<PAGE> 1
NATIONWIDE(R) VLI
SEPARATE ACCOUNT
ANNUAL REPORT
DECEMBER 31, 1998
INVESTMENT/LIFE(R)
VAN KAMPEN AMERICAN CAPITAL/
NATIONWIDE LIFE INSURANCE COMPANY
<PAGE> 2
[NATIONWIDE LIFE INSURANCE COMPANY LETTERHEAD]
[PHOTO OF JOSEPH J. GASPER]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to bring you the 1998 annual
report of the Nationwide VLI Separate Account.
Equity markets again defied the odds in 1998 to tally a fourth straight year of
double-digit gains, as measured by the major indices. This surprise came
following the breathtaking correction during the third quarter that gave us a
broad double-digit retreat. Fixed income investments also provided respectable
returns in 1998, supported by the continued low inflationary environment and
favorable Federal Reserve actions.
The performance of the American economy continues strong into 1999. However, we
believe the persisting slump in Asia and recent difficulties in Latin America
will inevitably take their toll and dampen growth in the United States. This
moderation, we think, will be healthy for our economy and get us back to a more
sustainable growth level. We look for interest rates to continue within the
range of the recent past, and we expect inflation to remain subdued. Moreover,
we remain optimistic about long-term prospects for U.S. business activity;
holders of financial assets should continue to profit from the anticipated
favorable investment climate.
We are pleased you have chosen our Company to provide the investment products
and services to help you meet your retirement savings and financial planning
goals.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
February 16, 1999
3
<PAGE> 3
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in Van Kampen American Capital Life
Investment Trust, at market value:
Asset Allocation Fund
2,126,544 shares (cost $24,460,017) .......... $ 28,453,153
Domestic Income Fund
206,556 shares (cost $1,710,302) ............. 1,817,689
Emerging Growth Fund
134,237 shares (cost $2,469,219) ............. 3,036,435
Enterprise Fund
1,665,257 shares (cost $26,231,773) .......... 37,285,097
Global Equity Fund
93,154 shares (cost $1,174,962) .............. 1,230,558
Government Fund
4,679,178 shares (cost $41,468,683) .......... 44,873,316
Money Market Fund
7,685,405 shares (cost $7,685,405) ........... 7,685,405
Morgan Stanley Real Estate Securities Portfolio
27,471 shares (cost $408,604) ................ 377,995
------------
Total investments ......................... 124,759,648
Accounts receivable ............................. 106,619
------------
Total assets .............................. 124,866,267
ACCOUNTS PAYABLE ...................................... --
------------
CONTRACT OWNERS' EQUITY ............................... $124,866,267
============
</TABLE>
4
<PAGE> 4
<TABLE>
<CAPTION>
ANNUAL
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 ......................... 3,396 $ 33.558419 $ 113,964 15%
Domestic Income Fund .......................... 1 21.385098 21 6%
Emerging Growth Fund .......................... 61 21.889427 1,335 36%
Enterprise Fund ............................... 216 44.564550 9,626 24%
Government Fund ............................... 836 22.405755 18,731 8%
Money Market Fund ............................. 29 17.657225 512 4%
Single Premium contracts issued prior to
April 16, 1990 (policy years 11 and thereafter):
Asset Allocation Fund ......................... 822,855 33.963724 27,947,220 15%
Domestic Income Fund .......................... 75,688 21.643457 1,638,150 6%
Emerging Growth Fund .......................... 136,620 22.153872 3,026,662 37%
Enterprise Fund ............................... 821,920 45.102754 37,070,856 24%
Global Equity Fund ............................ 73,657 16.598552 1,222,600 21%
Government Fund ............................... 1,976,655 22.677874 44,826,333 8%
Money Market Fund ............................. 425,955 17.870565 7,612,057 5%
Morgan Stanley Real Estate
Securities Portfolio ....................... 23,525 16.003545 376,483 (12)%
Single Premium contracts issued
on or after April 16, 1990:
Asset Allocation Fund ......................... 9,498 28.636938 271,994 14%
Domestic Income Fund .......................... 8,543 20.994729 179,358 6%
Emerging Growth Fund .......................... 380 21.623386 8,217 36%
Enterprise Fund ............................... 4,017 41.664754 167,367 23%
Global Equity Fund ............................ 486 16.201187 7,874 20%
Government Fund ............................... 1,485 16.812584 24,967 7%
Money Market Fund ............................. 5,428 12.968170 70,391 4%
Morgan Stanley Real Estate
Securities Portfolio ....................... 94 15.620311 1,468 (13)%
Multiple Payment and
Flexible Premium contracts:
Asset Allocation Fund ......................... 4,580 26.057831 119,345 15%
Enterprise Fund ............................... 4,177 36.087220 150,736 24%
========= ========= ------------
$124,866,267
============
</TABLE>
* The annual return does not include contract charges satisfied by surrendering
units.
