<PAGE> 1
Registration Statement No. 33-35783
================================================================================
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 43215
(EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT)
DENNIS W. CLICK
SECRETARY
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------
This Post-Effective Amendment amends the Registration Statement in respect to
the Prospectus and Financial Statements.
It is proposed that this filing will become effective (check appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 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
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities being registered: Multiple Payment Variable Life Insurance
Policies
Approximate date of proposed offering: Continuously on and after May 1, 1999
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
================================================================================
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<PAGE> 2
<TABLE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
1................................................................Nationwide Life Insurance
Company
The Variable Account
2................................................................Nationwide Life Insurance
Company
3................................................................Custodian of Assets
4................................................................Distribution of The Policies
5................................................................The Variable Account
6................................................................Not Applicable
7................................................................Not Applicable
8................................................................Not Applicable
9................................................................Legal Proceedings
10...............................................................Information About The Policies;
How The Cash Value Varies; Right
to Exchange for a Fixed Benefit
Policy; Reinstatement; Other Policy
Provisions
11...............................................................Investments of The Variable
Account
12...............................................................The Variable Account
13...............................................................Policy Charges Reinstatement
14...............................................................Underwriting and Issuance -
Premium Payments Minimum
Requirements for Issuance of a Policy
15...............................................................Investments of the Variable
Account; Premium Payments
16...............................................................Underwriting and Issuance -
Allocation of Cash Value
17...............................................................Surrendering The Policy for Cash
18...............................................................Reinvestment
19...............................................................Not Applicable
20...............................................................Not Applicable
21...............................................................Policy Loans
22...............................................................Not Applicable
23...............................................................Not Applicable
24...............................................................Not Applicable
25...............................................................Nationwide Life Insurance
Company
26...............................................................Not Applicable
27...............................................................Nationwide Life Insurance
Company
28...............................................................Company Management
29...............................................................Company Management
30...............................................................Not Applicable
31...............................................................Not Applicable
32...............................................................Not Applicable
33...............................................................Not Applicable
34...............................................................Not Applicable
35...............................................................Nationwide Life Insurance
Company
36...............................................................Not Applicable
</TABLE>
2 of 126
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
<S> <C>
37...............................................................Not Applicable
38...............................................................Distribution of The Policies
39...............................................................Distribution of The Policies
40...............................................................Not Applicable
41(a)............................................................Distribution of The Policies
42...............................................................Not Applicable
43...............................................................Not Applicable
44...............................................................How The Cash Value Varies
45...............................................................Not Applicable
46...............................................................How The Cash Value Varies
47...............................................................Not Applicable
48...............................................................Custodian of Assets
49...............................................................Not Applicable
50...............................................................Not Applicable
51...............................................................Summary of The Policies;
Information About The Policies
52...............................................................Substitution of Securities
53...............................................................Taxation of The Company
54...............................................................Not Applicable
55...............................................................Not Applicable
56...............................................................Not Applicable
57...............................................................Not Applicable
58...............................................................Not Applicable
59...............................................................Financial Statements
</TABLE>
3 of 126
<PAGE> 4
NATIONWIDE LIFE INSURANCE COMPANY
Multiple Payment Variable Life Insurance Policies
Issued by Nationwide Life Insurance Company through its
Nationwide VLI Separate Account-2
The date of this prospectus is May 1, 1999
- --------------------------------------------------------------------------------
This prospectus contains basic information you should know about the policies
before investing. Please read it and keep it for future reference.
The following underlying mutual funds are available under the policies:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS:
- - American Century VP Balanced
- - American Century VP Capital Appreciation
- - American Century VP Income & Growth
FIDELITY VARIABLE INSURANCE PRODUCTS FUND ("VIP"):
- - VIP Equity-Income Portfolio
- - VIP Growth Portfolio
- - VIP High Income Portfolio*
- - VIP Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ("VIP II"):
- - VIP II Asset Manager Portfolio
NATIONWIDE SEPARATE ACCOUNT TRUST ("NSAT"):
- - Capital Appreciation Fund
- - Government Bond Fund
- - Money Market Fund
- - Nationwide Small Cap Value Fund
- - Total Return Fund
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST:
- - AMT Growth Portfolio
- - AMT Guardian Portfolio
- - AMT Limited Maturity Bond Portfolio
OPPENHEIMER VARIABLE ACCOUNTS FUNDS:
- - Oppenheimer Bond Fund/VA
- - Oppenheimer Multiple Strategies Fund/VA
STRONG OPPORTUNITY FUND II, INC. (FORMERLY "STRONG SPECIAL FUND II, INC.")
STRONG VARIABLE INSURANCE FUNDS, INC.:
- - Discovery Fund II, Inc.
VAN ECK WORLDWIDE INSURANCE TRUST:
- - Worldwide Bond Fund
- - Worldwide Hard Assets Fund
*The VIP High Income Portfolio may invest in lower quality debt securities
commonly call junk bonds.
To obtain copies of any underlying mutual fund prospectus, please call:
1-800-547-7548
TDD 1-800-238-3035
or write:
NATIONWIDE LIFE INSURANCE COMPANY
P.O. BOX 182150
COLUMBUS, OHIO 43218-2150
Material incorporated by reference to this prospectus can be found on the SEC
website at:
www.sec.gov
Information about this product and other Best of America products can be found
at:
www.bestofamerica.com
THIS POLICY IS NOT:
- - A BANK DEPOSIT;
- - ENDORSED BY A BANK OR GOVERNMENT AGENCY;
- - FEDERALLY INSURED; OR
- - AVAILABLE IN EVERY STATE.
The life insurance policies offered by this prospectus are multiple payment
variable life insurance policies. A cash surrender value may be offered if the
policy is terminated during the lifetime of the insured.
0 of 126
<PAGE> 5
The purpose of this policy is to provide life insurance protection for the
beneficiary named in the policy. No claim is made that the policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.
The death benefit and cash value of this policy may vary to reflect the
experience of the Nationwide VLI Separate Account-2 (the "variable account") or
the fixed account, depending on how premium payments are invested.
Investors assume certain risks when investing in the policies, including the
risk of losing money.
Nationwide guarantees the death benefit for as long as the policy is in force.
The cash surrender value is not guaranteed. The policy will lapse if the cash
surrender value is insufficient to cover policy charges. During the first five
policy years, the total premiums less any policy indebtedness must be greater
than or equal to the minimum premium requirement in order to keep the policy in
force.
Benefits described in this prospectus may not be available in every jurisdiction
- - refer to your policy for specific benefit information.
THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION WHERE 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE> 6
GLOSSARY OF SPECIAL 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 cash
value of the variable account.
FIXED ACCOUNT- An investment option which is funded by the general account of
Nationwide.
GENERAL ACCOUNT- All assets of Nationwide other than those of the variable
account or in other separate accounts that have been or may be established by
Nationwide.
GUIDELINE LEVEL PREMIUM- The level annual premiums required to mature the policy
under guaranteed mortality and expense charges with an interest rate of 4%. It
is calculated pursuant to the Internal Revenue Code.
GUIDELINE SINGLE PREMIUM- The single premium amount required to mature the
policy under guaranteed mortality and expense charges, and an interest rate of
6%. It is calculated pursuant to the Internal Revenue Code.
MATURITY DATE- The policy anniversary on or next following the insured's 95th
birthday.
MINIMUM PREMIUM- The Minimum Premium is shown on the policy data page. It is
used to measure the total amount that must be paid during the first five Policy
Years to continue the Policy in force.
MONTHLY ANNIVERSARY DAY- The same day as the Policy Date for each succeeding
month.
NATIONWIDE - Nationwide Life Insurance Company.
NET AMOUNT AT RISK- Net amount at risk is the death benefit minus the cash
value. On a monthly anniversary day, the net amount at risk is the death benefit
minus the cash value prior to subtraction of the base policy cost of insurance
charge.
NET PREMIUMS- Net premiums are equal to the actual premiums minus the percent of
premium charges. The percent of premium charges are shown on the policy data
page.
SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund
shares are allocated and for which accumulation units are separately maintained.
UNSCHEDULED PREMIUM- Additional premium payments which may be allowed under
certain conditions.
VALUATION PERIOD - Each day the New York Stock Exchange is open.
VARIABLE ACCOUNT- Nationwide VLI Separate Account-2, a separate account of
Nationwide Life Insurance Company that contains variable account allocations.
The variable account is divided into sub-accounts, each of which invests in
shares of a separate underlying mutual fund.
2
<PAGE> 7
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS...................... 3
SUMMARY OF POLICY EXPENSES..................... 6
UNDERLYING MUTUAL FUND ANNUAL EXPENSES......... 7
SYNOPSIS OF THE POLICIES....................... 8
NATIONWIDE LIFE INSURANCE COMPANY.............. 8
NATIONWIDE ADVISORY SERVICES, INC.............. 9
INVESTING IN THE POLICY........................ 9
The Variable Account and Underlying
Mutual Funds
The Fixed Account
INFORMATION ABOUT THE POLICIES.................11
Minimum Requirements for Policy Issuance
Premium Payments
Pricing
POLICY CHARGES.................................12
Sales Load
Premium Expense Charge
Surrender Charges
Monthly Cost of Insurance
Monthly Administrative Charge
Mortality and Expense Risk Charge
Income Tax
SURRENDERING THE POLICY FOR CASH...............14
Surrender (Redemption)
Cash Surrender Value
Partial Surrenders
Income Tax Withholding
VARIATION IN CASH VALUE........................15
POLICY PROVISIONS..............................15
Policy Owner
Beneficiary
Changes in Existing Insurance Coverage
OPERATION OF THE POLICY........................16
Allocation of Net Premium and Cash Value
How the Investment Experience is
Determined
Net Investment Factor
Determining the Cash Value
Transfers
RIGHT TO REVOKE................................18
POLICY LOANS...................................18
Taking a Policy Loan
Effect on Investment Performance
Interest
Effect on Death Benefit and Cash Value
Repayment
ASSIGNMENT.....................................19
POLICY OWNER SERVICES..........................20
Dollar Cost Averaging
DEATH BENEFIT INFORMATION......................20
Calculation of the Death Benefit
Changes in the Death Benefit Option
Proceeds Payable on Death
Incontestability
Error in Age or Sex
Suicide
Maturity Proceeds
EXCHANGE RIGHTS................................22
GRACE PERIOD ..................................23
First Five Policy Years
Policy Years Six and After
All Policy Years
Reinstatement
TAX MATTERS....................................24
Policy Proceeds
Withholding
Federal Estate and Generation-Skipping
Transfers Taxes
Non-Resident Aliens
Taxation of Nationwide
Tax Changes
LEGAL CONSIDERATIONS...........................27
YEAR 2000 COMPLIANCE ISSUES....................27
STATE REGULATION...............................28
REPORTS TO POLICY OWNERS.......................28
ADVERTISING....................................28
LEGAL PROCEEDINGS..............................28
EXPERTS........................................29
REGISTRATION STATEMENTS........................30
LEGAL OPINIONS.................................30
DISTRIBUTION OF THE POLICIES...................30
3
<PAGE> 8
ADDITIONAL INFORMATION ABOUT
NATIONWIDE................................32
APPENDIX A: OBJECTIVES FOR UNDERLYING
MUTUAL FUNDS..............................40
APPENDIX B: ILLUSTRATION OF SURRENDER
CHARGES...................................45
APPENDIX C: ILLUSTRATIONS OF CASH VALUES,
CASH SURRENDER VALUES, AND DEATH
BENEFITS..................................47
4
<PAGE> 9
SUMMARY OF POLICY EXPENSES
Nationwide deducts certain charges from the policy. Charges are made for
administrative and sales expenses, tax expenses, providing life insurance
protection and assuming the mortality and expense risks.
Nationwide deducts a sales load and premium expense charge from premium
payments. The sales load is guaranteed never to exceed 3.5% of each premium
payment. The charge for state premium tax is approximately 2.5% of premiums for
all states (see "Sales Load" and "Premium Expense Charge").
Nationwide deducts the following charges from the cash value of the policy:
- monthly cost of insurance
- monthly cost of any additional benefits provided by riders to the policy
- administrative expense charge(1)
- mortality and expense risk charge
For policies which are surrendered during the first nine policy years,
Nationwide deducts a surrender charge (see "Surrender Charges").
Nationwide deducts a mortality and expense risk charge from the sub-accounts of
the variable account.
The mortality and expense risk charge is deducted daily and is equal to an
annual rate of 0.80% of the daily net assets of the variable account.
For more information about any policy charge, see "Policy Charges" in this
prospectus.
(1) Currently, the administrative expense charge is $5 per month. It is
guaranteed not to exceed $7.50 per month.
5
<PAGE> 10
<TABLE>
UNDERLYING MUTUAL FUND ANNUAL EXPENSES
(as a percentage of underlying mutual fund net assets, after expense reimbursement)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Management Other Total Underlying
Fees Expenses 12b-1 Fees Mutual Fund Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Century Variable Portfolios, 0.97% 0.00% 0.00% 0.97%
Inc. - American Century VP Balanced
- ----------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 1.00% 0.00% 0.00% 1.00%
Inc. - American Century VP Capital
Appreciation
- ----------------------------------------------------------------------------------------------------------------------
American Century Variable Portfolios, 0.70% 0.00% 0.00% 0.70%
Inc. - American Century VP Income &
Growth
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 0.49% 0.08% 0.00% 0.57%
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 0.59% 0.06% 0.00% 0.65%
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 0.58% 0.14% 0.00% 0.72%
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0.74% 0.13% 0.00% 0.87%
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 0.54% 0.09% 0.00% 0.63%
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Capital Appreciation Fund 0.60% 0.07% 0.00% 0.67%
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Government Bond Fund 0.50% 0.07% 0.00% 0.57%
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Money Market Fund 0.40% 0.06% 0.00% 0.46%
- ----------------------------------------------------------------------------------------------------------------------
NSAT- Nationwide Small Cap Value 0.90% 0.15% 0.00% 1.05%
Fund
- ----------------------------------------------------------------------------------------------------------------------
NSAT-Total Return Fund 0.59% 0.06% 0.00% 0.65%
- ----------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT- Growth 0.83% 0.09% 0.00% 0.92%
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT- Guardian 0.85% 0.15% 0.00% 1.00%
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT- Limited 0.65% 0.11% 0.00% 0.76%
Maturity Bond Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Bond Fund/VA 0.72% 0.02% 0.00% 0.74%
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies 0.72% 0.04% 0.00% 0.76%
Fund/VA
- ----------------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II, Inc. 1.00% 0.18% 0.00% 1.18%
- ----------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 1.00% 0.16% 0.00% 1.16%
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust 1.00% 0.15% 0.00% 1.15%
- -Worldwide Bond Fund
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance 1.00% 0.16% 0.00% 1.16%
Trust-Worldwide Hard Assets Fund
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The expenses shown above are deducted by the underlying mutual fund before it
provides Nationwide with the daily net asset value. Nationwide then deducts
applicable variable account charges from the net asset value to calculate the
unit value of the corresponding sub-account. The management fees and other
expenses are more fully described in the prospectus for each underlying mutual
fund. Information relating to the underlying mutual funds was provided by the
underlying mutual funds and not independently verified by Nationwide.
Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows what the expenses would have been for
such funds without fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Management Other Total Underlying
Fees Expenses 12b-1 Fees Mutual Fund Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income Portfolio 0.49% 0.09% 0.00% 0.58%
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 0.59% 0.11% 0.00 0.70%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Management Other Total Underlying
Fees Expenses 12b-1 Fees Mutual Fund Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP Overseas Portfolio 0.74% 0.17% 0.00% 0.91%
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 0.54% 0.10% 0.00% 0.64%
- ----------------------------------------------------------------------------------------------------------------------
NSAT Nationwide Small Cap Value 0.90% 0.43% 0.00% 1.33%
Fund
- ----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust - 1.00% 0.20% 0.00 1.20%
Worldwide Hard Assets Fund
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SYNOPSIS OF THE POLICIES
The policy offered by this prospectus provides for life insurance coverage on
the insured. The death benefit and cash value of the policy may increase or
decrease to reflect the performance of the investment options chosen by the
policy owner (see "Death Benefit Information").
CASH SURRENDER VALUE
If the policy is terminated during the insured's lifetime, a cash surrender
value may be payable under the policy. However, there is no guaranteed cash
surrender value (see "Variation in Cash Value "). The policy will lapse without
value if the cash surrender value falls below what is needed to cover policy
charges. During the first five policy years, the total premium payments less any
policy indebtedness must be greater than or equal to the minimum premium
requirement in order to keep the policy in force. The minimum premium is equal
to the monthly minimum premium multiplied by the number of completed policy
months. The minimum monthly premium is shown on the policy data page.
PREMIUMS
The minimum initial premium for which a policy may be issued is $2,000.
The policies are designed to generally permit the payment of the Guideline
Single Premium in five annual installments for death benefit Option 1, and five
annual Guideline Level Premiums under death benefit Option 2 (see "Premium
Payments").
TAXATION
The policies described in this prospectus meet the definition of "life
insurance" under Section 7702 of the Internal Revenue Code. Nationwide will
monitor compliance with the tests provided by Section 7702 to insure the
policies continue to receive this favored tax treatment (see "Tax Matters").
NONPARTICIPATING POLICIES
The policies are nonparticipating policies on which no dividends are payable.
The policies do not share in the profits or surplus earnings of Nationwide.
POLICY CANCELLATION
Policy owners may return the policy for any reason within certain time periods
and Nationwide will refund the policy value or the amount required by law (see
"Right to Revoke").
NATIONWIDE LIFE INSURANCE COMPANY
Nationwide is a stock life insurance company organized under the laws of the
State of Ohio in March, 1929. It is a member of the "Nationwide Insurance
Enterprise" with its Home Office at One Nationwide Plaza, Columbus, Ohio 43215.
Nationwide is a provider of life insurance, annuities and retirement products.
It is admitted to do business in all states, the District of Columbia and Puerto
Rico.
CUSTODIAN OF ASSETS
Nationwide serves as the custodian of the assets of the variable account.
OTHER CONTRACTS ISSUED BY NATIONWIDE
Nationwide 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 Nationwide.
7
<PAGE> 12
NATIONWIDE ADVISORY SERVICES, INC.
The policies are distributed by Nationwide Advisory Services, Inc. ("NAS"),
Three Nationwide Plaza, Columbus, Ohio 43215. NAS is a wholly owned subsidiary
of Nationwide Life Insurance Company.
INVESTING IN THE POLICY
THE VARIABLE ACCOUNT AND UNDERLYING MUTUAL FUNDS
Nationwide VLI Separate Account-2 is a separate account that invests in the
underlying mutual fund options listed in Appendix A. Nationwide established the
separate account on May 7, 1987, pursuant to Ohio law. Although the separate
account is registered with the SEC as a unit investment trust pursuant to the
Investment Company Act of 1940 ("1940 Act"), the SEC does not supervise the
management of Nationwide or the variable account.
Income, gains, and losses credited to, or charged against the variable account
reflect the variable account's own investment experience and not the investment
experience of Nationwide's other assets. The variable account's assets are held
separately from Nationwide's assets and are not in general chargeable with
liabilities incurred in any other business of Nationwide. Nationwide is
obligated to pay all amounts promised to policy owners under the policies.
The variable account is divided into sub-accounts. Policy owners elect to have
net premiums allocated among the sub-accounts and the fixed account at the time
of application.
Nationwide uses the assets of each sub-account to buy shares of the underlying
mutual funds based on policy owner instructions. A policy's investment
performance depends upon the performance of the underlying mutual fund options
chosen by the policy owner.
Each underlying mutual fund's prospectus contains more detailed information
about that fund. Prospectuses for the underlying mutual funds should be read in
conjunction with this prospectus.
Underlying mutual funds in the variable account are NOT publicly traded mutual
funds. The underlying mutual fund options 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.
However the underlying mutual funds are NOT directly related to any publicly
traded mutual fund. Policy owners should not compare the performance of a
publicly traded fund with the performance of underlying mutual funds
participating in the variable account. The performance of the underlying mutual
funds could differ substantially from that of any publicly traded funds.
Changes of Investment Policy
Nationwide may materially change the investment policy of the variable account.
Nationwide must inform 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 Nationwide'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
Nationwide. 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 the change to make the conversion.
Nationwide 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 the conversion.
Voting Rights
Policy owners who have allocated assets to the underlying mutual funds are
entitled to certain voting rights. Nationwide will vote policy owner shares at
special shareholder meetings based on policy owner instructions. However, if the
law changes allowing Nationwide to vote in its own right, it may elect to do so.
8
<PAGE> 13
Policy owners with voting interests in an underlying mutual fund will be
notified of issues requiring the shareholder's vote as soon as possible prior to
the shareholder meeting. Notification will contain proxy materials, and a form
to return to Nationwide with voting instructions. Nationwide will vote shares
for which no instructions are received in the same proportion as those that are
received.
The number of shares which a policy owner may vote is determined by dividing the
cash value of the amount they have allocated to an underlying mutual fund by the
net asset value of that underlying mutual fund. Nationwide will designate a date
for this determination not more than 90 days before the shareholder meeting.
Substitution of Securities
Nationwide may substitute, eliminate and/or combine shares of another underlying
mutual fund for shares already purchased or to be purchased in the future if
either of the following occur:
1) shares of a current underlying mutual fund option are no longer available
for investment; or
2) further investment in an underlying mutual fund option is inappropriate.
No substitution, elimination, and/or combination of shares may take place
without the prior approval of the SEC and state insurance departments.
Material Conflicts
The underlying mutual funds may be offered through separate accounts of other
insurance companies, as well as through other separate accounts of Nationwide.
Nationwide does not anticipate any disadvantages to this. However, it is
possible that a conflict may arise between the interests of the variable account
and one or more of the other separate accounts in which these underlying mutual
funds participate.
Material conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the contract owners and those of other companies.
If a material conflict occurs, Nationwide will take whatever steps are necessary
to protect contract owners and variable annuity payees, including withdrawal of
the variable account from participation in the underlying mutual fund(s)
involved in the conflict.
THE FIXED ACCOUNT
The fixed account is an investment option that is funded by assets of
Nationwide's general account. The general account contains all of Nationwide's
assets other than those in other Nationwide separate accounts. It is used to
support Nationwide's annuity and insurance obligations and may contain
compensation for mortality and expense risks. Premium payments will be allocated
to the fixed account by election of the policy owner.
Under exemptive and exclusionary provisions, Nationwide's general account has
not been registered under the Securities Act of 1933 and has not been registered
as an investment company under the Investment Company Act of 1940. Accordingly,
neither the general account nor any interest therein is subject to the
provisions of these Acts. Nationwide has been advised that the staff of the SEC
has not reviewed the disclosures in this prospectus relating to the fixed
account. Disclosures regarding the general account may, however, be subject to
certain generally applicable provisions of the federal securities laws
concerning the accuracy and completeness of statements made in prospectuses.
The investment income earned by the fixed account will be allocated to the
policies at varying rate(s) set by Nationwide. The guaranteed rate for any
premium payment will be effective for not less than twelve months. Nationwide
guarantees that the rate will not be less than an annual effective rate of 4.0%.
Any interest in excess of an annual effective rate of 4.0% will be credited to
fixed account allocations at Nationwide's sole discretion. The policy owner
assumes the risk that interest credited to fixed account allocations may not
9
<PAGE> 14
exceed the minimum guarantee of an annual effective rate of 4.0% for any given
year.
New premium payments deposited to the contract which are allocated to the fixed
account may receive a different rate if interest than amounts transferred from
the sub-accounts to the fixed account and amounts maturing in the fixed account.
INFORMATION ABOUT THE POLICIES
MINIMUM REQUIREMENTS FOR POLICY ISSUANCE
The policies are designed to generally permit the payment of the Guideline
Single Premium in five annual installments under death benefit Option 1 and five
annual Guideline Level Premiums under death benefit Option 2. At issue, the
policy owner selects a scheduled premium level. This scheduled premium is used
to determine the initial specified amount. The minimum scheduled premium is
$2,000.
Policies may be issued to insureds with issue ages 75 or younger. Before issuing
any policy, Nationwide requires satisfactory evidence of insurability which may
include a medical examination.
PREMIUM PAYMENTS
Each premium payment must be at least equal to the monthly minimum premium. The
initial premium is payable in full at Nationwide's home office or to an
authorized agent of Nationwide.
Upon payment of the initial premium, temporary insurance may be provided.
Issuance of the continuing 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.
Additional premium payments may be made at any time while the policy is in
force, subject to the following conditions:
- Nationwide may require satisfactory evidence of insurability before
accepting any additional premium payment which results in an increase in the
net amount at risk.
- During the first five policy years, the total premium payments less any
policy indebtedness must be greater than or equal to the minimum premium
requirement in order to keep the policy in force. (The monthly minimum
premium is shown in the policy data page.)
- Premium payments in excess of the premium limit established by the IRS to
qualify the policy as a contract for life insurance will be refunded.
- Nationwide may require policy indebtedness be repaid prior to accepting any
additional premium payments.
Additional premium payments or other changes to the policy may jeopardize the
policy's non-modified endowment status. Nationwide will monitor premiums paid
and other policy transactions and will notify the policy owner when non-modified
endowment contract status is in jeopardy.
Nationwide will send scheduled premium payment reminder notices to policy owners
according to the premium mode shown on the policy data page.
PRICING
Premium payments will not be priced when the New York Stock Exchange is closed
on the following nationally recognized holidays:
- New Year's Day - Independence Day
- Martin Luther King, Jr. Day - Labor Day
- Presidents Day - Thanksgiving
- Good Friday - Christmas
- Memorial Day
Nationwide also will not price premium payments if:
(1) trading on the New York Stock Exchange is restricted;
(2) an emergency exists making disposal or valuation of securities held in
the variable account impracticable; or
(3) the SEC, by order, permits a suspension or postponement for the
protection of security holders.
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Rules and regulations of the SEC will govern as to when the conditions described
in (2) and (3) exist. If Nationwide is closed on days when the New York Stock
Exchange is open, policy value may be affected since the policy owner would not
have access to their account.
POLICY CHARGES
SALES LOAD
Nationwide deducts a sales load from each premium payment received. It is
guaranteed never to exceed 3.5% of each premium payment and may be reduced by
Nationwide at its sole discretion.
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.
PREMIUM EXPENSE CHARGE
Nationwide deducts a premium expense charge equal to 2.50% from all premium
payments. This charge reimburses Nationwide for administrative expenses on an
aggregate basis including premium taxes imposed by various state and local
jurisdictions.
State tax rates can range from 0% to 4%. This charge may be more or less than
the amount actually assessed by the state in which a particular policy owner
lives.
Nationwide does not expect to make a profit from this charge.
SURRENDER CHARGES
Nationwide deducts a surrender charge from the cash value of any policy
surrendered during the first nine years. The deduction is taken proportionally
from the cash value in each sub-account and the fixed account.
The initial surrender charge varies by issue age, sex, and underwriting
classification. The surrender charge is calculated based on the initial
specified amount. The following table illustrates the initial surrender charge
per $1,000 of initial specified amount for policies which are issued on a
standard basis (see Appendix B for specific examples). Special guaranteed
maximum surrender charges apply in Pennsylvania (see Appendix B).
<TABLE>
<CAPTION>
- -------------------------------------------------------
MALE FEMALE
ISSUE NON- NON- MALE FEMALE
AGE TOBACCO TOBACCO STANDARD STANDARD
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
- -------------------------------------------------------
35 7.260 6.712 8.559 7.373
- -------------------------------------------------------
45 11.159 10.160 13.244 11.151
- -------------------------------------------------------
55 15.275 13.375 18.373 14.686
- -------------------------------------------------------
65 23.821 20.553 27.943 22.165
- -------------------------------------------------------
</TABLE>
The surrender charge is comprised of two components:
- an underwriting component; and
- sales component.
The underwriting component varies by issue age in the following manner:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
ISSUE CHARGE PER $1,000 OF
AGE INITIAL SPECIFIED AMOUNT
- ---------------------------------------------------------
<S> <C>
0-39 $3.50
- ---------------------------------------------------------
40-59 $5.00
- ---------------------------------------------------------
60-75 $6.50
- ---------------------------------------------------------
</TABLE>
The underwriting component is designed to cover the administrative expenses
associated with underwriting and issuing policies, including the costs of:
- processing applications;
- conducting medical exams;
- determining insurability and the insured's underwriting class; and
- establishing policy records.
The remainder of the surrender charge that is not attributable to the
underwriting component represents the sales component. The purpose of the sales
component is to reimburse Nationwide for some of the expenses incurred in the
distribution of the policies.
The surrender charge may be insufficient to recover certain expenses related to
the sale of the policies. Unrecovered expenses are borne by Nationwide's general
assets which may include profits, if any, from mortality and expense risk
charges. Additional premiums and/or income earned on assets in the variable
account have no effect on these charges.
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Reductions to Surrender Charges
Surrender charges are reduced in subsequent policy years as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------
COMPLETED SURRENDER CHARGE AS A %
POLICY YEARS OF INITIAL SURRENDER CHARGES
- --------------------------------------------------
<S> <C>
0 100%
- --------------------------------------------------
1 100%
- --------------------------------------------------
2 100%
- --------------------------------------------------
3 95%
- --------------------------------------------------
4 90%
- --------------------------------------------------
5 85%
- --------------------------------------------------
6 80%
- --------------------------------------------------
7 75%
- --------------------------------------------------
8 50%
- --------------------------------------------------
9+ 0%
- --------------------------------------------------
</TABLE>
Special guaranteed maximum surrender charges apply in Pennsylvania (see Appendix
B).
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. This
deduction is charged proportionately to the cash value in each sub-account and
the fixed account.
If death benefit Option 1 is in effect and there have been increases in the
specified amount, then the cash value will first be considered a part of the
initial specified amount. If the cash value exceeds the initial specified
amount, it will then be considered a part of the additional increases in
specified amount resulting from the increases in the order of the increases.
Monthly cost of insurance rates will not exceed those guaranteed in the policy.
Guaranteed cost of insurance rates for policies issued on a simplified basis are
based on the 1980 Commissioners Extended Term Mortality Table, Age Last Birthday
(1980 CET). Guaranteed cost of insurance rates for policies issued on a
preferred basis are based on the 1980 Commissioners Standard Ordinary Mortality
Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for
policies issued on a substandard basis are based on appropriate percentage
multiples of the 1980 CSO. These mortality tables are sex distinct. In addition,
separate mortality tables will be used for standard and non-tobacco.
For policies issued in Texas, guaranteed cost of insurance rates for
standard-simplified issues ("special class-simplified" in Texas) are based on
130% of the 1980 Commissioners Standard Ordinary Mortality Table, Age Last
Birthday (1980 CSO).
