-----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, BUobFdy8YKzfEFA7EqhQKiMNfqaF6pQUzgr9+Dw0M+UkYPKF3QW0QuY/qbeaWxXM dooHiSLuYJ1B0xwiYz2eNQ== 0000950152-96-003683.txt : 19960802 0000950152-96-003683.hdr.sgml : 19960802 ACCESSION NUMBER: 0000950152-96-003683 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960801 EFFECTIVENESS DATE: 19960801 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-42180 FILM NUMBER: 96602653 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 485BPOS 1 NATIONWIDE VLI SEPARATE ACCOUNT 2 1 Registration No. 33-42180 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 9 TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 --------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-2 (EXACT NAME OF TRUST) --------------------------- NATIONWIDE LIFE INSURANCE COMPANY ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 (EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT) GORDON E. MCCUTCHAN SECRETARY ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 (NAME AND ADDRESS OF AGENT FOR SERVICE) --------------------------- This Post-Effective Amendment amends the Registration Statement in respect to the Prospectus and Financial Statements. It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on August 1, 1996 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 The Registrant has registered an indefinite number of securities by a prior registration statement in accordance with Rule 24f-2 under the Investment Company Act of 1940. Pursuant to Paragraph (a) (3) thereof, a non-refundable fee in the amount of $500.00 has been paid to the Commission. Registrant filed its Rule 24f-2 Notice for the fiscal year ended December 31, 1995, on February 15, 1996. ================================================================================ 1 of 105 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
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N-8B-2 ITEM CAPTION IN PROSPECTUS - ----------- --------------------- 45................................... Not Applicable 46................................... How The Cash Value Varies 47................................... Not Applicable 48................................... Custodian of Assets 49................................... Not Applicable 50................................... Not Applicable 51................................... Summary of The Policies; Information About The Policies 52................................... Substitution of Securities 53................................... Taxation of The Company 54................................... Not Applicable 55................................... Not Applicable 56................................... Not Applicable 57................................... Not Applicable 58................................... Not Applicable 59................................... Financial Statements
3 of 105 4 NATIONWIDE LIFE INSURANCE COMPANY P.O. Box 182150 Columbus, Ohio 43218-2150 (800) 547-7548, TDD (800) 238-3035 FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT-2 The Life Insurance Policies offered by this prospectus are variable life insurance policies (collectively referred to as the "Policies"). The Policies are designed to provide life insurance coverage and the flexibility to vary the amount and frequency of premium payments. The Policies may also provide a Cash Surrender Value if the Policy is terminated during the lifetime of the Insured. Nationwide Life Insurance Company guarantees to keep the Policy in force during the first three years so long as the Minimum Premium requirement has been met. The death benefit and Cash Value of the Policies may vary to reflect the experience of the Nationwide VLI Separate Account-2 (the "Variable Account") or the Fixed Account to which Cash Values are allocated. The Policies described in this prospectus meet the definition of "life insurance" under Section 7702 of the Internal Revenue Code (the "Code"). The Policy Owner may allocate Net Premiums and Cash Value to one or more of the sub-accounts of the Variable Account and the Fixed Account. The assets of each sub-account will be used to purchase, at net asset value, shares of a designated underlying Mutual Fund in the following series of the underlying variable account Mutual Fund options: DREYFUS Dreyfus Stock Index Fund The Dreyfus Socially Responsible Growth Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND Equity-Income Portfolio Growth Portfolio High Income Portfolio* Overseas Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II Asset Manager Portfolio Contrafund Portfolio NATIONWIDE SEPARATE ACCOUNT TRUST Capital Appreciation Fund Government Bond Fund Money Market Fund Small Company Fund Total Return Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST (FORMERLY "ADVISERS MANAGEMENT TRUST") Growth Portfolio Limited Maturity Bond Portfolio Partners Portfolio OPPENHEIMER VARIABLE ACCOUNT FUNDS Oppenheimer Bond Fund Oppenheimer Global Securities Fund Oppenheimer Multiple Strategies Fund STRONG SPECIAL FUND II, INC. STRONG VARIABLE INSURANCE FUNDS, INC. Strong Discovery Fund II, Inc. International Stock Fund II TCI PORTFOLIOS, INC., AN AFFILIATE OF TWENTIETH CENTURY COMPANIES, INC. TCI Balanced TCI Growth TCI International VAN ECK WORLDWIDE INSURANCE TRUST (FORMERLY VAN ECK INVESTMENT TRUST) Worldwide Bond Fund (Formerly Global Bond Fund) Gold and Natural Resources Fund VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST Real Estate Securities Fund WARBURG PINCUS TRUST International Equity Portfolio Small Company Growth Portfolio *The High Income Portfolio may invest in lower quality debt securities commonly referred to as junk bonds. Nationwide Life Insurance Company (the "Company") guarantees that the death benefit for a Policy will never be less than the Specified Amount stated on the Policy data pages as long as the Policy is in force. There is no guaranteed Cash Surrender Value. If the Cash Surrender Value is insufficient to cover the charges under the Policy, the Policy will lapse without value. Nationwide Life Insurance Company guarantees to keep the Policy in force during the first three years so long as the Minimum Premium requirement has been met. 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." 4 of 105 5 INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE UNDERLYING MUTUAL FUNDS IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK AFFILIATE. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS FOR THE UNDERLYING MUTUAL FUND OPTION(S) BEING CONSIDERED MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH. The date of this prospectus is August 1, 1996 5 of 105 6 GLOSSARY OF TERMS ATTAINED AGE-The Insured's age on the Policy Date, plus the number of full years since the Policy Date. ACCUMULATION UNIT-An accounting unit of measure used to calculate the Variable Account Cash Value. BENEFICIARY-The person to whom the Death Proceeds are paid. BREAK POINT PREMIUM-The level annual premium at which the sales load is reduced on a current basis. CASH VALUE-The sum of the Policy values in the Variable Account, Fixed Account and any associated value in the Policy Loan Account. CASH SURRENDER VALUE-The Policy's Cash Value, less any Indebtedness under the Policy, less any Surrender Charge. CODE-The Internal Revenue Code of 1986, as amended. COMPANY- Nationwide Life Insurance Company. DEATH PROCEEDS-Amount of money payable to the Beneficiary if the Insured dies while the Policy is in force. FIXED ACCOUNT-An investment option which is funded by the General Account of the Company. GENERAL ACCOUNT-All assets of the Company other than those of the Variable Account or in other separate accounts that have been or may be established by the Company. GUIDELINE LEVEL PREMIUM-The amount of level annual premium calculated in accordance with the provisions of the Internal Revenue Code of 1986. It represents the level annual premiums required to mature the Policy under guaranteed mortality and expense charges, and an interest rate of 5%. INDEBTEDNESS-Amounts owed the Company as a result of Policy loans including both principal and accrued interest. INITIAL PREMIUM-The Initial Premium is the premium required for coverage to become effective on the Policy Date. It is shown on the Policy Data Page. INSURED-The person whose life is covered by the Policy, and who is named on the Policy Data Page. MATURITY DATE-The Policy Anniversary on or following the Insured's 95th birthday. MINIMUM PREMIUM-The Minimum Premium is shown on the Policy Data Page. It is used to measure the total amount of premiums that must be paid during the first three Policy Years to guarantee the Policy remains in force. MONTHLY ANNIVERSARY DAY-The same day as the Policy Date for each succeeding month. MUTUAL FUNDS-The underlying mutual funds which correspond to the sub-accounts of the Variable Account. NET ASSET VALUE-The worth of one share at the end of a market day or at the close of the New York Stock Exchange. Net Asset Value is computed by adding the value of all portfolio holdings plus other assets, deducting liabilities and then dividing the result by the number of shares outstanding. NET PREMIUMS-Net Premiums are equal to the actual premiums minus the percent of premium charge. The percent of premium charges are shown on the Policy Data Page. POLICY ANNIVERSARY-The same day and month as the Policy Date for succeeding years. POLICY CHARGES-All deductions made from the value of the Variable Account, or the Policy Cash Value. POLICY DATE-The date the provisions of the Policy take effect, as shown on the Policy Owner's Policy Data Page. POLICY LOAN ACCOUNT-The Portion of the Cash Value which results from Policy Indebtedness. POLICY OWNER-The person designated in the Policy application as the Owner. In the State of New York, the variable life insurance Policies offered by the Company are offered as "Certificates" for "Certificate Owners" under a group contract rather than individual Policies. The provisions of both these Certificates and the Policies are essentially the same and references to the provisions of Policies and rights of Policy Owners in this prospectus include Certificates and Certificate Owners. POLICY YEAR-Each year commencing with the Policy Date and each Policy Anniversary thereafter. SCHEDULED PREMIUM-The Scheduled Premium is shown on the Policy Data Page. 6 of 105 7 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 the New York Stock Exchange and the Company's home office are open for business or any other day during which there is sufficient degree of trading that the current net asset value of the Accumulation Units might be materially affected. VALUATION PERIOD-A period commencing with the close of business on the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. VARIABLE ACCOUNT-A separate investment account of Nationwide Life Insurance Company. 7 of 105 8 TABLE OF CONTENTS GLOSSARY OF TERMS................................................................... 3 SUMMARY OF THE POLICIES............................................................. 7 Variable Life Insurance......................................................... 7 The Variable Account and its Sub-Accounts....................................... 7 The Fixed Account............................................................... 7 Deductions and Charges.......................................................... 7 Premiums........................................................................ 9 NATIONWIDE LIFE INSURANCE COMPANY................................................... 10 THE VARIABLE ACCOUNT................................................................ 10 Investments of the Variable Account............................................. 10 Dreyfus......................................................................... 11 Fidelity Variable Insurance Products Fund....................................... 11 Fidelity Variable Insurance Products Fund II.................................... 12 Nationwide Separate Account Trust............................................... 12 Neuberger & Berman Advisers Management Trust.................................... 13 Oppenheimer Variable Account Funds.............................................. 13 Strong Special Fund II, Inc..................................................... 14 Strong Variable Insurance Funds, Inc............................................ 14 TCI Portfolios, Inc., a member of the Twentieth Century Family of Mutual Funds.. 14 Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust)........... 15 Van Kampen American Capital Life Investment Trust............................... 15 Warburg Pincus Trust............................................................ 15 Reinvestment.................................................................... 16 Transfers....................................................................... 16 Dollar Cost Averaging........................................................... 16 Substitution of Securities...................................................... 17 Voting Rights................................................................... 17 INFORMATION ABOUT THE POLICIES...................................................... 18 Underwriting and Issuance....................................................... 18 -Minimum Requirements for Issuance of a Policy.................................. 18 -Premium Payments............................................................... 18 Allocation of Cash Value........................................................ 18 Short-Term Right to Cancel Policy............................................... 18 POLICY CHARGES...................................................................... 19 Deductions from Premiums........................................................ 19 Surrender Charges............................................................... 19 -Reductions to Surrender Charges................................................ 20 Deductions from Cash Value...................................................... 20 -Monthly Cost of Insurance...................................................... 20 -Monthly Administrative Charge.................................................. 21 -Increase Charge................................................................ 21 Deductions from the Sub-Accounts................................................ 21 HOW THE CASH VALUE VARIES........................................................... 21 How the Investment Experience is Determined..................................... 21 Net Investment Factor........................................................... 22 Valuation of Assets............................................................. 22 Determining the Cash Value...................................................... 22 Valuation Periods and Valuation Dates........................................... 22 SURRENDERING THE POLICY FOR CASH.................................................... 22 Right to Surrender.............................................................. 22 Cash Surrender Value............................................................ 23 Partial Surrenders.............................................................. 23 Maturity Proceeds............................................................... 23 Income Tax Withholding.......................................................... 23 POLICY LOANS........................................................................ 23 Taking a Policy Loan............................................................ 23 Effect on Investment Performance................................................ 24 Interest........................................................................ 24 Effect on Death Benefit and Cash Value.......................................... 24 Repayment....................................................................... 24 HOW THE DEATH BENEFIT VARIES........................................................ 25
8 of 105 9 Calculation of the Death Benefit................................................ 25 Proceeds Payable on Death....................................................... 25 RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY........................................ 25 CHANGES OF INVESTMENT POLICY........................................................ 26 GRACE PERIOD........................................................................ 26 -First Three Policy Years....................................................... 26 -Policy Years Four and After.................................................... 26 -All Policy Years............................................................... 26 REINSTATEMENT....................................................................... 26 THE FIXED ACCOUNT OPTION............................................................ 27 CHANGES IN EXISTING INSURANCE COVERAGE.............................................. 27 Specified Amount Increases....................................................... 27 Specified Amount Decreases....................................................... 28 Changes in the Death Benefit Option.............................................. 28 OTHER POLICY PROVISIONS............................................................. 28 Policy Owner..................................................................... 28 Beneficiary...................................................................... 28 Assignment....................................................................... 28 Incontestability................................................................. 29 Error in Age or Sex.............................................................. 29 Suicide.......................................................................... 29 Nonparticipating Policies........................................................ 29 LEGAL CONSIDERATIONS................................................................ 29 DISTRIBUTION OF THE POLICIES........................................................ 29 CUSTODIAN OF ASSETS................................................................. 30 TAX MATTERS......................................................................... 30 Policy Proceeds................................................................. 30 Taxation of the Company......................................................... 31 Other Considerations............................................................ 31 THE COMPANY......................................................................... 31 COMPANY MANAGEMENT.................................................................. 31 Directors of the Company........................................................ 32 Executive Officers of the Company............................................... 32 OTHER CONTRACTS ISSUED BY THE COMPANY............................................... 33 STATE REGULATION.................................................................... 33 REPORTS TO POLICY OWNERS............................................................ 33 ADVERTISING......................................................................... 33 LEGAL PROCEEDINGS................................................................... 34 EXPERTS............................................................................. 34 REGISTRATION STATEMENT.............................................................. 34 LEGAL OPINIONS...................................................................... 34 APPENDIX 1.......................................................................... 35 APPENDIX 2.......................................................................... 36 APPENDIX 3.......................................................................... 53 PERFORMANCE TABLES.................................................................. 54 FINANCIAL STATEMENTS................................................................ 58
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. 9 of 105 10 THE PRIMARY PURPOSE OF THE POLICIES IS TO PROVIDE LIFE INSURANCE PROTECTION FOR THE BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. SUMMARY OF THE POLICIES VARIABLE LIFE INSURANCE The variable life insurance Policies offered by Nationwide Life Insurance Company (the "Company") are similar in many ways to fixed-benefit whole life insurance. As with fixed-benefit whole life insurance, the Owner of the Policy pays a premium for life insurance coverage on the person insured. Also like fixed-benefit whole life insurance, the Policies may provide for a Cash Surrender Value which is payable if the Policy is terminated during the Insured's lifetime. As with fixed-benefit whole life insurance, the Cash Surrender Value during the early Policy years may be substantially lower than the premiums paid. However, the Policies differ from fixed-benefit whole life insurance in several respects. Unlike fixed-benefit whole life insurance, the death benefit and Cash Value of the Policies may increase or decrease to reflect the investment performance of the Variable Account sub-accounts or the Fixed Account to which Cash Values are allocated (see "How the Death Benefit Varies"). There is no guaranteed Cash Surrender Value (see "How the Cash Value Varies"). If the Cash Surrender Value is insufficient to pay the Policy Charges, the Policy will lapse without value. Nationwide Life Insurance Company guarantees to keep the Policy in force during the first three years so long as certain requirements have been met (see "Underwriting and Issuance"). Under certain conditions, a Policy may become a modified endowment contract as a result of a material change or a reduction in benefits as defined by the Internal Revenue Code ("Code"). Excess premiums paid may also cause the Policy to become a modified endowment contract. The Company will monitor premiums paid and other policy transactions and will notify the Policy Owner when the Policy's non-modified endowment contract status is in jeopardy (see "Tax Matters"). THE VARIABLE ACCOUNT AND ITS SUB-ACCOUNTS The Company places the Policy's Net Premiums in the Variable Account or the Fixed Account at the time the Policy is issued. The Policy Owner selects the sub-accounts of the Variable Account or the Fixed Account into which the Cash Value will be allocated (see "Allocation of Cash Value"). When the Policy is issued, the Net Premiums will be allocated to the Nationwide Separate Account Trust Money Market Fund sub-account (for any Net Premiums allocated to a sub-account on the application) in the Fixed Account until the expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. Assets of each sub-account are invested at net asset value in shares of a corresponding underlying Mutual Fund. For a description of the underlying Mutual Fund options and their investment objectives, see "Investments of the Variable Account." THE FIXED ACCOUNT The Fixed Account is funded by the assets of the Company's General Account. Cash Values allocated to the Fixed Account are credited with interest daily at a rate declared by the Company. The interest rate declared is at the Company's sole discretion, but may never be less than an effective annual rate of 4%. DEDUCTIONS AND CHARGES The Company deducts certain charges from the assets of the Variable Account and the Cash Value of the Policy. These charges are made for administrative and sales expenses, state premium taxes, providing life insurance protection and assuming the mortality and expense risks. For a discussion of any charges imposed by the underlying Mutual Fund options, see the prospectuses of the respective underlying Mutual Funds. The Company deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. On a current basis, the sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the annual Break Point Premium. The total sales load actually deducted from any Policy will be equal to the sum of this front-end sales load plus any sales surrender charge that may be deducted from Policies that are surrendered. The Company also deducts a charge for state premium taxes equal to 2.5% of all premium payments. The Company also deducts the following charges from the Policy's Cash Value on the Policy Date and each subsequent Monthly Anniversary Day: 1. monthly cost of insurance; plus 2. monthly cost of any additional benefits provided by riders to the Policy; plus 10 of 105 11 3. an administrative expense charge. This charge is $25 per month in the first year and $5 per month in renewal years. The charge in renewal years may be increased at the sole discretion of the Company but may not exceed $7.50 per month; plus 4. an increase charge per $1000 applied to any increase in the Specified Amount. The increase charge is $2.04 per year per $1000 and is shown on the Policy data page. This charge is designed to cover the costs associated with increasing the Specified Amount (see "Policy Charges"). This charge will be deducted on each Monthly Anniversary Day for the first 12 months after the increase becomes effective. The Company also deducts on a daily basis from the assets of the Variable Account a charge to provide for mortality and expense risks. This charge is equivalent to an annual effective rate of 0.80% of the daily net assets of the Variable Account. On each Policy Anniversary beginning with the 10th, the mortality and expense risk charge is reduced to 0.50% on an annual basis of the daily net assets of the Variable Account, provided the Cash Surrender Value is $25,000 or more on such anniversary. For Policies which are surrendered during the first nine Policy Years, the Company deducts a Surrender Charge. This Surrender Charge is comprised of an Underwriting Surrender Charge and a Sales Surrender Charge. The maximum initial Surrender Charge varies by issue age, sex, Specified Amount and underwriting classification and is calculated based on the initial Specified Amount. The following table illustrates the maximum initial Surrender Charge per $1,000 of initial Specified Amount for Policies which are issued on a Standard basis (see Appendix 1 for specific examples). Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard --- ----------- ----------- -------- -------- 25 $ 7.776 $ 7.521 $ 8.369 $ 7.818 35 8.817 8.398 9.811 8.891 45 12.191 11.396 13.887 12.169 55 15.636 14.011 18.415 15.116 65 22.295 19.086 26.577 20.641 25 $ 5.776 $ 5.521 $ 6.369 $ 5.818 35 6.817 6.398 7.811 6.891 45 9.691 8.896 11.387 9.669 55 13.136 11.511 15.915 12.616 65 21.295 18.086 25.577 19.641
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:
- -------------------------------------------------------------------------------- Management Other Total Fees Expenses 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 0.84% 0.10% 0.94% Trust-Growth Portfolio - -------------------------------------------------------------------------------- Neuberger & Berman Advisers Management 0.65% 0.10% 0.75% Trust-Limited Maturity Bond Portfolio - -------------------------------------------------------------------------------- Neuberger & Berman Advisers Management 0.85% 0.30% 1.15% Trust-Partners Portfolio - --------------------------------------------------------------------------------
11 of 105 12
- ---------------------------------------------------------------------------------- Management Other Total Fees Expenses Expenses - ---------------------------------------------------------------------------------- Oppenheimer Variable Account Funds-Bond Fund 0.75% 0.05% 0.80% - ---------------------------------------------------------------------------------- Oppenheimer Variable Account Funds - 0.74% 0.15% 0.89% Global Securities Fund - ---------------------------------------------------------------------------------- Oppenheimer Variable Account Funds-Multiple 0.74% 0.03% 0.77% Strategies - ---------------------------------------------------------------------------------- Strong Special Fund II, Inc. 1.00% 0.20% 1.20% - ---------------------------------------------------------------------------------- Strong Variable Insurance Funds, Inc.-Discovery 1.00% 0.31% 1.31% Fund II, Inc. - ---------------------------------------------------------------------------------- Strong Variable Insurance Funds, Inc.- 1.00% 0.97% 1.97% International Stock Fund II - ---------------------------------------------------------------------------------- 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 0.79% 0.15% 0.94% Natural Resources Fund - ---------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust-Worldwide 0.80% 0.16% 0.96% Bond Fund - ---------------------------------------------------------------------------------- Van Kampen American Capital Life Investment 1.00% 1.90% 2.90% Trust- Real Estate Securities Fund - ---------------------------------------------------------------------------------- Warburg Pincus Trust-International Equity 1.00% 0.44% 1.44% Portfolio - ---------------------------------------------------------------------------------- Warburg Pincus Trust-Small Company Growth 0.90% 0.35% 1.25% Portfolio - ----------------------------------------------------------------------------------
