Amount by the amount of the partial surrender. The minimum amount of a partial surrender is $500 and a partial surrender may not reduce the Cash Surrender Value to less than $10,000. We reserve the right to require that any partial surrender amounts are first deducted from the Cash Values in the Subaccounts. 11 15 In addition, the partial surrender will be allowed only if after the surrender, this Policy continues to qualify as a contract for life insurance. We reserve the right to limit the number of partial surrenders in a Policy year. Also we reserve the right to limit the maximum amount of all partial surrenders in each policy year to the maximum of: 1. 10% of the total premium payments, or 2. Cash Value less total premiums paid less any Policy Indebtedness. No surrender charges will be applied to partial surrenders which meet the above requirements. CHANGES IN POLICY COST FACTORS: Changes in cost of insurance rates, credited interest rates, mortality and expense risk charges or other Policy expense charges will be by class and will be based on changes in future expectations for factors such as: 1. investment earnings; 2. mortality; 3. persistency; 4. expenses; and 5. taxes Any changes will be determined in accordance with the procedures on file, if required, with the insurance regulator in the state in which this Policy was delivered. LOAN PROVISIONS MAXIMUM LOAN VALUE: The maximum loan value is determined by multiplying (1) by (2), where: 1. is 50% in the first Policy year and 90% in all Policy years thereafter; and 2. is Cash Value less Surrender Charge. POLICY LOAN: You may request a loan at any time while your Policy is in force. The loan must be requested in writing on a form acceptable to us. The amount of the loan and all existing loans may not be more than the maximum loan value as of the loan date. The loan date is the date we process the loan. The minimum loan amount is $1,000. The loan will be made upon the sole security of the Policy and proper assignment of your Policy to us. LOAN INTEREST: The loan interest rate is 6% per year. Interest is charged daily and payable at the end of each Policy year. Unpaid interest will be added to the existing Indebtedness as of the due date and will be charged interest at the same rate as the rest of the loan. LOAN REPAYMENT: All or part of a loan may be repaid to us at any time while your 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. Any Indebtedness that exists at the end of the Grace Period may not be repaid unless this Policy is reinstated. TERMINATION Of POLICY: If the total Indebtedness ever equals or exceeds the Cash Value less the Surrender Charge, your Policy will terminate without value, as described in the Grace Period Provision. EFFECT OF LOAN: When you take a loan, we will transfer an amount equal to the Policy loan from a Variable Subaccount or the Fixed Account to the Policy Loan Account. Any loan interest that becomes due and unpaid will also be so transferred. Amounts transferred to the Policy Loan Account will earn interest daily from the date of transfer. When you repay part or all of a loan, we will transfer an amount equal to the amount you repay from the Policy Loan Account to a Subaccount or the Fixed Account. We reserve the right to require that any loan repayments resulting from loans transferred from the Fixed Account must be allocated to the Fixed Account. Unless otherwise specified, transfers from the Subaccounts to the Policy Loan Account will be in proportion to the Cash Value in each Subaccount as of the loan date. Loan amounts will be transferred from the Fixed Account only when insufficient amounts are available in the Variable Subaccounts. Any loan interest which becomes due and is unpaid will be transferred to the Policy Loan Account in proportion to the Cash Values in each Subaccount and the Fixed Account. Unless specified, loan repayments will be allocated among the Subaccounts using the Fund allocation factors in effect on the date of the repayment subject to any other restrictions the Company may impose. Since the amount you borrow is removed from a Variable Subaccount or the Fixed Account, a loan will have a permanent effect on any death benefit and Cash Surrender Value of this Policy. The effect may be favorable or unfavorable. This is true whether you repay the loan or not. If not repaid, Indebtedness will reduce the amount of any Death Proceeds or Maturity Proceeds. 12 16 EXCHANGE OF POLICY PROVISIONS RIGHT OF EXCHANGE: During the first 24 months from the Policy Date, you have an unconditional right to move all of the Cash Value in the Variable Subaccounts to the Fixed Account. Once all of the Cash Value is in the Fixed Account, the Policy will not be affected by the investment experience of any separate account. EXCHANGE AT OTHER TIMES: After 24 months from the Policy Date, you may exchange this Policy for a new Policy, subject to our approval. You must furnish any evidence of insurability we require and pay all costs associated with the exchange. VALUATION OF ASSETS IN A VARIABLE ACCOUNT DETERMINING INVESTMENT RESULTS: The Cash Value will change with a change in the investment results of the Subaccounts. We use an index to measure changes in a Subaccount's investment experience. This index is called an accumulation unit value. Each Subaccount has its own accumulation unit value. For each Subaccount, the accumulation unit value was initially set at $10.00. The accumulation unit value for a Subaccount in each subsequent Valuation Period is equal to (1), multiplied by (2), where: 1. is the Subaccount's accumulation unit value for the preceding Valuation Period; and 2. is the Subaccount's net investment factor for the subsequent Valuation Period. A net investment factor is defined below. Because the net investment factor may be greater than or less than one, the accumulation unit value may increase or decrease from one Valuation Period to the next; however, the accumulation unit value remains constant throughout a Valuation Period. NET INVESTMENT FACTOR: The net investment factor for a Subaccount for a Valuation Period is obtained by dividing (1) by (2), where: 1. is the net of: (a) the net asset value per share of the Fund held in the Subaccount at the end of the current Valuation Period; plus (b) the per share amount of any dividend and capital gains distributions made by the Fund held in the Subaccount if the "ex-dividend" date occurs during the current Valuation Period; plus or minus (c) a per share charge or credit for taxes reserved for, if any, which is determined by the Company to have resulted from the investment operations of the Subaccount. 2. is the net of: (a) the net asset value per share of the Fund held in the Subaccount determined as of the end of the immediately preceding Valuation Period; plus or minus (b) the per share charge or credit for taxes reserved for in the immediately preceding Valuation Period. 