The rates for policies issued on a simplified or preferred basis will not exceed
the rates in the appropriate table. The cost of insurance rate per $1,000 of net
amount at risk is less for policies issued on a preferred basis as compared to a
simplified basis.
The rate class of an insured may affect the cost of insurance rate. Nationwide
currently places insureds into both standard rate classes and substandard rate
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. Nationwide may also
issue certain policies on a "simplified issue" basis to certain categories of
individuals. Due to the underwriting criteria established for policies issued on
a simplified issue basis, actual rates for healthy individuals will be higher
than the current cost of insurance rates being charged under otherwise identical
policies that are issued on a preferred basis.
MONTHLY ADMINISTRATIVE CHARGE
Nationwide deducts an administrative expense charge proportionately from the
cash value in each sub-account and the fixed account on a monthly basis. This
charge reimburses Nationwide for certain actual administrative expenses.
Nationwide does not expect to recover any amount in excess of aggregate
maintenance expenses from this charge. Currently, this charge is $5 per month.
Nationwide may, at its sole discretion, increase this charge. However,
Nationwide guarantees that this charge will never exceed $7.50 per month.
MORTALITY AND EXPENSE RISK CHARGE
Nationwide assumes certain risks for guaranteeing the mortality and expense
charges.
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<PAGE> 17
The mortality risk assumed under the policies is that the insured may not live
as long as expected. The expense risk assumed is that the actual expenses
incurred in issuing and administering the policies may be greater than expected.
In addition, Nationwide assumes risks associated with the non-recovery of policy
issue, underwriting and other administrative expenses due to policies that lapse
or are surrendered in the early policy years.
Nationwide deducts the mortality and expense risk charge from the variable
account on a daily basis. Mortality and expense risk deductions will be charged
proportionally to the cash value in each sub-account. The mortality and expense
risk charge compensates Nationwide for assuming risks associated with mortality
and administrative costs. The charge is equivalent to an annual effective rate
of 0.80% of the daily net assets of the variable account.
These charges are all guaranteed. Nationwide may realize a profit from these
charges. Unrecovered expenses are borne by Nationwide's general assets, which
may include profits, if any, from mortality and expense risk charges. Policy
owners receive quarterly and annual statements advising policy owners of the
cancellation of accumulation units for mortality and expense risk charges.
INCOME TAX
No charge is assessed to policy owners for income taxes incurred by Nationwide
as a result of the operations of the sub-accounts. However, Nationwide reserves
the right to assess a charge for income taxes against the variable account if
income taxes are incurred.
SURRENDERING THE POLICY FOR CASH
SURRENDER (REDEMPTION)
Policies may be surrendered for the cash surrender value any time while the
insured is living. The cancellation will be effective as of the date Nationwide
receives the policy accompanied by a signed, written request for cancellation.
Nationwide may require the policy owner's signature to be guaranteed by a member
firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock
Exchanges, or by a commercial bank or a savings and loan, which is a member of
the Federal Deposit Insurance Corporation. In some cases, Nationwide 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 Nationwide 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 five years, the policy owner may request
a partial surrender.
Partial surrenders are permitted if they satisfy the following requirements:
1) the minimum partial surrender is $500;
2) the maximum partial surrender in any policy year is limited to 10% of
the total premium payments;
3) after the partial surrender, the policy continues to qualify as life
insurance.
When a partial surrender is made, the cash value is reduced by the amount of the
partial surrender. Under death benefit Option 1, the specified amount is reduced
by the amount of the partial surrender, unless the death benefit is based on the
applicable percentage of cash value. In such a case, a partial surrender will
decrease the specified amount by the amount by which the partial surrender
exceeds the difference between the death benefit and specified amount.
Partial surrender amounts must be first deducted from the values in the
sub-accounts. Partial surrenders will be deducted from the fixed account only to
the extent that insufficient values are available in the sub-accounts.
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<PAGE> 18
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").
INCOME TAX WITHHOLDING
Federal law requires Nationwide to withhold income tax from any portion of
surrender proceeds subject to tax. Nationwide will withhold income tax unless
the policy owner advises Nationwide, in writing, of his or her request not to
withhold. If a policy owner requests that taxes not be withheld, or if the taxes
withheld are insufficient, the policy owner may be liable for payment of an
estimated tax. Policy owners should consult a 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 policy.
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.
VARIATION IN CASH VALUE
On any date during the policy year, the cash value equals the cash value on the
preceding valuation date, plus any net premiums 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.
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
Nationwide and recorded at Nationwide's home office. Once recorded, the change
will be effective when signed. The change will not affect any payment made or
action taken by Nationwide before it was recorded. Nationwide may require that
the policy be submitted for endorsement before making a change.
If the policy owner is other than the insured, 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) will 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 Nationwide and recorded at
Nationwide's home office. Once recorded, the change will be effective when
signed. The change will not affect any payment made or action taken by
Nationwide 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 insured, the death proceeds will be paid to the
policy owner or the policy owner's estate.
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<PAGE> 19
CHANGES IN EXISTING INSURANCE COVERAGE
The policy owner may request certain changes in the insurance coverage under the
policy. Requests must be in writing and received by Nationwide. No change will
take effect unless the cash surrender value after the change is sufficient to
keep the policy in force for at least 3 months.
Specified Amount Increases
After the fifth policy year, the policy owner may request an increase to the
specified amount. Any increase will be subject to the following conditions:
1. the request must be applied for in writing;
2. satisfactory evidence of insurability must be provided;
3. the increase must be for a minimum of $10,000;
4. the cash surrender value is sufficient to continue the policy in force
for at least 3 months; and
5. age limits are the same as for a new issue.
Any approved increase will have an effective date of the monthly anniversary day
on or next following the date Nationwide approves the supplemental application.
Nationwide reserves the right to limit the number of specified amount increases
to one each policy year.
Specified Amount Decreases
After the fifth policy year, the policy owner may also request a decrease to the
specified amount. Any approved decrease will be effective on the monthly
anniversary day on or next following the date Nationwide 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.
Nationwide reserves the right to limit the number of specified amount decreases
to one each policy year. Nationwide will refuse a request for a decrease which
would:
1. reduce the specified amount to less than $10,000; or
2. disqualify the policy as a contract for life insurance.
Changes in the death benefit option may have an effect on the specified amount.
OPERATION OF THE POLICY
ALLOCATION OF NET PREMIUM AND CASH VALUE
Nationwide allocates premium payments to sub-accounts or the fixed account, as
instructed by policy owners. All percentage allocations must be in whole
numbers, and must be at least 5%. The sum of allocations must equal 100%. Future
premium allocations may be changed by giving written notice to Nationwide.
Premiums allocated to a sub-account on the application are allocated to the NSAT
Money Market Fund during the period a policy owner may cancel the policy, unless
specific states require premiums to be allocated to the fixed account. At the
expiration of the cancellation period, these premiums are used to purchase
shares of the underlying mutual funds specified by the policy owner 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. Changes are subject to the terms and
conditions imposed by each underlying mutual fund and those found in this
prospectus. Net premiums allocated to the fixed account at the time of
application may not be transferred from the fixed account prior to the first
policy anniversary (see "Transfers").
HOW THE INVESTMENT EXPERIENCE IS DETERMINED
The accumulation unit value for a 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 for the
subsequent valuation period. Though the number of accumulation units will not
change as
15
<PAGE> 20
a result of investment experience, the value of an accumulation unit may
increase or decrease from valuation period to valuation period. The number of
accumulation units will not change as a result of investment experience.
NET INVESTMENT FACTOR
Net investment factor is determined by dividing (a) by (b) and subtracting (c)
from the result where:
(a) is:
(1) the net asset value per share of the underlying mutual fund held in
the sub-account as of the end of the current valuation period; and
(2) the per share amount of any dividend or income distributions made by
the underlying mutual fund (if the "ex-dividend" date occurs during
the current valuation period).
(b) is the net asset value per share of the underlying mutual fund determined
as of the end of the immediately preceding valuation period.
(c) is a factor representing the daily mortality and expense risk charge,
administration expense charge and premium tax charge. This factor is equal
to an annual rate of 1.30% of the daily net assets of the variable account
for the first ten policy years and 1.00% thereafter.
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, administrative expense charge and premium
tax charge.
DETERMINING THE CASH VALUE
The cash value is the sum of the value of all variable account accumulation
units attributable to the policy plus amounts credited to the fixed account and
the policy loan account. Nationwide will determine the value of the assets in a
variable account at the end of each Valuation period. The cash value will be
determined at least monthly.
The number of accumulation units credited to each sub-account is 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 Nationwide. 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 Nationwide periodically
declares. The annual effective rate will never be less than 4%. (For a
description of the annual effective credited rates, see "The Fixed Account" and
"Policy Loans.") Upon request, Nationwide will inform the policy owner of the
then applicable rates for each account.
TRANSFERS
Policy owners can transfer allocations without penalty or adjustment subject to
the following conditions:
- Nationwide reserves the right to restrict transfers between the fixed
account and the sub-accounts to one per policy year.
- Transfers made to the fixed account may not be made in the first policy
year.
- Nationwide reserves the right to restrict the amount transferred from the
fixed account each policy year (subject to state restrictions). Policy
owners who have entered into Dollar Cost Averaging agreements with
Nationwide may transfer under the terms of that agreement.
- Nationwide reserves the right to restrict the amount transferred to the
fixed account to 25% of the cash value.
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<PAGE> 21
- Transfers from the fixed account must be made within 30 days after the end
of an interest rate guarantee period.
- Transfers among the sub-accounts are limited to once per valuation date.
Transfer Requests
Nationwide will accept transfer requests in writing or over the telephone.
Nationwide will use reasonable procedures to confirm that telephone instructions
are genuine and will not be liable for following telephone instructions that it
reasonably determined to be genuine. Nationwide may withdraw the telephone
exchange privilege upon 30 days written notice to contract owners.
Market-Timing Firms
Some policy owners may use market-timing firms or other third parties to make
transfers on their behalf. Generally, in order to take advantage of perceived
market trends, market- timing firms will submit transfer requests on behalf of
multiple policy owners at the same time. Sometimes this can result in unusually
large transfers of funds. These large transfers might interfere with the ability
of Nationwide or the underlying mutual fund to process transactions. This can
potentially disadvantage policy owners not using market-timing firms. To avoid
this, Nationwide may modify the transfer rights of policy owners who use
market-timing firms (or other third parties) to initiate transfers on their
behalf.
The transfer rights of individual policy owners will not be modified in any way
when instructions are submitted directly by the policy owner, or by the policy
owner's representative (as authorized by the execution of a valid Nationwide
Limited Power of Attorney Form).
To protect policy owners, Nationwide may refuse transfer requests:
- submitted by any agent acting under a power of attorney on behalf of more
than one policy owner; or
- submitted on behalf of individual policy owners who have executed
pre-authorized exchange forms which are submitted by market-timing firms
(or other third parties) on behalf of more than one policy owner at the
same time.
- Nationwide will not restrict transfer rights unless Nationwide believes it
to be necessary for the protection of all policy owners.
RIGHT TO REVOKE
A policy owner may cancel the policy by returning it by the latest of:
- 10 days after receiving the policy;
- 45 days after signing the application; or
- 10 days after Nationwide delivers a Notice of Right of Withdrawal.
The policy can be mailed to the registered representative who sold it, or
directly to Nationwide.
Returned policies are deemed void from the beginning. Nationwide will refund the
amount prescribed by the state in which the policy was issued within seven days
after it receives the policy. This right varies by state.
POLICY LOANS
TAKING A POLICY LOAN
After the first policy year, the policy owner may take a policy loan using the
policy as security. Maximum policy indebtedness is limited to 90% of the cash
surrender value in the sub-accounts and 100% of the cash surrender value in the
fixed account less interest due on the next policy anniversary. Nationwide will
not grant a loan for an amount less than $1,000 ($200 in Connecticut). Policy
indebtedness will be deducted from the death benefit, cash surrender value upon
surrender, or the maturity proceeds.
Any request for a policy loan must be in written form. 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
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<PAGE> 22
Exchanges, 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.
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 sub-account at the time of the
loan. Policy loans will be transferred from the fixed account only when
sufficient amounts are not available in the 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
The loan interest rate is 6.0% per year for all Policy loans.
On a current basis, the cash value in the policy loan account is credited with
an annual effective rate of 5.1%. The interest rate credited is guaranteed to
never be lower than 4.0%. Nationwide may change the current interest crediting
rate on the policy loans at any time at its sole discretion.
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, Nationwide 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 premium payment,
rather than a loan repayment, must be identified as such. Loan repayments will
be credited to the 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 $1,000 ($50 in Connecticut
and New York). Nationwide 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.
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 at Nationwide's home office. Prior to being recorded, assignments will
not affect any payments made or actions taken by Nationwide. Nationwide is not
responsible for any assignment not submitted for recording, nor is Nationwide
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<PAGE> 23
responsible for the sufficiency or validity of any assignment. Assignments are
subject to any indebtedness owed to Nationwide before being recorded.
POLICY OWNER SERVICES
DOLLAR COST AVERAGING
Dollar Cost Averaging is a long-term transfer program that allows you to make
regular, level investments over time. It involves the automatic transfer of a
specified amount from the fixed account and/or certain sub-accounts into other
sub-accounts. Policy owners may participate in this program if their policy
value is at least $15,000. Nationwide does not guarantee that this program will
result in profit or protect policy owners from loss.
Policy owners participating in Dollar Cost Averaging may direct Nationwide to
automatically transfer specified amounts from the fixed account or one of the
following underlying mutual fund options: Fidelity VIP-High Income Portfolio,
Neuberger & Berman AMT Limited Maturity Bond Portfolio, NSAT Government Bond
Fund and the NSAT Money Market Fund.
The minimum monthly transfer is $100. Transfers from the fixed account must be
equal to or less than 1/30th of the fixed account value at the time the program
is requested.
Transfers occur monthly or on another frequency if permitted by Nationwide.
Nationwide will process transfers until either the value in the originating
investment option is exhausted, or the policy owner instructs Nationwide in
writing to stop the transfers.
Nationwide reserves the right to stop establishing new Dollar Cost Averaging
programs. Nationwide reserves the right to assess a processing fee for this
service.
DEATH BENEFIT INFORMATION
CALCULATION OF THE DEATH BENEFIT
At issue, the policy owner selects a desired scheduled premium level. The
scheduled premium is used to determine the initial specified amount.
Under death benefit Option 1, the initial specified amount is determined by
treating the scheduled premium as 20% of the Guideline Single Premium. Under
death benefit Option 2, the initial specified amount is determined by treating
the scheduled premium as the Guideline Level Premium. For either death benefit
option, the initial specified amount will be set at a level such that payment of
the scheduled premiums will not result in the policy being classified as a
modified endowment contract (see "Tax Matters").
The following tables illustrate the initial specified amount that results from a
$2,000 scheduled premium payment.