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 are more fully described in the prospectuses for each individual underlying Mutual Fund. The management fees and other expenses, some of which may be subject to fee waivers or expense reimbursement, are more fully described in the prospectus for each underlying Mutual Fund. The information relating to the underlying Mutual Fund expenses was provided by the underlying Mutual Fund and was not independently verified by the Company. PREMIUMS The minimum Initial Premium for which a Policy may be issued is equal to three minimum monthly premiums. A policy may be issued to an Insured up to age 80. For a limited time, the Policy Owner has the right to cancel the Policy and receive a full refund of premiums paid (see "Short-Term Right to Cancel Policy"). The Initial Premium is due on the Policy Date. It will be credited on the Policy Date. Any due and unpaid monthly deductions will be subtracted from the Cash Value at this time. Insurance will not be effective until the Initial Premium is paid. The Initial Premium is shown on the Policy data page. Premiums, other than the Initial Premium may be made at any time while your Policy is in force subject to the limits described below. During the first three Policy Years, the total premium payments less any Policy Indebtedness, less any partial surrenders, and less any partial surrender fee must be greater than or equal to the Minimum Premium requirement in order to guarantee the Policy remain in force. The Minimum Premium requirement is equal to the monthly Minimum Premium multiplied by the number of completed policy months. The monthly Minimum Premium is shown on the Policy data page. We will send Scheduled Premium payment reminder notices to you. We will send them according to the premium mode shown on the Policy data page. You may pay the Initial Premium to us at our home office or to an authorized agent. All premiums after the first are payable at our home office. Premium receipts will be furnished upon request. Each premium must be at least equal to the monthly Minimum Premium. The Company reserves the right to require satisfactory evidence of insurability before accepting any additional premium payment which results in any increase in the net amount at risk. Also, we will refund any portion of any premium payment which is determined to be in excess of the premium limit established by law to qualify your Policy as a contract for life insurance. Where permitted by state law, we may also require that any existing Policy Indebtedness is repaid prior to accepting any additional premium payments. 12 of 105 13 NATIONWIDE LIFE INSURANCE COMPANY The Company is a stock life insurance company organized under the laws of the State of Ohio in March, 1929. The Company is a member of the Nationwide Insurance Enterprise which includes Nationwide Mutual Insurance Company, Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity Company and Nationwide General Insurance Company. The Company's home office is at One Nationwide Plaza, Columbus, Ohio 43216. The Company offers a complete line of life insurance, including annuities and accident and health insurance. It is admitted to do business in all states, the District of Columbia, and Puerto Rico (for additional information, see "The Company"). THE VARIABLE ACCOUNT The Variable Account was established by a resolution of the Company's Board of Directors, on May 7,1987, pursuant to Ohio law. The Company has caused the Variable Account to be registered with the Securities and Exchange Commission as a unit investment trust pursuant to the provisions of the Investment Company Act of 1940. Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216 serves as Trustee for the Trust. Nationwide Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216 serves as principal underwriter for the Trust. Such registration does not involve supervision of the management of the Variable Account or the Company by the Securities and Exchange Commission. The Variable Account is a separate investment account of the Company and as such, is not chargeable with the liabilities arising out of any other business the Company may conduct. The Company does not guarantee the investment performance of the Variable Account. The death benefit and Cash Value under the Policy may vary with the investment performance of the investments in the Variable Account (see "How the Death Benefit Varies" and "How the Cash Value Varies"). Net Premium payments and Cash Value are allocated within the Variable Account among one or more sub-accounts (see "Tax Matters"). The assets of each sub-account are used to purchase shares of the underlying Mutual Fund options designated by the Policy Owner. Thus, the investment performance of a Policy depends upon the investment performance of the underlying Mutual Fund options designated by the Policy Owner. INVESTMENTS OF THE VARIABLE ACCOUNT At the time of application, the Policy Owner elects to have the Net Premiums allocated among one or more of the Variable Account sub-accounts and the Fixed Account (see "Allocation of Cash Value"). During the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy, all Net Premiums not allocated to the Fixed Account are placed in the Nationwide Separate Account Trust Money Market Fund sub-account. At the end of this period, the Cash Value in that sub-account will be transferred to the Variable Account sub-accounts based on the Fund allocation factors. Any subsequent Net Premiums received after this period will be allocated based on the Fund allocation factors. No less than 5% of Net Premiums may be allocated to any one sub-account or the Fixed Account. The Policy Owner may change the allocation of Net Premiums or may transfer Cash Value from one sub-account to another, subject to such terms and conditions as may be imposed by each underlying Mutual Fund option and as set forth in this prospectus (see "Transfers", "Allocation of Cash Value" and "Short-Term Right to Cancel Policy"). These underlying Mutual Fund options are available only to serve as the underlying investment for variable annuity and variable life contracts issued through separate accounts of life insurance companies which may or may not be affiliated, also known as "mixed and shared funding." There are certain risks associated with mixed and shared funding, which is disclosed in the underlying Mutual Funds' prospectuses. A full description of the underlying Mutual Funds, their investment policies and restrictions, risks and charges are contained in the prospectuses of the respective underlying Mutual Funds. Additional Premium payments, upon acceptance, will be allocated to the Nationwide Separate Account Money Market Fund unless the Policy Owner specifies otherwise (see "Premium Payments"). Each of the underlying Mutual Fund options is a registered investment company which receives investment advice from a registered investment adviser: 1) Dreyfus Stock Index Fund, managed by Wells Fargo Nikko Investment Advisors; 2) The Dreyfus Socially Responsible Growth Fund, Inc., managed by Dreyfus Corporation; 13 of 105 14 3) Fidelity Variable Insurance Products Fund, managed by Fidelity Management & Research Company; 4) Fidelity Variable Insurance Products Fund II, managed by Fidelity Management & Research Company; 5) 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., a member of the Twentieth Century Family of Mutual Funds; 11) Van Eck Worldwide Insurance Trust (Formerly Van Eck Investment Trust), managed by Van Eck Associates Corporation; 12) Van Kampen American Capital Life Investment Trust managed by Van Kampen American Capital 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. More detailed information may be found in the current prospectus for each underlying Mutual Fund option. A prospectus for the underlying Mutual Fund option(s) being considered must accompany this prospectus and should be read in conjunction herewith. DREYFUS - - DREYFUS STOCK INDEX FUND Dreyfus Stock Index Fund is an open-end, non-diversified, management investment company. It was incorporated under Maryland law on January 24, 1989, and commenced operations on September 29, 1989. Wells Fargo Nikko Investment Advisors serves as the Fund's index fund manager. As of May 1, 1994, Dreyfus Life and Annuity Index Fund began doing business as Dreyfus Stock Index Fund. Investment Objective: To provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. - - DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified, management investment company. It was incorporated under Maryland law on July 20, 1992, and commenced operations on October 7, 1993. Dreyfus Corporation serves as the Fund's investment advisor. Tiffany Capitol Advisors, Inc. serves as the Fund's sub-investment adviser and provides day-to-day management of the Fund's portfolio. Investment Objective: The Fund's primary goal is to provide capital growth through equity investment in companies that, in the opinion of the Fund's management, not only meet traditional investment standards, but which also show evidence that they conduct their business in a manner that contributes to the enhancement of the quality of life in America. Current income is secondary to the primary goal. FIDELITY VARIABLE INSURANCE PRODUCTS FUND The Fund is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. The Fund's shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. Fidelity Management & Research Company ('FMR') is the Fund's manager. - - HIGH INCOME PORTFOLIO Investment Objective: Seeks to obtain a high level of current income by investing primarily in high-risk, high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. The portfolio's manager will seek high current income normally by investing the Portfolio's assets as follows: - at least 65% in income-producing debt securities and preferred stocks, including convertible securities, zero coupon securities, and mortgage-backed and asset-backed securities. - up to 20% in common stocks and other equity securities when consistent with the Portfolio's primary objective or acquired as part of a unit combining fixed-income and equity securities. 14 of 105 15 Higher yields are usually available on securities that are lower-rated or that are unrated. Lower-rated securities are usually defined as Ba or lower by Moody's; BB or lower by Standard & Poor's and may be deemed to be of a speculative nature. The Portfolio may also purchase lower-quality bonds such as those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor protection for payment of principal and interest (commonly referred to as "junk bonds"). For a further discussion of lower-rated securities, please see the "Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus. - - EQUITY-INCOME PORTFOLIO Investment Objective: To seek reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR also will consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. - - GROWTH PORTFOLIO Investment Objective: Seeks to achieve capital appreciation. This Portfolio will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the Portfolio. Many securities which FMR believes would have the greatest potential may be regarded as speculative, and investment in the Portfolio may involve greater risk than is inherent in other mutual funds. It is also important to point out that the Portfolio makes most sense for you if you can afford to ride out changes in the stock market, because it invests primarily in common stocks. FMR also can make temporary investments in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. - - OVERSEAS PORTFOLIO Investment Objective: To seek long term growth of capital primarily through investments in foreign securities. The Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. FIDELITY VARIABLE INSURANCE PRODUCTS FUND II The Fund is an open-end, diversified, management investment company organized as a Massachusetts business trust on March 21, 1988. The Fund's shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. FMR is the Fund's manager. - - ASSET MANAGER PORTFOLIO Investment Objective: To seek to obtain high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term fixed income instruments. - - CONTRAFUND PORTFOLIO Investment Objective: To seek capital appreciation by investing primarily in companies that the fund manager believes to be undervalued due to an overly pessimistic appraisal by the public. This strategy can lead to investments in domestic or foreign companies, small and large, many of which may not be well known. The fund primarily invests in common stock and securities convertible into common stock, but it has the flexibility to invest in any type of security that may produce capital appreciation. 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., 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. 15 of 105 16 - - MONEY MARKET FUND Investment Objective: To seek as high a level of current income as is considered consistent with the preservation of capital and liquidity by investing primarily in money market instruments. - - GOVERNMENT BOND FUND Investment Objective: To provide as high a level of income as is consistent with capital preservation through investing primarily in bonds and securities issued or backed by the U.S. Government, its agencies or instrumentalities. - - TOTAL RETURN FUND Investment Objective: To obtain a reasonable long-term total return (i.e., earnings growth plus potential dividend yield) on invested capital from a flexible combination of current return and capital gains through investments in common stocks, convertible issues, money market instruments and bonds with a primary emphasis on common stocks. - - 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 contracted with a group of sub-advisers, each of which will manage a portion of the Fund's portfolio. These sub-advisers are the Dreyfus Corporation, Neuberger & Berman, L. P., Pictet International Management Limited, Van Eck Associates Corporation, Strong Capital Management, Inc. and Warburg Pincus Counsellors, Inc. The sub-advisers were chosen because they utilize a number of different investment styles when investing in small company stocks. By utilizing a number of investment styles, NFS hopes to increase prospects for investment return and to reduce market risk and volatility. 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. As a secondary objective, it also seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. It seeks to achieve its objectives through investments in a diversified portfolio of limited maturity debt securities. The Portfolio invests in securities which are at least investment grade and does not invest in junk bonds. - - GROWTH PORTFOLIO Investment Objective: The Portfolio seeks capital growth through investments in common stocks of companies that the investment adviser believes will have above average earnings or otherwise provide investors with above average potential for capital appreciation. To maximize this potential, the investment adviser may also utilize, from time to time, securities convertible into common stocks, warrants and options to purchase such stocks. - - 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. 16 of 105 17 - - OPPENHEIMER BOND FUND Investment Objective: Primarily to seek a high level of current income from investment in high yield fixed-income securities rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. Secondarily, the Fund seeks capital growth when consistent with its primary objective. - - OPPENHEIMER GLOBAL SECURITIES FUND Investment Objective: To seek long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations which are considered to have appreciation possibilities. Current income is not an objective. These securities may be considered to be speculative. - - OPPENHEIMER MULTIPLE STRATEGIES FUND Investment Objective: To seek a total investment return (which includes current income and capital appreciation in the value of its shares) from investments in common stocks and other equity securities, bonds and other debt securities, and "money market" securities. STRONG SPECIAL FUND II, INC. The Strong Special Fund II, Inc. is a diversified, open-end management company commonly called a Mutual Fund. The Special Fund II, Inc. was incorporated in Wisconsin and may only be purchased by the separate accounts of insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Strong Capital Management Inc. (the "Advisor") is the investment advisor for the Fund. Investment Objective: To seek capital appreciation through investments in a diversified portfolio of equity securities. STRONG VARIABLE INSURANCE FUNDS, INC. Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end management investment company, commonly referred to as a Mutual Fund. Incorporated in the State of Wisconsin, the Corporation has been authorized to issue shares of common stock and series and classes of series of common stock. The International Stock Fund II and The Strong Discovery Fund II, Inc. ("Funds") are offered by the Corporation to insurance company separate accounts for the purpose of funding variable life insurance policies and variable annuity contracts. Strong Capital Management, Inc. is the investment advisor to the Funds. - DISCOVERY FUND II, INC. Investment Objective: To seek maximum capital appreciation through investments in a diversified portfolio of securities. The Fund normally emphasizes investment in equity securities and may invest up to 100% of its total assets in equity securities including common stocks, preferred stocks and securities convertible into common or preferred stocks. Although the Fund normally emphasizes investment in equity securities, the Fund has the flexibility to invest in any type of security that the Advisor believes has the potential for capital appreciation including up to 100% of its total assets in debt obligations, including intermediate to long-term corporate or U.S. government debt securities. - - INTERNATIONAL STOCK FUND II Investment Objective: To seek capital growth by investing primarily in the equity securities of issuers located outside the United States. TCI PORTFOLIOS, INC., A MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS TCI Portfolios, Inc. was organized as a Maryland corporation in 1987. It is a diversified, open-end 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 17 of 105 18 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 (FORMERLY VAN ECK INVESTMENT TRUST) Van Eck Worldwide Insurance Trust is an open-end management investment company organized as a "business trust" under the laws of the Commonwealth of Massachusetts on January 7, 1987. Shares of the Trust are offered only to separate accounts of various insurance companies to fund benefits of variable insurance and annuity policies. The assets of the Trust are managed by Van Eck Associates Corporation. - - GOLD AND NATURAL RESOURCES FUND Investment Objective: To seek long-term capital appreciation by investing in equity and debt securities of companies engaged in the exploration, development, production and distribution of gold and other natural resources, such as strategic and other metals, minerals, forest products, oil, natural gas and coal. Current income is not an objective. - - WORLDWIDE BOND FUND (FORMERLY GLOBAL BOND FUND) Investment Objective: To seek high total return through a flexible policy of investing globally, primarily in debt securities. The Fund does not invest in junk bonds. VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST The American Capital Life Investment Trust is an open-end diversified management investment company organized as a Massachusetts business trust on June 3, 1985. The Trust offers shares in separate funds which are sold only to insurance companies to provide funding for variable life insurance policies and variable annuity contracts. Van Kampen American Capital Asset Management, Inc. serves as the Fund's investment adviser. - REAL ESTATE SECURITIES FUND Investment Objective: To seek long-term capital growth by investing in a portfolio of securities of companies operating in the real estate industry ("Real Estate Securities"). Current income is a secondary consideration. Real Estate Securities include equity securities, common stocks and convertible securities, as well as non-convertible preferred stocks and debt securities of real estate industry companies. A "real estate industry company" is a company that derives at least 50% of its assets (marked to market), gross income or net profits from the ownership, construction, management or sale of residential, commercial or industrial real estate. Under normal market conditions, at least 65% of the Fund's total assets will be invested in Real Estate Securities, primarily equity securities of real estate investment trusts. The Fund may invest up to 25% of its total assets in securities issued by foreign issuers, some or all of which may also be Real Estate Securities. There can be no assurance that the Fund will achieve its investment objective. WARBURG PINCUS TRUST The Warburg Pincus Trust ("Trust") is an open-end management investment company organized in March 1995 as a business trust under the laws of The Commonwealth of Massachusetts. The Trust offers its shares to 18 of 105 19 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 underlying Mutual Funds. The distribution of additional shares will not affect the number of Accumulation Units attributable to a particular Policy (see "Allocation of Cash Value"). TRANSFERS After the first Policy Anniversary, the Policy Owner may annually transfer a portion of the value of the Variable Account to the Fixed Account, without penalty or adjustment. The Policy Owner may request a transfer of up to 100% of the Cash Value from the Variable Account to the Fixed Account. The Company reserves the right to restrict transfers to the Fixed Account to 25% of the Cash Value. 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 Policy Owner may transfer a portion of the value of the Fixed Account to the Variable Account once each Policy Year, without penalty or adjustment. The Policy Owner may request a transfer of up to 100% of the Cash Value in the Fixed Account to the Variable sub-accounts. The Company reserves the right to restrict the amounts of such transfers to 25% of the Cash Value in the Fixed Account. Transfers may be made either in writing or, in states allowing such transfers, by telephone. In states allowing telephone transfers, and if the Owner so elects, the Company will also permit the Policy Owner to utilize the Telephone Exchange Privilege for exchanging amounts among sub-account options. The Company will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures may include any or all of the following, or such other procedures as the Company may, from time to time, deem reasonable: requesting identifying information, such as name, contract number, Social Security Number, and/or personal identification number; tape recording all telephone transactions; and providing written confirmation thereof to both the Policy Owner and any agent of record at the last address of record. Although failure to follow reasonable procedures may result in the Company's liability for any losses due to unauthorized or fraudulent telephone transfers, the Company will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine. Any losses incurred pursuant to actions taken by the Company in reliance on telephone instructions reasonably believed to be genuine shall be borne by the Contract Owner. The Company may determine to 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 19 of 105 20 Averaging, a long-term investment program which provides for regular, level investments over time. The Company makes no guarantees that Dollar Cost Averaging, will result in a profit or protect against loss in a declining market. To qualify for Dollar Cost Averaging, there must be a minimum total Cash Value, less Policy Indebtedness, of $15,000. Transfers for purposes of Dollar Cost Averaging can only be made from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account. The minimum monthly Dollar Cost Averaging transfer is $100. In addition, Dollar Cost Averaging monthly transfers from the Fixed Account must be equal to or less than 1/30th of the Fixed Account value when the Dollar Cost Averaging program is requested. Transfers out of the Fixed Account, other than for Dollar Cost Averaging, may be subject to certain additional restrictions (see "Transfers" above). A written election of this service, on a form provided by the Company, must be completed by the Policy Owner in order to begin transfers. Once elected, transfers from the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account will be processed monthly until either the value in the Money Market sub-account, Fixed Account, or the Limited Maturity Bond Portfolio sub-account is completely depleted or the Policy Owner instructs the Company in writing to cancel the 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 should no longer be available for investment by the Variable Account or, if in the judgment of the Company's management further investment in such underlying Mutual Funds should become inappropriate in view of the purposes of the Policy, the Company may substitute shares of another underlying Mutual Fund for shares already purchased or to be purchased in the future by Net Premium payments under the Policy. No substitution of securities in the Variable Account may take place without prior approval of the Securities and Exchange Commission, and under such requirements as it and any state insurance department may impose. VOTING RIGHTS Voting rights under the Policies apply only with respect to Cash Value allocated to the sub-accounts of the Variable Account. In accordance with its view of present applicable law, the Company will vote the shares of the underlying Mutual Funds held in the Variable Account at regular and special meetings of the shareholders of the underlying Mutual Funds in accordance with instructions received from Policy Owners. However, if the Investment Company Act of 1940 or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote the shares of the underlying Mutual Funds in its own right, the Company may elect to do so. The Policy Owner shall have the voting interest under a Policy. The number of shares in each sub-account for which the Policy Owner may give voting instructions is determined by dividing any portion of the Policy's Cash Value derived from participation in that underlying Mutual Fund by the net asset value of one share of that underlying Mutual Fund. The number of shares which a person has a right to vote will be determined as of a date chosen by the Company, but not more than 90 days prior to the meeting of the underlying Mutual Fund. Voting instructions will be solicited by written communication prior to such meeting. The Company will vote underlying Mutual Fund shares in accordance with instructions received from the Policy Owners. Underlying Mutual Fund shares held by the Company or by the Variable Account as to which no timely instructions are received will be voted by the Company in the same proportion as the voting instructions which are received. Each person having a voting interest in the Variable Account will receive periodic reports relating to investments of the Variable Account, the 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 20 of 105 21 purposes; or (3) enter into or refrain from entering into any advisory agreement or underwriting contract, if required by any insurance regulatory authority. INFORMATION ABOUT THE POLICIES UNDERWRITING AND ISSUANCE - -Minimum Requirements for Issuance of a Policy The Policies are designed to provide life insurance coverage and the flexibility to vary the amount and frequency of premium payments. At issue, the Policy Owner selects the initial Specified Amount and premium. The minimum Specified Amount is $50,000 ($100,000 in Pennsylvania and New Jersey). Policies may be issued to Insureds with issue ages 80 or younger. Before issuing any Policy, the Company requires satisfactory evidence of insurability which may include a medical examination. - -Premium Payments The Initial Premium for a Policy is payable in full at the Company's home office. Upon payment of an initial premium, temporary insurance may be provided, subject to a maximum amount. The effective date of permanent insurance coverage is dependent upon completion of all underwriting requirements, payment of Initial Premium, and delivery of the policy while the Insured is still living. Premiums, other than the Initial Premium, may be made at any time while the Policy is in force subject to the limits described below. During the first three Policy Years, the total premium payments less any Policy Indebtedness, less any partial surrenders, and less any partial surrender fee must be greater than or equal to the Minimum Premium requirement in order to guarantee the Policy remains in force. The Minimum Premium requirement is equal to the monthly Minimum Premium multiplied by the number of completed policy months. The monthly Minimum Premium is shown on the Policy data page. Each premium payment must be at least equal to the monthly Minimum Premium. Additional premium payments may be made at any time while the Policy is in force. However, the Company reserves the right to require satisfactory evidence of insurability before accepting any additional premium payment which results in an increase in the net amount at risk. Also, the Company will refund any portion of any premium payment which is determined to be in excess of the premium limit established by law to qualify the Policy as a contract for life insurance. The Company may also require that any existing Policy Indebtedness is repaid prior to accepting any additional premium payments. Additional premium payments or other changes to the contract, may jeopardize the Policy's non-modified endowment status. The Company will monitor premiums paid and other policy transactions and will notify the Policy Owner when non-modified endowment contract status is in jeopardy (see "Tax Matters"). ALLOCATION OF CASH VALUE At the time a Policy is issued, its Cash Value will be based on the Nationwide Separate Account Trust Money Market Fund sub-account value or the Fixed Account as if the Policy had been issued and the Initial Net Premium invested on the date such premium was received in good order by the Company. When the Policy is issued, the Net Premiums will be allocated to the Nationwide Separate Account Trust Money Market Fund sub-account (for any Net Premiums allocated to a sub-account on the application) or the Fixed Account until the expiration of the period in which the Policy Owner may exercise his or her short-term right to cancel the Policy. Net Premiums not designated for the Fixed Account will be placed in the Nationwide Separate Account Trust Money Market Sub-Account. At the expiration of the period in which the Policy Owner may exercise his or her short term right to cancel the Policy, shares of the underlying Mutual 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 Net Premiums or may transfer Cash Value from one sub-account to another, subject to such terms and conditions as may be imposed by each underlying Mutual Fund and as set forth in the prospectus. Net Premiums allocated to the Fixed Account at the time of application may not be transferred prior to the first Policy Anniversary (see "Transfers" and "Investments of the Variable Account"). The designation of investment allocations will be made by the prospective Policy Owner at the time of application for a Policy. The Policy Owner may change the way in which future Net Premiums are allocated by giving written notice to the Company. All percentage allocations must be in whole numbers, and must be at least 5%. The sum of allocations must equal 100%. SHORT-TERM RIGHT TO CANCEL POLICY A Policy may be returned for cancellation and a full refund of premium within 10 days after the Policy is received, within 45 days after the application for insurance is signed, or within 10 days after the Company mails or delivers a Notice of Right of Withdrawal, whichever is latest. The Policy can be mailed or delivered to the registered representative who sold it, or to the Company. Immediately after such mailing or delivery, the Policy 21 of 105 22 will be deemed void from the beginning. The Company will refund the total premiums paid within seven days after it receives the Policy. POLICY CHARGES DEDUCTIONS FROM PREMIUMS The Company deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. On a current basis, the sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the annual Break Point Premium. The total sales load actually deducted from any Policy will be equal to the sum of this front-end sales load plus any sales surrender charge that may be deducted from Policies that are surrendered. The Company also pays any state premium taxes attributable to a particular policy when incurred by the Company. The Company expects to pay an average state premium tax rate of approximately 2.5% of premiums for all states, although such tax rates range from 0% to 4%. To reimburse the Company for the payment of state premium taxes associated with the Policies, the Company deducts a charge for state premium taxes equal to 2.5% of all premium payments received. This charge may be more or less than the amount actually assessed by the state in which a particular Policy Owner lives. The Company does not expect to make a profit from this charge. SURRENDER CHARGES The Company will deduct a Surrender Charge from the Policy's Cash Value for any Policy surrendered during the first nine Policy Years. The maximum initial Surrender Charge varies by issue age, sex, Specified Amount and underwriting classification and is calculated based on the initial Specified Amount. The following table illustrates the maximum initial Surrender Charge per $1,000 of initial Specified Amount for Policies which are issued on a standard basis (see Appendix 1 for specific examples). Initial Specified Amount $50,000-$99,999
Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard --- ----------- ----------- -------- -------- 25 $ 7.776 $ 7.521 $ 8.369 $ 7.818 35 8.817 8.398 9.811 8.891 45 12.191 11.396 13.887 12.169 55 15.636 14.011 18.415 15.116 65 22.295 19.086 26.577 20.641
Initial Specified Amount $100,000+
Issue Male Female Male Female Age Non-Tobacco Non-Tobacco Standard Standard --- ----------- ----------- -------- -------- 25 $ 5.776 $ 5.521 $ 6.369 $ 5.818 35 6.817 6.398 7.811 6.891 45 9.691 8.896 11.387 9.669 55 13.136 11.511 15.915 12.616 65 21.295 18.086 25.577 19.641
The Surrender Charge is comprised of two components: an underwriting surrender charge and sales surrender charge. The underwriting surrender charge varies by issue age in the following manner: Charge per $1,000 of Initial Specified Amount
Issue Specified Amounts Specified Amounts Age less than $100,000 $100,000 or more --- ------------------ ---------------- 0-35 $6.00 $4.00 36-55 7.50 5.00 56-80 7.50 6.50
The underwriting surrender charge is designed to cover the administrative expenses associated with underwriting and issuing the Policy, including the costs of processing applications, conducting medical exams, determining insurability and the Insured's underwriting class, and establishing policy records. The Company does not expect to profit from the underwriting surrender charges. The Surrender Charge may be insufficient to recover certain expenses related to the sale of the Policies. Unrecovered expenses are borne by the Company's general assets which may include profits, if any, from mortality and expense risk charges (see 22 of 105 23 "Deductions from the Sub-Accounts"). Additional premiums and/or income earned on assets in the Variable Account have no effect on these charges. The remainder of the Surrender Charge which is not attributable to the underwriting surrender charge component represents the sales surrender charge component. In no event will this component exceed 26-1/2% of the lesser of the Guideline Level Premium required in the first year or the premiums actually paid in the first year. The purpose of the sales surrender charge component is to reimburse the Company for some of the expenses incurred in the distribution of the Policies. The company also deducts 3.5% of each premium for sales load (see "Deductions from Premiums"). - -Reductions to Surrender Charges The Surrender Charges are reduced in subsequent Policy Years in the following manner:
Surrender Charge Surrender Charge Completed as a % of Initial Completed as a % of Initial Policy Years Surrender Charges Policy Years Surrender Charges 0 100% 5 60% 1 100% 6 50% 2 90% 7 40% 3 80% 8 30% 4 70% 9+ 0%
Special guaranteed maximum Surrender Charges apply in Pennsylvania (see Appendix 1). DEDUCTIONS FROM CASH VALUE The Company also deducts the following charges from the Policy's Cash Value on the Policy Date and each subsequent Monthly Anniversary Day: 1. monthly cost of insurance charges; plus 2. monthly cost of any additional benefits provided by riders; plus 3. monthly administrative expense charge; plus 4. the increase charge per $1000 applied to any increase in the Specified Amount (see "Specified Amount Increases"). The increase charge is $2.04 per year per $1000 and is shown on the Policy data page. This charge is designed to cover the costs associated with increasing the Specified Amount (see "Policy Charges"). This charge will be deducted on each Monthly Anniversary Day for the first 12 months after the increase becomes effective. These deductions will be charged proportionately to the Cash Value in each Variable Account sub-account and the Fixed Account. - -Monthly Cost of Insurance The monthly cost of insurance charge for each policy month is determined by multiplying the monthly cost of insurance rate by the net amount at risk. The net amount at risk is the difference between the death benefit and the Policy's Cash Value, each calculated at the beginning of the policy month. If death benefit Option 1 is in effect and there have been increases in the Specified Amount, then the Cash Value shall first be considered a part of the initial Specified Amount. If the Cash Value exceeds the initial Specified Amount, it shall then be considered a part of the additional increases in Specified Amount resulting from the increases in the order of the increases. Monthly cost of insurance rates will not exceed those guaranteed in the Policy. Guaranteed cost of insurance rates for Policies issued on Specified Amounts less than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table, Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for Policies issued on Specified Amounts $100,000 or more are based on the 1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for Policies issued on a substandard basis are based on appropriate percentage multiples of the 1980 CSO. These mortality tables are sex distinct. In addition, separate mortality tables will be used for standard and non-tobacco. For Policies issued in Texas on a standard basis ("Special Class - Standard" in Texas), guaranteed cost of insurance rates for Specified Amounts less than $100,000 are based on 130% of the 1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). The rate class of an Insured may affect the cost of insurance rate. The Company currently places Insureds into both standard rate classes and substandard classes that involve a higher mortality risk. In an otherwise identical Policy, an Insured in the standard rate class will have a lower cost of insurance than an Insured in a rate class with higher mortality risks. The Company may also issue certain Policies on a "Non Medical" basis to 23 of 105 24 certain categories of individuals. Due to the underwriting criteria established for Policies issued on a Non Medical basis, actual rates will be higher than the current cost of insurance rates being charged under Policies that are medically underwritten. - -Monthly Administrative Charge The Company deducts a monthly Administrative Expense Charge to reimburse it for certain expenses related to maintenance of the Policies, accounting and record keeping and periodic reporting to Policy Owners. This charge is designed only to reimburse the Company for certain actual administrative expenses. The Company does not expect to recover from this charge any amount in excess of aggregate maintenance expenses. Currently, this charge is $25 per month in the first year, $5 per month in renewal years. The Company may at its sole discretion increase this charge. However, the Company guarantees that this charge will never exceed $7.50 per month in renewal years. - -Increase Charge The Increase Charge is comprised of two components: an underwriting and administration charge as well as a sales charge (see "Specified Amount Increases"). The underwriting and administration charge is $1.50 per year per $1000. This charge is to cover the cost of underwriting the increases and any processing expenses. The Company does not expect to profit from this charge. The sales charge is equal to .54 per year per $1000 and reimburses the Company for expenses incurred in distribution. DEDUCTIONS FROM THE SUB-ACCOUNTS The Company assumes certain risks for guaranteeing the mortality and expense charges. The mortality risks assumed under the Policies is that the Insured may not live as long as expected. The expense risk assumed is that the actual expenses incurred in issuing and administering the Policies may be greater than expected. In addition, the Company assumes risks associated with the non-recovery of policy issue, underwriting and other administrative expenses due to Policies which lapse or are surrendered in the early Policy Years. To compensate the Company for assuming these risks associated with the Policies, the Company deducts on a daily basis from the assets of the Variable Account a charge to provide for mortality and expense risks. This charge is equivalent to an annual effective rate of 0.80% of the daily net assets of the Variable Account. On each Policy Anniversary beginning with the 10th, the mortality and expense risk charge is reduced to 0.50% on an annual basis of the daily net assets of the Variable Account, provided the Cash Surrender Value is $25,000 or more on such anniversary. To the extent that future levels of mortality and expenses are less than or equal to those expected, the Company may realize a profit from this charge. The Surrender Charge may be insufficient to recover certain expenses related to the sale of the Policies. Unrecovered expenses are born by the Company's general assets which may include profits, if any, from mortality and expense risk charges (see "Surrender Charges"). The Company does not currently assess any charge for income taxes incurred by the Company as a result of the operations of the sub-accounts of the Variable Account (see "Taxation of the Company"). The Company reserves the right to assess a charge for such taxes against the Variable Account if the Company determines that such taxes will be incurred. HOW THE CASH VALUE VARIES On any date during the Policy Year, the Cash Value equals the Cash Value on the preceding Valuation Date, plus any Net Premium applied since the previous Valuation Date, minus any partial surrenders, plus or minus any investment results, and less any Policy Charges. There is no guaranteed Cash Value. The Cash Value will vary with the investment experience of the Variable Account and/or the daily crediting of interest in the Fixed Account and Policy Loan Account depending on the allocation of Cash Value by the Policy Owner. HOW THE INVESTMENT EXPERIENCE IS DETERMINED The Cash Value in each sub-account is converted to Accumulation Units of that sub-account. The conversion is accomplished by dividing the amount of Cash Value allocated to a sub-account by the value of an Accumulation Unit for the sub-account of the Valuation Period during which the allocation occurs. The value of an Accumulation Unit for each sub-account was arbitrarily set initially at $10 when the underlying Mutual Fund shares in that sub-account were available for purchase. The value for any subsequent Valuation Period is determined by multiplying the Accumulation Unit value for each sub-account for the immediately preceding Valuation Period by the Net Investment Factor for the sub-account during the subsequent Valuation Period. The value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. The number of Accumulation Units will not change as a result of investment experience. 24 of 105 25 NET INVESTMENT FACTOR The Net Investment Factor for any Valuation Period is determined by dividing (a) by (b) and subtracting (c) from the result where: (a) is the net of: (1) the net asset value per share of the underlying Mutual Fund held in the sub-account determined at the end of the current Valuation Period, plus (2) the per share amount of any dividend or capital gain distributions made by the underlying Mutual Fund held in the sub-account if the "ex-dividend" date occurs during the current Valuation Period. (b) is the net of: (1) the net asset value per share of the underlying Mutual Fund held in the Sub-Account determined at the end of the immediately preceding Valuation Period, plus or minus (2) the per share charge or credit, if any, for any taxes reserved for in the immediately preceding Valuation Period (see "Charge For Tax Provisions"). (c) is a factor representing the daily Mortality and Expense Risk Charge deducted from the Variable Account. Such factor is equal to an annual rate of 0.80% of the daily net asset value of the Variable Account. On each Policy Anniversary beginning with the 10th, the mortality and expense risk charge is reduced to 0.50% on an annual basis of the daily net assets of the Variable Account, provided the Cash Surrender Value is $25,000 or more on such anniversary. For underlying Mutual Fund options that credit dividends on a daily basis and pay such dividends once a month, the Net Investment Factor allows for the monthly reinvestment of these daily dividends. The Net Investment Factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease. It should be noted that changes in the Net Investment Factor may not be directly proportional to changes in the net asset value of underlying Mutual Fund shares, because of the deduction for Mortality and Expense Risk Charge, and any charge or credit for tax reserves. VALUATION OF ASSETS Underlying Mutual Fund shares in the Variable Account will be valued at their net asset value. DETERMINING THE CASH VALUE The sum of the value of all Variable Account Accumulation Units attributable to the Policy and amounts credited to the Fixed Account is the Cash Value. The number of Accumulation Units credited per each sub-account are determined by dividing the net amount allocated to the sub-account by the Accumulation Unit Value for the sub-account for the Valuation Period during which the premium is received by the Company. In the event part or all of the Cash Value is surrendered or charges or deductions are made against the Cash Value, an appropriate number of Accumulation Units from the Variable Account and an appropriate amount from the Fixed Account will be deducted in the same proportion that the Policy Owner's interest in the Variable Account and the Fixed Account bears to the total Cash Value. The Cash Value in the Fixed Account and the Policy Loan Account is credited with interest daily at an effective annual rate which the Company periodically declares. The annual effective rate will never be less than 4%. Upon request, the Company will inform the Policy Owner of the then applicable rates for each account. VALUATION PERIODS AND VALUATION DATES A Valuation Period is the period commencing at the close of business on the New York Stock Exchange and ending at the close of business for the next succeeding Valuation Date. A Valuation Date is each day that the New York Stock Exchange and the Company's home office are open for business or any other day during which there is sufficient degree of trading that the current net asset value of the Accumulation Units might be materially affected. SURRENDERING THE POLICY FOR CASH RIGHT TO SURRENDER The Policy Owner may surrender the Policy in full at any time while the Insured is living and receive its Cash Surrender Value. The cancellation will be effective as of the date the Company receives a proper written request for cancellation and the Policy. Such written request must be signed and, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a Commercial Bank or a Savings and Loan, which is a member of the Federal Deposit 25 of 105 26 Insurance Corporation. In some cases, the Company may require additional documentation of a customary nature. CASH SURRENDER VALUE The Cash Surrender Value increases or decreases daily to reflect the investment experience of the Variable Account and the daily crediting of interest in the Fixed Account and the Policy Loan Account. The Cash Surrender Value equals the Policy's Cash Value, next computed after the date the Company receives a proper written request for surrender and the Policy, minus any charges, Indebtedness or other deductions due on that date, which may also include a Surrender Charge. PARTIAL SURRENDERS After the Policy has been in force for one year, the Policy Owner may request a partial surrender. Partial surrenders will be permitted only if they satisfy the following requirements: 1. The minimum partial surrender is $500; 2. The partial surrender may not reduce the Specified Amount to less than $50,000; 3. After the partial surrender, the Cash Surrender Value is greater than $500 or an amount equal to three times the current monthly deduction if higher; 4. The maximum total partial surrenders in any policy year are limited to 10% of the total premium payments. On a current basis, this requirement is waived in years 15 and beyond provided the Cash Surrender Value is $10,000 or more after the withdrawal; and 5. After the partial surrender, the Policy continues to qualify as life insurance. When a partial surrender is made, the Cash Value is reduced by the amount of the partial surrender. Under Death Benefit Option 1, the Specified Amount is reduced by the amount of the partial surrender, unless the Death Benefit is based on the applicable percentage of Cash Value. In such a case, a partial surrender will decrease the Specified Amount by the amount by which the partial surrender exceeds the difference between the Death Benefit and Specified Amount. Surrender charges will be waived for any partial surrenders which satisfy the above conditions. Certain partial surrenders may result in currently taxable income and tax penalties (see "Tax Matters"). MATURITY PROCEEDS The Maturity Date is the Policy Anniversary on or next following the Insured's 95th birthday. The maturity proceeds will be payable to the Policy Owner on the Maturity Date provided the Policy is still in force. The Maturity Proceeds will be equal to the amount of the Policy's Cash Value, less any Indebtedness. INCOME TAX WITHHOLDING Federal law requires the Company to withhold income tax from any portion of surrender proceeds that is subject to tax, unless the Policy Owner advises the Company, in writing, of his or her request not to withhold. If the Policy Owner requests that the Company not withhold taxes, or if the taxes withheld are insufficient, the Policy Owner may be liable for payment of an estimated tax. The Policy Owner should consult his or her tax advisor. In certain employer-sponsored life insurance arrangements, including equity split dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (1) the value each year of the life insurance protection provided, (2) an amount equal to any employer-paid premiums; or (3) some or all of the amount by which the current value exceeds the employer's interest in the Contract. Participants should consult with the sponsor or the administrator of the Plan, and/or with their personal tax or legal advisor, to determine the tax consequences, if any, of their employer-sponsored life insurance arrangements. POLICY LOANS TAKING A POLICY LOAN After the first Policy Year, the Policy Owner may take a Policy loan using the Policy as security. Maximum Policy Indebtedness is limited to 90% of the Cash Value less Surrender Charge less interest due on the next Policy Anniversary. Maximum Policy Indebtedness, in Texas, is limited to 90% of the Cash Value in the sub-accounts and 100% of the Cash Value in the Fixed Account less Surrender Charge less interest due on the next Policy Anniversary. The Company will not grant a loan for an amount less than $200. Should the Death Proceeds become payable, the Policy be surrendered, or the Policy mature while a loan is outstanding, the 26 of 105 27 amount of Policy Indebtedness will be deducted from the death benefit, Cash Surrender Value or the maturity value, respectively. Any request for a Policy loan must be in written form satisfactory to the Company. The request must be signed and, where permitted, the signature guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange; or by a Commercial Bank or a Savings and Loan which is a member of the Federal Deposit Insurance Corporation. Certain policy loans may result in currently taxable income and tax penalties (see "Tax Matters"). A Policy Owner considering the use of policy loans in connection with his or her retirement income plan should consult his or her personal tax adviser regarding potential tax consequences that may arise if necessary payments are not made to keep the Policy from lapsing. The amount of such payments necessary to prevent the Policy from lapsing would increase with age (see "Tax Matters"). EFFECT ON INVESTMENT PERFORMANCE When a loan is made, an amount equal to the amount of the loan is transferred from the Variable Account to the Policy Loan Account. If the assets relating to a Policy are held in more than one sub-account, withdrawals from sub-accounts will be made in proportion to the assets in each Variable sub-account at the time of the loan. Policy loans will be transferred from the Fixed Account only when insufficient amounts are available in the Variable sub-accounts. The amount taken out of the Variable Account will not be affected by the Variable Account's investment experience while the loan is outstanding. INTEREST On a current basis, policy loans are credited with an annual effective rate of 5.1% during policy years 2 through 14 and an annual effective rate of 6% during the 15th and subsequent policy years. The rate is guaranteed never to be lower than 5.1%. The Company may change the current interest crediting rate on policy loans at any time at its sole discretion. The loan interest rate is 6% per year for all Policy loans. In the event that it is determined that such loans will be treated, as a result of the differential between the interest crediting rate and the loan interest rate, as taxable distributions under any applicable ruling, regulation, or court decision, the Company retains the right to increase the net cost (by decreasing the interest crediting rate) on all subsequent policy loans to an amount that would result in the transaction being treated as a loan under Federal tax law. If this amount is not prescribed by such ruling, regulation, or court decision, the amount will be that which the Company considers to be more likely to result in the transaction being treated as a loan under Federal tax law. Amounts transferred to the Policy Loan Account will earn interest daily from the date of transfer. The earned interest is transferred from the Policy Loan Account to a Variable Account or the Fixed Account on each Policy Anniversary or at the time of loan repayment. It will be allocated according to the Fund allocation factors in effect at the time of the transfer. Interest is charged daily and is payable at the end of each Policy Year or at the time of loan repayment. Unpaid interest will be added to the existing Policy Indebtedness as of the due date and will be charged interest at the same rate as the rest of the Indebtedness. Whenever the total Policy Indebtedness exceeds the Cash Value less any Surrender Charges, the Company will send a notice to the Policy Owner and the assignee, if any. The Policy will terminate without value 61 days after the mailing of the notice unless a sufficient repayment is made during that period. A repayment is sufficient if it is large enough to reduce the total Policy Indebtedness to an amount equal to the total Cash Value less any Surrender Charges plus an amount sufficient to continue the Policy in force for 3 months. EFFECT ON DEATH BENEFIT AND CASH VALUE A Policy loan, whether or not repaid, will have a permanent effect on the Death Benefit and Cash Value because the investment results of the Variable Account or the Fixed Account will apply only to the non-loaned portion of the Cash Value. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the Variable Account or the Fixed Account while the loan is outstanding, the effect could be favorable or unfavorable. REPAYMENT All or part of the Indebtedness may be repaid at any time while the Policy is in force during the Insured's lifetime. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Loan repayments will be credited to the Variable sub-accounts and the Fixed Account in proportion to the Policy Owner's underlying Mutual Fund allocation factors in effect at the time of the repayment. Each repayment may not be less than $50. The Company reserves the right to require that any loan repayments resulting from Policy loans transferred from the Fixed Account must be first allocated to the Fixed Account. 27 of 105 28 HOW THE DEATH BENEFIT VARIES CALCULATION OF THE DEATH BENEFIT At issue, the Policy Owner selects the Specified Amount. While the Policy is in force, the death benefit will never be less than the Specified Amount. The death benefit may vary with the Cash Value of the Policy, which depends on investment performance. The Policy Owner may choose one of two death benefit options. Under Option 1, the death benefit will be the greater of the Specified Amount or the Applicable Percentage of Cash Value. Under Option 1, the amount of the death benefit will ordinarily not change for several years to reflect the investment performance and may not change at all. If investment performance is favorable the amount of death benefit may increase. To see how and when investment performance will begin to affect death benefits, please see the illustrations. Under Option 2, the death benefit will be the greater of the Specified Amount plus the Cash Value, or the Applicable Percentage of Cash Value and will vary directly with the investment performance. The term "Applicable Percentage" means: 1. 250% when the Insured is Attained Age 40 or less at the beginning of a Policy Year; and 2. when the Insured is above Attained Age 40, the percentage shown in the "Applicable Percentage of Cash Value Table." APPLICABLE PERCENTAGE OF CASH VALUE TABLE
Attained Percentage Attained Percentage Attained Percentage Age of Cash Value Age of Cash Value Age of Cash Value --- ------------- --- ------------- --- ------------- 0-40 250% 60 130% 80 105% 41 243% 61 128% 81 105% 42 236% 62 126% 82 105% 43 229% 63 124% 83 105% 44 222% 64 122% 84 105% 45 215% 65 120% 85 105% 46 209% 66 119% 86 105% 47 203% 67 118% 87 105% 48 197% 68 117% 88 105% 49 191% 69 116% 89 105% 50 185% 70 115% 90 105% 51 178% 71 113% 91 104% 52 171% 72 111% 92 103% 53 164% 73 109% 93 102% 54 157% 74 107% 94 101% 55 150% 75 105% 95 100% 56 146% 76 105% 57 142% 77 105% 58 138% 78 105% 59 134% 79 105%