See accompanying notes to financial statements.
5
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL ASSET ALLOCATION FUND
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends .......................... $ 897,565 4,695,756 5,220,160 28,407 1,019,770
Mortality and expense charges (note 3) ........ (629,010) (719,195) (1,030,085) (142,872) (163,786)
------------ ------------ ------------ ------------ -------------
Net investment activity ..................... 268,555 3,976,561 4,190,075 (114,465) 855,984
------------ ------------ ------------ ------------ -------------
Proceeds from mutual fund shares sold ......... 28,593,475 31,042,460 24,568,211 3,626,797 3,844,540
Cost of mutual fund shares sold ............... (25,877,789) (28,311,120) (22,544,406) (3,417,335) (3,541,593)
------------ ------------ ------------ ------------ -------------
Realized gain (loss) on investments ......... 2,715,686 2,731,340 2,023,805 209,462 302,947
Change in unrealized gain (loss)
on investments .............................. 12,059,082 3,917,689 (1,839,618) 2,953,327 1,002,579
------------ ------------ ------------ ------------ -------------
Net gain (loss) on investments .............. 14,774,768 6,649,029 184,187 3,162,789 1,305,526
------------ ------------ ------------ ------------ -------------
Reinvested capital gains ...................... 1,152,786 7,592,712 5,806,648 767,858 2,657,199
------------ ------------ ------------ ------------ -------------
Net change in contract owners'
equity resulting from operations ........ 16,196,109 18,218,302 10,180,910 3,816,182 4,818,709
------------ ------------ ------------ ------------ -------------
Equity transactions:
Purchase payment received from
contract owners ............................. 100,670 20,253 23,475 16,920 9,408
Transfers between funds ....................... -- -- -- (295,985) (21,271)
Surrenders .................................. (8,181,440) (15,789,351) (13,731,809) (1,209,391) (2,261,349)
Death benefits (note 4) ..................... (2,362,574) (2,575,326) (1,201,226) (300,509) (238,628)
Policy loans (net of repayments) (note 5) ..... 844,295 2,317,220 3,043,009 37,023 (21,513)
Deductions for surrender charges
(note 2d) ................................... (1,495) (6,591) (16,455) (221) (972)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................... (984,029) (1,430,627) (1,499,564) (141,477) (209,159)
------------ ------------ ------------ ------------ -------------
Net equity transactions ................... (10,584,573) (17,464,422) (13,382,570) (1,893,640) (2,743,484)
------------ ------------ ------------ ------------ -------------
Net change in contract owners' equity ......... 5,611,536 753,880 (3,201,660) 1,922,542 2,075,225
Contract owners' equity beginning
of period ................................... 119,254,731 118,500,851 121,702,511 26,529,981 24,454,756
------------ ------------ ------------ ------------ -------------
Contract owners' equity end of period ......... $124,866,267 119,254,731 118,500,851 28,452,523 26,529,981
============ ============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND DOMESTIC INCOME FUND
1996 1998 1997 1996
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ...................... $ 907,875 5,786 161,393 233,806
Mortality and expense charges (note 3) .... (215,038) (11,965) (14,107) (24,457)
------------ ------------ ------------ ------------
Net investment activity ................. 692,837 (6,179) 147,286 209,349
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ..... 4,020,284 679,224 1,322,378 1,403,146
Cost of mutual fund shares sold ........... (3,634,601) (669,892) (1,253,657) (1,532,100)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ..... 385,683 9,332 68,721 (128,954)
Change in unrealized gain (loss) ..........