<TABLE>
<CAPTION>
MALE NON-TOBACCO
- -------------------------------------------------
ISSUE AGE OPTION 1 OPTION 2
- -------------------------------------------------
<S> <C> <C>
30 $85,779 $75,378
- -------------------------------------------------
35 $68,165 $61,559
- -------------------------------------------------
40 $54,111 $50,082
- -------------------------------------------------
45 $43,165 $40,605
- -------------------------------------------------
50 $34,675 $32,791
- -------------------------------------------------
55 $28,136 $26,852
- -------------------------------------------------
60 $23,176 $22,867
- -------------------------------------------------
65 $19,474 $19,474
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FEMALE NON-TOBACCO
- ---------------------------------------------
ISSUE AGE OPTION 1 OPTION 2
- ---------------------------------------------
<S> <C> <C>
30 $99,541 $93,577
- ---------------------------------------------
35 $79,212 $76,497
- ---------------------------------------------
40 $63,070 $62,320
- ---------------------------------------------
45 $50,599 $50,633
- ---------------------------------------------
50 $40,824 $40,958
- ---------------------------------------------
55 $33,171 $32,949
- ---------------------------------------------
60 $27,141 $26,301
- ---------------------------------------------
65 $22,369 $22,168
- ---------------------------------------------
</TABLE>
Generally, for a given scheduled premium, the initial specified amount is
greater for non-tobacco than standard and females than males. The specified
amount is shown in the policy.
While the policy is in force, the death benefit will never be less than the
specified amount. The death benefit may vary with the cash value
19
<PAGE> 24
of the policy, which depends on investment performance.
The policy owner may choose one of two death benefit options.
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 in
Appendix C.
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.
<TABLE>
APPLICABLE PERCENTAGE OF CASH VALUE
<CAPTION>
- -------------------------------------------------------------------------------------------------
Attained Percentage Attained Percentage Attained Percentage
Age of Cash Value Age of Cash Value Age of Cash Value
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-40 250% 60 130% 80 105%
- -------------------------------------------------------------------------------------------------
41 243% 61 128% 81 105%
- -------------------------------------------------------------------------------------------------
42 236% 62 126% 82 105%
- -------------------------------------------------------------------------------------------------
43 229% 63 124% 83 105%
- -------------------------------------------------------------------------------------------------
44 222% 64 122% 84 105%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
45 215% 65 120% 85 105%
- -------------------------------------------------------------------------------------------------
46 209% 66 119% 86 105%
- -------------------------------------------------------------------------------------------------
47 203% 67 118% 87 105%
- -------------------------------------------------------------------------------------------------
48 197% 68 117% 88 105%
- -------------------------------------------------------------------------------------------------
49 191% 69 116% 89 105%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
50 185% 70 115% 90 105%
- -------------------------------------------------------------------------------------------------
51 178% 71 113% 91 104%
- -------------------------------------------------------------------------------------------------
52 171% 72 111% 92 103%
- -------------------------------------------------------------------------------------------------
53 164% 73 109% 93 102%
- -------------------------------------------------------------------------------------------------
54 157% 74 107% 94 101%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
55 150% 75 105% 95 100%
- -------------------------------------------------------------------------------------------------
56 146% 76 105%
- -------------------------------------------------------------------------------------------------
57 142% 77 105%
- -------------------------------------------------------------------------------------------------
58 138% 78 105%
- -------------------------------------------------------------------------------------------------
59 134% 79 105%
- -------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 25
CHANGES IN THE DEATH BENEFIT OPTION
After the fifth policy year, the policy owner may change the death benefit
option under the policy. If the change is from Option 1 to Option 2, the
specified amount will be decreased by the amount of the cash value. If the
change is from Option 2 to Option 1, the specified amount will be increased by
the amount of the cash value. Nationwide reserves the right to require evidence
of insurability for either change.
The effective date of the change will be the monthly anniversary day on or next
following the date Nationwide 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 IRS to qualify the policy
as a life insurance contract.
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").
INCONTESTABILITY
Nationwide 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, Nationwide 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, Nationwide will pay no more than the sum of the premiums paid, less
any indebtedness, and less any partial surrenders. 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, Nationwide will pay no more
than the amount paid for the additional benefit.
MATURITY PROCEEDS
The maturity date is the policy anniversary on or next following the insured's
95th birthday. If the policy is still in force, maturity proceeds are payable to
the policy owner on the maturity date. Maturity proceeds are equal to the amount
of the policy's cash value, less any indebtedness.
EXCHANGE RIGHTS
The policy owner may exchange the policy for a flexible premium adjustable life
insurance policy offered by Nationwide on the policy date. The benefits for the
new policy will not vary with the investment experience of a separate account.
The exchange must be elected within 24 months from the policy date. No evidence
of insurability will be required.
The policy owner and beneficiary under the new policy will be the same as those
under the exchanged policy on the effective date of the exchange. The new policy
will have a death benefit on the exchange date not more than the death benefit
of the original policy immediately prior to the exchange date. The new policy
will
21
<PAGE> 26
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, Nationwide will pay
the excess to the policy owner in cash. The exchange may be subject to federal
income tax withholding (see "Income Tax Withholding").
GRACE PERIOD
FIRST FIVE POLICY YEARS
This policy will not lapse during the first five policy years provided that on
each monthly anniversary day (1) is greater than or equal to (2) where:
1) is the sum of all premiums paid to date minus any policy indebtedness;
and
2) is the sum of monthly minimum premiums since the policy date including
the monthly minimum premium for the current monthly anniversary day.
If (1) is less than (2), a grace period of 61 days from the monthly anniversary
day will be allowed for the payment of sufficient premium to satisfy the minimum
premium requirement. If sufficient premium is not paid by the end of the grace
period, the policy will lapse. The policy will be terminated with the return of
any available cash surrender value. The cash surrender value will be calculated
as of the beginning of the grace period. The policy owner may also elect in
writing to have the policy placed on Extended Term Insurance.
POLICY YEARS SIX AND AFTER
If the cash surrender value on a monthly anniversary day is not sufficient to
cover the current monthly deduction for insurance costs, administrative expenses
and other benefits, a grace period of 61 days from the monthly anniversary day
will be allowed for the payment of sufficient premium to cover the current
monthly deduction plus an amount equal to three times the current monthly
deduction.
ALL POLICY YEARS
Nationwide will send 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,
Nationwide 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 Nationwide;
3. paying sufficient premium to cover all policy charges that were due
and unpaid during the grace period;
4. paying sufficient premium to keep the policy in force for 3 months
from the date of reinstatement; and
5. paying or reinstating any indebtedness against the policy which
existed at the end of the grace period.
The effective date of a reinstated policy will be the monthly anniversary day on
or next following the date the application for reinstatement is approved by
Nationwide. If the 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.
22
<PAGE> 27
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Internal Revenue Code provides that if certain tests are
met, a policy will be treated as a life insurance policy for federal tax
purposes. Nationwide 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 Internal Revenue
Code.
Section 7702A of the Internal Revenue 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 Internal
Revenue Code states that taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions from modified endowment
contracts (other than certain distributions to terminally ill individuals) are
subject to federal income taxes in a manner similar to the way annuities are
taxed. Modified endowment contract distributions are defined by the Internal
Revenue 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 or
the distribution is part of an annuity to the policy owner as defined in the
Internal Revenue Code. Under certain circumstances, certain distributions made
under a policy on the life of a "terminally ill individual", as that term is
defined in the Internal Revenue Code, are excludable from gross income.
The policies offered by this prospectus may or may not be issued as modified
endowment contracts. Nationwide 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 policy owner
pursuant to Section 7702(f)(7) of the Internal Revenue 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 Internal
Revenue Code.
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Internal Revenue 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 that fails to satisfy the diversification
standards will not be treated as life insurance unless such failure was
inadvertent, is corrected, and the policy owner or Nationwide pays an amount to
the IRS. 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 IRS 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 U.S. Secretary of the Treasury issue additional
rules or regulations limiting the number of underlying mutual funds, transfers
between underlying mutual funds, exchanges of underlying mutual funds or changes
in investment objectives of underlying mutual funds such that the policy would
no longer qualify as life insurance under Section 7702 of the Internal Revenue
Code, Nationwide will take
23
<PAGE> 28
whatever steps are available to remain in compliance.
Nationwide 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.
WITHHOLDING
Distributions of income from a modified endowment contract are subject to
federal income tax withholding; however, the recipient may elect not to have the
withholding taken from the distribution. A distribution of income from a
modified endowment contract may be subject to mandatory back-up withholding
(which cannot be waived). The mandatory back-up withholding rate is 31% of the
income that is distributed and will arise of no Taxpayer Identification Number
is provided to Nationwide, or if the IRS notifies Nationwide that back-up
withholding is required.
FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES
The federal estate tax is integrated with the federal gift tax under a unified
tax rate schedule. In general, in 1999, an estate of less than $625,000
(inclusive of certain pre-death gifts) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes, for certain amounts that pass to the surviving
spouse.
When the insured dies, the death benefit will generally be included in the
insured's federal gross estate if: (1) the proceeds were payable to or for the
benefit of the insured's estate; or (2) the insured held any "incident of
ownership" in the policy at death or at any time within three years of death. An
incident of ownership is, in general, any right that may be exercised by the
policy owner, such as the right to borrow on the policy, or the right to name a
new Beneficiary.
If the policy owner (whether or not he or she is the insured) transfers
ownership of the policy to another person, such transfer may be subject to a
federal gift tax. In addition, if such policy owner transfers the policy to
someone two or more generations younger than the policy owner, the transfer may
be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable
amount being the value of the policy.
Similarly, if the beneficiary is two or more generations younger than the
insured, the payment of the death proceeds at the death of the insured may be
subject to the GSTT. Pursuant to regulations recently promulgated by the U.S.
Secretary of the Treasury, Nationwide may be required to withhold a portion of
the death proceeds and pay them directly to the IRS as the GSTT liability.
The GSTT provisions generally apply to the same transfers that are subject to
estate or gift taxes.
The tax rate is a flat rate equal to the maximum estate tax rate (currently
55%), and there is a provision for an aggregate $1 million exemption. Due to the
complexity of these rules, the policy owner should consult with counsel and
other competent advisors regarding these taxes.
NON-RESIDENT ALIENS
Pre-death distributions from modified endowment contracts to nonresident aliens
("NRAs") are generally subject to federal income tax and tax withholding, at a
statutory rate of 30% of the amount of income that is distributed. Nationwide is
required to withhold such amount from the distribution and remit it to the IRS.
Distributions to certain NRAs may be subject to lower, or in certain instances
zero, tax and withholding rates, if the United States has entered into an
applicable treaty. However, in order to obtain the benefits of such treaty
provisions, the NRA must give to Nationwide sufficient proof of his or her
residency and citizenship in the form and manner prescribed by the IRS. In
addition, the NRA must obtain an individual Taxpayer Identification Number from
24
<PAGE> 29
the IRS, and furnish that number to Nationwide prior to the distribution. If
Nationwide does not have the proper proof of citizenship or residency and a
proper individual Taxpayer Identification Number prior to any distribution,
Nationwide will be required to withhold 30% of the income, regardless of any
treaty provision.
A pre-death distribution may not be subject to withholding where the recipient
sufficiently establishes to Nationwide that such payment is effectively
connected to the recipient's conduct of a trade or business in the United States
and that such payment is includible in the recipient's gross income for United
States federal income tax purposes, Any such distributions may be subject to
back-up withholding at the statutory rate (currently 31%) if no Taxpayer
Identification Number, or an incorrect Taxpayer Identification Number, is
provided.
State and local estate, inheritance, income and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
policy owner or beneficiary.
TAXATION OF NATIONWIDE
Nationwide is taxed as a life insurance company under the Internal Revenue Code.
Since the variable account is not a separate entity from Nationwide and its
operations form a part of Nationwide, it will not be taxed separately as a
"regulated investment company" under Sub-chapter M of the Internal Revenue 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.
Nationwide 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, Nationwide 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.
Nationwide may also incur state and local taxes (in addition to premium taxes)
in several states. At present, these taxes are not significant. If they
increase, however, charges for such taxes may be made.
TAX CHANGES
The foregoing discussion, which is based on Nationwide's understanding of
federal tax laws as they are currently interpreted by the IRS, is general and is
not intended as tax advice.
The Internal Revenue Code has been subjected to numerous amendments and changes,
and it is reasonable to believe that it will continue to be revised. The United
States Congress has, in the past, considered numerous legislative proposals
that, if enacted, could change the tax treatment of the policies. It is
reasonable to believe that such proposals, and future proposals, may be enacted
into law. In addition, the U.S. Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing law
that may be at variance with its current positions on these matters. In
addition, current state law (which is not discussed herein), and future
amendments to state law, may affect the tax consequences of the policy.
If the policy owner, insured, or beneficiary or other person receiving any
benefit or interest in or from the policy is not both a resident and citizen of
the United States, there may be a tax imposed by a foreign country, in addition
to any tax imposed by the United States. The foreign law (including regulations,
rulings, and case law) may change and impose additional taxes on the policy, the
death proceeds, or other distributions and/or ownership of the policy, or a
treaty may be amended and all or part of the favorable treatment may be
eliminated.
Any or all of the foregoing may change from time to time without any notice, and
the tax consequences arising out of a policy may be changed retroactively. There
is no way of predicting if, when, or to what extent any such change may take
place. No representation is made as to the likelihood of the continuation of
these current laws, interpretations, and policies.
The foregoing is a general explanation as to
25
<PAGE> 30
certain tax matters pertaining to insurance policies. It is not intended to be
legal or tax advice, and should not take the place of your independent legal,
tax and/or financial advisor.
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. 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.
YEAR 2000 COMPLIANCE ISSUES
Nationwide has developed and implemented a plan to address issues related to the
Year 2000. The problem relates to many existing computer systems using only two
digits to identify a year in a date field. These systems were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer systems could fail or create erroneous results
when processing information dated after December 31, 1999. Like many
organizations, Nationwide is required to renovate or replace many computer
systems so that the systems will function properly after December 31, 1999.
Nationwide has completed an inventory and assessment of all computer systems and
has implemented a plan to renovate or replace all applications that were
identified as not Year 2000 compliant. Nationwide has renovated all applications
that required renovation. Testing of the renovated programs included running
each application in a Year 2000 environment and was completed as planned during
1998. For applications being replaced, Nationwide had all replacement systems in
place and functioning as planned by year-end 1998. Conversions of existing
traditional life policies will continue through second quarter, 1999. In
addition, the shareholder services system that support our mutual fund products
will be fully deployed in the first quarter of 1999.
Nationwide has completed an inventory and assessment of all vendor products and
has tested and certified that each vendor product is Year 2000 compliant. Any
vendor products that could not be certified as Year 2000 compliant were replaced
or eliminated in 1998.
Nationwide has also addressed issues associated with the exchange of electronic
data with external organizations. Nationwide has completed an inventory and
assessment of all business partners including electronic interfaces. Processes
have been put in place and programs initiated to process data irrespective of
the format by converting non-compliant data into a Year 2000 compliant format.
Systems supporting Nationwide's infrastructure such as telecommunications, voice
and networks will be compliant by March 1999. Nationwide's assessment of Year
2000 issues has also included non-information technology systems with embedded
computer chips. Nationwide's building systems such as fire, security, elevators
and escalators supporting facilities in Columbus, Ohio have been tested and are
Year 2000 compliant.
In addition to resolving internal Year 2000 readiness issues, Nationwide is
surveying significant external organizations (business partners) to assess if
they will be Year 2000 compliant and be in a position to do business in the Year
2000 and beyond. Specifically, Nationwide has contacted mutual fund
organizations that provide funds for our variable annuity and life products. The
same action will continue during the first quarter of 1999 with wholesale
producers. Nationwide continues its efforts to identify external risk factors
and is planning to develop contingency plans as part of its ongoing risk
management strategy.
Operating expenses in 1998 and 1997 included approximately $44.7 million and
$45.4 million,
26
<PAGE> 31
respectively, for technology projects, including costs related to Year 2000.