13 17 VARIABLE ACCOUNT PROVISIONS VARIABLE ACCOUNT: A Variable Account is a separate investment account of the Company. One or more are named on the Policy Data Page. A Variable Account is also subject to the laws of Ohio. We own the assets of any Variable Account; we keep them separate from the assets of our General Account. We maintain assets which are at least equal to the reserves and other liabilities of a Variable Account. Such assets will not be charged with liabilities that arise from any other business we conduct. We may transfer to our General Account assets which exceed the reserves and other liabilities of a Variable Account. We will determine the value of the assets in a Variable Account at the end of each Valuation Day. SUBACCOUNTS: A Variable Account may have several Subaccounts. We list them on the Policy Data Page. You determine, using Fund allocation factors, how premiums paid will be allocated among the Subaccounts. You may choose to allocate nothing to a particular Subaccount. But any allocation you make must be at least 5%; you may not choose a fractional percent. The sum of the Fund allocation factors must equal 100%. During the "Right to Examine Policy" period, premiums will be allocated to the Subaccount that invests in a money market Fund or to the Fixed Account. At the end of this period, the Cash Value in that Subaccount will be transferred to the Variable Subaccounts according to your chosen fund allocation factors. Also, any subsequent premium will be allocated according to your chosen factors. Fund allocation factors during and immediately after the "Right to Examine Policy" period, are shown on the Policy Data Page. After the "Right to Examine Policy" period has expired, you may transfer amounts among the Subaccounts. Transfers will take effect on the date your written request is received at our Home Office, subject to any restrictions imposed by a Fund. You may change the allocation for future premiums at any time while your Policy is in force. To do so, you must notify us in writing in a form that meets our approval. The change will take effect on the date we receive your written request at our Home Office. Income and realized and unrealized gains and losses from assets in each Subaccount are credited to, or charged against, the Subaccount. This is without regard to income, gains, or losses in our other Subaccounts, separate investment accounts, or our General Account. CHANGES OF FUND: A Fund might, in our judgment, become unsuitable for investment by a Subaccount. This might happen because of a change in investment Policy, a change in the laws or regulations, the shares are no longer available for investment, or for some other reason. If that occurs, we have the right to substitute another Fund. But we would first notify you and seek approval from the SEC and the Superintendent of Insurance of the State of Ohio. We would also get any other required approvals. OTHER CHANGES: To the extent permitted by applicable laws and regulations (including any order of the SEC), we may make changes as follows: 1. A Variable Account may be operated as a management company under the Investment Company Act of 1940, or in any other form permitted by law, if we deem it to be in the best interest of the Policy Owners. 2. A Variable Account may be deregistered under the Investment Company Act of 1940 in the event registration is no longer required. 3. A Variable Account may be combined with other separate investment accounts. 4. The provisions of this and other policies may be modified to comply with any other applicable federal or state laws. In the event of such changes, we may make appropriate endorsement on this and other policies having an interest in a Variable Account and take other actions as may be necessary to effect such a change. 14 18 FIXED ACCOUNT PROVISIONS FIXED ACCOUNT: The Fixed Account is funded by the General Account of the Company. The Fixed Account is credited with interest as described under the Nonforfeiture Provisions. In addition to allocating your premiums to one or more of the Subaccounts described above, you may direct all or part of your premium payments into the Fixed Account. RIGHT TO TRANSFER: You may annually transfer a portion the Cash Value between the Fixed Account and the Subaccounts without penalty or adjustment. We reserve 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 following the termination date of the Interest Rate Guaranteed Period. You may request a transfer of up to 100% of the Cash Value from the Subaccounts to the Fixed Account. Transfers to the Fixed Account may not be made prior to the first Policy Anniversary or within 12 months of any prior transfer. The Cash Value in each Subaccount will be determined as of the date the transfer request is received in our Home Office in good order. We reserve the right to restrict transfers to the Fixed Account to 25% of the Cash Value. OPTIONAL MODES OF SETTLEMENT PROVISIONS Proceeds may be paid in a lump sum. Optional modes of settlement are also available. After the proceeds are applied under such optional modes, any amounts payable are paid from our General Account and will not be affected by the investment experience of any separate investment account. One or a combination of settlement options may be chosen. A settlement option may be chosen only if the total amount placed under the option is at least $2,000.00 and each payment is at least $20.00. A settlement option election may be changed at any time by proper written request to our Home Office. Once recorded, it will become effective on the date it was requested. We may require proof of the age and sex of any person to be paid under a settlement option. While this Policy is in force, you may choose or change settlement options at any time. If no settlement option has been chosen prior to the Insured's death, the Beneficiary may choose one. A change of Beneficiary automatically revokes any option in effect. When Proceeds become payable under any option, a Settlement Contract is issued in exchange for this Policy. The new contract's effective date is the date of the Insured's death or the date this Policy is surrendered. Settlement option payments are not assignable. To the extent allowed by law, settlement option payments are not subject to the claims of creditors or to legal process. Under Options 2, 3, 4, and 5, payments will be made at the beginning of each 12, 6, 3, or 1 month interval beginning on the effective date of the Settlement Contract. Under Option 1 and 6, payments will be made at the end of every 12, 6, 3, or 1 month interval from the Settlement Contract's effective date. Under Options 1, 2, and 4, withdrawal of any outstanding balance may be made by written request to our Home Office. No amount left with us under Options 3, 5, or 6 may be withdrawn. Options 1, 2, 4, and the guaranteed period of Option 3, provide for payment of interest at a guaranteed minimum interest rate of 2 1/2% per year, compounded annually. Any interest to be paid in excess of this rate will be determined once a year. 1. INTEREST INCOME: The Proceeds remain with us to earn interest. This interest may be left to accumulate or be paid periodically as stated above. 2. INCOME FOR A FIXED PERIOD: Proceeds remaining with us will be paid over a specified number of years (not exceeding 30 years). Each payment consists of a portion of the Proceeds plus a portion of the interest credited on the outstanding balance. The amount payable monthly for each $1,000 left with us will be at least the amount shown in the Option 2 Table. 15 19 3. LIFE INCOME WITH PAYMENTS GUARANTEED: Payments are made for a guaranteed period of 10, 15, or 20 years, and thereafter for the remainder of a payee's lifetime. The amount payable monthly for each $1,000 left with us is shown in the Option 3 Table, according to the payee's sex and age on the effective date of the option. 4. FIXED INCOME FOR VARYING PERIODS: The Proceeds may be left on deposit with us at interest with payments of a fixed amount being paid at specified intervals until principal and interest have been exhausted. The last payment will be for the balance only. The total amount payable each year may not be less than 5% of the original proceeds. (i.e., not less than $50 per annum of each $1,000 of original proceeds.) 5. JOINT AND SURVIVOR LIFE INCOME: Equal payments will be made for the longer of the lives of two named payees. In other words, when one payee dies, the same payment continues to be paid for the remainder of the surviving payee's life. We will furnish values for other age combinations (than those shown in Option 5 Table) upon request. 6. ALTERNATE LIFE INCOME: We will use Policy Proceeds to purchase an annuity. The amount payable will be 102% of our current individual immediate annuity purchase rate on the effective date of the Settlement Contract. We reserve the right to change our current annuity rates at any time. However, once this option has been selected and the Settlement Contract issued, any revision in rates will not affect payment to a payee or payees. Upon request, we will quote the amount currently payable under this settlement option. 16 20