PROCEEDS PAYABLE ON DEATH The actual Death Proceeds payable on the Insured's death will be the death benefit as described above, less any Policy Indebtedness and less any unpaid Policy Charges. Under certain circumstances, the Death Proceeds may be adjusted (see "Incontestability", "Error in Age or Sex", and "Suicide"). RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY The Policy Owner may exchange the Policy for a flexible premium adjustable life insurance policy offered by the Company on the Policy Date. The benefits for the new policy will not vary with the investment experience of a separate account. The exchange must be elected within 24 months from the Policy Date. No evidence of insurability will be required. The Policy Owner and Beneficiary under the new policy will be the same as those under the exchanged Policy on the effective date of the exchange. The new policy will have a death benefit on the exchange date not more 28 of 105 29 than the death benefit of the original Policy immediately prior to the exchange date. The new policy will have the same Policy Date and issue age as the original Policy. The initial Specified Amount and any increases in Specified Amount will have the same rate class as those of the original Policy. Any Indebtedness may be transferred to the new policy. The exchange may be subject to an equitable adjustment in rates and values to reflect variances, if any, in the rates and values between the two Policies. After adjustment, if any excess is owed the Policy Owner, the Company will pay the excess to the Policy Owner in cash. The exchange may be subject to federal income tax withholding (see "Income Tax Withholding"). CHANGES OF INVESTMENT POLICY The Company may materially change the investment policy of the Variable Account. The Company must inform the Policy Owners and obtain all necessary regulatory approvals. Any change must be submitted to the various state insurance departments which may disapprove it if deemed detrimental to the interests of the Policy Owners or if it renders the Company's operations hazardous to the public. If a Policy Owner objects, the Policy may be converted to a substantially comparable General Account life insurance policy offered by the Company on the life of the Insured. The Policy Owner has the later of 60 days (6 months in Pennsylvania) from the date of the investment policy change or 60 days (6 months in Pennsylvania) from being informed of such change to make this conversion. The Company will not require evidence of insurability for this conversion. The new policy will not be affected by the investment experience of any separate account. The new policy will be for an amount of insurance not exceeding the death benefit of the Policy converted on the date of such conversion. GRACE PERIOD - -First Three Policy Years This Policy will not lapse during the first three Policy Years provided that on each Monthly Anniversary Day (1) is greater than or equal to (2) where: (1) Is the sum of all premiums paid to date minus any Policy Indebtedness, minus any partial surrenders, and minus any partial surrender fee; and (2) Is the sum of monthly Minimum Premiums required since the Policy Date including the monthly Minimum Premium for the current Monthly Anniversary Day. If (1) is less than (2) and the Cash Surrender Value is less than zero, a Grace Period of 61 days from the Monthly Anniversary Day will be allowed for the payment of sufficient premium to satisfy the Minimum Premium requirement. If sufficient premium is not paid by the end of the Grace Period, the Policy will lapse without value. In any event the Policy will not lapse as long as there is a positive Cash Surrender Value. - -Policy Years Four and After If the Cash Surrender Value on a Monthly Anniversary Day is not sufficient to cover the current Policy Charges, a Grace Period of 61 days from the Monthly Anniversary Day will be allowed for the payment of sufficient premium to cover the current Policy Charges due plus an amount equal to three times the current monthly deduction. - -All Policy Years The Company will send such a notice at the start of the Grace Period to the Policy Owner's last known address. If the Insured dies during the Grace Period, the Company will pay the Death Proceeds. REINSTATEMENT If the Grace Period ends and the Policy Owner has neither paid the required premium nor surrendered the Policy for its Cash Surrender Value, the Policy Owner may reinstate the Policy by: 1. submitting a written request at any time within 3 years after the end of the Grace Period and prior to the Maturity Date; 2. providing evidence of insurability satisfactory to the Company; 3. paying an amount of premium equal to the sum of the Minimum Monthly Premiums missed since the beginning of the Grace Period, if your Policy terminated in the first three policy years; 4. paying sufficient premium to cover all policy charges that were due and unpaid during the Grace Period if your Policy terminated in the fourth or later policy year; 29 of 105 30 5. paying sufficient premium to keep the Policy in force for 3 months from the date of reinstatement; and 6. paying or reinstating any Indebtedness against the Policy which existed at the end of the Grace Period. The effective date of a reinstated Policy will be the Monthly Anniversary Day on or next following the date the application for reinstatement is approved by the Company. If your Policy is reinstated, the Cash Value on the date of reinstatement, but prior to applying any premiums or loan repayments received, will be set equal to the lesser of: 1. the Cash Value at the end of the Grace Period; or 2. the Surrender Charge for the Policy Year in which the Policy was reinstated. Unless the Policy Owner has provided otherwise, all amounts will be allocated based on the 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 the Company's General Account have not been registered under the Securities Act of 1933 and the General Account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the General Account nor any interests therein are subject to the provisions of these Acts, and the Company has been advised that the staff of the Securities and Exchange Commission has not reviewed the disclosures in this prospectus relating to the Fixed Account option. Disclosures regarding the General Account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. As explained earlier, a Policy Owner may elect to allocate or transfer all or part of the Cash Value to the Fixed Account and the amount allocated or transferred becomes part of the Company's General Account. The Company's General Account consists of all assets of the Company other than those in the Variable Account and in other separate accounts that have been or may be established by the Company. Subject to applicable law, the Company has sole discretion over the investment of the assets of the General Account, and Policy Owners do not share in the investment experience of those assets. The Company guarantees that the part of the Cash Value invested under the Fixed Account option will accrue interest daily at an effective annual rate that the Company declares periodically. The Fixed Account crediting rate will not be less than an effective annual rate of 4%. Upon request the Company will inform a Policy Owner of the then applicable rate. The Company is not obligated to credit interest at a higher rate. CHANGES IN EXISTING INSURANCE COVERAGE The Policy Owner may request certain changes in the insurance coverage under the Policy. Any request must be in writing and received at the Company's home office. No change will take effect unless the Cash Surrender Value, after the change, is sufficient to keep the Policy in force for at least 3 months. SPECIFIED AMOUNT INCREASES After the first Policy Year, the Policy Owner may request an increase to the Specified Amount. Any increase will be subject to the following conditions: 1. the request must be applied for in writing; 2. satisfactory evidence of insurability must be provided; 3. the increase must be for a minimum of $10,000; 4. the Cash Surrender Value is sufficient to continue the Policy in force for at least 3 months; and 5. age limits are the same as for a new issue. Any approved increase will have an effective date of the Monthly Anniversary Day on or next following the date the Company approves the supplemental application. The Company reserves the right to limit the number of Specified Amount increases to one each Policy Year. 30 of 105 31 SPECIFIED AMOUNT DECREASES After the first Policy Year, the Policy Owner may also request a decrease to the Specified Amount. Any approved decrease will be effective on the Monthly Anniversary Day on or next following the date the Company receives the request. Any such decrease shall reduce insurance in the following order: 1. against insurance provided by the most recent increase; 2. against the next most recent increases successively; and 3. against insurance provided under the original application. The Company reserves the right to limit the number of Specified Amount decreases to one each Policy Year. The Company will refuse a request for a decrease which would: 1. reduce the Specified Amount to less than $50,000 ($100,000 in New Jersey); or 2. disqualify the Policy as a contract for life insurance. CHANGES IN THE DEATH BENEFIT OPTION After the first Policy Year, the Policy Owner may change the death benefit option under the Policy. If the change is from Option 1 to Option 2, the Specified Amount will be decreased by the amount of the Cash Value. If the change is from Option 2 to Option 1, the Specified Amount will be increased by the amount of the Cash Value. Evidence of insurability is not required for a change from Option 2 to Option 1. The Company reserves the right to require evidence of insurability for a change from Option 1 to Option 2. The effective date of the change will be the Monthly Anniversary Day on or next following the date the Company approves the request for change. Only one change of option is permitted per Policy Year. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the then current maximum premium limitations prescribed by the Internal Revenue Service to qualify the Policy as a life insurance contract. OTHER POLICY PROVISIONS POLICY OWNER While the Insured is living, all rights in this Policy are vested in the Policy Owner named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a contingent Policy Owner or a new Policy Owner while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's home office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. The Company may require that the Policy be submitted for endorsement before making a change. If the Policy Owner is other than the Insured and names no contingent Policy Owner, and dies before the Insured, the Policy Owner's rights in this Policy belong to the Policy Owner's estate. BENEFICIARY The Beneficiary(ies) shall be as named in the application or as subsequently changed, subject to assignment, if any. The Policy Owner may name a new Beneficiary while the Insured is living. Any change must be in a written form satisfactory to the Company and recorded at the Company's home office. Once recorded, the change will be effective when signed. The change will not affect any payment made or action taken by the Company before it was recorded. If any Beneficiary predeceases the Insured, that Beneficiary's interest passes to any surviving Beneficiary(ies), unless otherwise provided. Multiple Beneficiaries will be paid in equal shares, unless otherwise provided. If no named Beneficiary survives the Insureds, the Death Proceeds shall be paid to the Policy Owner or the Policy Owner's estate. ASSIGNMENT While the Insured is living, the Policy Owner may assign his or her rights in the Policy. The assignment must be in writing, signed by the Policy Owner and recorded by the Company at its home office. Any assignment will not affect any payments made or actions taken by the Company before it was recorded. The Company is not responsible for any assignment not submitted for recording, nor is the Company responsible for the sufficiency or validity of any assignment. The assignment will be subject to any Indebtedness owed to the Company before it was recorded. 31 of 105 32 INCONTESTABILITY The Company will not contest payment of the Death Proceeds based on the initial Specified Amount after the Policy has been in force during the Insured's lifetime for 2 years from the Policy Date. For any increase in Specified Amount requiring evidence of insurability, the Company will not contest payment of the Death Proceeds based on such an increase after it has been in force during the Insured's lifetime for 2 years from its effective date. ERROR IN AGE OR SEX If the age or sex of the Insured has been misstated, the affected benefits will be adjusted. The amount of the death benefit will be 1. multiplied by 2. and then the result added to 3., where: 1. is the amount of the death benefit at the time of the Insured's death reduced by the amount of the Cash Value at the time of the Insured's death; 2. is the ratio of the monthly cost of insurance applied in the policy month of death and the monthly cost of insurance that should have been applied at the true age and sex in the policy month of death; and 3. is the Cash Value at the time of the Insured's death. SUICIDE If the Insured dies by suicide, while sane or insane, within two years from the Policy Date, the Company will pay no more than the sum of the premiums paid, less any Indebtedness. If the Insured dies by suicide, while sane or insane, within two years from the date an application is accepted for an increase in the Specified Amount, the Company will pay no more than the amount paid for such additional benefit. NONPARTICIPATING POLICIES These are nonparticipating Policies on which no dividends are payable. These Policies do not share in the profits or surplus earnings of the Company. LEGAL CONSIDERATIONS On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v. Norris that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. This decision applies only to benefits derived from 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 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 first year commissions plus any expense allowance payments paid by the Company on the sale of these policies provided by the General Distributor will not exceed 80% of the target Premium plus 4% of any excess premium payments. Gross renewal commissions in years 2-10 paid by the Company will not exceed 4% of actual premium payment, and will not exceed 1% in years 11+. 32 of 105 33 CUSTODIAN OF ASSETS The Company serves as the Custodian of the assets of the Variable Account. TAX MATTERS POLICY PROCEEDS Section 7702 of the Code provides that if certain tests are met, a Policy will be treated as a life insurance policy for federal tax purposes. The Company will monitor compliance with these tests. The Policy should thus receive the same federal income tax treatment as fixed benefit life insurance. As a result, the Death Proceeds payable under a Policy are excludable from gross income of the beneficiary under Section 101 of the Code. Section 7702A of the Code defines modified endowment contracts as those policies issued or materially changed on or after June 21, 1988 on which the total premiums paid during the first seven years exceed the amount that would have been paid if the policy provided for paid up benefits after seven level annual premiums (see "Information about the Policies"). The Code provides for taxation of surrenders, partial surrenders, loans, collateral assignments and other pre-death distributions from modified endowment contracts in the same way annuities are taxed. Modified endowment contract distributions are defined by the Code as amounts not received as an annuity and are taxable to the extent the cash value of the policy exceeds, at the time of distribution, the premiums paid into the policy. A 10% tax penalty generally applies to the taxable portion of such distributions unless the Policy Owner is over age 59-1/2 or disabled. The Policies offered by this prospectus may or may not be issued as modified endowment contracts. The Company will monitor premiums paid and will notify the Policy Owner when the policy's non-modified endowment status is in jeopardy. If a policy is not a modified endowment contract, a cash distribution during the first 15 years after a policy is issued which causes a reduction in death benefits may still become fully or partially taxable to the Owner pursuant to Section 7702(f)(7) of the Code. The Policy Owner should carefully consider this potential effect and seek further information before initiating any changes in the terms of the policy. Under certain conditions, a policy may become a modified endowment as a result of a material change or a reduction in benefits as defined by Section 7702A(c) of the Code. In addition to meeting the tests required under Sections 7702, Section 817(h) of the Code requires that the investments of separate accounts such as the Variable Account be adequately diversified. Regulations under 817(h) provide that a variable life policy failing to satisfy the diversification standards will not be treated as life insurance unless such failure was inadvertent, is corrected, and the Policy Owner or the Company pays an amount to the Internal Revenue Service. The amount will be based on the tax that would have been paid by the Policy Owner if the income, for the period the policy was not diversified, had been received by the Policy Owner. If the failure to diversify is not corrected in this manner, the Policy Owner will be deemed the owner of the underlying securities and taxed on the earnings of his or her account. Representatives of the Internal Revenue Service have suggested, from time to time, that the number of underlying Mutual Funds available or the number of transfer opportunities available under a variable product may be relevant in determining whether the product qualifies for the desired tax treatment. No formal guidance has been issued in this area. Should the Secretary of the Treasury issue additional rules or regulations limiting the number of funds, transfers between funds, exchanges of funds or changes in investment objectives of funds such that the Policy would no longer qualify as life insurance under Section 7702 of the Code, the Company will take whatever steps are available to remain in compliance. The Company will monitor compliance with these regulations and, to the extent necessary, will change the objectives or assets of the sub-account investments to remain in compliance. A total surrender or cancellation of the Policy by lapse or the maturity of the Policy on its Maturity Date may have adverse tax consequences. If the amount received by the Policy Owner plus total Policy Indebtedness exceeds the premiums paid into the Policy, the excess generally will be treated as taxable income, regardless of whether or not the Policy is a modified endowment contract. 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. 33 of 105 34 TAXATION OF THE COMPANY The Company is taxed as a life insurance company under the Code. Since the Variable Account is not a separate entity from the Company and its operations form a part of the Company, it will not be taxed separately as a "regulated investment company" under Sub-chapter M of the Code. Investment income and realized capital gains on the assets of the Variable Account are reinvested and taken into account in determining the value of Accumulation Units. As a result, such investment income and realized capital gains are automatically applied to increase reserves under the Policies. The Company does not initially expect to incur any Federal income tax liability that would be chargeable to the Variable Account. Based upon these expectations, no charge is currently being made against the Variable Account for federal income taxes. If, however, the Company determines that on a separate company basis such taxes may be incurred, it reserves the right to assess a charge for such taxes against the Variable Account. The Company may also incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If they increase, however, charges for such taxes may be made. OTHER CONSIDERATIONS The foregoing discussion is general and is not intended as tax advice. Counsel and other competent advisors should be consulted for more complete information. This discussion is based on the Company's understanding of Federal income tax laws as they are currently interpreted by the Internal Revenue Service. No representation is made as to the likelihood of continuation of these current laws and interpretations. THE COMPANY The life insurance business, which includes product lines in health insurance and annuities, is the only business in which the Company is engaged. The Company markets its Policies through independent insurance brokers, general agents, and registered representatives of registered NASD broker/dealer firms. The Company serves as depositor for the Nationwide Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3, Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8, MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, the NACo Variable Account and the DC Variable Account, each of which is a registered investment company, and each of which is a separate investment account of the Company. The Company, in common with other insurance companies, is subject to regulation and supervision by the regulatory authorities of the states in which it is licensed to do business. A license from the state insurance department is a prerequisite to the transaction of insurance business in that state. In general, all states have statutory administrative powers. Such regulation relates, among other things, to licensing of insurers and their agents, the approval of policy forms, the methods of computing reserves, the form and content of statutory financial statements, the amount of policyholders' and stockholders' dividends, and the type of distribution of investments permitted. The Company operates in the highly competitive field of life insurance. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States, and a large number of them compete with the registrant in the sale of insurance policies. As is customary in insurance company groups, employees are shared with the other insurance companies in the group. In addition to its direct salaried employees, the Company shares employees with Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. The Company does not presently own or lease any materially important physical properties when its property holdings are viewed in relation to its total assets. The Company shares home office, other facilities and equipment with Nationwide Mutual Insurance Company. COMPANY MANAGEMENT Nationwide Life Insurance Company, together with Nationwide Mutual Insurance Company, Nationwide Indemnity Company, Nationwide Mutual Fire Insurance Company, Nationwide Life and Annuity Insurance Company, Nationwide Property and Casualty Insurance Company, National Casualty Company, West Coast Life Insurance Company, Scottsdale Indemnity Company and Nationwide General Insurance Company and their affiliate 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. 34 of 105 35 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 Charles L. Fuellgraf, Jr. *+ 1969 Chief Executive Officer, Fuellgraf Electric Company, Electrical Construction and Engineering Services (1) James J. Gasper *+ 1996 President and Chief Operating Officer, Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company (2) Henry S. Holloway *+ 1986 Farm Owner and Operator (1) D. Richard McFerson *+ 1988 Chairman and Chief Executive Officer; Nationwide Insurance Enterprise (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 Farm (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. Gasper, 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
35 of 105 36
Robert J. Woodward, Jr. Executive Vice President - Chief Investment Officer James E. Brock Senior Vice President - Life Company Operations W. Sidney Druen Senior Vice President and General Counsel and Assistant Secretary Harvey S. Galloway, Jr. Senior Vice President and Chief Actuary Richard A. Karas Senior Vice President - Sales and Financial Services Mark 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 the amount of the current death benefit, the Cash Value, and Cash Surrender Value, premiums paid and monthly charges deducted since the last report, the amounts invested in the Fixed Account and in the Variable Account and in each sub-account of the Variable Account, and any Policy Indebtedness. Policy Owners will also be sent annual and semi-annual reports containing financial statements for the Variable Account as required by the 1940 Act. In addition, Policy Owners will receive statements of significant transactions, such as changes in Specified Amount, changes in death benefit option, changes in future premium allocation, transfers among sub-accounts, premium payments, loans, loan repayments, reinstatement and termination. ADVERTISING The Company is also ranked and rated by independent financial rating services, including Moody's, Standard & Poor's and A.M. Best Company. The purpose of these ratings is to reflect the financial strength or claims-paying ability of the Company. The ratings are not intended to reflect the investment experience or financial strength of the Variable Account. The Company may advertise these ratings from time to time. In addition, the Company may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend the Company or the Contracts. Furthermore, the Company may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. 36 of 105 37 LEGAL PROCEEDINGS There are no material legal proceedings, other than ordinary routine litigation incidental to the business to which the Company and the Variable Account are parties or to which any of their property is the subject. The General Distributor, Nationwide Financial Services, Inc., is not engaged in any material litigation of any nature. EXPERTS The financial statements and schedules included herein have been included herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing. REGISTRATION STATEMENT A Registration Statement has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the Policies offered hereby. This prospectus does not contain all the information set forth in the Registration Statement and amendments thereto and exhibits filed as a part thereof, to all of which reference is hereby made for further information concerning the Variable Account, the Company, and the Policies offered hereby. Statements contained in this prospectus as to the content of Policies and other legal instruments are summaries. For a complete statement of the terms thereof, reference is made to such instruments as filed. LEGAL OPINIONS Legal matters in connection with the Policies described herein are being passed upon by Druen, Rath & Dietrich, One Nationwide Plaza, Columbus, Ohio 43216. All the members of such firm are employed by the Nationwide Mutual Insurance Company. 37 of 105 38 APPENDIX 1 ILLUSTRATION OF SURRENDER CHARGES Example 1: A female non-tobacco, age 45, purchases a Policy with a Specified Amount of $50,000 and a Scheduled Premium of $750. She now wishes to surrender the Policy during the first Policy year. By using the initial surrender charge table reproduced below, (also see "Surrender Charges") the total surrender charge per thousand multiplied by the Specified Amount expressed in thousands equals the total surrender charge of $569.80 ($11.396 x 50=569.80). Example 2: A male non-tobacco, age 35, purchases a Policy with a Specified Amount of $100,000 and a Scheduled Premium of $1100. He now wants to surrender the Policy in the sixth Policy Year. The total initial surrender charge is calculated using the method illustrated above. (surrender charge per 1000 6.817 x 100=681.70 maximum initial surrender charge). Because the fifth Policy Year has been completed, the maximum initial surrender charge is reduced by multiplying it by the applicable percentage factor from the "Reductions to Surrender Charges" table below. (Also see "Reductions to Surrender Charges"). In this case, $681.70 x 60%=$409.02. Maximum Surrender Charge per $1,000 of initial Specified Amount for policies which are issued on a standard basis. Initial Specified Amount $50,000-$99,999
------------------------------------------------------------ ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD ------------------------------------------------------------ 25 $ 7.776 $ 7.521 $ 8.369 $ 7.818 ------------------------------------------------------------ 35 8.817 8.398 9.811 8.891 ------------------------------------------------------------ 45 12.191 11.396 13.887 12.169 ------------------------------------------------------------ 55 15.636 14.011 18.415 15.116 ------------------------------------------------------------ 65 22.295 19.086 26.577 20.641 ------------------------------------------------------------
Initial Specified Amount $100,000+
------------------------------------------------------------ ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD ------------------------------------------------------------ 25 $ 5.776 $ 5.521 $ 6.369 $ 5.818 ------------------------------------------------------------ 35 6.817 6.398 7.811 6.891 ------------------------------------------------------------ 45 9.691 8.896 11.387 9.669 ------------------------------------------------------------ 55 13.136 11.511 15.915 12.616 ------------------------------------------------------------ 65 21.295 18.086 25.577 19.641 ------------------------------------------------------------
Reductions to Surrender Charges.