Nationwide anticipates spending approximately $5 million on Year 2000 activities
in 1999. These expenses do not have an effect on the assets of the variable
account and are not charged through to the contract owner.
Management does not anticipate that the completion of Year 2000 renovation and
replacement activities will result in a reduction in operating expenses. Rather,
personnel and resources currently allocated to Year 2000 issues will be assigned
to other technology-related projects.
STATE REGULATION
Nationwide 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
Nationwide 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 Nationwide's contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Nationwide'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, Nationwide is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
REPORTS TO POLICY OWNERS
Nationwide will mail to the policy owner at the last known address of record:
- an annual statement containing: the amount of the current death benefit,
cash value, cash surrender value, premiums paid, monthly charges deducted,
amounts invested in the fixed account and the sub-accounts, and policy
indebtedness;
- annual and semi-annual reports containing all applicable information and
financial statements or their equivalent, which must be sent to the
underlying mutual fund shareholders as required by the rules under the
Investment Company Act of 1940 for the variable account; and
- statements of significant transactions, such as changes in specified
amount, changes in death benefit options, changes in future premium
allocations, transfers among sub-accounts, premium payments, loans, loan
repayments, reinstatement and termination.
ADVERTISING
Nationwide is 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
Nationwide. The ratings are not intended to reflect the investment experience or
financial strength of the variable account. Nationwide may advertise these
ratings from time to time. In addition, Nationwide may include in certain
advertisements, endorsements in the form of a list of organizations, individuals
or other parties which recommend Nationwide or the policies. Furthermore,
Nationwide may occasionally include in advertisements comparisons of currently
taxable and tax deferred investment programs, based on selected tax brackets, or
discussions of alternative investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
Nationwide is a party to litigation and arbitration proceedings in the ordinary
course of its business, none of which is expected to have a material adverse
effect on Nationwide.
The general distributor, Nationwide Advisory Services, Inc. is not engaged in
any litigation of any material nature.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance
27
<PAGE> 32
and annuity pricing and sales practices. A number of these lawsuits have
resulted in substantial jury awards or settlements.
In February 1997, Nationwide was named as a defendant in a lawsuit filed in New
York state court related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Life Insurance Company). In April
1998, Nationwide was named as a defendant in a lawsuit filed in Ohio state court
similar to the Snyder case (David and Joan Mishler v. Nationwide Life Insurance
Company). In August 1998, Nationwide Mutual Insurance Company and Nationwide and
the plaintiffs executed a stipulation of settlement and submitted it to the New
York state court for approval. On August 20, 1998, the court in the Snyder case
signed an order preliminarily approving a class for settlement purposes (which
would include the Mishler case) and scheduled a fairness hearing for December
17, 1998. At the hearing, the court reviewed the fairness and reasonableness of
the proposed settlement and issued a final order and judgment. The approved
settlement provides for dismissal of both the Snyder and Mishler cases, bars
class members from pursuing litigation against Nationwide Mutual Insurance
Company and its affiliates, including Nationwide and its subsidiaries, relating
to the allegations in the Snyder case, and provides class members with a
potential value of approximately $100 million in policy adjustments, discounted
premiums and discounted products.
In November 1997, two plaintiffs, one who was the owner of a variable life
insurance policy and the other who was the owner of a variable annuity contract,
commenced a lawsuit in a federal court in Texas against Nationwide and the
American Century group of defendants (Robert Young and David D. Distad v.
Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to
represent a class of variable life insurance policy owners and variable annuity
contract owners whom they claim were allegedly misled when purchasing these
variable contracts into believing that the performance of their underlying
mutual fund option managed by American Century, whose shares may only be
purchased by insurance companies, would track the performance of a mutual fund,
also managed by American Century, whose shares are publicly traded. The amended
complaint seeks unspecified compensatory and punitive damages. On April 27,
1998, the district court denied, in part, and granted, in part, Nationwide and
American Century's motions to dismiss the complaint. The remaining claims
against Nationwide allege securities fraud, common law fraud, civil conspiracy
and breach of contract. On December 2, 1998, the district court issued an order
denying plaintiffs' motion for class certification. On December 10, 1998, the
district court stayed the lawsuit pending plaintiffs' petition to the federal
appeals court for interlocutory review of the order denying class certification.
On December 14, 1998, plaintiffs filed their petition for interlocutory review,
on which the federal appeals court has not yet ruled.
Nationwide intends to defend the case vigorously.
On October 29, 1998, Nationwide and certain of its subsidiaries were named in a
lawsuit filed in Ohio state court related to the sale of deferred annuity
products for use as investments in tax-deferred contributory retirement plans
(Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide's
customers and seeks unspecified compensatory and punitive damages. Nationwide
currently is evaluating this lawsuit, which has not been certified as a class.
Nationwide intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing or sales
practices will not have a material adverse effect on Nationwide in the future.
EXPERTS
The audited financial statements have been included herein in reliance upon the
reports of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
28
<PAGE> 33
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, Nationwide, 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, Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus, Ohio
43215. All the members of such firm are employed by the Nationwide Mutual
Insurance Company.
DISTRIBUTION OF THE POLICIES
The policies will be sold by licensed insurance agents in those states where the
policies may lawfully be sold. Agents are registered representatives of broker
dealers registered under the Securities Exchange Act of 1934 who are member
firms of the National Association of Securities Dealers, Inc. ("NASD"). The
policies will be distributed by the general distributor, NAS. NAS was organized
as an Ohio corporation on April 8, 1965. NAS is a wholly owned subsidiary of
Nationwide and a member of the NASD.
NAS acts as general distributor for the following separate accounts, all of
which are separate investment accounts of Nationwide or its affiliates:
- Nationwide Multi-Flex Variable Account
- Nationwide Variable Account
- Nationwide Variable Account-II
- Nationwide Variable Account-5
- Nationwide Variable Account-6
- Nationwide Variable Account-8
- Nationwide Variable Account-9
- Nationwide Variable Account-10
- Nationwide VLI Separate Account-2
- Nationwide VLI Separate Account-3
- Nationwide VLI Separate Account-4
- Nationwide VLI Separate Account-5
- Nationwide VA Separate Account-A
- Nationwide VA Separate Account-B
- Nationwide VA Separate Account-C
- Nationwide VL Separate Account-A
- Nationwide VL Separate Account-B
- Nationwide VL Separate Account-C
- Nationwide VL Separate Account-D
NAS also acts as principal underwriter for the following open-end management
investment companies:
- Nationwide Mutual Funds;
- Nationwide Separate Account Trust; and
- Nationwide Asset Allocation Trust
Gross first year commissions plus any expense allowance payments paid by
Nationwide on the sale of these policies provided by the general distributor are
not more than 26% of the scheduled premium plus 5% of any excess premium
payments. Gross renewal commissions paid by Nationwide will not exceed 5% of
actual premium payments.
No underwriting commissions have been paid by Nationwide to NAS.
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<PAGE> 34
<TABLE>
NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS
<CAPTION>
NAME AND POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
<S> <C>
Joseph J. Gasper President and Director
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Dimon R. McFerson Chairman of the Board of Directors
One Nationwide Plaza and Chairman and Chief Executive
Columbus, OH 43215 Officer--Nationwide Insurance
Enterprise and Director
- ----------------------------------------------------------------------------------------
Robert A. Oakley Executive Vice President - Chief
One Nationwide Plaza Financial Officer and Director
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Susan A. Wolken Director
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Robert J. Woodward, Jr. Executive Vice President - Chief
One Nationwide Plaza Investment Officer and Director
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Dennis W. Click Secretary
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
James F. Laird, Jr. Vice President and General Manager
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Edwin P. Mc Causland Senior Vice President-Fixed Income
One Nationwide Plaza Securities
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
William G. Goslee Vice President
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Charles Bath Vice President - Investments
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Joseph P. Rath Vice President - Compliance
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Christopher A. Cray Treasurer
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Elizabeth A. Davin Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
David E. Simaitis Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
Patricia J. Smith Assistant Secretary
One Nationwide Plaza
Columbus, OH 43215
- ----------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 35
ADDITIONAL INFORMATION ABOUT NATIONWIDE
The life insurance business, including annuities, is the only business in which
Nationwide is engaged.
Nationwide markets its policies through independent insurance brokers, general
agents, and registered representatives of registered NASD broker/dealer firms.
Nationwide serves as depositor for the following investment accounts, each of
which is a registered investment company:
- MFS Variable Account
- Nationwide Variable Account
- Nationwide Variable Account-II
- Nationwide Variable Account-3
- Nationwide Variable Account-4
- Nationwide Variable Account-5
- Nationwide Variable Account-6
- Nationwide Variable Account-8
- Nationwide Variable Account-9
- Nationwide Variable Account-10
- Nationwide Fidelity Advisor Variable Account
- Nationwide DC Variable Account
- Nationwide DCVA-II
- NACo Variable Account
- Separate Account No. 1
- Nationwide VLI Separate Account
- Nationwide VLI Separate Account-2
- Nationwide VLI Separate Account-3
- Nationwide VLI Separate Account-4
- Nationwide VLI Separate Account-5
- Nationwide Multi-Flex Variable Account
Nationwide, 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.
Nationwide 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,
Nationwide shares employees with Nationwide Mutual Insurance Company and
Nationwide Mutual Fire Insurance Company.
Nationwide does not presently own or lease any materially important physical
properties when its property holdings are viewed in relation to its total
assets. Nationwide shares Home Office, other facilities and equipment with
Nationwide Mutual Insurance Company.
Company Management
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual
Fire Insurance Company, Nationwide Property and Casualty Insurance Company and
Nationwide General Insurance Company and their affiliated companies comprise the
Nationwide Insurance Enterprise. The companies listed above have substantially
common boards of directors and officers.
Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of
Nationwide Life Insurance Company. NFS serves as a holding company for other
financial institutions. Nationwide Life Insurance Company is the sole owner of
Nationwide Life and Annuity Insurance Company.
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<PAGE> 36
Each of the directors and officers listed below is a director or officer
respectively of at least one or more of the other major insurance affiliates of
the Nationwide Insurance Enterprise. Messrs. McFerson, Gasper and Woodard and
Ms. Thomas are also trustees of one or more of the registered investment
companies distributed by Nationwide Advisory Services, a registered
broker-dealer affiliated with the Nationwide Insurance Enterprise.
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<PAGE> 37
<TABLE>
DIRECTORS OF NATIONWIDE
<CAPTION>
- -------------------------------------------------------------------------------------------------
DIRECTORS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES PRINCIPAL OCCUPATION
ADDRESS WITH DEPOSITOR
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Lewis J. Alphin Director Farm Owner and Operator (1)
519 Bethel Church Road
Mount Olive, NC 28365
- -------------------------------------------------------------------------------------------------
A. I. Bell Director Farm Owner and Operator (1)
4121 North River Road West
Zanesville, OH 43701
- -------------------------------------------------------------------------------------------------
Kenneth D. Davis Director Farm Owner and Operator (1)
7229 Woodmansee Road
Leesburg, OH 45135
- -------------------------------------------------------------------------------------------------
Keith W. Eckel Director Partner, Fred W. Eckel Sons; President,
1647 Falls Road Eckel Farms, Inc. (1)
Clarks Summit, PA 18411
- -------------------------------------------------------------------------------------------------
Willard J. Engel Director Retired General Manager, Lyon County
301 East Marshall Street Co-operative Oil Company (1)
Marshall, MN 44691
- -------------------------------------------------------------------------------------------------
Fred C. Finney Director Owner and Operator, Moreland Fruit
1558 West Moreland Road Farm; Operator, Melrose Orchard (1)
Wooster, OH 44691
- -------------------------------------------------------------------------------------------------
Joseph J. Gasper President and Chief President and Chief Operating Officer (2)
One Nationwide Plaza Operating Officer
Columbus, OH 43215 and Director
- -------------------------------------------------------------------------------------------------
Dimon R. McFerson Chairman and Chief Chairman and Chief Executive Officer- (2)
One Nationwide Plaza Executive Officer
Columbus, OH 43215 and Director
- -------------------------------------------------------------------------------------------------
David O. Miller Chairman of the President, Owen Potato Farm, Inc.; Partner,
115 Sprague Drive Board and Director M&M Enterprises (1)
Hebron, OH 43025
- -------------------------------------------------------------------------------------------------
Yvonne L. Montgomery Director Senior Vice President-General Manager
Suite 1600 Southern Customer Operations for U.S.
2859 Paces Ferry Road Customer Operations, Xerox
Atlanta, GA 30339 Corporation (2)
- -------------------------------------------------------------------------------------------------
Ralph M. Paige Director Executive Director Federation of
2769 Church Street Southern Cooperatives/Land Assistance
East Point, GA 30344 Fund (1)
- -------------------------------------------------------------------------------------------------
James F. Patterson Director Vice President, Pattersons, Inc.;
8765 Mulberry Road President, Patterson Farms, Inc. (1)
Chesterland, OH 44026
- -------------------------------------------------------------------------------------------------
Arden L. Shisler Director President and Chief Executive Officer,
1356 North Wenger Road K&B Transport, Inc. (1)
Dalton, OH 44618
- -------------------------------------------------------------------------------------------------
Robert L. Stewart Director Owner and Operator Sunnydale Farms
88740 Fairview Road and Mining (1)
Jewett, OH 43986
- -------------------------------------------------------------------------------------------------
Nancy C. Thomas Director Farm Owner and Operator, Da-Ma-Lor
1733A Westwood Avenue Farms (1)
Alliance, OH 44601
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Principal occupation for last 5 years
(2) Prior to assuming this current position, held other executive management
positions with the same or affiliated companies.
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<PAGE> 38
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
Nationwide and Nationwide Life and Annuity Insurance Company. Messrs. McFerson
and Gasper are directors of Nationwide Advisory Services, Inc., a registered
broker-dealer.
Messrs. McFerson, Miller, Patterson, and Shisler are directors of Nationwide
Financial Services, Inc. Mr. McFerson and Ms. Thomas are trustees of Nationwide
Mutual Funds, a registered investment company. Messrs. McFerson, Gasper and
Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset
Allocation Trust, registered investment companies. Mr. McFerson is trustee of
Nationwide Mutual Funds, a registered investment company. Mr. Engel is a
director of Western Cooperative Transport.
<TABLE>
EXECUTIVE OFFICERS OF NATIONWIDE
<CAPTION>
- ------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
- ------------------------------------------------------------------------------------------------
<S> <C>
Dennis W. Click Vice President - Secretary
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Robert A. Oakley Executive Vice President-Chief Financial Officer
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
James E. Brock Senior Vice President - Corporate Development
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
John R. Cook, Jr. Senior Vice President - Chief Communications
One Nationwide Plaza Officer
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Phillip C. Gath Senior Vice President and Chief Actuary
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Richard D. Headley Senior Vice President - Chief Information
One Nationwide Plaza Technology Officer
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Donna A. James Senior Vice President - Human Resources
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Richard A. Karas Senior Vice President - Sales and Financial Services
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Douglas C. Robinette Senior Vice President - Marketing and Product
One Nationwide Plaza Management
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Susan A. Wolken Senior Vice President - Life Company Operations
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 39
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS
- ------------------------------------------------------------------------------------------------
<S> <C>
Bruce C. Barnes Vice President - Technology Strategy and Planning
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
David A. Diamond Vice President - Enterprise Controller
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Matthew S. Easley Vice President - Investment Life Actuarial
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
R. Dennis Noice Vice President - Systems
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Joseph P. Rath Vice President - Office of Product and Market
One Nationwide Plaza Compliance
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
Mark R. Thresher Vice President - Finance and Treasurer
One Nationwide Plaza
Columbus, OH 43215
- ------------------------------------------------------------------------------------------------
</TABLE>
JOSEPH J. GASPER has been President and Chief Operating Officer of Nationwide
and Director since April 1996. Previously, he was Executive Vice President -
Property/Casualty Operations of Nationwide Mutual Insurance Company from April
1995 to April 1996. He was Senior Vice President - Property/Casualty Operations
of Nationwide Mutual Insurance Company from September 1993 to April 1995. Prior
to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper
has been with Nationwide for 32 years.