TABLES FOR SETTLEMENT OPTIONS Monthly Installments for each $1,000 of Proceeds OPTION 2 Option 2 - Income for a Fixed Period --------------------------------------------------------------------------- Number of Years Amount of Each Number of Years Amount of Each Specified Installment Specified Installment --------------------------------------------------------------------------- 1 $84.28 16 $6.30 2 42.66 17 6.00 3 28.79 18 5.73 4 21.86 19 5.49 5 17.70 20 5.27 6 14.93 21 5.08 7 12.95 22 4.90 8 11.47 23 4.74 9 10.32 24 4.60 10 9.39 25 4.46 11 8.64 26 4.34 12 8.02 27 4.22 13 7.49 28 4.12 14 7.03 29 4.02 15 6.64 30 3.93 ---------------------------------------------------------------------------
Annual, semi-annual or quarterly payments are 11.865, 5.969 and 2.994 respectively times the monthly installments. ---------------------------------------------------------------------------
Monthly Installments for each $1,000 of Proceeds OPTION 3 Option 3 - Life Income with Payments Guaranteed --------------------------------------------------------------------------------------------------------- AGE OF PAYEE GUARANTEED AGE OF PAYEE GUARANTEED AGE OF PAYEE GUARANTEED PERIOD PERIOD PERIOD LAST BIRTHDAY ---------------- LAST BIRTHDAY ----------------- LAST BIRTHDAY ---------------- YEARS YEARS YEARS --------------------------------------------------------------------------------------------------------- MALE FEMALE 10 15 20 MALE FEMALE 10 15 20 MALE FEMALE 10 15 20 --------------------------------------------------------------------------------------------------------- 5 & 10 & 2.54 2.54 2.53 30 35 3.11 3.10 3.09 55 60 4.78 4.62 4.39 Under Under 6 11 2.55 2.55 2.55 31 36 3.15 3.14 3.12 56 61 4.90 4.71 4.45 7 12 2.57 2.56 2.56 32 37 3.18 3.18 3.16 57 62 5.01 4.80 4.52 8 13 2.58 2.58 2.58 33 38 3.23 3.22 3.20 58 63 5.14 4.90 4.59 9 14 2.60 2.59 2.59 34 39 3.27 3.26 3.24 59 64 5.26 5.00 4.65 10 15 2.61 2.61 2.61 35 40 3.31 3.30 3.28 60 65 5.40 5.10 4.71 11 16 2.63 2.63 2.62 36 41 3.36 3.35 3.32 61 66 5.54 5.20 4.77 12 17 2.65 2.64 2.64 37 42 3.41 3.39 3.36 62 67 5.68 5.30 4.83 13 18 2.66 2.66 2.66 38 43 3.46 3.44 3.41 63 68 5.83 5.40 4.89 14 19 2.68 2.68 2.68 39 44 3.51 3.49 3.46 64 69 5.99 5.50 4.94 15 20 2.70 2.70 2.70 40 45 3.57 3.54 3.50 65 70 6.16 5.61 4.99 16 21 2.72 2.72 2.72 41 46 3.63 3.60 3.55 66 71 6.33 5.71 5.03 17 22 2.74 2.74 2.74 42 47 3.69 3.66 3.60 67 72 6.50 5.81 5.07 18 23 2.77 2.76 2.76 43 48 3.76 3.72 3.66 68 73 6.68 5.90 5.11 19 24 2.79 2.79 2.78 44 49 3.82 3.78 3.71 69 74 6.86 5.99 5.14 20 25 2.81 2.81 2.80 45 50 3.89 3.84 3.77 70 75 7.05 6.08 5.17 21 26 2.84 2.83 2.83 46 51 3.97 3.91 3.82 71 76 7.23 6.16 5.19 22 27 2.86 2.86 2.85 47 52 4.04 3.98 3.88 72 77 7.42 6.24 5.21 23 28 2.89 2.88 2.88 48 53 4.12 4.05 3.94 73 78 7.61 6.30 5.23 24 29 2.92 2.91 2.91 49 54 4.21 4.12 4.00 74 79 7.79 6.37 5.24 25 30 2.94 2.94 2.93 50 55 4.29 4.20 4.07 75 80 7.97 6.42 5.25 26 31 2.97 2.97 2.96 51 56 4.38 4.28 4.13 76 81 8.14 6.47 5.26 27 32 3.01 3.00 2.99 52 57 4.48 4.36 4.19 77 82 8.31 6.51 5.26 28 33 3.04 3.03 3.02 53 58 4.57 4.44 4.26 78 83 8.46 6.54 5.27 29 34 3.07 3.07 3.06 54 59 4.68 4.53 4.32 79 84 8.61 6.57 5.27 80 & 85 & 8.74 6.59 5.27 Over Over ---------------------------------------------------------------------------------------------------------
If the income payable for a specific guaranteed period is equal to that for other guarantee periods the longer period will be deemed to have been elected. ----------------------------------------------------------------------------
Monthly Installments for each $1,000 of Proceeds OPTION 5 Option 5 - Joint & Survivor Life Income ---------------------------------------------------------------------------- Female 50 55 60 65 70 Male ---------------------------------------------------------------------------- 50 3.53 3.71 3.86 4.00 4.11 55 3.62 3.86 4.09 4.30 4.48 60 3.70 4.00 4.30 4.60 4.89 65 3.77 4.11 4.48 4.89 5.30 70 3.83 4.20 4.63 5.13 5.70 ----------------------------------------------------------------------------
17 21 NATIONWIDE LIFE INSURANCE COMPANY ENDORSEMENTS (Endorsements may be made only by the Company at the Home Office) 22 [NATIONWIDE INSURANCE LOGO] MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY Limited premium flexibility Death Proceeds payable at Insured's death prior to the Maturity Date Maturity Proceeds payable on the Maturity Date Not eligible for dividends Investment experience reflected in benefits EX-6 4 EXHIBIT 6 1 EXHIBIT 6 ================================================================================ WELCOME TO NATIONWIDE LIFE INSURANCE COMPANY SPECIMEN COPY ================================================================================ 2
NATIONWIDE LIFE INSURANCE COMPANY P.O. Box 182150, Columbus, OH 43218-2150 ==================================================================================================================================== 1. PRIMARY INSURED ==================================================================================================================================== Name of Insured JOHN DOE Sex M Age 35 Date of Birth 11 / 2 / 60 ------------------------------------------ ------- ------- --------------------- Birth Place ANY STATE Drivers License # Social Security Number 000 - 00 - 0000 ---------------------- --------------------- --------------------------- Address 1 FIRST STREET ANY CITY ANY STATE 00000 ---------------------------------------------------------------------------------------------------------------------- Occupation TEACHER Former Name (if applicable) --------------------------------------- ------------------------------------------ Telephone - Home ( 000 ) 000-0000 Best Time To Call: A.M. X P.M. -------------------------------- -------- -------- Telephone - Business ( 000 ) 000-0000 Best Time To Call: X A.M. P.M. -------------------------------- -------- -------- ==================================================================================================================================== 2. OWNER / PRIMARY BENEFICIARY / CONTINGENT BENEFICIARY ==================================================================================================================================== Policyowner Name Address ------------------------------------- ----------------------------------------------------------- Date of Birth / / Social Security Number - - Relationship to Insured -------------- ---------------- ---------------------------- DATE OF RELATIONSHIP SOCIAL BENEFICIARY ADDRESS BIRTH TO INSURED SECURITY # PRIMARY: / / - - ----------------------------------- ------------------------ -------------- -------------- -------------------- CONTINGENT: / / - - ----------------------------------- ------------------------ -------------- -------------- -------------------- ==================================================================================================================================== 3. PLAN ==================================================================================================================================== PLAN SPECIFIED AMOUNT SINGLE PREMIUM $ ------------------------------- ---------------------- --------------------------- ==================================================================================================================================== 4. REPLACEMENT ==================================================================================================================================== Will the insurance applied for replace existing Life Insurance or Annuities on any person here proposed YES NO for insurance? If Yes, Company ............................... / / / / -------------------------------------------- (Complete and send replacement forms and/or 1035 Exchange forms where applicable.) ==================================================================================================================================== 5. ALLOCATIONS ==================================================================================================================================== ON ISSUED CONTRACTS, YOUR FULL NET PREMIUM WILL BE ALLOCATED TO THE NATIONWIDE SEPARATE ACCOUNT TRUST MONEY MARKET FUND OR FIXED ACCOUNT AS INDICATED BELOW UNTIL THE END OF THE RIGHT TO CANCEL PERIOD. WHEN THIS PERIOD ENDS, YOUR CONTRACT VALUE WILL BE ALLOCATED TO THE SUBACCOUNT(S) INDICATED BELOW. SELECTIONS MUST TOTAL 100%. MINIMUM INITIAL ALLOCATION TO ANY SINGLE SUBACCOUNT IS 5%. NO FRACTIONAL PERCENTAGES. THESE PERCENTAGES WILL APPLY IN FUTURE YEARS BUT MAY BE CHANGED AT ANY TIME BY THE POLICY OWNER. (IF NO ALLOCATION IS INDICATED, MONEY MARKET WILL BE AUTOMATICALLY SELECTED.) NATIONWIDE SEPARATE FIDELITY VARIABLE WARBURG PINCUS TRUST TCI PORTFOLIOS, INC. ACCOUNT TRUST INSURANCE PRODUCTS FUND % International Equity % Growth Fund 75 % Money Market Fund % High Income Portfolio ------ Portfolio ------ - ------ ------ % Balanced Fund % Government Bond Fund % Equity Income Portfolio % Small Company ------ - ------ ------ ------ Growth Portfolio % International % Total Return Fund % Growth Portfolio ------ - ------ ------ DREYFUS, INC. % Capital Appreciation Fund % Overseas Portfolio STRONG VARIABLE % Stock Index Fund - ------ ------ INS. PRODUCTS FUND ------ % Small Company Fund % Socially Responsible - ------ % Discovery Fund II ------ Growth Fund NEUBERGER & BERMAN ------ AMERICAN CAPITAL LIFE ADVISERS MANAGEMENT TRUST % Special Fund II INVESTMENT TRUST ------ % Limited Maturity Bond % International Stock Fund II NATIONWIDE LIFE INSURANCE CO. % Real Estate Securities ------ Portfolio ------ - ------ Portfolio 25 % Fixed Account % Growth Portfolio ------ ------ OPPENHEIMER VARIABLE % Partners Portfolio ACCOUNT FUND ------ VAN ECK INVESTMENT TRUST FIDELITY VARIABLE % Bond Fund % Gold and Natural INSURANCE PRODUCTS FUND II OTHER AVAILABLE FUNDS ------ ------ Resources Fund % Asset Manager Portfolio % % Multiple Strategies Fund % Global Bond Fund - ------ ------ -------------------- ------ ------ % Contrafund Portfolio % % Global Securities Fund - ------ ------ -------------------- ------ ==================================================================================================================================== 6. SUITABILITY (Variable Products Only) ==================================================================================================================================== YES NO A. DO YOU UNDERSTAND THAT THE DEATH BENEFIT AND SURRENDER VALUE MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT?............................... /X/ / / B. DO YOU BELIEVE THAT THIS POLICY WILL MEET YOUR INSURANCE NEEDS AND FINANCIAL OBJECTIVES? .............................................................................................. /X/ / / C. HAVE YOU RECEIVED A CURRENT COPY OF THE PROSPECTUS?....................................................... /X/ / / ====================================================================================================================================
3
==================================================================================================================================== 7. SIMPLIFIED UNDERWRITING (Questions 7 & 12) ==================================================================================================================================== If answers to Question 7 are "No", proceed to Question 12. If any answers are "Yes", circle the appropriate item and provide details in #10, then proceed with Question 12. YES NO a. Have you ever been declined for Life Insurance?........................................................... / / /X/ b. Within the past five years, have you had or been treated for: Alcoholism, drug use other than as prescribed by a physician, nervous or mental disorder, Alzheimer's disease, epilepsy, emphysema, kidney or liver disorder?................................................... / / /X/ To the best of your knowledge and belief have you ever had or been treated by a member of the medical profession for: c. Chest pains, heart attack, stroke, insulin dependent diabetes, respiratory disorder, central nervous system or muscular disorder or disease, or any cancer?.................................................... / / /X/ d. AIDS (acquired immune deficiency syndrome), ARC (AIDS-related complex), or any other AIDS-related condition, or received a positive result of an HIV test?..................................... / / /X/ ==================================================================================================================================== 8. REGULAR UNDERWRITING (Questions 8 thru 12) ==================================================================================================================================== For each "Yes" answer, circle the appropriate item and provide details in #10 below. YES NO To the best of your knowledge and belief have you ever been treated for or diagnosed by a member of the medical profession as having: a. High blood pressure, heart murmur, any other circulatory disorder, any blood disorder or non-insulin dependent diabetes?....................................................................................... / / /X/ b. Convulsions, brain disease or disorder, spinal injuries or paralysis?..................................... / / /X/ c. Any diseases of the stomach or intestines, lymph glands, musculoskeletal disease or disorder, or immune disorder?.......................................................................................... / / /X/ Within the past five years, have you: d. Consulted, or been examined or treated by any physician, chiropractor, or other medical practitioner, or by any hospital, clinic, or other medical facility not previously mentioned?........................... / / /X/ e. Had any disease, disorder, injury or operation which has not been previously mentioned?................... / / /X/ ==================================================================================================================================== 9. SUPPLEMENTAL INFORMATION ==================================================================================================================================== YES NO a. Have you ever had Life or Health Insurance rated-up or limited?........................................... / / /X/ b. In the past 3 years have you engaged in, or do you intend to engage in: flying as a pilot, student pilot, or crew member; racing of an automobile, motorcycle, or any type of motor-powered vehicle; scuba diving, mountain climbing, hang gliding, or sky diving?...................... / / /X/ c. Have you ever had your driver's license suspended or revoked; or been convicted of driving while impaired or intoxicated; or been convicted in the past three years of more than one moving violation? (If "Yes", give full details below.).......................................................... / / /X/ d. Have you ever been convicted of a felony, misdemeanor, or any other crime? (If "Yes", provide details below.)