on investments .......................... (786,397) 120,718 6,090 60,076
------------ ------------ ------------ ------------
Net gain (loss) on investments .......... (400,714) 130,050 74,811 (68,878)
------------ ------------ ------------ ------------
Reinvested capital gains .................. 2,644,432 -- -- --
------------ ------------ ------------ ------------
Net change in contract owners'
equity resulting from operations .... 2,936,555 123,871 222,097 140,471
------------ ------------ ------------ ------------
Equity transactions:
Purchase payment received from
contract owners ......................... 11,744 192 -- --
Transfers between funds ................... (292,324) 186,196 (27,385) (527,202)
Surrenders .............................. (2,375,530) (438,920) (883,951) (415,538)
Death benefits (note 4) ................. (269,603) -- (103,618) (62,339)
Policy loans (net of repayments) (note 5) . 268,378 908 127,843 80,825
Deductions for surrender charges
(note 2d) ............................... (2,843) (80) (364) (494)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ....................... (246,088) (23,714) (32,804) (58,167)
------------ ------------ ------------ ------------
Net equity transactions ............... (2,906,266) (275,418) (920,279) (982,915)
------------ ------------ ------------ ------------
Net change in contract owners' equity ..... 30,289 (151,547) (698,182) (842,444)
Contract owners' equity beginning
of period ............................... 24,424,467 1,969,076 2,667,258 3,509,702
------------ ------------ ------------ ------------
Contract owners' equity end of period ..... 24,454,756 1,817,529 1,969,076 2,667,258
============ ============ ============ ============
</TABLE>
6
<PAGE> 6
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Emerging Growth Fund Enterprise Fund
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........................ $ 870 -- -- 30,666 156,354
Mortality and expense charges (note 3) ...... (12,082) (11,006) (10,769) (177,854) (189,128)
----------- ----------- ----------- ----------- -----------
Net investment activity ................... (11,212) (11,006) (10,769) (147,188) (32,774)
----------- ----------- ----------- ----------- -----------
Proceeds from mutual fund shares sold ....... 3,294,533 2,545,651 1,149,028 6,594,364 6,775,251
Cost of mutual fund shares sold ............. (2,978,369) (2,360,427) (1,052,703) (4,852,264) (4,652,996)
----------- ----------- ----------- ----------- -----------
Realized gain (loss) on investments ....... 316,164 185,224 96,325 1,742,100 2,122,255
Change in unrealized gain (loss)
on investments ............................ 447,416 98,252 199 5,583,645 1,561,213
----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments ............ 763,580 283,476 96,524 7,325,745 3,683,468
----------- ----------- ----------- ----------- -----------
Reinvested capital gains .................... -- -- -- 376,105 4,664,918
----------- ----------- ----------- ----------- -----------
Net change in contract owners'
equity resulting from operations ...... 752,368 272,470 85,755 7,554,662 8,315,612
----------- ----------- ----------- ----------- -----------
Equity transactions:
Purchase payment received from
contract owners ........................... 13,566 -- -- 42,210 10,432
Transfers between funds ..................... 411,356 363,039 1,201,667 471,779 449,001
Surrenders .................................. (38,594) (97,105) (43,468) (2,526,694) (3,085,585)
Death benefits (note 4) ..................... (78,748) (68,157) (27,593) (691,661) (840,448)
Policy loans (net of repayments) (note 5) ... (49,579) (38,507) (74,189) 155,121 (411,649)
Deductions for surrender charges
(note 2d) ................................. (7) (42) (52) (462) (1,310)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ......................... (18,375) (21,822) (4,776) (226,356) (397,149)
----------- ----------- ----------- ----------- -----------
Net equity transactions ................. 239,619 137,406 1,051,589 (3,719,621) (4,276,708)
----------- ----------- ----------- ----------- -----------
Net change in contract owners' equity ....... 991,987 409,876 1,137,344 3,835,041 4,038,904
Contract owners' equity beginning
of period ................................. 2,044,227 1,634,351 497,007 33,563,544 29,524,640
----------- ----------- ----------- ----------- -----------
Contract owners' equity end of period ....... $ 3,036,214 2,044,227 1,634,351 37,398,585 33,563,544
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Enterprise Fund Global Equity Fund
1996 1998 1997 1996
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ....................... $ 183,010 13,847 9,630 15,873
Mortality and expense charges (note 3) ..... (247,774) (5,996) (5,726) (4,563)
------------ ----------- ----------- -----------
Net investment activity .................. (64,764) 7,851 3,904 11,310
------------ ----------- ----------- -----------
Proceeds from mutual fund shares sold ...... 5,329,568 607,261 740,054 149,678
Cost of mutual fund shares sold ............ (3,811,247) (594,475) (619,704) (133,665)