BRUCE C. BARNES has been Vice President - Technology Strategy and Planning since
May 1998. Previously, Mr. Barnes was Vice President - Information Systems from
February 1997 to May 1998. Mr. Barnes was Vice President - Life Systems from May
1996 to May 1998. Previously, he was Vice President - Investment Product Systems
from April 1995 to May 1996. Prior to that time, Mr. Barnes was Vice President -
Individual Investment Products/Common Systems from May 1994 to April 1995 and
Associate Vice President - Individual Investment Products/Common Systems from
May 1992 to May 1994. Mr. Barnes was Vice President - Information Services of
PHP Benefits Systems, Inc. from January 1987 to January 1992. Mr. Barnes has
been with Nationwide for 7 years.
A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has
served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998
and as president that last four years. He oversees the Bell family farm in
Zanesville, Ohio. The farm is the hub of a multi-family swine network, in
addition to grain and beef operations. Mr. Bell has represented the Ohio Farm
Bureau at state and national level activities, and has traveled internationally
representing Ohio agriculture. In 1995, he was introduced into The Ohio State
University Department of Animal Sciences Hall of Fame.
JAMES E. BROCK has been Senior Vice President - Corporate Development since July
1997. Previously, he was Senior Vice President - Company Operations from
December 1996 to July 1997 and was also Senior Vice President - Life Company
Operations from April 1996 to July 1997. Mr. Brock was Senior Vice President -
Investment Products Operations from November 1990 to April 1996. Prior to that
time, Mr. Brock held several positions within Nationwide. Mr. Brock has been
with the Nationwide Insurance Enterprise for 29 years.
35
<PAGE> 40
DENNIS W. CLICK has been Vice President - Secretary since December 1997.
Previously, he was Vice President - Assistant Secretary from December 1996 to
December 1997. Mr. Click was Vice President - Assistant Secretary from August
1994 to December 1997. Mr. Click was Associate Vice President and Assistant
Secretary from August 1989 to August 1994. Prior to that time, he held several
positions within Nationwide. Mr. Click has been with Nationwide for 38 years.
JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer
since May 1997. Previously, Mr. Cook was Senior Vice President - Chief
Communications Officer of USAA from July 1989 to May 1997.
KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis
has been Chairman of the Board of South Central Power Company since August 1979,
and currently oversees the Davis family farm located in Leesburg, Ohio. Mr.
Davis served as Director of the Farm Bureau Bancorp from October 1998 to March
1998. In addition, Mr. Davis has served in various officer positions with the
Ohio Farm Bureau Federation since December 1989, with his most recent position
as Trustee and President, a position he held from March 1998 to March 1999. Mr.
Davis also held officer positions with the Highland County Farm Bureau from June
1997 to September 1997, including Trustee and President from September 1984 to
September 1997.
DAVID A. DIAMOND has been Vice President - Enterprise Controller since August
1996. Previously, he was Vice President - Controller from October 1993 to August
1996. Prior to that time, Mr. Diamond held several positions within Nationwide.
Mr. Diamond has been with Nationwide for 10 years.
MATTHEW S. EASLEY has been Vice President - Investment Life Actuarial since June
1998. Mr. Easley was Vice President - Marketing and Administrative Services from
December 1996 to June 1998. Mr. Easley was Vice President - Life Marketing and
Administrative Services from May 1996 to June 1998. Mr. Easley was Vice
President - Annuity and Pension Actuarial from August 1989 to May 1996. Prior to
that time, Mr. Easley held several positions within Nationwide. Mr. Easley has
been with the Nationwide Insurance Enterprise for 16 years.
KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is
a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc., in northeast
Pennsylvania. He received the Master Farmer award from Penn State University in
1982. He is a former president of the Pennsylvania Farm Bureau, a position he
held for 15 years, and the Lackawanna County Cooperative Extension Association.
Mr. Eckel has served as a board member and executive committee member of the
American Farm Bureau. He is a former vice president of the Pennsylvania Council
of Cooperative Extension Associations, and former board member of the
Pennsylvania Vegetable Grower's Association.
PHILIP C. GATH has been Senior Vice President - Chief Actuary since May 1998.
Previously, Mr. Gath was Vice President - Product Manager - Individual Variable
Annuity from July 1997 to May 1998. Mr. Gath was Vice President - Individual
Life Actuary from August 1989 to July 1997. Prior to that time, Mr. Gath held
several positions within Nationwide. Mr. Gath has been with the Nationwide for
30 years.
RICHARD D. HEADLEY has been Senior Vice President - Chief Information Technology
Officer since October 1997. Previously, Mr. Headley was Chairman and Chief
Executive Officer of Banc One Services Corporation from 1992 to October 1997.
From January 1975 until 1992 Mr. Headley held several positions with Banc One
Corporation.
DONNA A. JAMES has been Senior Vice President - Human Resources since December
1997. Previously, she was Vice President - Human Resources from July 1996 to
December 1997. Prior to that time Ms. James was Vice President - Assistant to
the CEO from March 1996 to July 1996. From May 1994 to March 1996 she was
Associate Vice President - Assistant to the CEO. Prior to that time Ms. James
held several positions within Nationwide. Ms. James has been with Nationwide for
17 years.
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<PAGE> 41
RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services
since March 1993. Previously, he was Vice President - Sales - Financial Services
from February 1989 to March 1993. Prior to that time, Mr. Karas held several
positions within Nationwide. Mr. Karas has been with Nationwide for 34 years.
DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr.
Miller has been a farm owner and land developer since 1962. He is the President
of the Owen Potato Farm Inc. and is a partner of M&M Enterprises in Licking
County, Ohio. He is Chairman of the Board of the Wausau Insurance Companies and
serves on the board of directors of several companies of the Nationwide Group.
He is also a director of the National Cooperative Business Association.
YVONNE L. MONTGOMERY has been a Director since April, 1998. Ms. Montgomery is
senior vice president/general manager of southern customer operations for United
States Customer Operations for Xerox Corporation. A resident of Atlanta,
Georgia, Ms. Montgomery oversees eight customer business units across the
southern United States as well as all business and marketing functions in the
regions. Ms. Montgomery joined Xerox in 1976 as a sales representative and
progressed through management positions, including Vice President - Field
Operations, and Executive Assistant to the Chairman and CEO.
R. DENNIS NOICE has been Vice President - Systems since April 1998. Previously,
he was Vice President - Retail Operations from March 1997 to April 1998. Prior
to that time, Mr. Noice was Vice President - Individual Investment Products from
October 1989 to March 1997. Prior to that time, Mr. Noice held several positions
within Nationwide. Mr. Noice has been with the Nationwide for 27 years.
ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer
since April 1995. Previously, he was Senior Vice President - Chief Financial
Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held
several positions within Nationwide. Mr. Oakley has been with Nationwide for 23
years.
RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has
been the Executive Director of the Federation of Southern Cooperatives/Land
Assistance Fund since 1969. Mr. Paige also served as the National Field
Director/Georgia State Director from 1981 to 1984.
JOSEPH P. RATH has been Vice President - Product and Market Compliance since
April 1997. Previously, he was Vice President - Associate General Counsel from
October 1988 to April 1997. Prior to that time, Mr. Rath held several positions
within Nationwide. Mr. Rath has been with Nationwide for 22 years.
DOUGLAS C. ROBINETTE has been Senior Vice President - Marketing and Product
Management since May 1998. Previously, Mr. Robinette was Executive Vice
President, Customer Services of Employers Insurance of Wausau (Wausau), a member
of the Nationwide Group from September 1996 to May 1998. Prior to that time he
was Executive Vice President, Finance and Insurance Services of Wausau from May
1995 to September 1996. From November 1994 to May 1995 Mr. Robinette was Senior
Vice President, Finance and Insurance Services of Wausau. From May 1993 to
November 1994 he was Senior Vice President, Finance of Wausau. Prior to that
time, Mr. Robinette held several positions within Nationwide. Mr. Robinette has
been with the Nationwide Group for 12 years.
MARK R. THRESHER has been Vice President - Controller since August 1996. He was
Vice President and Treasurer from November 1996 to February 1997. Previously, he
was Vice President and Treasurer from June 1996 to August 1996. Prior to joining
Nationwide, Mr. Thresher served as a partner with KPMG LLP.
SUSAN A. WOLKEN has been Senior Vice President - Life Company Operations since
June 1997. Previously, she was Senior Vice President - Enterprise Administration
from July 1996 to June 1997. Prior to that time, she was Senior Vice President -
Human Resources from April 1995 to July 1996. From September 1993 to April 1995,
Ms. Wolken was Vice President Human Resources. From October 1989 to September
1993 she was Vice President Individual Life and Health Operations.
37
<PAGE> 42
Ms. Wolken has been with the Nationwide Insurance Enterprise for 24 years.
ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment
Officer since August 1995. Previously, he was Senior Vice President - Fixed
Income Investments from March 1991 to August 1995. Prior to that time, Mr.
Woodward held several positions within Nationwide. Mr. Woodward has been with
Nationwide for 34 years.
38
<PAGE> 43
APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS
The underlying mutual funds listed below are designed primarily as investment
vehicles for variable annuity contracts and variable life insurance policies
issued by insurance companies.
There is no guarantee that the investment objectives will be met.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., A MEMBER OF THE AMERICAN CENTURY(SM)
FAMILY OF INVESTMENTS American Century Variable 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
American Century(SM) Family of Investments, the Fund is managed by American
Century Investment Management, Inc.
AMERICAN CENTURY VP BALANCED
Investment Objective: Capital growth and current income. The Fund will seek
to achieve its objective by maintaining approximately 60% of the assets of
the Fund in common stocks (including securities convertible into common
stocks and other equity equivalents) that are considered by management to
have better-than-average prospects for appreciation and approximately 40%
in fixed income securities. A minimum of 25% of the fixed income portion of
the Fund will be invested in fixed income senior securities. There can be
no assurance that the Fund will achieve its investment objective.
AMERICAN CENTURY VP CAPITAL APPRECIATION
Investment Objective: Capital growth. The Fund will seek to achieve its
objective by investing in common stocks (including securities convertible
into common stocks and other equity equivalents) that meet certain
fundamental and technical standards of selection and have, in the opinion
of the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally.
AMERICAN CENTURY VP INCOME & GROWTH
Investment Objective: Dividend growth, current income and capital
appreciation. The Fund seeks to achieve its investment objective by
investing in common stocks. The investment manager constructs the portfolio
to match the risk characteristics of the S&P 500 Stock Index and then
optimizes each portfolio to achieve the desired balance of risk and return
potential. This includes targeting a dividend yield that exceeds that of
the S&P 500. Such a management technique known as "portfolio optimization"
may cause the Fund to be more heavily invested in some industries than in
others. However, the Fund may not invest more than 25% of its total assets
in companies whose principal business activities are in the same industry.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (VIP) is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
November 13, 1981. Shares of VIP are purchased by insurance companies to fund
benefits under variable life insurance policies and variable annuity contracts.
Fidelity Management & Research Company ("FMR") is the manager for VIP and its
portfolios.
VIP EQUITY-INCOME PORTFOLIO
Investment Objective: 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.
VIP GROWTH PORTFOLIO
Investment Objective: Capital appreciation. This Portfolio will invest in
the securities of both well-known and established companies,
39
<PAGE> 44
and smaller, less well-known companies which may have a narrow product line
or whose securities are thinly traded. These latter securities will often
involve greater risk than may be found in the ordinary investment security.
FMR's analysis and expertise plays an integral role in the selection of
securities and, therefore, the performance of the Portfolio. Many
securities which FMR believes would have the greatest potential may be
regarded as speculative, and investment in the Portfolio may involve
greater risk than is inherent in other underlying mutual funds. It is also
important to point out that this 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 can also 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.
VIP HIGH INCOME PORTFOLIO
Investment Objective: High level of current income by investing primarily
in high-risk, lower-rated, high-yielding, fixed-income securities, while
also considering growth of capital. FMR 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;
- 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.
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 Investor Services, Inc. ("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.
VIP OVERSEAS PORTFOLIO
Investment Objective: Long-term capital growth primarily through
investments in foreign securities. This 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 Fidelity Variable Insurance Products Fund II (VIP II) is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988. VIP II's shares are purchased by insurance companies to
fund benefits under variable life insurance policies and variable annuity
contracts. FMR is the manager of VIP II and its portfolios.
VIP II ASSET MANAGER PORTFOLIO
Investment Objective: To seek high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed income instruments.
NATIONWIDE SEPARATE ACCOUNT TRUST ("NSAT")
Nationwide Separate Account Trust ("NSAT") is a diversified open-end management
investment company created under the laws of Massachusetts. The NSAT offers
shares in the five separate funds listed below, each with its own investment
objective. Currently, shares of the NSAT 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 NSAT are managed by Nationwide Advisory Services, Inc., Three
Nationwide Plaza, Columbus, Ohio 43215, a wholly-owned subsidiary of Nationwide
Life Insurance Company.
CAPITAL APPRECIATION FUND
Investment Objective: Seeks long-term capital appreciation.
40
<PAGE> 45
GOVERNMENT BOND FUND
Investment Objective: To provide as high a level of income as is consistent
with capital preservation through investing primarily in bonds and
securities issued or backed by the U.S. Government, its agencies or
instrumentalities.
MONEY MARKET FUND
Investment Objective: Seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity.
NATIONWIDE SMALL CAP VALUE FUND
Investment Objective: Intends to pursue its investment objective by
investing, under normal market conditions, at least 75% of the fund's total
assets in equity securities of companies whose equity market
capitalizations at the time of investment are similar to the market
capitalizations of companies in the Russell 2000 Small Stock Index.
TOTAL RETURN FUND
Investment Objective: To obtain a reasonable long-term total return on
invested capital.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust ("NB AMT") is an open-end,
diversified management investment company consisting of several series. Shares
of the series of NB AMT 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 Guardian Portfolio of NB AMT invest all of its investable assets in a
corresponding series of Advisers Managers Trust managed by Neuberger Berman
Management Incorporated ("NB Management"). Each series then invests in
securities in accordance with an investment objective, policies and limitations
identical to those of the Portfolio. This "master/feeder fund" structure is
different from that of many other investment companies which directly acquire
and manage their own portfolios of securities. (For more information regarding
"master/feeder fund" structure, see "Special Information Regarding Organization,
Capitalization, and Other Matters" in the underlying mutual fund prospectus.)
The investment advisor is NB Management.
AMT GROWTH PORTFOLIO
Investment Objective: 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.
AMT GUARDIAN PORTFOLIO
Investment Objective: Capital appreciation and secondarily, current income.
The Portfolio and its corresponding series seek to achieve these objectives
by investing in common stocks of long-established, high-quality companies.
Neuberger Berman Management uses a value-oriented investment approach in
selecting securities, looking for low price-to-earnings ratios, strong
balance sheets, solid management, and consistent earnings.
