<PAGE> 1
NATIONWIDE(R) VLI
SEPARATE ACCOUNT
SEMI-ANNUAL REPORT
JUNE 30, 1998
INVESTMENT/LIFE(R)
VAN KAMPEN AMERICAN CAPITAL/
NATIONWIDE LIFE INSURANCE COMPANY
VLO-185-Z (6/98)
<PAGE> 2
[NATIONWIDE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PHOTO]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to present the 1998
semi-annual report of the Nationwide VLI Separate Account.
The bull market continued its run in the first half of 1998. Most of the gains
came in the first quarter with more modest returns or small losses for the
second half of the period. At this writing, a market correction that began in
the second quarter continues to provide a good deal of day-to-day volatility.
Much of the capriciousness of the market is due to uncertainty about the
economic outcome in Asia. However, we think the correction will be of limited
magnitude and duration and will provide a healthy respite before further market
advances.
We believe that existing economic and market fundamentals provide an ongoing
favorable environment for financial assets. Interest rates remain low; inflation
is nearly nonexistent; corporate earnings, albeit slowing, remain positive, and
U.S. economic growth appears to be on a modest but sustainable track.
Against this backdrop, we believe our variable insurance products continue to
provide the versatile investment vehicle you need to respond to changing market
conditions. We are committed to the continual evaluation of our products and
services to ensure that we remain responsive to your long-term financial
planning and retirement-savings needs.
/s/ JOSEPH J. GASPER
--------------------
Joseph J. Gasper, President
August 17, 1998
3
<PAGE> 3
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in Van Kampen American Capital Life
Investment Trust, at market value:
Asset Allocation Fund
2,217,985 shares (cost $25,514,268)............................. $27,857,887
Domestic Income Fund
264,907 shares (cost $2,203,844)................................ 2,272,903
Emerging Growth Fund
127,264 shares (cost $2,241,612)................................ 2,556,744
Enterprise Fund
1,777,460 shares (cost $27,584,150)............................. 37,451,075
Global Equity Fund
101,571 shares (cost $1,266,947)................................ 1,289,956
Government Fund
4,856,415 shares (cost $42,937,051)............................. 44,484,759
Money Market Fund
6,903,957 shares (cost $6,903,957).............................. 6,903,957
Morgan Stanley Real Estate Securities Portfolio
33,454 shares (cost $516,359)................................... 495,455
------------
Total investments............................................. 123,312,736
Accounts receivable.............................................. --
------------
Total assets.................................................. 123,312,736
ACCOUNTS PAYABLE................................................. 1,439
------------
CONTRACT OWNERS' EQUITY.......................................... $123,311,297
============
</TABLE>
4
<PAGE> 4
<TABLE>
<CAPTION>
PERIOD
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
-------- ---------- --------
<S> <C> <C> <C> <C>
Single Premium contracts issued prior to April 16, 1990
(policy years 1 through 10):
Asset Allocation Fund............................ 60,025 $31.652917 $1,899,966 8%
Domestic Income Fund ............................ 4,245 20.950565 88,935 4%
Emerging Growth Fund ............................ 61 19.534284 1,192 22%
Enterprise Fund ................................. 21,408 42.138381 902,098 17%
Government Fund ................................. 193,526 21.503819 4,161,548 3%
Money Market Fund ............................... 2,905 17.316456 50,304 2%
Single Premium contracts issued prior to April 16, 1990
(policy years 11 and thereafter):
Asset Allocation Fund ........................... 801,841 31.962659 25,628,970 8%
Domestic Income Fund ............................ 94,839 21.155625 2,006,378 4%
Emerging Growth Fund ............................ 125,688 19.725561 2,479,266 22%
Enterprise Fund ................................. 850,061 42.550743 36,170,727 17%
Global Equity Fund .............................. 80,150 15.997961 1,282,237 17%
Government Fund ................................. 1,854,579 21.715679 40,273,442 3%
Money Market Fund ............................... 391,842 17.485969 6,851,737 2%
Morgan Stanley Real Estate
Securities Portfolio ......................... 28,597 17.268250 493,820 (5)%
Single Premium contracts issued on or after April 16, 1990:
Asset Allocation Fund ........................... 7,912 27.058562 214,087 8%
Domestic Income Fund ............................ 8,616 20.604450 177,528 4%
Emerging Growth Fund ............................ 3,942 19.330882 76,202 21%
Enterprise Fund ................................. 5,815 39.465969 229,495 17%