------------ ----------- ----------- -----------
Realized gain (loss) on investments ...... 1,518,321 12,786 120,350 16,013
Change in unrealized gain (loss)
on investments ........................... 1,437,260 203,001 (191,773) 40,489
------------ ----------- ----------- -----------
Net gain (loss) on investments ........... 2,955,581 215,787 (71,423) 56,502
------------ ----------- ----------- -----------
Reinvested capital gains ................... 3,146,281 -- 213,420 14,899
------------ ----------- ----------- -----------
Net change in contract owners'
equity resulting from operations ..... 6,037,098 223,638 145,901 82,711
------------ ----------- ----------- -----------
Equity transactions:
Purchase payment received from
contract owners .......................... 11,731 3,500 -- --
Transfers between funds .................... 332,379 135,066 354,759 748,238
Surrenders ................................. (2,588,860) (270,112) (170,802) --
Death benefits (note 4) .................... (214,955) (45,481) (54,190) --
Policy loans (net of repayments) (note 5) .. (222,241) (19,615) (49,035) (27,504)
Deductions for surrender charges
(note 2d) ................................ (3,132) (49) (71) --
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................ (290,268) (12,593) (16,552) (10,396)
------------ ----------- ----------- -----------
Net equity transactions ................ (2,975,346) (209,284) 64,109 710,338
------------ ----------- ----------- -----------
Net change in contract owners' equity ...... 3,061,752 14,354 210,010 793,049
Contract owners' equity beginning
of period ................................ 26,462,888 1,216,120 1,006,110 213,061
------------ ----------- ----------- -----------
Contract owners' equity end of period ...... $ 29,524,640 1,230,474 1,216,120 1,006,110
============ =========== =========== ===========
</TABLE>
(Continued)
7
<PAGE> 7
NATIONWIDE VLI SEPARATE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Government Fund Money Market Fund
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ....................... $ 462,730 2,932,295 3,445,448 354,362 399,015
Mortality and expense charges (note 3) ..... (238,350) (281,579) (446,756) (37,684) (51,809)
----------- ----------- ----------- ----------- -----------
Net investment activity .................. 224,380 2,650,716 2,998,692 316,678 347,206
----------- ----------- ----------- ----------- -----------
Proceeds from mutual fund shares sold ...... 6,495,585 8,542,298 8,432,924 6,735,285 7,096,782
Cost of mutual fund shares sold ............ (6,048,314) (8,651,252) (8,299,180) (6,735,285) (7,096,782)
----------- ----------- ----------- ----------- -----------
Realized gain (loss) on investments ...... 447,271 (108,954) 133,744 -- --
Change in unrealized gain (loss)
on investments ........................... 2,807,612 1,444,456 (2,618,282) -- --
----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments ........... 3,254,883 1,335,502 (2,484,538) -- --
----------- ----------- ----------- ----------- -----------
Reinvested capital gains ................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net change in contract owners'
equity resulting from operations ..... 3,479,263 3,986,218 514,154 316,678 347,206
----------- ----------- ----------- ----------- -----------
Equity transactions:
Purchase payment received from
contract owners .......................... 4,858 341 -- 19,417 72
Transfers between funds .................... (1,210,358) (1,240,286) (1,649,225) 1,442,677 (260,875)
Surrenders ................................. (2,842,711) (7,702,772) (7,203,733) (830,932) (1,580,839)
Death benefits (note 4) .................... (1,246,175) (862,940) (501,741) -- (407,345)
Policy loans (net of repayments) (note 5) .. 788,677 2,807,538 2,682,289 (80,573) (83,572)
Deductions for surrender charges
(note 2d) ................................ (520) (3,174) (8,619) (152) (655)
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................ (423,865) (551,486) (705,516) (133,134) (194,010)
----------- ----------- ----------- ----------- -----------
Net equity transactions ................ (4,930,094) (7,552,779) (7,386,545) 417,303 (2,527,224)
----------- ----------- ----------- ----------- -----------
Net change in contract owners' equity ...... (1,450,831) (3,566,561) (6,872,391) 733,981 (2,180,018)
Contract owners' equity beginning
of period ................................ 46,320,862 49,887,423 56,759,814 6,948,979 9,128,997
----------- ----------- ----------- ----------- -----------
Contract owners' equity end of period ...... $44,870,031 46,320,862 49,887,423 7,682,960 6,948,979
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley
Money Market Fund Real Estate Securities Portfolio
1996 1998 1997 1996
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ....................... 431,934 897 17,299 2,214
Mortality and expense charges (note 3) ..... (79,740) (2,207) (2,054) (988)
----------- ----------- ----------- -----------
Net investment activity .................. 352,194 (1,310) 15,245 1,226
----------- ----------- ----------- -----------