AMT LIMITED MATURITY BOND PORTFOLIO
Investment Objective: To provide 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.
41
<PAGE> 46
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. OppenheimerFunds, Inc. is the Funds'
investment advisor.
o OPPENHEIMER BOND FUND/VA
Investment objective: Seeks a high level of current income by investing at least
65% of its total assets in investment grade debt securities, U.S. government
securities and money market instruments. Investment grade debt securities would
include those rated in one of the four highest ranking categories by any
nationally-recognized rating organization or if unrated or split-rated (rated
investment grade and below investment grade by different rating organizations),
determined by OppenheimerFunds, Inc. to be of comparable quality. The Fund may
invest up to 35% of its total assets in debt securities rated less than
investment grade when consistent with the Fund's investment objective. The Fund
seeks capital growth as a secondary objective when consistent with its primary
objective.
o OPPENHEIMER MULTIPLE STRATEGIES FUND/VA
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 OPPORTUNITY FUND II, INC. (FORMERLY "STRONG SPECIAL FUND II, INC.")
Strong Opportunity Fund II, Inc. is a diversified, open-end management company
commonly called a Mutual Fund. Strong Opportunity 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. 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.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust ("Van Eck 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 Van Eck Trust are
offered only to separate accounts of various insurance companies to fund the
benefits of life insurance policies and variable annuity contracts. The
investment advisor and manager is Van Eck Associates Corporation.
WORLDWIDE BOND FUND
Investment Objective: To seek high total return through a flexible policy
of investing globally, primarily in debt securities.
WORLDWIDE HARD ASSETS FUND
Investment Description: Seeks long-term capital appreciation by investing,
primarily in "Hard Assets Securities." For the Fund's purpose, "Hard
Assets" are real estate, energy, timber, and industrial and precious
metals. Income is a secondary consideration.
42
<PAGE> 47
APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES
EXAMPLE 1: A female non-tobacco, age 45, purchases a policy with a scheduled
premium of $2,000 yielding a specified amount of $50,599. She now wishes to
surrender the policy during the first policy year. By using the initial
surrender charge table reproduced below (also see "Surrender Charges"), the
total surrender charge per thousand multiplied by the specified amount expressed
in thousands equals the total surrender charge of $514.09 ($10.160 x 50.599 =
$514.09).
EXAMPLE 2: A male non-tobacco, age 35, purchases a policy with a scheduled
premium of $2,000 yielding a specified amount of $68,165. He now wants to
surrender the policy in the sixth policy year. The total initial surrender value
is calculated using the method illustrated above. (Specified amount in thousands
is $68.165 x 7.260 = 494.88 total first year surrender charge.) Because the
fifth policy year has been completed, the total initial surrender charge is
reduced by multiplying it by the applicable percentage factor from the
"Reductions to Surrender Charges" table below (also see "Reductions to Surrender
Charges"). In this case, $494.88 x 85% = $420.65, which is the amount Nationwide
deducts as a total surrender charge.
Initial surrender charge per $1,000 of initial specified amount for policies
which are issued on a standard basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ISSUE MALE FEMALE MALE FEMALE
AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $5.878 $5.537 $6.680 $5.945
- ------------------------------------------------------------------------------------------
35 7.260 6.712 8.559 7.373
- ------------------------------------------------------------------------------------------
45 11.159 10.160 13.244 11.151
- ------------------------------------------------------------------------------------------
55 15.275 13.375 18.373 14.686
- ------------------------------------------------------------------------------------------
65 23.821 20.553 27.943 22.165
- ------------------------------------------------------------------------------------------
</TABLE>
Reductions to surrender charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SURRENDER CHARGE SURRENDER CHARGE
COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL
POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 100% 5 85%
- ------------------------------------------------------------------------------------------
1 100% 6 80%
- ------------------------------------------------------------------------------------------
2 100% 7 75%
- ------------------------------------------------------------------------------------------
3 95% 8 50%
- ------------------------------------------------------------------------------------------
4 90% 9+ 0%
- ------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 48
The current surrender charges are the same for all states. However, in
Pennsylvania the guaranteed maximum surrender charges are 8% higher than those
shown. In addition, the guaranteed maximum surrender charge in subsequent years
in Pennsylvania are reduced in the following manner:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SURRENDER SURRENDER SURRENDER
COMPLETED CHARGE COMPLETED CHARGE COMPLETED CHARGE
POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL
YEARS SURRENDER YEARS SURRENDER YEARS SURRENDER
CHARGES CHARGES CHARGES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0 100% 5 83% 10 46%
- --------------------------------------------------------------------------------------------------
1 98% 6 75% 11 37%
- --------------------------------------------------------------------------------------------------
2 95% 7 70% 12 28%
- --------------------------------------------------------------------------------------------------
3 92% 8 65% 13 14%
- --------------------------------------------------------------------------------------------------
4 88% 9 55% 14+ 0%
- --------------------------------------------------------------------------------------------------
</TABLE>
The illustrations of current values are the same for Pennsylvania. However, the
guaranteed maximum surrender charges are slightly higher in Pennsylvania. If
this policy is issued in Pennsylvania, please contact Nationwide's home office
for an illustration.
Nationwide has no plans to change the current surrender charges.
44
<PAGE> 49
APPENDIX C: 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 debt, no additional premium
payments are made, no cash values are allocated to the fixed account, and their
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 assets of the
variable account. In addition, the net investment returns also reflect the
deduction of fund investment advisory fees and other expenses which are
equivalent to an annual effective rate of 0.83% (after expense reimbursement) of
the daily net assets of the variable account. Some underlying mutual funds are
subject to expense reimbursements and fee waivers. Absent expense reimbursements
and fee waivers, the annual effective rate would have been 0.85%. This effective
rate is based on the average of fund expenses for the preceding year for all
underlying mutual fund options available under the policy as of December 31,
1998. Nationwide anticipates that the expense reimbursement and fee waiver
arrangements will continue past the current year. Should there be an increase or
decrease in the expense reimbursements or fee waivers of these underlying mutual
funds, such change will be reflected in the net asset value of the corresponding
underlying mutual fund.
Considering current charges for mortality and expense risks and fund expenses,
gross annual rates of return of 0%, 6% and 12% correspond to net investment
experience at constant annual rates of -1.80%, 4.20% and 10.20%.
The illustrations also reflect the fact that Nationwide makes monthly charges
for providing insurance protection. Current values reflect current cost of
insurance charges and guaranteed values reflect the maximum cost of insurance
charges guaranteed in the policy. The values shown are for policies which are
issued as standard (including non-tobacco). Policies issued on a substandard
basis would result in lower cash values and death benefits than those
illustrated.
In addition, the illustrations reflect the fact that Nationwide deducts a
monthly administrative charge at the beginning of each policy month. This
monthly administrative expense charge is $5 and is guaranteed not to exceed
$7.50. Current values reflect a current monthly administrative expense charge of
$5 and guaranteed values reflect the $7.50 maximum monthly administrative charge
under the policy. The illustrations also reflect the fact that no charges for
federal or state income taxes are currently made against the variable account.
If such a charge is made in the future, it will require a higher gross
investment return than illustrated in order to produce the net after-tax returns
shown in the illustrations.
Upon request, Nationwide will furnish a comparable illustration based on the
proposed insured's age, sex, smoking classification, rating classification and
premium payment requested.
45
<PAGE> 50
<TABLE>
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,668 1,186 43,165 1,773 1,292 43,165 1,879 1,397 43,165
2 2,000 4,305 3,307 2,825 43,165 3,620 3,139 43,165 3,947 3,465 43,165
3 2,000 6,620 4,915 4,433 43,165 5,544 5,062 43,165 6,225 5,743 43,165
4 2,000 9,051 6,495 6,037 43,165 7,549 7,091 43,165 8,734 8,277 43,165
5 2,000 11,604 8,044 7,611 43,165 9,636 9,203 43,165 11,499 11,066 43,165
6 0 12,184 7,707 7,298 43,165 9,844 9,434 43,165 12,468 12,059 43,165
7 0 12,793 7,363 6,977 43,165 10,049 9,664 43,165 13,530 13,144 43,165
8 0 13,433 7,009 6,648 43,165 10,252 9,891 43,165 14,693 14,331 43,165
9 0 14,105 6,646 6,405 43,165 10,452 10,211 43,165 15,970 15,729 43,165
10 0 14,810 6,270 6,270 43,165 10,647 10,647 43,165 17,371 17,371 43,165
15 0 18,901 4,172 4,172 43,165 11,510 11,510 43,165 26,820 26,820 43,165
20 0 24,124 1,433 1,433 43,165 11,959 11,959 43,165 42,382 42,382 51,706
25 0 30,788 (*) (*) (*) 11,388 11,388 43,165 67,360 67,360 78,138
30 0 39,295 (*) (*) (*) 8,375 8,375 43,165 107,288 107,288 114,798
35 0 50,151 (*) (*) (*) (*) (*) (*) 171,712 171,712 180,297
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
46
<PAGE> 51
<TABLE>
DEATH BENEFIT OPTION 1
$2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,575 1,094 43,165 1,678 1,196 43,165 1,780 1,299 43,165
2 2,000 4,305 3,118 2,636 43,165 3,420 2,939 43,165 3,736 3,254 43,165
3 2,000 6,620 4,627 4,146 43,165 5,231 4,749 43,165 5,885 5,403 43,165
4 2,000 9,051 6,105 5,647 43,165 7,113 6,656 43,165 8,249 7,791 43,165
5 2,000 11,604 7,549 7,116 43,165 9,070 8,637 43,165 10,852 10,419 43,165
6 0 12,184 7,099 6,690 43,165 9,133 8,723 43,165 11,636 11,227 43,165
7 0 12,793 6,632 6,246 43,165 9,176 8,791 43,165 12,485 12,100 43,165
8 0 13,433 6,143 5,781 43,165 9,198 8,837 43,165 13,405 13,044 43,165
9 0 14,105 5,627 5,386 43,165 9,192 8,951 43,165 14,401 14,160 43,165
10 0 14,810 5,082 5,082 43,165 9,154 9,154 43,165 15,481 15,481 43,165
15 0 18,901 1,733 1,733 43,165 8,288 8,288 43,165 22,508 22,508 43,165
20 0 24,124 (*) (*) (*) 5,399 5,399 43,165 33,826 33,826 43,165
25 0 30,788 (*) (*) (*) (*) (*) (*) 52,553 52,553 60,962
30 0 39,295 (*) (*) (*) (*) (*) (*) 82,040 82,040 87,783
35 0 50,151 (*) (*) (*) (*) (*) (*) 129,233 129,233 135,695
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
47
<PAGE> 52
<TABLE>
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,670 1,217 42,276 1,776 1,322 42,381 1,881 1,428 42,486
2 2,000 4,305 3,306 2,853 43,911 3,619 3,166 44,225 3,945 3,492 44,551
3 2,000 6,620 4,906 4,453 45,512 5,533 5,080 46,138 6,210 5,757 46,816
4 2,000 9,051 6,472 6,041 47,077 7,519 7,089 48,124 8,697 8,266 49,302
5 2,000 11,604 8,000 7,592 48,605 9,578 9,170 50,183 11,423 11,015 52,028
6 2,000 14,284 9,491 9,106 50,096 11,712 11,327 52,317 14,414 14,029 55,020
7 2,000 17,098 10,944 10,582 51,549 13,924 13,561 54,529 17,695 17,333 58,301
8 2,000 20,053 12,359 12,019 52,964 16,214 15,875 56,820 21,295 20,955 61,900
9 2,000 23,156 13,736 13,509 54,341 18,588 18,361 59,193 25,244 25,018 65,850
10 2,000 26,414 15,072 15,072 55,677 21,043 21,043 61,649 29,576 29,576 70,182
15 2,000 45,315 21,328 21,328 61,934 34,889 34,889 75,494 58,723 58,723 99,328
20 2,000 69,439 26,366 26,366 66,971 51,122 51,122 91,728 105,084 105,084 145,690
25 2,000 100,227 29,734 29,734 70,339 69,680 69,680 110,285 178,686 178,686 219,292
30 2,000 139,522 30,537 30,537 71,143 89,915 89,915 130,520 295,140 295,140 335,746
35 2,000 189,673 27,631 27,631 68,237 110,666 110,666 151,271 479,373 479,373 519,978
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
48
<PAGE> 53
<TABLE>
DEATH BENEFIT OPTION 2
$2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT
MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,000 2,100 1,579 1,126 42,184 1,681 1,228 42,287 1,784 1,331 42,389
2 2,000 4,305 3,118 2,665 43,723 3,420 2,966 44,025 3,734 3,281 44,339
3 2,000 6,620 4,616 4,163 45,221 5,216 4,763 45,821 5,865 5,412 46,470
4 2,000 9,051 6,072 5,641 46,677 7,071 6,640 47,676 8,195 7,764 48,800
5 2,000 11,604 7,485 7,077 48,091 8,985 8,577 49,591 10,741 10,334 51,347
6 2,000 14,284 8,854 8,469 49,459 10,959 10,574 51,565 13,524 13,139 54,130
7 2,000 17,098 10,176 9,814 50,781 12,993 12,630 53,598 16,564 16,202 57,170