Global Equity Fund .............................. 489 15.677989 7,667 16%
Government Fund ................................. 3,030 16.164290 48,978 3%
Money Market Fund ............................... 135 12.740354 1,720 2%
Morgan Stanley Real Estate
Securities Portfolio ......................... 95 16.922894 1,608 (5)%
Multiple Payment and
Flexible Premium contracts:
Asset Allocation Fund ........................... 4,709 24.559654 115,651 8%
Enterprise Fund ................................. 4,333 34.096801 147,741 17%
======== ========= ------------
$123,311,297
============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 5
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL ASSET ALLOCATION FUND
------------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
------------ ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ......................... $ 715,078 1,786,969 2,059,904 28,407 28,696 14,406
Mortality and expense charges (note 3): ...... (325,514) (254,157) (566,377) (73,528) (64,222) (115,855)
------------ ----------- ----------- ---------- ---------- ----------
Net investment activity .................... 389,564 1,532,812 1,493,527 (45,121) (35,526) (101,449)
------------ ----------- ----------- ---------- ---------- ----------
Proceeds from mutual fund shares sold......... 15,248,208 16,577,761 12,481,254 1,635,617 2,149,403 1,934,812
Cost of mutual fund shares sold .............. (13,621,860) (15,653,071) (11,685,540) (1,501,272) (2,019,385) (1,804,290)
------------ ----------- ----------- ---------- ---------- ----------
Realized gain on investments ............... 1,626,348 924,690 795,714 134,345 130,018 130,522
Change in unrealized gain (loss)
on investments ............................. 7,052,946 5,132,330 (576,404) 1,303,810 1,212,462 584,647
------------ ----------- ----------- ---------- ---------- ----------
Net gain on investments .................... 8,679,294 6,057,020 219,310 1,438,155 1,342,480 715,169
------------ ----------- ----------- ---------- ---------- ----------
Reinvested capital gains ..................... 1,152,786 890,649 1,397,354 767,858 490,390 473,363
------------ ----------- ----------- ---------- ---------- ----------
Net increase in contract owner's
equity resulting from operations........ 10,221,644 8,480,481 3,110,191 2,160,892 1,797,344 1,087,083
------------ ----------- ----------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners ............................ 103,122 (64,839) 40,033 51,441 (141,754) (13,545)
Surrenders ................................... (4,516,416) (9,899,337) (7,029,982) (709,440) (1,008,324) (1,316,639)
Death benefits (note 4) ...................... (1,709,102) (861,880) (515,238) (180,870) (26,619) (149,059)
Policy loans (net of repayments) (note 5)..... 541,236 1,989,629 1,606,123 89,260 (110,352) 310,449
Deductions for surrender charges
(note 2d) .................................. -- (6,591) (10,602) -- (671) (1,985)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) .......................... (583,918) (687,968) (776,048) (94,956) (108,076) (124,377)
------------ ----------- ----------- ---------- ---------- ----------
Net decrease in equity transactions....... (6,165,078) (9,530,986) (6,685,714) (844,565) (1,395,796) (1,295,156)
------------ ----------- ----------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY........... 4,056,566 (1,050,505) (3,575,523) 1,316,327 401,548 (208,073)
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD..................................... 119,254,731 118,500,851 121,702,511 26,542,347 24,459,498 24,424,455
------------ ----------- ----------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD .......... $123,311,297 117,450,346 118,126,988 27,858,674 24,861,046 24,216,382
============ =========== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC INCOME FUND
--------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 5,786 6,853 4,569
Mortality and expense charges (note 3): ....... (6,389) (5,105) (14,696)
---------- --------- ---------
Net investment activity ..................... (603) 1,748 (10,127)
---------- --------- ---------
Proceeds from mutual fund shares sold.......... 119,986 894,155 876,522
Cost of mutual fund shares sold ............... (117,715) (871,728) (978,851)
---------- --------- ---------
Realized gain on investments ................ 2,271 22,427 (102,329)
Change in unrealized gain (loss)
on investments .............................. 82,391 68,833 71,078
---------- --------- ---------
Net gain on investments ..................... 84,662 91,260 (31,251)
---------- --------- ---------
Reinvested capital gains ...................... -- -- --
---------- --------- ---------
Net increase in contract owner's
equity resulting from operations......... 84,059 93,008 (41,378)
---------- --------- ---------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners ............................. 259,689 (112,311) (393,053)