Proceeds from mutual fund shares sold ...... 4,055,759 560,426 175,506 27,824
Cost of mutual fund shares sold ............ (4,055,759) (581,855) (134,709) (25,151)
----------- ----------- ----------- -----------
Realized gain (loss) on investments ...... -- (21,429) 40,797 2,673
Change in unrealized gain (loss)
on investments ........................... -- (56,637) (3,128) 27,037
----------- ----------- ----------- -----------
Net gain (loss) on investments ........... -- (78,066) 37,669 29,710
----------- ----------- ----------- -----------
Reinvested capital gains ................... -- 8,823 57,175 1,036
----------- ----------- ----------- -----------
Net change in contract owners'
equity resulting from operations ..... 352,194 (70,553) 110,089 31,972
----------- ----------- ----------- -----------
Equity transactions:
Purchase payment received from
contract owners .......................... -- 7 -- --
Transfers between funds .................... 74,405 (197,173) 383,018 112,062
Surrenders ................................. (1,104,680) (24,086) (6,948) --
Death benefits (note 4) .................... (124,995) -- -- --
Policy loans (net of repayments) (note 5) .. 332,326 12,333 (13,885) 3,125
Deductions for surrender charges
(note 2d) ................................ (1,315) (4) (3) --
Redemptions to pay cost of insurance
charges and administration charges
(notes 2b and 2c) ........................ (184,266) (4,515) (7,645) (87)
----------- ----------- ----------- -----------
Net equity transactions ................ (1,008,525) (213,438) 354,537 115,100
----------- ----------- ----------- -----------
Net change in contract owners' equity ...... (656,331) (283,991) 464,626 147,072
Contract owners' equity beginning
of period ................................ 9,785,328 661,942 197,316 50,244
----------- ----------- ----------- -----------
Contract owners' equity end of period ...... 9,128,997 377,951 661,942 197,316
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 8
NATIONWIDE VLI SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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 December 31, 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.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds
may be similar to, and may in fact be modeled after, publicly traded
mutual funds, the underlying mutual funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any
corresponding underlying mutual funds may differ substantially.
9
<PAGE> 9
(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, 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.
(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 1997 and 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:
<TABLE>
<S> <C>
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
</TABLE>
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.
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(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.
(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.
The following table provides mortality, expense and administration charges
by contract type for the period ended December 31, 1998:
<TABLE>
<CAPTION>
ASSET DOMESTIC EMERGING
ALLOCATION INCOME GROWTH ENTERPRISE
TOTAL FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 58,812 46,484 8 545 3,926
Single Premium contracts issued
on or after April 16, 1990.... 9,184 3,414 2,251 103 2,102
Multiple Payment and Flexible
Premium contracts............. 1,950 862 - - 1,088
Reduced Fee..................... 559,064 92,112 9,706 11,434 170,738
------------ ------------ ------------ ------------ ------------
Total....................... $ 629,010 142,872 11,965 12,082 177,854
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY
GLOBAL MONEY REAL ESTATE
EQUITY GOVERNMENT MARKET SECURITIES
FUND FUND FUND PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ - 7,640 209 -
Single Premium contracts issued
on or after April 16, 1990.... 99 313 884 18
Multiple Payment and Flexible
Premium contracts............. - - - -
Reduced Fee..................... 5,897 230,397 36,591 2,189
------------ ------------ ------------ ------------
Total....................... $ 5,996 238,350 37,684 2,207
============ ============ ============ ============
</TABLE>
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(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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Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide VLI Separate Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account as of December 31,
1998, and the related statements of operations and changes in contract owners'
equity for each of the years in the three year period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide VLI Separate
Account as of December 31, 1998, and the results of its operations and its
changes in contract owners' equity for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 5, 1999
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NATIONWIDE LIFE INSURANCE COMPANY Bulk Rate
HOME OFFICE: ONE NATIONWIDE PLAZA - 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