........................................................................................... / / /X/ e. Have you used tobacco in any form in the past 12 months?.................................................. / / /X/ f. If "Yes", specify the kind of tobacco use? (cigarettes, pipe, cigars, chewing, etc.) ------------------------------------ g. Proposed Insured's Height: Weight: -------------------------------- -------------------- ==================================================================================================================================== 10. DETAILS ==================================================================================================================================== Question # Dates DETAILS (Be specific. Give full names, addresses and telephone numbers (if available) and Letter of physicians, hospitals, etc.) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- =================================================================================================================================== 11. INSURANCE INFORMATION (List all Life Insurance now in force on Proposed Insured. If none, write "NONE".) =================================================================================================================================== INSURANCE COMPANY POLICY NUMBER AMOUNT YEAR ACCIDENTAL TO BE ISSUED DEATH REPLACED? - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Are you now applying for Life Insurance with any other company. If "Yes", state the company, kind of YES NO policy and face amount being applied for. ......... / / / / --------------------------------------------------------- ===================================================================================================================================
4 =============================================================================== 12. QUESTION OF APPLICANT =============================================================================== If a Life Insurance policy cannot be issued, do you YES NO wish to apply for an annuity?............................. /X/ / / =============================================================================== 13. TAXPAYER IDENTIFICATION NUMBER =============================================================================== Under the Interest and Dividend Compliance Act of 1983, persons owning insurance policies are required to provide the Company with certification that their taxpayer identification number is correct. (For most individuals, this is their Social Security Number.) If you do not provide us with certification of this number, you may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, we will be forced to withhold 31% from interest and other payments we make to you (known as backup withholding). It is not an additional tax, since the amount withheld will be applied against the tax you owe. If withholding results in an overpayment of taxes, a refund may be obtained. / / Check this box if the Internal Revenue Service has notified you that you are not subject to the provisions of this law. OTHERWISE, YOUR SIGNATURE ON THIS APPLICATION IS CERTIFICATION THAT THE TAXPAYER IDENTIFICATION NUMBER ON THIS APPLICATION IS TRUE, CORRECT, AND COMPLETE. =============================================================================== 14. IMPORTANT NOTICE =============================================================================== I UNDERSTAND THAT THE DEATH BENEFIT UNDER A VARIABLE LIFE INSURANCE POLICY MAY INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT RETURN ON THE SUBACCOUNT(S) I SELECT. REGARDLESS OF INVESTMENT RETURN, THE DEATH BENEFIT CAN NEVER BE LESS THAN THE SPECIFIED AMOUNT, AS LONG AS THE POLICY IS IN FORCE. THE CONTRACT VALUE MAY INCREASE OR DECREASE ON ANY DAY, DEPENDING ON THE INVESTMENT RETURN FOR THE POLICY. NO MINIMUM CONTRACT VALUE IS GUARANTEED. ON REQUEST, WE WILL FURNISH ILLUSTRATIONS OF BENEFITS, INCLUDING DEATH BENEFITS AND CONTRACT VALUES FOR A VARIABLE LIFE INSURANCE POLICY AND A FIXED LIFE INSURANCE POLICY FOR THE SAME PREMIUM. =============================================================================== 15. SPECIAL INSTRUCTIONS =============================================================================== =============================================================================== AGREEMENT, AUTHORIZATION AND SIGNATURES I have read this application. I understand each of the questions. All of the answers and statements on this form are complete and true to the best of my knowledge and belief. I understand and agree that: 1. This application, any amendments to it, and any related medical examinations will become a part of the Policy and are the basis of any insurance issued upon this application. 2. Any person who submits an application or a claim containing a false or deceptive statement, and does so with intent to defraud or knowing that he/she is facilitating a fraud against an insurer, is guilty of insurance fraud. 3. No medical examiner and no agent or other representative of Nationwide may accept risks or make or change any contract, or waive or change any of the Company's rights or requirements. 4. If the full first premium payment is made in exchange for a Temporary Insurance Receipt (with the same date and number as this form), Nationwide will only be liable to the extent set forth in that receipt. 5. If the full first premium is not paid with this application, then insurance will only take effect when all of the following conditions are met: a. if a Policy is issued by nationwide and is accepted by me; and b. if the full first premium is paid; and c. if all the answers and statements made on the application, medical examination(s) and amendments continue to be true to the best of my knowledge and belief. I have received the pre-notice form of the Fair Credit Reporting Act of 1970 and the Medical Information Bureau disclosure form. I certify that the Social Security Number given is correct and complete. I authorize: any licensed physician or medical practitioner; any hospital, clinic or other medical or medically related facility; any insurance company; the Medical Information Bureau; or any other organization, institution or person who has knowledge of me; to give that information to the Medical Director of the Nationwide Insurance Company, or its reinsurers. This authorization, or a copy of it, will be valid for a period of not more than one year from the date it was signed. Signed at ANY CITY ANY STATE , on DECEMBER 01, 19 95 . -------------------------------------------------------- ----- ================================================================================ I have truly and accurately recorded all Proposed Insured's answers on this JOHN DOE application and have witnessed his/her/ ______________________________ their signature(s) hereon. To the best Signature of Primary Insured of my knowledge, the insurance applied (if over age 14) for / / will / / will not (CHECK ONE) replace any life insurance or annuity. - ----------------------------------------------- ------------------------------ Licensed Resident Agent Signature Firm Signature of Owner (If different from Primary - ----------------------------------------------- Insured) Agent's Name (Print) License ID Number NO. =============================================================================== 5 This receipt must not be detached and in no event will there be any temporary insurance unless the full first premium required by the Company has been paid at the time of this application. TEMPORARY INSURANCE RECEIPT No. NATIONWIDE LIFE INSURANCE COMPANY, COLUMBUS, OHIO Received from JOHN DOE this 01 day of DECEMBER 19 95 ---------------- ------ ------------------- ------- the sum of THREE HUNDRED EIGHTY NINE AND 50/100 dollars ($ 389.50 ). ---------------------------------------- ----------------- The temporary insurance that is provided by this receipt is for the coverage afforded by the initial premium deposit that is shown in question 3 on page 1 of the application which has the same date and number as this receipt; except that the total coverage with this Company under this and all other receipts will not exceed $500,000 on the person who is proposed for insurance, regardless of the total amount(s) or number of receipts or applications. If coverage afforded by the premium shown in question 3 on page 1 is more than $500,000 of insurance under this and/or any other application, the company's liability will be no more than $500,000 plus a prorated return of premium submitted in excess of the premium required to afford the $500,000 of insurance coverage. Temporary insurance for the person who is proposed for coverage will be in force on the date of this receipt, subject to the terms of the policy applied for in this application. Coverage will end on the earliest of: 1. The date the policy is issued. (The policy will replace the temporary insurance.) 