Surrenders .................................... -- (690,681) (336,344)
Death benefits (note 4) ....................... -- (65,290) --
Policy loans (net of repayments) (note 5)...... (26,947) 147,991 80,353
Deductions for surrender charges
(note 2d) ................................... -- (460) (507)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................... (14,208) (18,782) (29,629)
---------- --------- ---------
Net decrease in equity transactions........ 218,534 (739,533) (679,180)
---------- --------- ---------
NET CHANGE IN CONTRACT OWNERS' EQUITY............ 302,593 (646,525) (720,558)
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD...................................... 1,970,248 2,668,722 3,509,695
---------- --------- ---------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $2,272,841 2,022,197 2,789,137
========== ========= =========
</TABLE>
6
<PAGE> 6
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
EMERGING GROWTH FUND ENTERPRISE FUND
--------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
------------ --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ....................... $ 870 -- -- 30,666 31,356 19,360
Mortality and expense charges (note 3): .... (6,001) (3,634) (3,075) (92,852) (62,574) (134,038)
----------- ---------- --------- ---------- ---------- ----------
Net investment activity .................. (5,131) (3,634) (3,075) (62,186) (31,218) (114,678)
----------- ---------- --------- ---------- ---------- ----------
Proceeds from mutual fund shares sold ...... 1,729,822 1,454,123 246,252 3,435,562 3,058,711 2,376,654
Cost of mutual fund shares sold ............ (1,477,008) (1,440,077) (227,159) (2,464,313) (2,263,387) (1,717,241)
----------- ---------- --------- ---------- ---------- ----------
Realized gain on investments ............. 252,814 14,046 19,093 971,249 795,324 659,413
Change in unrealized gain (loss)
on investments ........................... 195,332 96,791 53,128 4,397,245 3,665,692 1,774,878
----------- ---------- --------- ---------- ---------- ----------
Net gain on investments .................. 448,146 110,837 72,221 5,368,494 4,461,016 2,434,291
----------- ---------- --------- ---------- ---------- ----------
Reinvested capital gains ..................... -- -- -- 376,105 387,737 923,991
----------- ---------- --------- ---------- ---------- ----------
Net increase in contract owner's
equity resulting from operations ..... 443,015 107,203 69,146 5,682,413 4,817,535 3,243,604
----------- ---------- --------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners .......................... 217,004 338,297 943,609 (11,396) (128,464) 471,646
Surrenders ................................. -- (84,171) -- (1,442,827) (1,964,219) (1,085,319)
Death benefits (note 4) .................... (78,748) (415,629) -- (559,647) (354,342) --
Policy loans (net of repayments) (note 5) .. (59,637) (27,112) (9,066) 332,770 657,633 (80,328)
Deductions for surrender charges
(note 2d) ................................ -- (56) -- -- (1,308) (1,637)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................ (11,426) (11,340) (3,941) (140,375) (147,936) (156,110)
----------- ---------- --------- ---------- ---------- ----------
Net decrease in equity transactions .... 67,193 (200,011) 930,602 (1,821,475) (1,938,636) (851,748)
----------- ---------- --------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........ 510,208 (92,808) 999,748 3,860,938 2,878,899 2,391,856
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD .................................. 2,046,452 1,635,017 497,015 33,589,123 29,537,819 26,462,863
----------- ---------- --------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ........ $ 2,556,660 1,542,209 1,496,763 37,450,061 32,416,718 28,854,719
=========== ========== ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
-----------------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ....................... $ 13,847 58 --
Mortality and expense charges (note 3): .... (2,731) (1,208) (1,521)
---------- --------- -------
Net investment activity .................. 11,116 (1,150) (1,521)
---------- --------- -------
Proceeds from mutual fund shares sold ...... 303,232 243,885 57,457
Cost of mutual fund shares sold ............ (297,041) (208,125) (52,609)
---------- --------- -------
Realized gain on investments ............. 6,191 35,760 4,848
Change in unrealized gain (loss)
on investments ........................... 170,414 127,613 38,550
---------- --------- -------
Net gain on investments .................. 176,605 163,373 43,398
---------- --------- -------
Reinvested capital gains ..................... -- 11,042 --
---------- --------- -------
Net increase in contract owner's
equity resulting from operations ..... 187,721 173,265 41,877