------------------------------------------------------------------------ SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES ------------------------------------------------------------------------ 0 100% 5 60% ------------------------------------------------------------------------ 1 100% 6 50% ------------------------------------------------------------------------ 2 90% 7 40% ------------------------------------------------------------------------ 3 80% 8 30% ------------------------------------------------------------------------ 4 70% 9+ 0% ------------------------------------------------------------------------
The current Surrender Charges are the same for all states. However, in Pennsylvania the guaranteed maximum Surrender Charges are spread out over 14 years. The guaranteed maximum Surrender Charge in subsequent years in Pennsylvania is reduced in the following manner:
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES ----- ----------------- ----- ----------------- ----- ----------------- 0 100% 5 60% 10 20% 1 100% 6 50% 11 15% 2 90% 7 40% 12 10% 3 80% 8 30% 13 5% 4 70% 9 25% 14+ 0%
The illustrations of current values in this prospectus are the same for Pennsylvania. However, the illustrations of guaranteed values in this prospectus do not reflect guaranteed maximum Surrender Charges which are spread out over 14 years. If this contract is issued in Pennsylvania, please contact the home office for an illustration. The Company has no plans to change the current Surrender Charges. 38 of 105 39 APPENDIX 2 ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS The illustrations in this prospectus have been prepared to help show how values under the Policies change with investment performance. The illustrations illustrate how Cash Values, Cash Surrender Values and death benefits under a Policy would vary over time if the hypothetical gross investment rates of return were a uniform annual effective rate of either 0%, 6% or 12%. If the hypothetical gross investment rate of return averages 0%, 6% or 12% over a period of years, but fluctuates above or below those averages for individual years, the Cash Values, Cash Surrender Values and death benefits may be different. For hypothetical returns of 0% and 6%, the illustrations also illustrate when the Policies would go into default, at which time additional premium payments would be required to continue the Policy in force. The illustrations also assume there is no Policy Indebtedness, no additional premium payments are made, no Cash Values are allocated to the Fixed Account, and there are no changes in the Specified Amount or death benefit option. The amounts shown for the Cash Value, Cash Surrender Value and death benefit as of each Policy Anniversary reflect the fact that the net investment return on the assets held in the sub-accounts is lower than the gross return. This is due to the daily charges made against the assets of the sub-accounts for assuming mortality and expense risks. The mortality and expense risk charges are equivalent to an annual effective rate of 0.80% of the daily net asset value of the Variable Account. On each Policy Anniversary beginning with the 10th, the mortality and expense risk charge is reduced to 0.50% on an annual basis of the daily net assets of the Variable Account, provided the Cash Surrender Value is $25,000 or more on such anniversary. In addition, the net investment returns also reflect the deduction of underlying Mutual Fund investment advisory fees and other expenses which are equivalent to an annual effective rate of 1.00% of the daily net asset value of the Variable Account. This effective rate is based on the average of the fund expenses for the preceding year for all mutual fund options available under the policy as of April 30, 1996. Considering current charges for mortality and expense risks and underlying Mutual Fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -1.80%, 4.20% and 0.20%. On each Policy Anniversary beginning with the 10th, the gross annual rates of return of 0%, 6%, and 12% correspond to net investment experience at constant annual rates of -1.50%, 4.50%, and 10.50%, provided the Cash Surrender Value is $25,000 or more on such anniversary. This is due to a guaranteed reduction in the mortality and expense risk charge from an annual effective rate of 0.80% to an annual effective rate of 0.50% if the aforementioned conditions apply. The illustrations also reflect the fact that the Company makes monthly charges for providing insurance protection. Current values reflect current cost of insurance charges and guaranteed values reflect the maximum cost of insurance charges guaranteed in the Policy. The values shown are for Policies which are issued as standard. Policies issued on a substandard basis would result in lower Cash Values and Death benefits than those illustrated. The illustrations also reflect the fact that the Company deducts a sales load from each premium payment. Current values reflect a deduction of 3.5% of each premium payment up to Break Point Premium and 1.5% of any excess. Guaranteed values reflect a deduction of 3.5% of each premium payment. The illustrations also reflect the fact that the Company deducts a charge for state premium taxes equal to 2.5% of all premium payments. The Cash Surrender Values shown in the illustrations reflect the fact that the Company will deduct a Surrender Charge from the Policy's Cash Value for any Policy surrendered in full during the first nine years. In addition, the illustrations reflect the fact that the Company deducts a monthly administrative charge at the beginning of each Policy Month. This monthly administrative expense charge is $25 per month in the first year, $5 per month in renewal years. Current values reflect a current monthly administrative expense charge of $5 in renewal years, and guaranteed values reflect the $7.50 maximum monthly administrative charge under the Policy in renewal years. The illustrations also reflect the fact that no charges for federal or state income taxes are currently made against the Variable Account. If such a charge is made in the future, it will require a higher gross investment return than illustrated in order to produce the net after-tax returns shown in the illustrations. Upon request, the Company will furnish a comparable illustration based on the proposed Insured's age, sex, smoking classification, rating classification and premium payment requested. 39 of 105 40 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT ----------------------- ----------------------- ---------------- 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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 240 0 50,000 268 0 50,000 295 0 50,000 2 1,614 704 130 50,000 781 207 50,000 861 287 50,000 3 2,483 1,149 632 50,000 1,305 788 50,000 1,474 957 50,000 4 3,394 1,570 1,111 50,000 1,835 1,376 50,000 2,132 1,673 50,000 5 4,351 1,969 1,567 50,000 2,371 1,969 50,000 2,841 2,440 50,000 6 5,357 2,345 2,001 50,000 2,915 2,570 50,000 3,607 3,263 50,000 7 6,412 2,705 2,418 50,000 3,472 3,185 50,000 4,442 4,155 50,000 8 7,520 3,042 2,813 50,000 4,037 3,807 50,000 5,348 5,118 50,000 9 8,683 3,359 3,187 50,000 4,612 4,440 50,000 6,332 6,160 50,000 10 9,905 3,655 3,655 50,000 5,197 5,197 50,000 7,405 7,405 50,000 11 11,188 3,926 3,926 50,000 5,787 5,787 50,000 8,571 8,571 50,000 12 12,535 4,170 4,170 50,000 6,384 6,384 50,000 9,839 9,839 50,000 13 13,949 4,384 4,384 50,000 6,981 6,981 50,000 11,220 11,220 50,000 14 15,434 4,563 4,563 50,000 7,578 7,578 50,000 12,721 12,721 50,000 15 16,993 4,699 4,699 50,000 8,164 8,164 50,000 14,352 14,352 50,000 16 18,630 4,795 4,795 50,000 8,743 8,743 50,000 16,130 16,130 50,000 17 20,349 4,840 4,840 50,000 9,305 9,305 50,000 18,068 18,068 50,000 18 22,154 4,826 4,826 50,000 9,843 9,843 50,000 20,182 20,182 50,000 19 24,049 4,754 4,754 50,000 10,357 10,357 50,000 22,497 22,497 50,000 20 26,039 4,613 4,613 50,000 10,838 10,838 50,000 25,037 25,037 50,000 21 28,129 4,399 4,399 50,000 11,282 11,282 50,000 27,920 27,920 50,000 22 30,323 4,102 4,102 50,000 11,679 11,679 50,000 31,115 31,115 50,000 23 32,626 3,710 3,710 50,000 12,020 12,020 50,000 34,671 34,671 50,000 24 35,045 3,211 3,211 50,000 12,294 12,294 50,000 38,646 38,646 50,000 25 37,585 2,600 2,600 50,000 12,496 12,496 50,000 43,113 43,113 50,011 26 40,252 1,862 1,862 50,000 12,614 12,614 50,000 48,081 48,081 55,293 27 43,052 966 966 50,000 12,619 12,619 50,000 53,548 53,548 60,509 28 45,992 (*) (*) (*) 12,503 12,503 50,000 59,572 59,572 66,125 29 49,079 (*) (*) (*) 12,247 12,247 50,000 66,220 66,220 72,180 30 52,321 (*) (*) (*) 11,827 11,827 50,000 73,567 73,567 78,717
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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 of 105 41 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 175 0 50,000 200 0 50,000 225 0 50,000 2 1,614 538 0 50,000 605 31 50,000 676 102 50,000 3 2,483 877 360 50,000 1,010 493 50,000 1,155 639 50,000 4 3,394 1,191 732 50,000 1,412 953 50,000 1,663 1,204 50,000 5 4,351 1,478 1,077 50,000 1,810 1,408 50,000 2,200 1,799 50,000 6 5,357 1,737 1,393 50,000 2,201 1,856 50,000 2,769 2,425 50,000 7 6,412 1,964 1,677 50,000 2,581 2,294 50,000 3,368 3,082 50,000 8 7,520 2,155 1,926 50,000 2,945 2,716 50,000 3,999 3,769 50,000 9 8,683 2,306 2,134 50,000 3,289 3,117 50,000 4,658 4,486 50,000 10 9,905 2,413 2,413 50,000 3,607 3,607 50,000 5,348 5,348 50,000 11 11,188 2,471 2,471 50,000 3,893 3,893 50,000 6,066 6,066 50,000 12 12,535 2,477 2,477 50,000 4,143 4,143 50,000 6,815 6,815 50,000 13 13,949 2,429 2,429 50,000 4,352 4,352 50,000 7,596 7,596 50,000 14 15,434 2,319 2,319 50,000 4,512 4,512 50,000 8,409 8,409 50,000 15 16,993 2,140 2,140 50,000 4,613 4,613 50,000 9,253 9,253 50,000 16 18,630 1,885 1,885 50,000 4,644 4,644 50,000 10,127 10,127 50,000 17 20,349 1,542 1,542 50,000 4,592 4,592 50,000 11,029 11,029 50,000 18 22,154 1,097 1,097 50,000 4,439 4,439 50,000 11,955 11,955 50,000 19 24,049 534 534 50,000 4,165 4,165 50,000 12,902 12,902 50,000 20 26,039 (*) (*) (*) 3,747 3,747 50,000 13,865 13,865 50,000 21 28,129 (*) (*) (*) 3,161 3,161 50,000 14,843 14,843 50,000 22 30,323 (*) (*) (*) 2,378 2,378 50,000 15,835 15,835 50,000 23 32,626 (*) (*) (*) 1,368 1,368 50,000 16,841 16,841 50,000 24 35,045 (*) (*) (*) 90 90 50,000 17,859 17,859 50,000 25 37,585 (*) (*) (*) (*) (*) (*) 18,885 18,885 50,000 26 40,252 (*) (*) (*) (*) (*) (*) 19,912 19,912 50,000 27 43,052 (*) (*) (*) (*) (*) (*) 20,928 20,928 50,000 28 45,992 (*) (*) (*) (*) (*) (*) 21,916 21,916 50,000 29 49,079 (*) (*) (*) (*) (*) (*) 22,861 22,861 50,000 30 52,321 (*) (*) (*) (*) (*) (*) 23,746 23,746 50,000
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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 of 105 42 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 239 0 50,239 266 0 50,266 293 0 50,293 2 1,614 700 126 50,700 776 202 50,776 856 282 50,856 3 2,483 1,140 624 51,140 1,295 778 51,295 1,462 946 51,462 4 3,394 1,555 1,096 51,555 1,816 1,357 51,816 2,111 1,652 52,111 5 4,351 1,944 1,543 51,944 2,341 1,939 52,341 2,805 2,403 52,805 6 5,357 2,309 1,965 52,309 2,869 2,525 52,869 3,549 3,205 53,549 7 6,412 2,655 2,368 52,655 3,406 3,119 53,406 4,355 4,068 54,355 8 7,520 2,977 2,748 52,977 3,946 3,717 53,946 5,223 4,993 55,223 9 8,683 3,275 3,103 53,275 4,490 4,318 54,490 6,158 5,986 56,158 10 9,905 3,549 3,549 53,549 5,037 5,037 55,037 7,167 7,167 57,167 11 11,188 3,794 3,794 53,794 5,582 5,582 55,582 8,251 8,251 58,251 12 12,535 4,010 4,010 54,010 6,123 6,123 56,123 9,417 9,417 59,417 13 13,949 4,191 4,191 54,191 6,655 6,655 56,655 10,667 10,667 60,667 14 15,434 4,334 4,334 54,334 7,172 7,172 57,172 12,005 12,005 62,005 15 16,993 4,428 4,428 54,428 7,664 7,664 57,664 13,428 13,428 63,428 16 18,630 4,476 4,476 54,476 8,130 8,130 58,130 14,946 14,946 64,946 17 20,349 4,469 4,469 54,469 8,558 8,558 58,558 16,559 16,559 66,559 18 22,154 4,396 4,396 54,396 8,937 8,937 58,937 18,263 18,263 68,263 19 24,049 4,260 4,260 54,260 9,265 9,265 59,265 20,068 20,068 70,068 20 26,039 4,051 4,051 54,051 9,527 9,527 59,527 21,974 21,974 71,974 21 28,129 3,764 3,764 53,764 9,717 9,717 59,717 23,984 23,984 73,984 22 30,323 3,391 3,391 53,391 9,821 9,821 59,821 26,099 26,099 76,099 23 32,626 2,922 2,922 52,922 9,823 9,823 59,823 28,402 28,402 78,402 24 35,045 2,347 2,347 52,347 9,707 9,707 59,707 30,822 30,822 80,822 25 37,585 1,668 1,668 51,668 9,467 9,467 59,467 33,369 33,369 83,369 26 40,252 873 873 50,873 9,087 9,087 59,087 36,045 36,045 86,045 27 43,052 (*) (*) (*) 8,530 8,530 58,530 38,831 38,831 88,831 28 45,992 (*) (*) (*) 7,789 7,789 57,789 41,739 41,739 91,739 29 49,079 (*) (*) (*) 6,843 6,843 56,843 44,767 44,767 94,767 30 52,321 (*) (*) (*) 5,671 5,671 55,671 47,915 47,915 97,915
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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 of 105 43 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 ---- ----- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 788 173 0 50,173 197 0 50,197 223 0 50,223 2 1,614 532 0 50,532 599 25 50,599 670 96 50,670 3 2,483 866 350 50,866 997 481 50,997 1,141 624 51,141 4 3,394 1,172 713 51,172 1,390 931 51,390 1,636 1,177 51,636 5 4,351 1,450 1,048 51,450 1,775 1,373 51,775 2,156 1,755 52,156 6 5,357 1,696 1,352 51,696 2,148 1,803 52,148 2,701 2,357 52,701 7 6,412 1,908 1,621 51,908 2,505 2,218 52,505 3,267 2,980 53,267 8 7,520 2,081 1,851 52,081 2,841 2,611 52,841 3,853 3,624 53,853 9 8,683 2,210 2,038 52,210 3,149 2,976 53,149 4,455 4,283 54,455 10 9,905 2,292 2,292 52,292 3,423 3,423 53,423 5,069 5,069 55,069 11 11,188 2,323 2,323 52,323 3,657 3,657 53,657 5,691 5,691 55,691 12 12,535 2,298 2,298 52,298 3,844 3,844 53,844 6,318 6,318 56,318 13 13,949 2,216 2,216 52,216 3,979 3,979 53,979 6,946 6,946 56,946 14 15,434 2,072 2,072 52,072 4,053 4,053 54,053 7,568 7,568 57,568 15 16,993 1,857 1,857 51,857 4,056 4,056 54,056 8,175 8,175 58,175 16 18,630 1,564 1,564 51,564 3,974 3,974 53,974 8,757 8,757 58,757 17 20,349 1,187 1,187 51,187 3,797 3,797 53,797 9,301 9,301 59,301 18 22,154 712 712 50,712 3,504 3,504 53,504 9,788 9,788 59,788 19 24,049 128 128 50,128 3,077 3,077 53,077 10,199 10,199 60,199 20 26,039 (*) (*) (*) 2,497 2,497 52,497 10,510 10,510 60,510 21 28,129 (*) (*) (*) 1,743 1,743 51,743 10,699 10,699 60,699 22 30,323 (*) (*) (*) 797 797 50,797 10,739 10,739 60,739 23 32,626 (*) (*) (*) (*) (*) (*) 10,605 10,605 60,605 24 35,045 (*) (*) (*) (*) (*) (*) 10,261 10,261 60,261 25 37,585 (*) (*) (*) (*) (*) (*) 9,665 9,665 59,665 26 40,252 (*) (*) (*) (*) (*) (*) 8,762 8,762 58,762 27 43,052 (*) (*) (*) (*) (*) (*) 7,486 7,486 57,486 28 45,992 (*) (*) (*) (*) (*) (*) 5,752 5,752 55,752 29 49,079 (*) (*) (*) (*) (*) (*) 3,471 3,471 53,471 30 52,321 (*) (*) (*) (*) (*) (*) 547 547 50,547
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 43 of 105 44 DEATH BENEFIT OPTION 1 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,260 491 0 50,000 538 0 50,000 585 0 50,000 2 2,583 1,191 498 50,000 1,323 630 50,000 1,461 768 50,000 3 3,972 1,854 1,230 50,000 2,116 1,492 50,000 2,400 1,777 50,000 4 5,431 2,476 1,921 50,000 2,913 2,358 50,000 3,406 2,852 50,000 5 6,962 3,050 2,565 50,000 3,706 3,221 50,000 4,478 3,993 50,000 6 8,570 3,577 3,161 50,000 4,499 4,083 50,000 5,626 5,211 50,000 7 10,259 4,051 3,704 50,000 5,281 4,935 50,000 6,852 6,505 50,000 8 12,032 4,462 4,185 50,000 6,046 5,769 50,000 8,157 7,880 50,000 9 13,893 4,812 4,604 50,000 6,795 6,587 50,000 9,554 9,346 50,000 10 15,848 5,093 5,093 50,000 7,519 7,519 50,000 11,050 11,050 50,000 11 17,901 5,302 5,302 50,000 8,214 8,214 50,000 12,655 12,655 50,000 12 20,056 5,429 5,429 50,000 8,873 8,873 50,000 14,381 14,381 50,000 13 22,318 5,466 5,466 50,000 9,487 9,487 50,000 16,241 16,241 50,000 14 24,694 5,401 5,401 50,000 10,044 10,044 50,000 18,252 18,252 50,000 15 27,189 5,233 5,233 50,000 10,545 10,545 50,000 20,442 20,442 50,000 16 29,808 4,951 4,951 50,000 10,977 10,977 50,000 22,837 22,837 50,000 17 32,559 4,524 4,524 50,000 11,315 11,315 50,000 25,462 25,462 50,000 18 35,447 3,949 3,949 50,000 11,554 11,554 50,000 28,453 28,453 50,000 19 38,479 3,206 3,206 50,000 11,678 11,678 50,000 31,797 31,797 50,000 20 41,663 2,277 2,277 50,000 11,668 11,668 50,000 35,567 35,567 50,000 21 45,006 1,127 1,127 50,000 11,494 11,494 50,000 39,851 39,851 50,000 22 48,517 (*) (*) (*) 11,120 11,120 50,000 44,760 44,760 50,000 23 52,202 (*) (*) (*) 10,503 10,503 50,000 50,403 50,403 52,923 24 56,073 (*) (*) (*) 9,597 9,597 50,000 56,622 56,622 59,453 25 60,136 (*) (*) (*) 8,337 8,337 50,000 63,445 63,445 66,617 26 64,403 (*) (*) (*) 6,647 6,647 50,000 70,925 70,925 74,471 27 68,883 (*) (*) (*) 4,428 4,428 50,000 79,119 79,119 83,075 28 73,587 (*) (*) (*) 1,557 1,557 50,000 88,092 88,092 92,497 29 78,527 (*) (*) (*) (*) (*) (*) 97,909 97,909 102,805 30 83,713 (*) (*) (*) (*) (*) (*) 108,641 108,641 114,074
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 44 of 105 45 DEATH BENEFIT OPTION 1 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,260 286 0 50,000 327 0 50,000 368 0 50,000 2 2,583 727 34 50,000 832 139 50,000 942 249 50,000 3 3,972 1,107 484 50,000 1,305 681 50,000 1,522 898 50,000 4 5,431 1,424 870 50,000 1,741 1,186 50,000 2,103 1,548 50,000 5 6,962 1,669 1,184 50,000 2,129 1,644 50,000 2,678 2,193 50,000 6 8,570 1,836 1,421 50,000 2,460 2,044 50,000 3,239 2,824 50,000 7 10,259 1,917 1,571 50,000 2,723 2,377 50,000 3,780 3,433 50,000 8 12,032 1,898 1,621 50,000 2,901 2,624 50,000 4,284 4,007 50,000 9 13,893 1,765 1,557 50,000 2,976 2,768 50,000 4,736 4,528 50,000 10 15,848 1,504 1,504 50,000 2,928 2,928 50,000 5,120 5,120 50,000 11 17,901 1,100 1,100 50,000 2,737 2,737 50,000 5,416 5,416 50,000 12 20,056 537 537 50,000 2,377 2,377 50,000 5,602 5,602 50,000 13 22,318 (*) (*) (*) 1,824 1,824 50,000 5,655 5,655 50,000 14 24,694 (*) (*) (*) 1,041 1,041 50,000 5,540 5,540 50,000 15 27,189 (*) (*) (*) (*) (*) (*) 5,215 5,215 50,000 16 29,808 (*) (*) (*) (*) (*) (*) 4,617 4,617 50,000 17 32,559 (*) (*) (*) (*) (*) (*) 3,664 3,664 50,000 18 35,447 (*) (*) (*) (*) (*) (*) 2,246 2,246 50,000 19 38,479 (*) (*) (*) (*) (*) (*) 219 219 50,000