2. The date the Company returns the premium deposit and mails a written notice to the Applicant that said insurance has ended for each person who is proposed for insurance. 3. The 45th day after the date of this receipt (unless the receipt has been replaced earlier or has ended as noted in 1 or 2). Fraud or material misrepresentation in this application voids the agreement. In such cases, the Company's only liability is for a refund of the payment made. If any person who is proposed for coverage dies by suicide, the Company's only liability with respect to that person under this receipt is for a refund of payment made for that person's portion of the insurance applied for. I have read and agree to the terms of this receipt. JOHN DOE ED AGENT ------------------------------------------------------------------ ------------------------------------------ Signature of Proposed Insured (if over age 14) Licensed Resident Agent Signature DECEMBER 01, 1995 ------------------------------------------------------------------ ------------------------------------------ Signature of Applicant if other than Insured Date
IMPORTANT NOTICE DETACH AND GIVE TO PROPOSED INSURED PRE-NOTICE OF PROCEDURES AS REQUIRED BY THE FAIR CREDIT REPORTING ACT OF 1970 This notice is to inform you that as part of our normal underwriting procedures in connection with an application for insurance: 1. An investigative consumer report may be made whereby information is obtained through personal interviews with your neighbors, friends or others with whom you are acquainted. This inquiry will include information as to character, general reputation, personal characteristics and mode of living, except as may be related directly or indirectly to your sexual orientation, with respect to you, members of your family, and others having an interest in or closely connected with the insurance transaction; and 2. Upon your written request, made within a reasonable time after you receive this notice, additional information as to the nature and scope of the investigation, if one is made, will be provided. Requests for additional information should be addressed to Nationwide Life Insurance Company, Box 1559, Columbus, Ohio 43216-1559. MEDICAL INFORMATION BUREAU DISCLOSURE NOTICE Information regarding your insurability will be treated as confidential. Nationwide Life Insurance Company, or its reinsurer(s) may, however, make a brief report thereon to the Medical Information Bureau, a non-profit membership organization of life insurance companies, which operates an information exchange on behalf of its members. If you apply to another Bureau member company for life or health insurance coverage or a claim for benefits is submitted to such a company, the Bureau, upon request, will supply such company with the information in its file. Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. (Medical information will be disclosed only to your attending physician.) If you question the accuracy of information in the Bureau's file, you may contact the Bureau and seek a correction in accordance with the procedures set forth in the Federal Fair Credit Reporting Act. The address of the Bureau's information office is Post Office Box 105, Essex Station, Boston, Massachusetts 02112, telephone number (617) 426-3660. Nationwide Life Insurance Company or its reinsurer(s) may also release information in its file to other life insurance companies to whom you may apply for life or health insurance, or to whom a claim for benefits may be submitted. 6 Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity Company and Nationwide General Insurance Company and their affiliated companies. The Company's home office is at One Nationwide Plaza, Columbus, Ohio 43216. The Company offers a complete line of life insurance, including annuities and accident and health insurance. It is admitted to do business in the District of Columbia, Puerto Rico, and in all states. (For additional information, see "The Company.") THE VARIABLE ACCOUNT The Nationwide VLI Separate Account-2 (the "Variable Account"), was established by a resolution of the Company's Board of Directors on May 7, 1987, pursuant to the provisions of Ohio law. The Company has caused the Variable Account to be registered with the Securities and Exchange Commission as a unit investment trust pursuant to the provisions of the Investment Company Act of 1940. Nationwide Life Insurance Company Inc., One Nationwide Plaza, Columbus, Ohio 43216 serves as depositor for the Variable Account. Nationwide Financial Services, Inc., of One Nationwide Plaza, Columbus, Ohio 43216 serves as principal underwriter for the Variable Account. Such registration does not involve supervision of the management of the Variable Account or the Company by the Securities and Exchange Commission. The Variable Account is a separate investment account of the Company and as such, is not chargeable with the liabilities arising out of any other business the Company may conduct. The Company does not guarantee the investment performance of the Variable Account. The Death Benefit and Cash Value under the Policy may vary with the investment performance of the investments in the Variable Account. (See "How the Death Benefit Varies", and How the Cash Value Varies.") Premium payments and Cash Value are allocated within the Variable Account among one or more sub-accounts. The assets of each sub-account are used to purchase shares of the underlying Mutual Fund options designated by the Policy Owner. Thus, the investment performance of a Policy depends upon the investment performance of the underlying Mutual Fund options designated by the Policy Owner. INVESTMENTS OF THE VARIABLE ACCOUNT At the time of application, the Policy Owner elects to have the Cash Value allocated among one or more of the Variable Account sub-accounts and the Fixed Account. (See "Allocation of Cash Value.") When the policy is issued, the Policy's Cash Value not allocated to the Fixed Account is placed in the Nationwide Separate Account Trust Money Market sub-account until expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. (See "Short-Term Right to Cancel Policy.") At the expiration of this period, shares of the underlying Mutual Funds specified by the Policy Owner are purchased at net asset value for the respective sub-account(s). Such election is subject to any minimum premium limitations which may be imposed by the underlying Mutual Fund option(s). In addition, no less than 5% of premium may be allocated to any one sub-account or the Fixed Account. The Policy Owner may change the allocation of Cash Value or may transfer Cash Value from one sub-account to another, subject to such terms and conditions as may be imposed by each underlying Mutual Fund option and as set forth in this prospectus. (See "Transfers", "Allocation of Cash Value" and "Short-Term Right to Cancel Policy.") Additional Premium Deposits, upon acceptance, will be allocated to