---------- --------- -------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners .......................... 103,672 300,482 535,911
Surrenders ................................. (158,360) (30,839) --
Death benefits (note 4) .................... (45,481) -- --
Policy loans (net of repayments) (note 5) .. (7,620) (26,612) (8,322)
Deductions for surrender charges
(note 2d) ................................ -- (21) --
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................ (7,046) (7,011) (3,109)
---------- --------- -------
Net decrease in equity transactions .... (114,835) 235,999 524,480
---------- --------- -------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........ 72,886 409,264 566,357
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD .................................. 1,217,018 1,007,252 213,064
---------- --------- -------
CONTRACT OWNERS' EQUITY END OF PERIOD ........ $1,289,904 1,416,516 779,421
========== ========= =======
</TABLE>
7
<PAGE> 7
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GOVERNMENT FUND MONEY MARKET FUND
------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
-------- --------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 462,730 1,510,551 1,804,140 171,875 208,723 217,389
Mortality and expense charges (note 3): ....... (125,204) (95,555) (253,621) (17,708) (21,410) (43,552)
----------- ---------- ---------- --------- --------- ----------
Net investment activity ..................... 337,526 1,414,996 1,550,519 154,167 187,313 173,837
----------- ---------- ---------- --------- --------- ----------
Proceeds from mutual fund shares sold ......... 4,490,724 4,994,586 4,515,913 3,201,053 3,703,484 2,458,402
Cost of mutual fund shares sold ............... (4,235,603) (5,086,783) (4,432,874) (3,201,053) (3,703,484) (2,458,402)
----------- ---------- ---------- --------- --------- ----------
Realized gain on investments ................ 255,121 (92,197) 83,039 -- -- --
Change in unrealized gain (loss)
on investments .............................. 950,686 (46,986) (3,101,811) -- -- --
----------- ---------- ---------- --------- --------- ----------
Net gain on investments ..................... 1,205,807 (139,183) (3,018,772) -- -- --
----------- ---------- ---------- --------- --------- ----------
Reinvested capital gains ...................... -- -- -- -- -- --
----------- ---------- ---------- --------- --------- ----------
Net increase in contract owner's
equity resulting from operations ........ 1,543,333 1,275,813 (1,468,253) 154,167 187,313 173,837
----------- ---------- ---------- --------- --------- ----------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners ............................. (878,188) (2,046,690) (1,154,883) 501,959 1,386,022 (354,758)
Surrenders .................................... (1,682,350) (5,225,059) (3,586,372) (523,439) (889,451) (705,308)
Death benefits (note 4) ....................... (844,356) -- (322,933) -- -- (43,246)
Policy loans (net of repayments) (note 5) ..... 310,598 2,816,725 1,502,861 (108,232) (1,460,015) (189,824)
Deductions for surrender charges
(note 2d) ................................... -- (3,479) (5,409) -- (592) (1,064)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................... (239,691) (304,194) (368,531) (73,261) (88,360) (90,128)
----------- ---------- ---------- --------- --------- ----------
Net decrease in equity transactions ......... (3,333,987) (4,762,697) (3,935,267) (202,973) (1,052,396) (1,384,328)
----------- ---------- ---------- --------- --------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (1,790,654) (3,486,884) (5,403,520) (48,806) (865,083) (1,210,491)
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD ..................................... 46,274,622 49,859,552 56,762,454 6,952,567 9,135,631 9,782,717
----------- ---------- ---------- --------- --------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $44,483,968 46,372,668 51,358,934 6,903,761 8,270,548 8,572,226
=========== ========== ========== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES PORTFOLIO
-------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 897 732 40
Mortality and expense charges (note 3): ....... (1,101) (449) (19)
-------- ------- ------
Net investment activity ..................... (204) 283 21
-------- ------- ------
Proceeds from mutual fund shares sold ......... 332,212 79,414 15,242
Cost of mutual fund shares sold ............... (327,855) (60,102) (14,114)
-------- ------- ------
Realized gain on investments ................ 4,357 19,312 1,128
Change in unrealized gain (loss)
on investments .............................. (46,932) 7,925 3,126
-------- ------- ------
Net gain on investments ..................... (42,575) 27,237 4,254
-------- ------- ------
Reinvested capital gains ...................... 8,823 1,480 0