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 45 of 105 46 DEATH BENEFIT OPTION 2 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,260 486 0 50,486 532 0 50,532 579 0 50,579 2 2,583 1,176 483 51,176 1,306 613 51,306 1,443 750 51,443 3 3,972 1,823 1,199 51,823 2,080 1,457 52,080 2,360 1,736 52,360 4 5,431 2,423 1,868 52,423 2,849 2,295 52,849 3,331 2,777 53,331 5 6,962 2,967 2,482 52,967 3,603 3,118 53,603 4,351 3,866 54,351 6 8,570 3,456 3,040 53,456 4,342 3,926 54,342 5,426 5,010 55,426 7 10,259 3,883 3,536 53,883 5,055 4,709 55,055 6,551 6,204 56,551 8 12,032 4,236 3,959 54,236 5,730 5,453 55,730 7,718 7,441 57,718 9 13,893 4,518 4,310 54,518 6,366 6,158 56,366 8,933 8,725 58,933 10 15,848 4,719 4,719 54,719 6,950 6,950 56,950 10,190 10,190 60,190 11 17,901 4,836 4,836 54,836 7,474 7,474 57,474 11,485 11,485 61,485 12 20,056 4,860 4,860 54,860 7,926 7,926 57,926 12,814 12,814 62,814 13 22,318 4,780 4,780 54,781 8,290 8,290 58,290 14,167 14,167 64,167 14 24,694 4,588 4,588 54,588 8,551 8,551 58,551 15,533 15,533 65,533 15 27,189 4,284 4,284 54,284 8,705 8,705 58,705 16,914 16,914 66,914 16 29,808 3,859 3,859 53,859 8,734 8,734 58,734 18,298 18,298 68,298 17 32,559 3,285 3,285 53,285 8,603 8,603 58,603 19,655 19,655 69,655 18 35,447 2,565 2,565 52,565 8,305 8,305 58,305 20,982 20,982 70,982 19 38,479 1,689 1,689 51,689 7,820 7,820 57,820 22,261 22,261 72,261 20 41,663 647 647 50,647 7,129 7,129 57,129 23,476 23,476 73,476 21 45,006 (*) (*) (*) 6,198 6,198 56,198 24,594 24,594 74,594 22 48,517 (*) (*) (*) 4,990 4,990 54,990 25,580 25,580 75,580 23 52,202 (*) (*) (*) 3,470 3,470 53,470 26,476 26,476 76,476 24 56,073 (*) (*) (*) 1,605 1,605 51,605 27,172 27,172 77,172 25 60,136 (*) (*) (*) (*) (*) (*) 27,623 27,623 77,623 26 64,403 (*) (*) (*) (*) (*) (*) 27,775 27,775 77,775 27 68,883 (*) (*) (*) (*) (*) (*) 27,570 27,570 77,570 28 73,587 (*) (*) (*) (*) (*) (*) 26,951 26,951 76,951 29 78,527 (*) (*) (*) (*) (*) (*) 25,840 25,840 75,840 30 83,713 (*) (*) (*) (*) (*) (*) 24,147 24,147 74,147
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 46 of 105 47 DEATH BENEFIT OPTION 2 $1,200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,260 279 0 50,279 319 0 50,319 359 0 50,359 2 2,583 706 13 50,706 809 116 50,809 917 224 50,917 3 3,972 1,068 444 51,068 1,259 636 51,259 1,470 846 51,470 4 5,431 1,359 805 51,359 1,662 1,108 51,662 2,009 1,454 52,009 5 6,962 1,572 1,087 51,572 2,006 1,521 52,006 2,525 2,040 52,525 6 8,570 1,700 1,285 51,700 2,281 1,865 52,281 3,006 2,590 53,006 7 10,259 1,736 1,390 51,736 2,474 2,128 52,474 3,440 3,093 53,440 8 12,032 1,667 1,390 51,667 2,568 2,290 52,568 3,806 3,529 53,806 9 13,893 1,481 1,273 51,481 2,543 2,335 52,543 4,083 3,875 54,083 10 15,848 1,167 1,167 51,167 2,381 2,381 52,381 4,247 4,247 54,247 11 17,901 713 713 50,713 2,063 2,063 52,063 4,274 4,274 54,274 12 20,056 110 110 50,110 1,570 1,570 51,570 4,137 4,137 54,137 13 22,318 (*) (*) (*) 882 882 50,882 3,807 3,807 53,807 14 24,694 (*) (*) (*) (*) (*) (*) 3,247 3,247 53,247 15 27,189 (*) (*) (*) (*) (*) (*) 2,415 2,415 52,415 16 29,808 (*) (*) (*) (*) (*) (*) 1,252 1,252 51,252
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 47 of 105 48 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,575 797 0 100,000 861 0 100,000 926 28 100,000 2 3,229 1,797 899 100,000 1,982 1,085 100,000 2,176 1,278 100,000 3 4,965 2,759 1,951 100,000 3,129 2,322 100,000 3,531 2,723 100,000 4 6,788 3,685 2,967 100,000 4,305 3,587 100,000 5,004 4,286 100,000 5 8,703 4,575 3,947 100,000 5,511 4,883 100,000 6,606 5,978 100,000 6 10,713 5,432 4,894 100,000 6,749 6,211 100,000 8,354 7,816 100,000 7 12,824 6,245 5,796 100,000 8,011 7,562 100,000 10,252 9,803 100,000 8 15,040 7,003 6,644 100,000 9,287 8,928 100,000 12,305 11,946 100,000 9 17,367 7,709 7,440 100,000 10,579 10,310 100,000 14,533 14,263 100,000 10 19,810 8,354 8,354 100,000 11,880 11,880 100,000 16,945 16,945 100,000 11 22,376 8,950 8,950 100,000 13,202 13,202 100,000 19,576 19,576 100,000 12 25,069 9,506 9,506 100,000 14,554 14,554 100,000 22,459 22,459 100,000 13 27,898 10,024 10,024 100,000 15,941 15,941 100,000 25,623 25,623 100,000 14 30,868 10,486 10,486 100,000 17,347 17,347 100,000 29,174 29,174 100,000 15 33,986 10,874 10,874 100,000 18,757 18,757 100,000 33,066 33,066 100,000 16 37,261 11,193 11,193 100,000 20,176 20,176 100,000 37,346 37,346 100,000 17 40,699 11,437 11,437 100,000 21,602 21,602 100,000 42,060 42,060 100,000 18 44,309 11,592 11,592 100,000 23,021 23,021 100,000 47,257 47,257 100,000 19 48,099 11,651 11,651 100,000 24,432 24,432 100,000 52,999 52,999 100,000 20 52,079 11,621 11,621 100,000 25,841 25,841 100,000 59,365 59,365 100,000 21 56,258 11,488 11,488 100,000 27,323 27,323 100,000 66,436 66,436 100,000 22 60,646 11,223 11,223 100,000 28,782 28,782 100,000 74,305 74,305 100,000 23 65,253 10,817 10,817 100,000 30,214 30,214 100,000 83,092 83,092 100,000 24 70,091 10,243 10,243 100,000 31,602 31,602 100,000 92,865 92,865 108,653 25 75,170 9,490 9,490 100,000 32,941 32,941 100,000 103,604 103,604 120,181 26 80,504 8,545 8,545 100,000 34,228 34,228 100,000 115,401 115,401 132,711 27 86,104 7,368 7,368 100,000 35,438 35,438 100,000 128,390 128,390 145,081 28 91,984 5,942 5,942 100,000 36,565 36,565 100,000 142,708 142,708 158,406 29 98,158 4,239 4,239 100,000 37,598 37,598 100,000 158,508 158,508 172,774 30 104,641 2,209 2,209 100,000 38,510 38,510 100,000 175,964 175,964 188,282
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 48 of 105 49 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,575 749 0 100,000 812 0 100,000 875 0 100,000 2 3,229 1,669 771 100,000 1,847 950 100,000 2,034 1,137 100,000 3 4,965 2,546 1,739 100,000 2,900 2,092 100,000 3,283 2,475 100,000 4 6,788 3,380 2,662 100,000 3,967 3,249 100,000 4,629 3,911 100,000 5 8,703 4,169 3,540 100,000 5,048 4,420 100,000 6,081 5,453 100,000 6 10,713 4,908 4,369 100,000 6,140 5,601 100,000 7,645 7,107 100,000 7 12,824 5,594 5,145 100,000 7,237 6,788 100,000 9,330 8,881 100,000 8 15,040 6,221 5,862 100,000 8,335 7,976 100,000 11,142 10,783 100,000 9 17,367 6,783 6,514 100,000 9,428 9,159 100,000 13,091 12,822 100,000 10 19,810 7,276 7,276 100,000 10,510 10,510 100,000 15,187 15,187 100,000 11 22,376 7,692 7,692 100,000 11,574 11,574 100,000 17,442 17,442 100,000 12 25,069 8,028 8,028 100,000 12,616 12,616 100,000 19,871 19,871 100,000 13 27,898 8,279 8,279 100,000 13,631 13,631 100,000 22,494 22,494 100,000 14 30,868 8,438 8,438 100,000 14,611 14,611 100,000 25,328 25,328 100,000 15 33,986 8,495 8,495 100,000 15,546 15,546 100,000 28,480 28,480 100,000 16 37,261 8,438 8,438 100,000 16,424 16,424 100,000 31,909 31,909 100,000 17 40,699 8,254 8,254 100,000 17,232 17,232 100,000 35,646 35,646 100,000 18 44,309 7,925 7,925 100,000 17,950 17,950 100,000 39,725 39,725 100,000 19 48,099 7,429 7,429 100,000 18,557 18,557 100,000 44,188 44,188 100,000 20 52,079 6,745 6,745 100,000 19,032 19,032 100,000 49,088 49,088 100,000 21 56,258 5,853 5,853 100,000 19,352 19,352 100,000 54,492 54,492 100,000 22 60,646 4,728 4,728 100,000 19,493 19,493 100,000 60,481 60,481 100,000 23 65,253 3,349 3,349 100,000 19,429 19,429 100,000 67,156 67,156 100,000 24 70,091 1,681 1,681 100,000 19,126 19,126 100,000 74,640 74,640 100,000 25 75,170 (*) (*) (*) 18,539 18,539 100,000 83,081 83,081 100,000 26 80,504 (*) (*) (*) 17,606 17,606 100,000 92,592 92,592 106,481 27 86,104 (*) (*) (*) 16,247 16,247 100,000 103,074 103,074 116,473 28 91,984 (*) (*) (*) 14,359 14,359 100,000 114,612 114,612 127,219 29 98,158 (*) (*) (*) 11,816 11,816 100,000 127,334 127,334 138,794 30 104,641 (*) (*) (*) 8,476 8,476 100,000 141,392 141,392 151,290
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 49 of 105 50 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,575 794 0 100,794 858 0 100,858 922 25 100,922 2 3,229 1,787 890 101,787 1,972 1,074 101,972 2,164 1,267 102,164 3 4,965 2,739 1,931 102,739 3,107 2,299 103,107 3,505 2,698 103,505 4 6,788 3,651 2,933 103,651 4,265 3,547 104,265 4,956 4,238 104,956 5 8,703 4,524 3,895 104,524 5,446 4,818 105,446 6,527 5,899 106,527 6 10,713 5,358 4,819 105,358 6,653 6,115 106,653 8,232 7,693 108,232 7 12,824 6,142 5,694 106,143 7,874 7,425 107,874 10,069 9,621 110,069 8 15,040 6,867 6,508 106,867 9,097 8,738 109,097 12,042 11,683 112,042 9 17,367 7,532 7,262 107,532 10,322 10,053 110,322 14,162 13,893 114,162 10 19,810 8,127 8,127 108,127 11,538 11,538 111,538 16,434 16,434 116,434 11 22,376 8,667 8,667 108,667 12,759 12,759 112,759 18,885 18,885 118,885 12 25,069 9,161 9,161 109,161 13,991 13,991 113,991 21,543 21,543 121,543 13 27,898 9,610 9,610 109,610 15,237 15,237 115,237 24,428 24,428 124,428 14 30,868 9,994 9,994 109,994 16,476 16,476 116,476 27,542 27,542 127,542 15 33,986 10,294 10,294 110,294 17,686 17,686 117,686 30,979 30,979 130,979 16 37,261 10,515 10,515 110,515 18,870 18,870 118,870 34,693 34,693 134,693 17 40,699 10,650 10,650 110,650 20,017 20,017 120,017 38,703 38,703 138,703 18 44,309 10,683 10,683 110,683 21,109 21,109 121,109 43,021 43,021 143,021 19 48,099 10,609 10,609 110,609 22,137 22,137 122,137 47,673 47,673 147,673 20 52,079 10,435 10,435 110,435 23,102 23,102 123,102 52,698 52,698 152,698 21 56,258 10,147 10,147 110,147 23,985 23,985 123,985 58,118 58,118 158,118 22 60,646 9,715 9,715 109,715 24,751 24,751 124,751 63,938 63,938 163,938 23 65,253 9,131 9,131 109,131 25,385 25,385 125,385 70,192 70,192 170,192 24 70,091 8,369 8,369 108,369 25,930 25,930 125,930 76,891 76,891 176,891 25 75,170 7,423 7,423 107,423 26,294 26,294 126,294 84,071 84,071 184,071 26 80,504 6,286 6,286 106,286 26,460 26,460 126,460 91,774 91,774 191,774 27 86,104 4,923 4,923 104,923 26,379 26,379 126,379 100,010 100,010 200,010 28 91,984 3,329 3,329 103,329 26,030 26,030 126,030 108,826 108,826 208,826 29 98,158 1,489 1,489 101,489 25,383 25,383 125,383 118,261 118,261 218,261 30 104,641 (*) (*) (*) 24,382 24,382 124,382 128,338 128,338 228,338
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 50 of 105 51 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 1,575 746 0 100,746 808 0 100,808 871 0 100,871 2 3,229 1,658 761 101,658 1,836 938 101,836 2,021 1,123 102,021 3 4,965 2,525 1,717 102,525 2,874 2,067 102,874 3,254 2,447 103,254 4 6,788 3,343 2,625 103,343 3,922 3,204 103,922 4,576 3,858 104,576 5 8,703 4,111 3,483 104,111 4,976 4,348 104,976 5,992 5,364 105,992 6 10,713 4,824 4,286 104,824 6,032 5,493 106,032 7,507 6,968 107,507 7 12,824 5,478 5,030 105,478 7,082 6,633 107,082 9,123 8,675 109,123 8 15,040 6,067 5,708 106,067 8,120 7,761 108,120 10,844 10,485 110,844 9 17,367 6,584 6,314 106,584 9,138 8,869 109,138 12,672 12,403 112,672 10 19,810 7,022 7,022 107,022 10,126 10,126 110,126 14,610 14,610 114,610 11 22,376 7,376 7,376 107,376 11,076 11,076 111,076 16,659 16,659 116,659 12 25,069 7,640 7,640 107,640 11,978 11,978 111,978 18,825 18,825 118,825 13 27,898 7,810 7,810 107,810 12,825 12,825 112,825 21,113 21,113 121,113 14 30,868 7,878 7,878 107,878 13,606 13,606 113,606 23,525 23,525 123,525 15 33,986 7,834 7,834 107,834 14,303 14,303 114,303 26,060 26,060 126,060 16 37,261 7,667 7,667 107,667 14,901 14,901 114,901 28,805 28,805 128,805 17 40,699 7,364 7,364 107,364 15,381 15,381 115,381 31,685 31,685 131,685 18 44,309 6,906 6,906 106,906 15,716 15,716 115,716 34,694 34,694 134,694 19 48,099 6,276 6,276 106,276 15,878 15,878 115,878 37,820 37,820 137,820 20 52,079 5,455 5,455 105,455 15,838 15,838 115,838 41,055 41,055 141,055 21 56,258 4,427 4,427 104,427 15,569 15,569 115,569 44,389 44,389 144,389 22 60,646 3,178 3,178 103,178 15,040 15,040 115,040 47,812 47,812 147,812 23 65,253 1,694 1,694 101,694 14,224 14,224 114,224 51,314 51,314 151,314 24 70,091 (*) (*) (*) 13,085 13,085 113,085 54,880 54,880 154,880 25 75,170 (*) (*) (*) 11,577 11,577 111,577 58,481 58,481 158,481 26 80,504 (*) (*) (*) 9,641 9,641 109,641 62,078 62,078 162,078 27 86,104 (*) (*) (*) 7,207 7,207 107,207 65,615 65,615 165,615 28 91,984 (*) (*) (*) 4,188 4,188 104,188 69,017 69,017 169,017 29 98,158 (*) (*) (*) 493 493 100,493 72,201 72,201 172,201 30 104,641 (*) (*) (*) (*) (*) (*) 75,085 75,085 175,085
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 51 of 105 52 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 2,625 1,382 220 100,000 1,491 329 100,000 1,601 438 100,000 2 5,381 2,951 1,789 100,000 3,263 2,101 100,000 3,589 2,427 100,000 3 8,275 4,469 3,423 100,000 5,086 4,040 100,000 5,756 4,710 100,000 4 11,314 5,918 4,988 100,000 6,943 6,013 100,000 8,101 7,171 100,000 5 14,505 7,280 6,466 100,000 8,819 8,005 100,000 10,628 9,814 100,000 6 17,855 8,562 7,864 100,000 10,721 10,023 100,000 13,362 12,665 100,000 7 21,373 9,759 9,178 100,000 12,645 12,064 100,000 16,325 15,744 100,000 8 25,066 10,858 10,393 100,000 14,581 14,116 100,000 19,532 19,067 100,000 9 28,945 11,857 11,508 100,000 16,527 16,179 100,000 23,010 22,662 100,000 10 33,017 12,762 12,762 100,000 18,493 18,493 100,000 26,804 26,804 100,000 11 37,293 13,561 13,561 100,000 20,471 20,471 100,000 31,040 31,040 100,000 12 41,782 14,230 14,230 100,000 22,440 22,440 100,000 35,676 35,676 100,000 13 46,497 14,763 14,763 100,000 24,398 24,398 100,000 40,770 40,770 100,000 14 51,446 15,137 15,137 100,000 26,328 26,328 100,000 46,378 46,378 100,000 15 56,644 15,344 15,344 100,000 28,318 28,318 100,000 52,582 52,582 100,000 16 62,101 15,377 15,377 100,000 30,290 30,290 100,000 59,479 59,479 100,000 17 67,831 15,203 15,203 100,000 32,225 32,225 100,000 67,176 67,176 100,000 18 73,848 14,811 14,811 100,000 34,123 34,123 100,000 75,815 75,815 100,000 19 80,165 14,181 14,181 100,000 35,979 35,979 100,000 85,569 85,569 100,000 20 86,798 13,272 13,272 100,000 37,776 37,776 100,000 96,629 96,629 103,394 21 93,763 12,050 12,050 100,000 39,503 39,503 100,000 108,943 108,943 114,391 22 101,076 10,431 10,431 100,000 41,118 41,118 100,000 122,479 122,479 128,603 23 108,755 8,349 8,349 100,000 42,598 42,598 100,000 137,350 137,350 144,218 24 116,818 5,727 5,727 100,000 43,917 43,917 100,000 153,681 153,681 161,365 25 125,284 2,462 2,462 100,000 45,041 45,041 100,000 171,604 171,604 180,184 26 134,173 (*) (*) (*) 45,933 45,933 100,000 191,264 191,264 200,827 27 143,506 (*) (*) (*) 46,558 46,558 100,000 212,815 212,815 223,456 28 153,307 (*) (*) (*) 46,858 46,858 100,000 236,426 236,426 248,247 29 163,597 (*) (*) (*) 46,761 46,761 100,000 262,272 262,272 275,385 30 174,402 (*) (*) (*) 46,158 46,158 100,000 290,539 290,539 305,066
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 52 of 105 53 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 2,625 1,209 46 100,000 1,312 150 100,000 1,417 254 100,000 2 5,381 2,533 1,371 100,000 2,822 1,659 100,000 3,124 1,961 100,000 3 8,275 3,760 2,714 100,000 4,320 3,273 100,000 4,929 3,883 100,000 4 11,314 4,884 3,954 100,000 5,799 4,869 100,000 6,837 5,907 100,000 5 14,505 5,896 5,082 100,000 7,250 6,436 100,000 8,850 8,037 100,000 6 17,855 6,786 6,089 100,000 8,662 7,964 100,000 10,975 10,277 100,000 7 21,373 7,545 6,964 100,000 10,023 9,441 100,000 13,214 12,633 100,000 8 25,066 8,155 7,690 100,000 11,315 10,850 100,000 15,570 15,105 100,000 9 28,945 8,599 8,250 100,000 12,518 12,170 100,000 18,046 17,697 100,000 10 33,017 8,861 8,861 100,000 13,615 13,615 100,000 20,647 20,647 100,000 11 37,293 8,922 8,922 100,000 14,585 14,585 100,000 23,385 23,385 100,000 12 41,782 8,766 8,766 100,000 15,408 15,408 100,000 26,275 26,275 100,000 13 46,497 8,374 8,374 100,000 16,064 16,064 100,000 29,428 29,428 100,000 14 51,446 7,720 7,720 100,000 16,523 16,523 100,000 32,799 32,799 100,000 15 56,644 6,769 6,769 100,000 16,748 16,748 100,000 36,416 36,416 100,000 16 62,101 5,470 5,470 100,000 16,687 16,687 100,000 40,311 40,311 100,000 17 67,831 3,759 3,759 100,000 16,270 16,270 100,000 44,522 44,522 100,000 18 73,848 1,548 1,548 100,000 15,408 15,408 100,000 49,097 49,097 100,000 19 80,165 (*) (*) (*) 13,996 13,996 100,000 54,107 54,107 100,000 20 86,798 (*) (*) (*) 11,915 11,915 100,000 59,652 59,652 100,000 21 93,763 (*) (*) (*) 9,029 9,029 100,000 65,879 65,879 100,000 22 101,076 (*) (*) (*) 5,171 5,171 100,000 72,980 72,980 100,000 23 108,755 (*) (*) (*) 139 139 100,000 81,212 81,212 100,000 24 116,818 (*) (*) (*) (*) (*) (*) 90,917 90,917 100,000 25 125,284 (*) (*) (*) (*) (*) (*) 102,302 102,302 107,417 26 134,173 (*) (*) (*) (*) (*) (*) 114,787 114,787 120,527 27 143,506 (*) (*) (*) (*) (*) (*) 128,427 128,427 134,848 28 153,307 (*) (*) (*) (*) (*) (*) 143,307 143,307 150,472 29 163,597 (*) (*) (*) (*) (*) (*) 159,518 159,518 167,494 30 174,402 (*) (*) (*) (*) (*) (*) 177,155 177,155 186,012