the Nationwide Separate Account Trust Money Market Fund unless the Policy Owner specifies otherwise. (See "Premium Deposits.") Premium Deposits will be held only while the Company obtains information necessary to evaluate the risk. Following the underwriting process, the Company will either issue the policy or refund deposits within 5 days from the date thereof. Each of the underlying Mutual Fund options is a series of registered investment companies which receive investment advice from a registered investment adviser: 1) Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment Advisors; 2) Dreyfus Socially Responsible Growth Fund, Inc., managed by Dreyfus Corporation; 3) Fidelity Variable Insurance Products Fund, managed by Fidelity Management & Research Company; and, 4) Fidelity Variable Insurance Products Fund II, managed by Fidelity Management & Research Company, 5) The Nationwide Separate Account Trust, managed by Nationwide Financial Services, Inc.; 8 7 PARTIAL SURRENDERS Partial surrenders will be permitted if they satisfy the following requirements: 1. The partial surrender request is in writing and the request is signed by the Policy Owner or an authorized party of the Policy Owner; and 2. The maximum partial surrender in any Policy Year is limited to the maximum of: (i) 10% of the total premium payments; and (ii) 100% of cumulative earnings (Cash Value less total premium payments less any existing policy indebtedness); 3. Partial surrenders must not result in a reduction of the Cash Surrender Value below $10,000; and 4. After the partial surrender, the Policy continues to qualify as life insurance. All partial surrenders will be next computed after the date the Company receives a proper written request. When a partial surrender is made, the Cash Value is reduced by the amount of the partial surrender. Also, the Specified Amount is reduced by the amount of the partial surrender unless the Death Benefit is based on the applicable percentage of the Cash Value. In such a case, a Partial Surrender will decrease the Specified Amount by the amount by which the Partial Surrender exceeds the difference between the Death Benefit and the Specified Amount. Partial surrender amounts must be first deducted from the values in the Variable sub-accounts. Partial surrenders will be deducted from the Fixed Account only to the extent that insufficient values are available in the Variable sub-accounts. 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 100th birthday. The maturity proceeds will be payable to the Policy Owner on the Maturity Date provided the Policy is still in force. The Maturity Proceeds will be equal to the amount of the Policy's Cash Value, less any indebtedness. INCOME TAX WITHHOLDING Federal law requires the Company to withhold income tax from any portion of surrender proceeds that is subject to tax, unless the Policy Owner advises the Company, in writing, of his or her request not to withhold. If the Policy Owner requests that the Company not withhold taxes, or if the taxes withheld are insufficient, the Policy Owner may be liable for payment of an estimated tax. The Policy Owner should consult his or her tax advisor. POLICY LOANS TAKING A POLICY LOAN The Policy Owner may take a loan using the Policy as security. During the first year, maximum Policy indebtedness is limited to 50% of the Cash Value less any Surrender Charge. Thereafter, maximum policy indebtedness is limited to 90% of the Cash Value less any Surrender Charge. The Company will not grant a loan for an amount less than $1,000 ($200 in Connecticut, $250 in Oregon, $500 in New Jersey and $500 in New York). Should the Death Benefit become payable, the Policy be surrendered, or the Policy mature while a loan is outstanding, the amount of Policy indebtedness will be deducted from the Death Benefit, Cash Surrender Value or the Maturity Value, respectively. Maximum Policy indebtedness, in Texas, is limited to 90% of the Cash Value less any Surrender Charge in the sub-accounts and 100% of the Cash Value less any Surrender Charge in the Fixed Account. Any request for a Policy loan must be in written form satisfactory to the Company. The request must be signed and, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings and Loan which is a member of the Federal Deposit Insurance Corporation. Certain Policy loans may result in currently taxable income and tax penalties. (See "Tax Matters.") 21 8 on the basis of sex. This decision applies only to benefits derived from premiums made on or after August 1, 1983. The Policies offered by this prospectus are based upon actuarial tables which distinguish between men and women and thus the Policies provide different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of Norris on any employment related insurance or benefit program before purchasing this Policy. DISTRIBUTION OF THE POLICIES The Policies will be sold by licensed insurance agents in those states where the Policies may lawfully be sold. Such agents will be registered representatives of broker dealers registered under the Securities Exchange Act of 1934 who are members of the National Association of Securities Dealers, Inc. (NASD). The Policies will be distributed by the General Distributor, Nationwide Financial Services, Inc. ("NFS"), One Nationwide Plaza, Columbus, Ohio 43216. NFS is a corporation which was organized under the laws of the State of Ohio on April 8, 1965. NFS is both a broker-dealer and registered investment adviser. As such, it is the principal underwriter for several open-end investment companies and for a number of separate accounts issued by the Company and Nationwide Life and Annuity Insurance Company ("NLAIC") to fund the benefits of variable insurance and annuity policies. NFS also currently acts as the investment adviser and/or administrator for the mutual fund portfolios sold through NFS's registered representatives and for some of the mutual fund portfolios which act as underlying investment options for the variable insurance and annuity policies issued by the Company or NLAIC. NFS acts as general distributor for the Nationwide Multi-Flex Variable Account, Nationwide DC Variable Account, Nationwide Variable Account - II, Nationwide Variable Account - 5, Nationwide Variable Account - 6, Nationwide Variable Account - 8, Nationwide VA Separate Account - A, Nationwide VA Separate Account - - B, Nationwide VA Separate Account - C, Nationwide VL Separate Account - A, Nationwide VLI Separate Account - 2, Nationwide VLI Separate Account - 3, NACo Variable Account and the Nationwide Variable Account, all of which are separate investment accounts of the Company or its affiliates. NFS also acts as principal underwriter for the Nationwide Investing Foundation, Nationwide Separate Account Trust, Financial Horizons Investment Trust, and Nationwide Investing Foundation II, which are open-end management investment companies. Gross commissions paid by the Company on the sale of these Policies plus fees for marketing services are not more than 6.75% of the premiums paid. CUSTODIAN OF ASSETS The Company serves as the Custodian of the assets of the Variable Account. TAX MATTERS POLICY PROCEEDS Section 7702 of the Internal Revenue Code ("Code") provides that if certain tests are met, a Policy will be treated as a life insurance policy for federal tax purposes. The Company will monitor compliance with these tests. The Policy should thus receive the same Federal income tax treatment as fixed benefit life insurance. As a result, the life insurance proceeds payable under a Policy are excludable from gross income of the beneficiary under Section 101 of the Code. The Policies described in this prospectus, meet the definition of "modified endowment contracts" under Section 7702A of the Code. The Code defines modified endowment contracts as