-------- ------- ------
Net increase in contract owner's
equity resulting from operations ........ (33,956) 29,000 4,275
-------- ------- ------
EQUITY TRANSACTIONS:
Purchase payment received from
contract owners ............................. (141,059) 339,579 5,106
Surrenders .................................... -- (6,593) --
Death benefits (note 4) ....................... -- -- --
Policy loans (net of repayments) (note 5) ..... 11,044 (8,629) --
Deductions for surrender charges
(note 2d) ................................... -- (4) --
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................... (2,955) (2,269) (223)
-------- ------- ------
Net decrease in equity transactions ......... (132,970) 322,084 4,883
-------- ------- ------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (166,926) 351,084 9,158
CONTRACT OWNERS' EQUITY BEGINNING
OF PERIOD ..................................... 662,354 197,360 50,248
-------- ------- ------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $495,428 548,444 59,406
======== ======= ======
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
8
<PAGE> 8
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life
Insurance Company (the Company) on August 8, 1984. The Account has been
registered as a unit investment trust under the Investment Company Act
of 1940.
The Company offers modified single premium, multiple payment and
flexible premium variable life insurance contracts 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 funds:
Funds of the Van Kampen American Capital Life Investment Trust (Van
Kampen American Capital LIT);
Van Kampen American Capital LIT Asset Allocation Fund
Van Kampen American Capital LIT - Domestic Income Fund
Van Kampen American Capital LIT - Emerging Growth Fund
Van Kampen American Capital LIT - Enterprise Fund
Van Kampen American Capital LIT - Global Equity Fund
Van Kampen American Capital LIT - Government Fund
Van Kampen American Capital LIT - Money Market Fund
Van Kampen American Capital LIT - Morgan Stanley Real Estate
Securities Portfolio (formerly Van Kampen American Capital
LIT - Real Estate Securities Fund)
At June 30, 1998, 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 June 30, 1998. Fund purchases and sales
are accounted for on the trade date (date the order to buy or sell is
executed). The cost of investments sold is determined on a specific
identification basis, and dividends (which include capital gain
distributions) are accrued as of the ex-dividend date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with,
operations of the Company, which is taxed as a life insurance company
under the provisions of the Internal Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or
withdrawal.
9
<PAGE> 9
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if
any, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(f) Reclassifications
Certain 1996 amounts have been reclassified to conform with the current
period presentation.
(2) POLICY CHARGES
(a) Deductions from Premiums
For single premium contracts, no deduction is made from any premium at
the time of payment. 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
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 $12.50 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) Surrender Charges
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or
designee. The surrender proceeds consist of the contract value, less
any outstanding policy loans, and less a surrender charge, if
applicable. The charge is determined according to contract type.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. For single
premium contracts issued prior to April 16, 1990, the charge is 8% in
the first year and declines to 0% after the ninth year. For single
premium contracts issued on or after April 16, 1990, the charge is 8.5%
in the first year and declines to 0% after the ninth year.
For multiple payment contracts and flexible premium contracts, the
amount charged is based upon a specified percentage of the initial
surrender charge, which varies by issue age, sex and rate class. The
charge is 100% of the initial surrender charge in the first year, with
certain exceptions, 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.
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(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
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.
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) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
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NATIONWIDE LIFE INSURANCE COMPANY Bulk Rate
HOME OFFICE: ONE NATIONWIDE PLAZA o COLUMBUS, OHIO 43215-2220 U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
Nationwide(R) is a registered federal service mark of Nationwide Mutual Insurance Company
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