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 53 of 105 54 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 2,625 1,370 208 101,370 1,479 316 101,479 1,587 425 101,587 2 5,381 2,917 1,754 102,917 3,225 2,063 103,225 3,547 2,385 103,547 3 8,275 4,400 3,354 104,400 5,007 3,961 105,007 5,665 4,619 105,665 4 11,314 5,800 4,870 105,800 6,803 5,873 106,803 7,935 7,005 107,935 5 14,505 7,098 6,285 107,098 8,594 7,780 108,594 10,350 9,536 110,350 6 17,855 8,300 7,602 108,300 10,382 9,684 110,382 12,928 12,230 112,928 7 21,373 9,397 8,816 109,397 12,159 11,578 112,159 15,677 15,095 115,677 8 25,066 10,376 9,911 110,376 13,906 13,441 113,906 18,594 18,129 118,594 9 28,945 11,231 10,882 111,231 15,616 15,267 115,616 21,691 21,342 121,691 10 33,017 11,969 11,969 111,969 17,291 17,291 117,291 24,990 24,990 124,990 11 37,293 12,577 12,577 112,577 18,914 18,914 118,914 28,495 28,495 128,495 12 41,782 13,025 13,025 113,025 20,450 20,450 120,450 32,290 32,290 132,290 13 46,497 13,306 13,306 113,306 21,885 21,885 121,885 36,308 36,308 136,308 14 51,446 13,393 13,393 113,393 23,185 23,185 123,185 40,541 40,541 140,541 15 56,644 13,281 13,281 113,281 24,334 24,334 124,334 45,001 45,001 145,001 16 62,101 12,964 12,964 112,964 25,316 25,316 125,316 49,701 49,701 149,701 17 67,831 12,406 12,406 112,406 26,166 26,166 126,166 54,624 54,624 154,624 18 73,848 11,602 11,602 111,602 26,790 26,790 126,790 59,784 59,784 159,784 19 80,165 10,538 10,538 110,538 27,157 27,157 127,157 65,185 65,185 165,185 20 86,798 9,180 9,180 109,180 27,217 27,217 127,217 70,812 70,812 170,812 21 93,763 7,505 7,505 107,505 26,927 26,927 126,927 76,656 76,656 176,656 22 101,076 5,441 5,441 105,441 26,191 26,191 126,191 82,659 82,659 182,659 23 108,755 2,948 2,948 102,948 24,942 24,942 124,942 88,786 88,786 188,786 24 116,818 (*) (*) (*) 23,031 23,031 123,031 95,002 95,002 195,002 25 125,284 (*) (*) (*) 20,454 20,454 120,454 101,252 101,252 201,252 26 134,173 (*) (*) (*) 17,130 17,130 117,130 107,488 107,488 207,488 27 143,506 (*) (*) (*) 12,990 12,990 112,990 113,667 113,667 213,667 28 153,307 (*) (*) (*) 7,935 7,935 107,935 119,717 119,717 219,717 29 163,597 (*) (*) (*) 1,864 1,864 101,864 125,559 125,559 225,559 30 174,402 (*) (*) (*) (*) (*) (*) 131,068 131,068 231,068
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $5.00 THEREAFTER. CURRENT VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS UP TO THE BREAK POINT PREMIUM AND 4% ON PREMIUMS IN EXCESS OF BREAK POINT FOR ANY SINGLE POLICY YEAR. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 54 of 105 55 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: 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 2,625 1,194 31 101,194 1,297 134 101,297 1,400 238 101,400 2 5,381 2,491 1,328 102,491 2,775 1,612 102,775 3,072 1,910 103,072 3 8,275 3,676 2,630 103,676 4,222 3,176 104,222 4,817 3,771 104,817 4 11,314 4,741 3,811 104,741 5,627 4,697 105,627 6,632 5,702 106,632 5 14,505 5,676 4,862 105,676 6,975 6,161 106,975 8,510 7,696 108,510 6 17,855 6,470 5,772 106,470 8,250 7,552 108,250 10,443 9,746 110,443 7 21,373 7,111 6,530 107,111 9,435 8,853 109,435 12,423 11,842 112,423 8 25,066 7,582 7,117 107,582 10,503 10,038 110,503 14,432 13,967 114,432 9 28,945 7,862 7,514 107,862 11,429 11,080 111,429 16,449 16,100 116,449 10 33,017 7,937 7,937 107,937 12,185 12,185 112,185 18,453 18,453 118,453 11 37,293 7,789 7,789 107,789 12,744 12,744 112,744 20,423 20,423 120,423 12 41,782 7,403 7,403 107,403 13,078 13,078 113,078 22,334 22,334 122,334 13 46,497 6,767 6,767 106,767 13,159 13,159 113,159 24,164 24,164 124,164 14 51,446 5,861 5,861 105,861 12,955 12,955 112,955 25,877 25,877 125,877 15 56,644 4,660 4,660 104,660 12,420 12,420 112,420 27,517 27,517 127,517 16 62,101 3,125 3,125 103,125 11,498 11,498 111,498 28,950 28,950 128,950 17 67,831 1,213 1,213 101,213 10,119 10,119 110,119 30,098 30,098 130,098 18 73,848 (*) (*) (*) 8,198 8,198 108,198 30,865 30,865 130,865 19 80,165 (*) (*) (*) 5,647 5,647 105,647 31,141 31,141 131,141 20 86,798 (*) (*) (*) 2,382 2,382 102,382 30,817 30,817 130,817 21 93,763 (*) (*) (*) (*) (*) (*) 29,784 29,784 129,784 22 101,076 (*) (*) (*) (*) (*) (*) 27,926 27,926 127,926 23 108,755 (*) (*) (*) (*) (*) (*) 25,120 25,120 125,120 24 116,818 (*) (*) (*) (*) (*) (*) 21,225 21,225 121,225 25 125,284 (*) (*) (*) (*) (*) (*) 15,999 15,999 115,999 26 134,173 (*) (*) (*) (*) (*) (*) 9,287 9,287 109,287 27 143,506 (*) (*) (*) (*) (*) (*) 812 812 100,812
ASSUMPTIONS: (1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE. (2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND A MONTHLY ADMINISTRATIVE EXPENSE CHARGE OF $25 FOR THE FIRST POLICY YEAR AND $7.50 THEREAFTER. GUARANTEED VALUES REFLECT A 6% OF PREMIUM CHARGE ON ALL PREMIUMS. (3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX. (*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE. THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY 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. 55 of 105 56 APPENDIX 3 The following performance tables display historical investment results of the underlying Mutual Fund sub-accounts of the Variable Account. This information may be useful in helping potential investors in deciding which underlying Mutual Fund sub-accounts to choose and in assessing the competence of the underlying Mutual Funds' investment advisers. The performance figures shown should be considered in light of the investment objectives and policies, characteristics and quality of the underlying portfolios of the underlying Mutual Funds, and the market conditions during the periods of time quoted. The performance figures should not be considered as estimates or predictions of future performance. Investment return and the principal value of the underlying Mutual Fund sub-accounts are not guaranteed and will fluctuate so that a Policy Owner's units, when redeemed, may be worth more or less than their original cost. 56 of 105 57 PERFORMANCE TABLES TOTAL RETURN
- ------------------------------------------------------------------------- ANNUAL PERCENTAGE CHANGE - ------------------------------------------------------------------------- FUND INCEPTION DATE* 1993 1994 1995 - -------------------------------------------------------------------------- Dreyfus Corporation Stock Index Fund 09/29/89 8.46 0.08 13.78 Socially Responsible Growth 10/06/93 N/A* 0.69 14.40 Fund - -------------------------------------------------------------------------- Fidelity VIP Fund & VIP Fund II Asset Manager Portfolio 09/06/89 20.09 -6.84 15.98 High Income Portfolio 09/19/85 19.55 -2.33 20.85 Equity-Income Portfolio 10/09/86 17.26 6.22 22.22 Overseas Portfolio 01/28/87 36.14 0.92 13.65 Growth Portfolio 10/09/86 18.42 -0.81 21.26 Contrafund Portfolio 07/01/95 N/A* N/A* 11.10 - -------------------------------------------------------------------------- Nationwide Separate Account Trust Money Market Fund 11/10/81 1.93 3.05 11.71 Government Bond Fund 11/08/82 8.64 -4.00 14.98 Total Return Fund 11/08/82 10.03 0.27 18.19 Small Company Fund 10/23/95 N/A* N/A* 11.42 Capital Appreciation Fund 04/15/92 8.73 -1.69 14.71 - -------------------------------------------------------------------------- Neuberger & Berman Advisers Management. Trust Growth Portfolio 09/10/84 5.94 -5.74 15.96 Limited Maturity Bond 09/10/84 5.78 -0.95 13.10 Portfolio Partners Portfolio 03/22/94 N/A* N/A* 13.59 - -------------------------------------------------------------------------- Oppenheimer Variable Account Funds Multiple Strategies Fund 02/09/87 15.02 -2.73 16.10 Bond Fund 04/30/85 12.14 -2.72 15.16 Global Securities Fund 11/12/90 68.96 -6.47 11.54 - -------------------------------------------------------------------------- Strong Special Fund II, Inc. 05/08/92 24.17 2.77 18.41 - -------------------------------------------------------------------------- Strong Variable Insurance Funds, Inc. Strong Discovery Fund II, Inc. 05/08/92 21.05 -6.14 16.51 Strong International Stock Fund, II 10/23/95 N/A* N/A* 10.24 - -------------------------------------------------------------------------- TCI Portfolios, Inc. TCI Growth 11/20/87 9.43 -1.95 16.15 TCI Balanced 05/01/91 6.83 -0.19 13.16 TCI International 05/01/94 N/A* N/A* 10.48 - -------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust Worldwide Bond Fund 09/01/89 6.92 -2.10 13.25 Gold and Natural Resources Fund 09/01/89 63.52 -5.55 15.61 - -------------------------------------------------------------------------- Van Kampen American Capital Life Investment Trust Real Estate Securities Fund 07/01/95 N/A* N/A* 10.79 - -------------------------------------------------------------------------- Warburg Pincus Trust International Equity Portfolio 07-01-95 N/A* N/A* 10.69 Small Company Growth Portfolio 07-01-95 N/A* N/A* 2.46 - -------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------ NON-ANNUALIZED PERCENTAGE CHANGE - ------------------------------------------------------------------------------------------------------ INCEPTION 1 MO. TO 1 YR. TO 2 YRS. TO 3 YRS. TO 5 YRS. TO TO 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 - ------------------------------------------------------------------------------------------------------ Dreyfus Corporation Stock Index Fund 1.75 35.69 35.80 47.29 101.58 96.76 Socially Responsible Growth -0.05 33.49 34.41 N/A* N/A* 44.02 Fund - ------------------------------------------------------------------------------------------------------ Fidelity VIP Fund & VIP Fund II Asset Manager Portfolio 2.47 16.03 8.09 29.80 75.15 86.45 High Income Portfolio 1.11 19.65 16.86 39.70 128.83 187.88 Equity-Income Portfolio 2.86 34.02 42.35 66.92 152.58 195.01 Overseas Portfolio 2.89 8.81 9.80 49.48 42.07 74.75 Growth Portfolio -3.18 34.29 33.20 57.73 146.91 232.96 Contrafund Portfolio 0.38 N/A* N/A* N/A* N/A* 38.52 - ------------------------------------------------------------------------------------------------------ Nationwide Separate Account Trust Money Market Fund 0.38 4.81 8.01 10.10 18.58 138.29 Government Bond Fund 1.08 17.80 13.09 22.86 52.20 216.68 Total Return Fund 1.17 28.07 28.41 41.30 108.31 457.03 Small Company Fund 4.39 N/A* N/A* N/A* N/A* 14.21 Capital Appreciation Fund 2.93 28.33 26.16 37.18 N/A* 44.29 - ------------------------------------------------------------------------------------------------------ Neuberger & Berman Advisers Management. Trust Growth Portfolio -2.99 30.68 23.18 30.49 82.48 269.61 Limited Maturity Bond 0.83 10.05 9.01 15.31 32.88 133.79 Portfolio Partners Portfolio 1.31 35.39 N/A* N/A* N/A* 31.45 - ------------------------------------------------------------------------------------------------------ Oppenheimer Variable Account Funds Multiple Strategies Fund 0.76 20.39 17.11 34.71 69.74 137.24 Bond Fund 1.38 16.07 12.91 26.62 56.09 160.94 Global Securities Fund 1.22 1.43 -5.14 60.28 51.48 51.92 - ------------------------------------------------------------------------------------------------------ Strong Special Fund II, Inc. 2.46 24.82 28.28 59.29 N/A* 84.09 - ------------------------------------------------------------------------------------------------------ Strong Variable Insurance Funds, Inc. Strong Discovery Fund II, Inc. -1.39 34.18 25.95 52.46 N/A* 65.15 Strong International Stock Fund, II 3.06 N/A* N/A* N/A* N/A* 2.46 - ------------------------------------------------------------------------------------------------------ TCI Portfolios, Inc. TCI Growth -1.21 30.06 27.51 39.54 92.21 149.64 TCI Balanced 0.92 20.16 19.93 28.13 N/A* 49.11 TCI International 3.43 11.32 N/A* N/A* N/A* 5.19 - ------------------------------------------------------------------------------------------------------ Van Eck Worldwide Insurance Trust Worldwide Bond Fund 0.84 16.37 13.92 21.80 34.43 49.03 Gold and Natural Resources Fund 1.77 10.11 4.00 70.06 55.87 43.98 - ------------------------------------------------------------------------------------------------------ Van Kampen American Capital Life Investment Trust Real Estate Securities Fund 5.02 N/A* N/A* N/A* N/A* 7.92 - ------------------------------------------------------------------------------------------------------ Warburg Pincus Trust International Equity Portfolio 2.32 N/A* N/A* N/A* N/A* 6.88 Small Company Growth Portfolio 4.27 N/A* N/A* N/A* N/A* 24.61 - ------------------------------------------------------------------------------------------------------
This table displays three types of total return. Simply stated, total return shows the percent change in unit values, with dividends and capital gains reinvested, after the deduction of a 0.80% asset charge (and the deduction of applicable investment advisory fees and other expenses of the underlying Mutual Funds). The total return figures shown in the Annual Percentage Change and Annualized Percentage Change columns represent annualized figures, i.e., they show the rate of growth that would have produced the corresponding cumulative return had performance been constant over the entire period quoted. The Non-Annualized Percentage Change total return figures are not annual return figures but instead represent the total percentage change in unit value over the stated periods without annualization. THE TOTAL RETURN FIGURES DO NOT TAKE INTO ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY CHARGES" SECTION. THESE OTHER CHARGES INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF INSURANCE CHARGES, SURRENDER CHARGES AND A MONTHLY ADMINISTRATIVE CHARGE. *The underlying Mutual Fund Inception Date is the date the underlying Mutual Fund first became effective, which is not necessarily the same date the underlying Mutual Fund was first made available through the Variable Account. For those underlying Mutual Funds which have not been offered as sub-accounts through the Variable Account for one of the quoted periods, the total return figures will show the investment performance such underlying Mutual Funds would have achieved (reduced by the 0.80% asset charge and Fund investment advisory fees and expenses) had they been offered as sub-accounts through the Variable Account for the period quoted. Certain underlying Mutual Funds are not as old as some of the periods quoted, therefore, total return figures may not be available for all of the periods shown. 57 of 105 58 PERFORMANCE TABLES TOTAL RETURN (CONTINUED)
ANNUALIZED PERCENTAGE CHANGE - ----------------------------------------------------------------------------------------------- 3 Yrs. to 5 Yrs. to Inception to 12/31/95 12/31/95 12/31/95 - ----------------------------------------------------------------------------------------------- Dreyfus Corporation Stock Index Fund 13.78 15.05 11.43 Socially Responsible Growth Fund N/A* N/A* 17.74 - ----------------------------------------------------------------------------------------------- Fidelity VIP Fund & VIP Fund II Asset Manager Portfolio 9.08 11.86 10.37 High Income Portfolio 11.79 18.01 10.83 Equity-Income Portfolio 18.62 20.36 12.44 Overseas Portfolio 14.34 7.28 6.45 Growth Portfolio 16.40 19.81 13.93 Contrafund Portfolio N/A* N/A* 38.89 - ----------------------------------------------------------------------------------------------- Nationwide Separate Account Trust Money Market Fund 3.26 3.47 6.33 Government Bond Fund 7.10 8.76 9.17 Total Return Fund 12.21 15.81 13.93 Capital Appreciation Fund 11.11 N/A* 10.39 Small Company Fund N/A* N/A* 102.59 - ----------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust Growth Portfolio 9.28 12.78 12.26 Limited Maturity Bond Portfolio 4.86 5.85 7.80 Partners Portfolio N/A* N/A* 16.67 - ----------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds Multiple Strategies Fund 10.44 11.16 10.21 Bond Fund 8.19 9.31 9.41 Global Securities Fund 17.03 8.66 8.49 - ----------------------------------------------------------------------------------------------- Strong Special Fund II, Inc. 16.79 N/A* 18.22 - ----------------------------------------------------------------------------------------------- Strong Variable Insurance Funds, Inc. Strong Discovery Fund II, Inc. 15.09 N/A* 14.75 Strong International Stock Fund II N/A* N/A* 13.16 - ----------------------------------------------------------------------------------------------- TCI Portfolios, Inc. TCI Growth 11.75 13.96 11.94 TCI Balanced 8.61 N/A* 8.94 TCI International N/A* N/A* 3.09 - ----------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust Worldwide Bond Fund 6.80 6.10 6.50 Gold and Natural Resources Fund 19.36 9.28 5.93 - ----------------------------------------------------------------------------------------------- Van Kampen American Capital Life N/A* N/A* 16.76 Investment Trust Real Estate Securities Fund - ----------------------------------------------------------------------------------------------- Warburg Pincus Trust N/A* N/A* 14.48 International Equity Portfolio Warburg Pincus N/A* N/A* 56.40 Small Company Growth Portfolio - -----------------------------------------------------------------------------------------------
58 of 105 59 PERFORMANCE TABLES CASH VALUES