those policies issued or materially changed after June 21, 1988 on which the total premiums paid during the first seven years exceed the amount that would have been paid if the policy provided for paid up benefits after seven level annual premiums. The policies offered in this prospectus typically fall within this definition. The Code provides for taxation of surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions from modified endowment contracts in the same way annuities are taxed. Any distribution is taxable to the extent the Cash Value of the Policy exceeds, at the time of the distribution, the premiums paid into the Policy. The Code generally provides for a 10% tax penalty on the taxable portion of such distributions. That penalty is applicable unless the distribution is 1) paid after the Policy Owner is 59 1/2 or disabled; or 2) the distribution is part of an annuity to the Policy Owner as defined in the Code. Even though exchanges under Section 1035 of the Code qualify as material changes, certain exchanges of pre-June 22, 1988 policies may retain their non-modified endowment status. Therefore, the policies offered by this 26 9 THE COMPANY The Company is a life insurance company writing life, accident and health insurance, and annuities in all states and the District of Columbia. The Company issues variable annuity contracts through other segregated investment accounts. This is the only business in which the Company is engaged. The Company markets its Policies through independent insurance brokers, general agents, and registered representatives of registered NASD broker/dealer firms. The Company, in common with other insurance companies, is subject to regulation and supervision by the regulatory authorities of the states in which it is licensed to do business. A license from the state insurance department is a prerequisite to the transaction of insurance business in that state. In general, all states have statutory administrative powers. Such regulation relates, among other things, to licensing of insurers and their agents, the approval of policy forms, the methods of computing reserves, the form and content of statutory financial statements, the amount of policyholders' and stockholders' dividends, and the type of distribution of investments permitted. The Company operates in the highly competitive field of life insurance. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States, and a large number of them compete with the registrant in the sale of insurance policies. As is customary in insurance company groups, employees are shared with the other insurance companies in the group. In addition to its direct salaried employees, the Company shares employees with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. The Company serves as depositor for the Nationwide Variable Account, Nationwide Variable Account - II, Nationwide Variable Account - 3, Nationwide Variable Account - 4, Nationwide Variable Account - 5, Nationwide Variable Account - 6, Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account - 8, MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI Separate Account, Nationwide VLI Separate Account - 2, Nationwide VLI Separate Account - 3, the NACo Variable Account and the DC Variable Account, each of which is a registered investment company. The Company does not presently own or lease any materially important physical properties when its property holdings are viewed in relation to its total assets. The Company shares home office, other facilities and equipment with Nationwide Mutual Insurance Company. COMPANY MANAGEMENT Nationwide Life Insurance Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Indemnity Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity Company and Nationwide General Insurance Company and their affiliated companies comprise the Nationwide Insurance Enterprise. The Companies comprising the Nationwide Insurance Enterprise have substantially common boards of directors and officers. Nationwide Corporation is the sole shareholder of Nationwide Life. 28 10 OBETZ SHIPMENT ACCESSION NUMBER 1678/95 5 BOXES BOX 1 OF 5 DISPLAYWRITE 4, VERSION 2 DISK OPERATING SYSTEM IBM PC EMULAION PROGRAM VERSION 1.22, ENTRY LEVEL MICROSOFT MOUSE & MICROSOFT WINDOWS 3 cc:MAIL - 10 USER PACK ACCUCOLOR CONTROL SYSTEM TUTORIAL SOFTWARE DELL SYSTEMS 486D BOX 2 OF 5 2 EXTRA FOR WINDOWS WORDPERFECT FOR WINDOWS VERSION 5.1 2 cc:MAIL PLATFORM PACK IBM DOS NEC USERS MANUAL IBM PERSONAL SYSTEM/2 MODEL 50 BOX 3 OF 5 DYNACOMM/OPENCONNECT TN 3270 3 MICROSOFT EXCEL UPGRADE QUARTERDECK EXPANDED MEMORY MANAGER FOSTBACK PLUS MICROSOFT WORD DISKETTES ULTRA/VANTAGE ACCELERATOR BOX 4 OF 5 2 FRAMEMAKER BOX 5 OF 5
- ------------------------------------------------------------------------------ PRODUCT 33 ACT NUMBER NAME AMEND # FILE DATE - ------------------------------------------------------------------------------ 33-42180 BOA FPVUL 7 10/19/95 33-16999 BOA SPVL 11 10/19/95 34-44296 MULTIFLEX FPVUL 7 10/19/95 33-44789 MULTIFLEX SPVL 6 10/19/95 NEW BOA SPVL NEW REG 9/20/95 33-62659 BEST OF BANKS (NQ) PRE-EFF 12/4/95 33-82370 FIRST UNION 1 10/27/95 33-60063 NEBA 1 11/1/95 33-62637 BEST OF BANKS (IV) PRE-EFF 12/4/95 BEST OF BANKS (NQ) NEW REG 9/7/95 - ------------------------------------------------------------------------------
Page 1 11 OBETZ SHIPMENT ACCESSION NUMBER 1678/95 5 BOXES BOX 5 OF 5
PRODUCT 33 ACT NUMBER NAME AMEND # FILE DATE ------------- ------- ------- --------- BEST OF BANKS (N) NEW REG 9/7/95 33-67636 BOA NQ 5 8/11/95 33-67636 BOA NQ 6 10/20/95 33-82190 FIDELITY CLASSIC 1 8/28/95 33-82174 FIDELITY SELECT 2 8/28/95 2-75174 NEA 20 8/28/95 2-75059 BOA IV 25 10/20/95 33-85164 EAGLE CHOICE 4 11/30/95 33-62795 BOA SPVL PRE EFF 1 12/5/95
Page 2 EX-7 5 EXHIBIT 7 1 EXHIBIT 7 [DRUEN, RATH & DIETRICH LETTERHEAD] April 23, 1996 Nationwide Life Insurance Company One Nationwide Plaza Columbus, Ohio 43216 Ladies and Gentlemen: We have prepared the Registration Statement and amendments thereto filed with the United States Securities and Exchange Commission for the purpose of registering under the Securities Act of 1933, as amended, Modified Single Premium Variable Life Insurance Policies to be sold by Nationwide Life Insurance Company and to be issued and administered through the Nationwide VLI Separate Account-2. In connection therewith, we have examined the Articles of Incorporation, Code of Regulations, and Bylaws of Nationwide Life Insurance Company ("Nationwide"), minutes of meetings of the Board of Directors, pertinent provisions of federal and Ohio laws, together with such other documents as we have deemed relevant for the purposes of this opinion. Based on the foregoing, it is our opinion that: 1. Nationwide is a stock life insurance corporation duly organized and validly existing under the laws of the State of Ohio and duly authorized to issue and sell life, accident and health insurance, and annuity contracts. 2. The Nationwide VLI Separate Account-2 has been properly created and is a validly existing separate account pursuant to the laws of the State of Ohio. 3. The issuance and sale of the Modified Single Premium Variable Life Insurance Policies have been duly authorized by Nationwide. When issued and sold in the manner stated in the 2 Nationwide Life Insurance Company April 23, 1996 Page 2 prospectus constituting a part of the Registration Statement, the policies will be legal and binding obligations of Nationwide in accordance with their terms, except that clearance must be obtained, or the policy must be approved, prior to the issuance thereof in certain jurisdictions. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Opinions" in the prospectus contained in the Registration Statement. Very truly yours, /s/ Druen, Rath & Dietrich DRUEN, RATH & DIETRICH -----END PRIVACY-ENHANCED MESSAGE-----