- ------------------------------------------------------------------------------------------------- 1 YR. TO 12/31/95 2 YRS. TO 12/31/95 - ------------------------------------------------------------------------------------------------- Fund Cash Cash Inception Cash. Surr. Cash. Surr. Date** Value Value Value Value - ------------------------------------------------------------------------------------------------- Dreyfus Corporation Stock Index Fund 09/29/89 11,064 6,258 22,019 17,213 Socially Responsible Growth Fund 10/06/93 10,861 6,055 21,728 16,922 - ------------------------------------------------------------------------------------------------- Fidelity VIP Fund & VIP Fund II Asset Manager Portfolio 09/06/89 9,312 4,507 18,009 13,203 High Income Portfolio 09/19/85 9,669 4,863 19,102 14,297 Equity-Income Portfolio 10/09/86 10,905 6,099 22,463 17,657 Overseas Portfolio 01/28/87 8,679 3,874 17,623 12,817 Growth Portfolio 10/09/86 10,978 6,172 21,673 16,868 Contrafund Portfolio 07/01/95 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Nationwide Separate Account Trust Money Market Fund 11/10/81 8,359 3,553 17,111 12,305 Government Bond Fund 11/08/82 9,497 4,692 18,592 13,786 Total Return Fund 11/08/82 10,396 5,590 20,791 15,985 Capital Appreciation Fund 04/15/92 10,374 5,568 20,543 15,738 Small Company Fund 10/23/95 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust Growth Portfolio 09/10/84 10,679 5,873 20,563 15,757 Limited Maturity Bond Portfolio 09/10/84 8,818 4,012 17,620 12,814 Partners Portfolio 03/22/94 11,046 6,240 N/A** N/A** - ------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds Multiple Strategies Fund 02/09/87 9,737 4,931 19,182 14,376 Bond Fund 04/30/85 9,344 4,538 18,449 13,643 Global Securities Fund 11/12/90 8,063 3,257 15,745 10,939 - ------------------------------------------------------------------------------------------------- Strong Special Fund II, Inc. 05/08/92 10,086 5,280 20,503 15,697 - ------------------------------------------------------------------------------------------------- Strong Variable Insurance Funds Discovery Fund II, Inc. 05/08/92 10,905 6,099 20,994 16,188 International Stock Fund II N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- TCI Portfolios, Inc. TCI Growth 11/20/87 10,592 5,786 20,860 16,054 TCI Balanced 05/01/91 9,697 4,891 19,391 14,586 TCI International 05/01/94 8,882 4,076 N/A** N/A** - ------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust Worldwide Bond Fund 09/01/89 9,410 4,604 18,569 13,763 Gold and Natural Resources Fund 09/01/89 8,778 3,972 17,174 12,368 - ------------------------------------------------------------------------------------------------- Van Kampen American Capital Life Investment Trust Real Estate Securities Fund 07/01/95 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Warburg Pincus Trust International Equity Portfolio 07/01/95 N/A** N/A** N/A** N/A** Small Company Growth Portfolio 07/01/95 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- 3 YRS. TO 12/31/95 5 YRS. TO 12/31/95 - ------------------------------------------------------------------------------------------------- Fund Cash Cash Inception Cash. Surr. Cash. Surr. Date** Value Value Value Value - ------------------------------------------------------------------------------------------------- Dreyfus Corporation Stock Index Fund 09/29/89 33,917 29,592 62,751 59,387 Socially Responsible Growth Fund 10/06/93 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Fidelity VIP Fund & VIP Fund II Asset Manager Portfolio 09/06/89 28,546 24,220 54,300 50,936 High Income Portfolio 09/19/85 30,479 26,154 63,123 59,758 Equity-Income Portfolio 10/09/86 36,073 31,747 72,361 68,997 Overseas Portfolio 01/28/87 29,924 25,598 51,719 48,354 Growth Portfolio 10/09/86 34,515 30,190 68,392 65,028 Contrafund Portfolio 07/01/95 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Nationwide Separate Account Trust Money Market Fund 11/10/81 25,944 21,619 44,316 40,951 Government Bond Fund 11/08/82 28,538 24,213 51,178 47,814 Total Return Fund 11/08/82 32,219 27,893 61,337 57,973 Capital Appreciation Fund 04/15/92 31,559 27,234 N/A** N/A** Small Company Fund 10/23/95 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust Growth Portfolio 09/10/84 31,053 26,727 57,144 53,780 Limited Maturity Bond Portfolio 09/10/84 26,918 22,593 47,061 43,697 Partners Portfolio 03/22/94 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds Multiple Strategies Fund 02/09/87 30,106 25,781 55,376 52,012 Bond Fund 04/30/85 28,719 24,394 51,907 48,543 Global Securities Fund 11/12/90 28,987 24,662 52,774 49,410 - ------------------------------------------------------------------------------------------------- Strong Special Fund II, Inc. 05/08/92 33,514 29,189 N/A** N/A** - ------------------------------------------------------------------------------------------------- Strong Variable Insurance Funds Discovery Fund II, Inc. 05/08/92 33,335 29,010 N/A** N/A** International Stock Fund II N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- TCI Portfolios, Inc. TCI Growth 11/20/87 32,132 27,807 58,577 55,212 TCI Balanced 05/01/91 29,719 25,393 N/A** N/A** TCI International 05/01/94 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust Worldwide Bond Fund 09/01/89 28,379 24,054 48,106 44,742 Gold and Natural Resources Fund 09/01/89 31,330 27,005 56,541 53,177 - ------------------------------------------------------------------------------------------------- Van Kampen American Capital Life Investment Trust Real Estate Securities Fund 07/01/95 N/A** N/A** N/A** N/A** - ------------------------------------------------------------------------------------------------- Warburg Pincus Trust International Equity Portfolio 07/01/95 N/A** N/A** N/A** N/A** Small Company Growth Portfolio 07/01/95 N/A** N/A** N/A** N/A** - -------------------------------------------------------------------------------------------------
This table shows the effect of the performance quoted on accumulated values and cash surrender values, based on a hypothetical annual premium of $10,000 for a 45 year-old male, non-tobacco preferred, with a level death benefit and an initial specified amount of $495,941 (based on a guideline-level premium of $10,000 issued on a preferred basis). The cash surrender value figures reflect the deduction of all applicable Policy Charges, including a deduction from each premium payment, a 0.80% asset charge, applicable cost of insurance charges, surrender charges, and a monthly administrative charge (and the deduction of applicable investment advisory fees and other expenses of the underlying Mutual Funds). See the "Policy Charges" section for more information about these charges. The cost of insurance charges may be higher or lower for purchasers who do not meet the profile of the hypothetical purchaser. Illustrations reflecting a potential purchaser's specific characteristics are available from the Company upon request. **The underlying Mutual Fund Inception Date is the date the underlying Mutual Fund first became effective, which is not necessarily the same date the underlying Mutual Fund was first made available through the Variable Account. For those underlying Mutual Funds which have not been offered as sub- accounts through the Variable Account for one of the quoted periods, the cash values will show the investment performance such underlying Mutual Funds would have achieved (reduced by any applicable Variable Account and Policy Charges, and underlying Mutual Fund investment advisory fees and expenses) had they been offered as sub-accounts through the Variable Account for the period quoted. Certain underlying Mutual Funds are not as old as some of the periods quoted, therefore, the cash values may not be available for all of the periods shown. 59 of 105 60 PERFORMANCE TABLES TOTAL RETURN (CONTINUED)
- -------------------------------------------------------------------------------------------------------- 10 Yrs. to Inception to 12/31/95 12/31/95 - -------------------------------------------------------------------------------------------------------- Cash. Cash Surr. Cash. Cash Surr. Value Value Value Value - -------------------------------------------------------------------------------------------------------- Dreyfus Corporation Stock Index Fund N/A** N/A** 91,028 88,625 Socially Responsible Growth Fund N/A** N/A** 31,889 27,564 - -------------------------------------------------------------------------------------------------------- Fidelity VIP Fund & VIP Fund II Asset Manager Portfolio N/A** N/A** 80,088 77,685 High Income Portfolio 154,929 154,929 164,865 164,865 Equity-Income Portfolio N/A** N/A** 161,923 161,923 Overseas Portfolio N/A** N/A** 104,094 102,652 Growth Portfolio N/A** N/A** 167,787 167,787 Contrafund Portfolio N/A** N/A** 11,338 6,532 - -------------------------------------------------------------------------------------------------------- Nationwide Separate Account Trust Money Market Fund 100,505 100,505 172,791 172,791 Government Bond Fund 128,018 128,018 208,810 208,810 Total Return Fund 156,633 156,633 288,921 288,921 Capital Appreciation Fund N/A** N/A** 43,453 39,608 Small Company Fund N/A** N/A** 10,376 5,570 - -------------------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust Growth Portfolio 151,379 151,379 185,663 185,663 Limited Maturity Bond Portfolio 111,407 111,407 140,389 140,389 Partners Portfolio N/A** N/A** 21,218 16,412 - -------------------------------------------------------------------------------------------------------- Oppenheimer Variable Account Funds Multiple Strategies Fund N/A** N/A** 118,953 117,511 Bond Fund 129,132 129,132 147,593 147,593 Global Securities Fund N/A** N/A** 62,453 59,569 - -------------------------------------------------------------------------------------------------------- Strong Special Fund II, Inc. N/A** N/A** 46,843 42,998 - -------------------------------------------------------------------------------------------------------- Strong Variable Insurance Funds, Inc. Strong International Stock Fund II N/A** N/A** 47,283 43,439 Strong Discovery Fund II, Inc. N/A** N/A** 9,297 4,491 - -------------------------------------------------------------------------------------------------------- TCI Portfolios, Inc. TCI Growth N/A** N/A** 124,952 123,510 TCI Balanced N/A** N/A** 52,377 49,013 TCI International N/A** N/A** 17,759 12,954 - -------------------------------------------------------------------------------------------------------- Van Eck Worldwide Insurance Trust Worldwide Bond Fund N/A** N/A** 69,739 67,336 Gold and Natural Resources Fund N/A** N/A** 74,424 72,021 - -------------------------------------------------------------------------------------------------------- Van Kampen American Life Investment Trust Real Estate Securities Fund N/A** N/A** 9,404 4,598 - -------------------------------------------------------------------------------------------------------- Warburg Pincus Trust International Equity Portfolio N/A** N/A** 9,322 4,516 Small Company Growth Portfolio N/A** N/A** 10,921 6,115 - --------------------------------------------------------------------------------------------------------
60 of 105 61 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. - -------------------------------------------------------------------------------- 62 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 ============ ============ ============
63 PART II - OTHER INFORMATION CONTENTS OF REGISTRATION STATEMENT This Post-Effective Amendment No. 8 to Form S-6 Registration Statement comprises the following papers and documents: The facing sheet. Cross-reference to items required by Form N-8B-2. The prospectus consisting of 98 pages. Representations and Undertakings. The Signatures. Accountants' Consent The following exhibits required by Forms N-8B-2 and S-6: 1. Power of Attorney dated April 4, 1996 Attached hereto. 2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 authorizing the establishment of the Registrant, for the Nationwide VLI Separate Account-2 (File No. 811- adopted 5311), and hereby incorporated herein by reference. 3. Distribution Contracts Included with the Registration Statement on Form N-8B-2 for the Nationwide VLI Separate Account-2 (File No. 811- 5311), and hereby incorporated herein by reference. 4. Form of Security Included with the Registration Statement on Form S-6 for the Nationwide VLI Separate Account-2 (File No. 33- 42180), and hereby incorporated herein by reference. 5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for the Nationwide VLI Separate Account-2 (File No. 811- 5311), and hereby incorporated herein by reference. 6. Application form of Security Included with the Registration Statement on Form S-6 for the Nationwide VLI Separate Account-2 (File No. 33- 42180), and hereby incorporated herein by reference. 7. Opinion of Counsel Included with the Registration Statement on Form S-6 for the Nationwide VLI Separate Account-2 (File No. 33- 42180), and hereby incorporated herein by reference.
102 of 105 64 REPRESENTATIONS AND UNDERTAKINGS The Registrant and the Company hereby make the following representations and undertakings: (a) This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment Company Act of 1940 (the "Act"). The Registrant and the Company elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with respect to the Policies described in the prospectus. The Policies have been designed in such a way as to qualify for the exemptive relief from various provisions of the Act afforded by Rule 6e-3(T). (b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the deduction of the mortality and expense risk charges ("risk charges") assumed by the Company under the Policies. The Company represents that the risk charges are within the range of industry practice for comparable policies and reasonable in relation to all of the risks assumed by the issuer under the Policies. Actuarial memoranda demonstrating the reasonableness of these charges are maintained by the Company, and will be made available to the Securities and Exchange Commission (the "Commission") on request. (c) The Company has concluded that there is a reasonable likelihood that the distribution financing arrangement of the separate account will benefit the separate account and the contractholders and will keep and make available to the Commission on request a memorandum setting forth the basis for this representation. (d) The Company represents that the separate account will invest only in management investment companies which have undertaken to have a board of directors, a majority of whom are not interested persons of the company, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the Registrant hereby undertakes to file with the Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. 103 of 105 65 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, NATIONWIDE VLI SEPARATE ACCOUNT-2, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment No. 9 and has duly caused this Post-Effective Amendment No. 9 to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Columbus, and State of Ohio, on this 1st day of August, 1996. NATIONWIDE VLI SEPARATE ACCOUNT-2 ------------------------------------ (Registrant) (Seal) NATIONWIDE LIFE INSURANCE COMPANY Attest: ------------------------------------ (Sponsor) W. SIDNEY DRUEN By: JOSEPH P. RATH - ----------------------------- ---------------------------------- W. Sidney Druen Joseph P. Rath Assistant Secretary Vice President and Associate General Counsel Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 9 has been signed below by the following persons in the capacities indicated on the 1st day of August, 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 /s/ JOSEPH P. RATH - -------------------------- ----------------------- James F. Patterson Joseph P. Rath ARDEN L. SHISLER Director Attorney-in-Fact - -------------------------- Arden L. Shisler ROBERT L. STEWART Director - -------------------------- Robert L. Stewart NANCY C. THOMAS Director - -------------------------- Nancy C. Thomas HAROLD W. WEIHL Director - -------------------------- Harold W. Weihl
105 of 105 66 DRUEN, RATH & DIETRICH ATTORNEYS AT LAW ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43816 (614) 249-7617 [LETTERHEAD] August 1, 1996 Writer's Direct Dial Number (614) 249-7452 VIA EDGAR - --------- The United States Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Subject: Nationwide VLI Separate Account-2 of Nationwide Life Insurance Company Post-Effective Amendment No. 9; Form S-6 SEC File No. 33-42180 CIK No. 0000820914 Ladies and Gentlemen: This firm serves as counsel to Nationwide Life Insurance Company (the "Company") and its Nationwide VLI Separate Account-2 (the "separate account"). In connection with the registration under the Securities Act of 1933 (the "'33 Act") by the Company of its flexible premium variable universal life insurance policies (File No. 33-42180) issued by the Company's separate account and pursuant to Rule 485(b) under the '33 Act, we hereby submit for electronic filing in conformity to Regulation S-T the following items: 1. Post-Effective Amendment No. 9 to Form S-6 Registration Statement of the separate account (SEC File No. 33-42180). 67 The United States Securities and Exchange Commission August 1, 1996 Page 2 2. A copy of a power of attorney authorizing certain individuals to execute the Registration Statement and amendments thereto on behalf of certain officers and directors of the Company and its separate account (an original power of attorney dated April 4, 1996 is included in Post-Effective Amendment No. 8 to the Registration Statement on Form N-4 of NACo Variable Account (File No. 33-33425; 811-5999) on file with the Company, and is hereby incorporated herein by reference). The changes to Post-Effective Amendment No. 9 consist in adding a disclosure requested by the New York State Insurance Department that for policies issued in New York, the M&E reduction beginning with the 10th policy year should occur regardless of the amount of cash surrender value on such date. Post-Effective Amendment No. 9 will become effective on August 1, 1996 in accordance with Rule 485(b). As counsel to the Company and the separate account, this firm has prepared and reviewed the separate account's Post-Effective Amendment No. 9 to its Registration Statement on Form S-6. It is our opinion that Post-Effective Amendment No. 9 does not contain disclosures which render it ineligible to become effective pursuant to paragraph (b) of Rule 485 of the '33 Act. The manually signed version of Post-Effective Amendment No. 9 is on file with the Company. Please call the undersigned on the direct dial line listed above with any questions regarding this filing. Very truly yours, DRUEN, RATH & DIETRICH /s/ Brian M. Bacon Brian M. Bacon BMB/cw cc: Ms. Joyce M. Pickholz, Esq. Senior Counsel Stop 10-6 Office of Insurance Products and Legal Compliance Assistant Chief c/o Patrice Pitts Stop 10-6 Office of Insurance Products and Legal Compliance -----END PRIVACY-ENHANCED MESSAGE-----