8 2,000 20,053 11,448 11,108 52,053 15,083 14,743 55,689 19,883 19,543 60,488
9 2,000 23,156 12,666 12,440 53,272 17,229 17,003 57,835 23,505 23,278 64,110
10 2,000 26,414 13,828 13,828 54,434 19,429 19,429 60,035 27,456 27,456 68,062
15 2,000 45,315 18,689 18,689 59,294 31,176 31,176 71,781 53,297 53,297 93,902
20 2,000 69,439 21,506 21,506 62,111 43,754 43,754 84,359 93,070 93,070 133,675
25 2,000 100,227 21,252 21,252 61,857 55,986 55,986 96,591 153,879 153,879 194,485
30 2,000 139,522 16,189 16,189 56,794 65,535 65,535 106,140 246,274 246,274 286,879
35 2,000 189,673 3,371 3,371 43,976 67,920 67,920 108,526 385,475 385,475 426,080
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
49
<PAGE> 54
<TABLE>
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,291 3,019 114,019 4,558 3,286 114,019 4,825 3,553 114,019
2 5,000 10,763 8,507 7,234 114,019 9,306 8,034 114,019 10,138 8,866 114,019
3 5,000 16,551 12,646 11,373 114,019 14,251 12,979 114,019 15,987 14,715 114,019
4 5,000 22,628 16,712 15,503 114,019 19,405 18,196 114,019 22,433 21,224 114,019
5 5,000 29,010 20,700 19,555 114,019 24,772 23,626 114,019 29,532 28,387 114,019
6 0 30,460 19,975 18,893 114,019 25,447 24,365 114,019 32,163 31,082 114,019
7 0 31,983 19,232 18,214 114,019 26,127 25,109 114,019 35,047 34,029 114,019
8 0 33,582 18,468 17,514 114,019 26,811 25,857 114,019 38,211 37,257 114,019
9 0 35,261 17,685 17,049 114,019 27,500 26,864 114,019 41,688 41,052 114,019
10 0 37,024 16,873 16,873 114,019 28,186 28,186 114,019 45,506 45,506 114,019
15 0 47,254 12,337 12,337 114,019 31,571 31,571 114,019 71,267 71,267 114,019
20 0 60,309 6,421 6,421 114,019 34,445 34,445 114,019 113,599 113,599 138,591
25 0 76,971 (*) (*) (*) 35,716 35,716 114,019 181,626 181,626 210,686
30 0 98,237 (*) (*) (*) 32,871 32,871 114,019 290,627 290,627 310,971
35 0 125,378 (*) (*) (*) 20,885 20,885 114,019 466,657 466,657 489,989
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
50
<PAGE> 55
<TABLE>
DEATH BENEFIT OPTION 1
$5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,159 2,886 114,019 4,422 3,149 114,019 4,685 3,413 114,019
2 5,000 10,763 8,235 6,962 114,019 9,018 7,746 114,019 9,834 8,561 114,019
3 5,000 16,551 12,229 10,956 114,019 13,798 12,526 114,019 15,496 14,223 114,019
4 5,000 22,628 16,142 14,933 114,019 18,770 17,561 114,019 21,727 20,518 114,019
5 5,000 29,010 19,974 18,829 114,019 23,944 22,798 114,019 28,589 27,444 114,019
6 0 30,460 19,078 17,996 114,019 24,402 23,320 114,019 30,945 29,864 114,019
7 0 31,983 18,147 17,129 114,019 24,839 23,821 114,019 33,514 32,496 114,019
8 0 33,582 17,174 16,220 114,019 25,247 24,293 114,019 36,314 35,360 114,019
9 0 35,261 16,151 15,514 114,019 25,619 24,983 114,019 39,369 38,732 114,019
10 0 37,024 15,069 15,069 114,019 25,947 25,947 114,019 42,703 42,703 114,019
15 0 47,254 8,481 8,481 114,019 26,597 26,597 114,019 64,815 64,815 114,019
20 0 60,309 (*) (*) (*) 24,190 24,190 114,019 101,107 101,107 123,350
25 0 76,971 (*) (*) (*) 14,938 14,938 114,019 159,556 159,556 185,085
30 0 98,237 (*) (*) (*) (*) (*) (*) 252,154 252,154 269,805
35 0 125,378 (*) (*) (*) (*) (*) (*) 400,851 400,851 420,893
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
51
<PAGE> 56
<TABLE>
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,306 3,151 107,827 4,573 3,418 108,094 4,841 3,685 108,362
2 5,000 10,763 8,526 7,371 112,047 9,325 8,170 112,847 10,157 9,002 113,678
3 5,000 16,551 12,658 11,502 116,179 14,261 13,105 117,782 15,993 14,838 119,515
4 5,000 22,628 16,704 15,606 120,225 19,388 18,291 122,909 22,404 21,307 125,926
5 5,000 29,010 20,657 19,618 124,179 24,707 23,667 128,228 29,439 28,400 132,961
6 5,000 35,710 24,522 23,540 128,043 30,227 29,245 133,748 37,164 36,182 140,685
7 5,000 42,746 28,293 27,369 131,815 35,953 35,029 139,474 45,643 44,718 149,164
8 5,000 50,133 31,971 31,105 135,493 41,890 41,024 145,411 54,950 54,084 158,471
9 5,000 57,889 35,558 34,980 139,079 48,048 47,471 151,569 65,171 64,593 168,692
10 5,000 66,034 39,046 39,046 142,567 54,428 54,428 157,949 76,389 76,389 179,910
15 5,000 113,287 55,493 55,493 159,014 90,520 90,520 194,042 152,000 152,000 255,521
20 5,000 173,596 69,077 69,077 172,598 133,213 133,213 236,734 272,686 272,686 376,207
25 5,000 250,567 78,844 78,844 182,366 182,703 182,703 286,224 465,021 465,021 568,542
30 5,000 348,804 82,881 82,881 186,402 238,011 238,011 341,532 770,716 770,716 874,238
35 5,000 474,182 78,731 78,731 182,252 297,141 297,141 400,662 1,256,583 1,256,583 1,360,104
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
52
<PAGE> 57
<TABLE>
DEATH BENEFIT OPTION 2
$5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,000 5,250 4,180 3,024 107,701 4,443 3,288 107,964 4,706 3,551 108,227
2 5,000 10,763 8,262 7,107 111,783 9,046 7,890 112,567 9,861 8,705 113,382
3 5,000 16,551 12,248 11,092 115,769 13,813 12,658 117,334 15,507 14,351 119,028
4 5,000 22,628 16,134 15,036 119,655 18,750 17,652 122,271 21,691 20,593 125,212
5 5,000 29,010 19,920 18,880 123,441 23,858 22,819 127,380 28,465 27,425 131,986
6 5,000 35,710 23,602 22,620 127,123 29,142 28,160 132,663 35,883 34,901 139,405
7 5,000 42,746 27,175 26,251 130,696 34,601 33,677 138,122 44,005 43,081 147,526
8 5,000 50,133 30,634 29,768 134,156 40,236 39,370 143,757 52,894 52,027 156,415
9 5,000 57,889 33,974 33,396 137,495 46,046 45,468 149,567 62,619 62,042 166,140
10 5,000 66,034 37,187 37,187 140,708 52,030 52,030 155,551 73,258 73,258 176,779
15 5,000 113,287 51,171 51,171 154,692 84,551 84,551 188,072 143,444 143,444 246,965
20 5,000 173,596 60,809 60,809 164,330 120,924 120,924 224,445 253,129 253,129 356,650
25 5,000 250,567 64,135 64,135 167,656 159,381 159,381 262,902 423,868 423,868 527,389
30 5,000 348,804 57,829 57,829 161,350 196,058 196,058 299,579 688,770 688,770 792,291
35 5,000 474,182 36,319 36,319 139,840 223,193 223,193 326,714 1,098,021 1,098,021 1,201,543
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
53
<PAGE> 58
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,219 12,612 301,625 18,290 13,683 301,625 19,362 14,755 301,625
2 20,000 43,050 34,140 29,533 301,625 37,351 32,744 301,625 40,691 36,083 301,625
3 20,000 66,203 50,782 46,175 301,625 57,238 52,630 301,625 64,217 59,610 301,625
4 20,000 90,513 67,147 62,770 301,625 77,990 73,613 301,625 90,181 85,804 301,625
5 20,000 116,038 83,219 79,072 301,625 99,636 95,490 301,625 118,836 114,689 301,625
6 0 121,840 80,411 76,495 301,625 102,519 98,603 301,625 129,664 125,748 301,625
7 0 127,932 77,510 73,824 301,625 105,434 101,748 301,625 141,575 137,889 301,625
8 0 134,329 74,485 71,030 301,625 108,359 104,904 301,625 154,679 151,223 301,625
9 0 141,045 71,326 69,022 301,625 111,293 108,990 301,625 169,121 166,817 301,625
10 0 148,097 68,037 68,037 301,625 114,247 114,247 301,625 185,075 185,075 301,625
15 0 189,014 48,054 48,054 301,625 128,364 128,364 301,625 294,478 294,478 341,595
20 0 241,235 17,507 17,507 301,625 138,985 138,985 301,625 472,509 472,509 505,585
25 0 307,884 (*) (*) (*) 141,234 141,234 301,625 760,267 760,267 798,281
30 0 392,947 (*) (*) (*) 124,862 124,862 301,625 1,217,535 1,217,535 1,278,412
35 0 501,511 (*) (*) (*) 59,677 59,677 301,625 1,935,318 1,935,318 2,032,083
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
54
<PAGE> 59
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,081 11,474 301,625 17,117 12,510 301,625 18,155 13,548 301,625
2 20,000 43,050 31,805 27,198 301,625 34,883 30,275 301,625 38,086 33,479 301,625
3 20,000 66,203 47,188 42,581 301,625 53,347 48,740 301,625 60,015 55,408 301,625
4 20,000 90,513 62,237 57,860 301,625 72,558 68,181 301,625 84,184 79,807 301,625
5 20,000 116,038 76,955 72,808 301,625 92,570 88,423 301,625 110,875 106,728 301,625
6 0 121,840 72,607 68,691 301,625 93,579 89,663 301,625 119,426 115,509 301,625
7 0 127,932 67,951 64,265 301,625 94,347 90,661 301,625 128,709 125,023 301,625
8 0 134,329 62,922 59,466 301,625 94,816 91,360 301,625 138,800 135,345 301,625
9 0 141,045 57,453 55,149 301,625 94,923 92,619 301,625 149,795 147,491 301,625
10 0 148,097 51,472 51,472 301,625 94,602 94,602 301,625 161,814 161,814 301,625
15 0 189,014 10,890 10,890 301,625 83,750 83,750 301,625 243,970 243,970 301,625
20 0 241,235 (*) (*) (*) 42,243 42,243 301,625 385,307 385,307 412,279
25 0 307,884 (*) (*) (*) (*) (*) (*) 612,829 612,829 643,471
30 0 392,947 (*) (*) (*) (*) (*) (*) 963,397 963,397 1,011,567
35 0 501,511 (*) (*) (*) (*) (*) (*) 1,486,642 1,486,642 1,560,974
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
55
<PAGE> 60
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 17,271 13,125 288,733 18,342 14,195 289,804 19,413 15,266 290,875
2 20,000 43,050 34,168 30,021 305,630 37,371 33,224 308,833 40,702 36,555 312,164
3 20,000 66,203 50,702 46,556 322,164 57,123 52,977 328,585 64,064 59,918 335,526
4 20,000 90,513 66,864 62,925 338,326 77,613 73,674 349,075 89,694 85,755 361,156
5 20,000 116,038 82,622 78,890 354,084 98,834 95,102 370,296 117,783 114,051 389,245
6 20,000 142,840 97,989 94,465 369,451 120,824 117,299 392,286 148,588 145,063 420,050
7 20,000 170,982 112,959 109,641 384,421 143,600 140,283 415,062 182,370 179,052 453,832
8 20,000 200,531 127,503 124,393 398,965 167,163 164,053 438,625 219,397 216,287 490,859
9 20,000 231,558 141,620 139,547 413,082 191,536 189,463 462,998 259,988 257,915 531,450
10 20,000 264,136 155,325 155,325 426,787 216,763 216,763 488,225 304,517 304,517 575,979
15 20,000 453,150 218,239 218,239 489,701 357,592 357,592 629,054 602,578 602,578 874,040
20 20,000 694,385 265,419 265,419 536,881 518,819 518,819 790,281 1,072,248 1,072,248 1,343,710
25 20,000 1,002,269 291,795 291,795 563,257 697,917 697,917 969,379 1,812,137 1,812,137 2,083,599
30 20,000 1,395,216 290,557 290,557 562,019 889,293 889,293 1,160,756 2,979,455 2,979,455 3,250,917
35 20,000 1,896,726 249,775 249,775 521,237 1,079,693 1,079,693 1,351,155 4,822,266 4,822,266 5,093,728
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
56
<PAGE> 61
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,184 12,038 287,646 17,220 13,073 288,682 18,257 14,110 289,719
2 20,000 43,050 31,877 27,730 303,339 34,940 30,794 306,402 38,128 33,982 309,590
3 20,000 66,203 47,072 42,926 318,534 53,168 49,022 324,630 59,765 55,618 331,227
4 20,000 90,513 61,751 57,812 333,213 71,898 67,958 343,360 83,317 79,378 354,779
5 20,000 116,038 75,889 72,157 347,351 91,116 87,384 362,578 108,945 105,213 380,407
6 20,000 142,840 89,459 85,934 360,921 110,807 107,282 382,269 136,821 133,297 408,283
7 20,000 170,982 102,431 99,114 373,893 130,950 127,633 402,413 167,134 163,817 438,596
8 20,000 200,531 114,758 111,648 386,220 151,507 148,397 422,969 200,069 196,959 471,531
9 20,000 231,558 126,392 124,318 397,854 172,434 170,361 443,896 235,832 233,759 507,294
10 20,000 264,136 137,288 137,288 408,750 193,690 193,690 465,152 274,652 274,652 546,114
15 20,000 453,150 179,287 179,287 450,749 303,404 303,404 574,866 524,459 524,459 795,921
20 20,000 694,385 193,401 193,401 464,863 410,516 410,516 681,978 897,812 897,812 1,169,274
25 20,000 1,002,269 165,230 165,230 436,692 495,149 495,149 766,611 1,449,402 1,449,402 1,720,864
30 20,000 1,395,216 76,531 76,531 347,993 527,482 527,482 798,944 2,262,330 2,262,330 2,533,792
35 20,000 1,896,726 (*) (*) (*) 454,371 454,371 725,833 3,451,917 3,451,917 3,723,379
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
57
<PAGE> 62
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,618 11,732 205,135 17,673 12,786 205,135 18,728 13,842 205,135
2 20,000 43,050 32,941 28,054 205,135 36,092 31,206 205,135 39,372 34,485 205,135
3 20,000 66,203 48,992 44,105 205,135 55,327 50,441 205,135 62,184 57,297 205,135
4 20,000 90,513 64,779 60,137 205,135 75,440 70,798 205,135 87,442 82,800 205,135
5 20,000 116,038 80,339 75,941 205,135 96,529 92,131 205,135 115,498 111,100 205,135
6 0 121,840 76,906 72,753 205,135 98,778 94,625 205,135 125,708 121,555 205,135
7 0 127,932 73,232 69,323 205,135 100,961 97,052 205,135 136,997 133,088 205,135
8 0 134,329 69,291 65,627 205,135 103,072 99,407 205,135 149,534 145,869 205,135
9 0 141,045 65,045 62,602 205,135 105,098 102,654 205,135 163,519 161,076 205,135
10 0 148,097 60,430 60,430 205,135 107,010 107,010 205,135 179,187 179,187 205,135
15 0 189,014 29,550 29,550 205,135 114,133 114,133 205,135 287,698 287,698 302,083
20 0 241,235 (*) (*) (*) 113,840 113,840 205,135 460,496 460,496 483,521
25 0 307,884 (*) (*) (*) 94,478 94,478 205,135 731,738 731,738 768,325
30 0 392,947 (*) (*) (*) 15,855 15,855 205,135 1,166,147 1,166,147 1,177,808
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
58
<PAGE> 63
<TABLE>
DEATH BENEFIT OPTION 1
$20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,205 9,319 205,135 15,188 10,302 205,135 16,174 11,288 205,135
2 20,000 43,050 28,074 23,187 205,135 30,954 26,067 205,135 33,958 29,072 205,135
3 20,000 66,203 41,640 36,754 205,135 47,385 42,499 205,135 53,624 48,737 205,135
4 20,000 90,513 54,939 50,297 205,135 64,586 59,944 205,135 75,496 70,854 205,135
5 20,000 116,038 67,999 63,601 205,135 82,675 78,277 205,135 99,971 95,573 205,135
6 0 121,840 61,657 57,503 205,135 81,451 77,297 205,135 106,042 101,889 205,135
7 0 127,932 54,577 50,668 205,135 79,596 75,686 205,135 112,561 108,652 205,135
8 0 134,329 46,582 42,917 205,135 76,953 73,288 205,135 119,588 115,924 205,135
9 0 141,045 37,460 35,016 205,135 73,337 70,894 205,135 127,215 124,772 205,135
10 0 148,097 26,972 26,972 205,135 68,532 68,532 205,135 135,581 135,581 205,135
15 0 189,014 (*) (*) (*) 15,446 15,446 205,135 198,356 198,356 208,274
20 0 241,235 (*) (*) (*) (*) (*) (*) 311,439 311,439 327,011
25 0 307,884 (*) (*) (*) (*) (*) (*) 480,207 480,207 504,217
30 0 392,947 (*) (*) (*) (*) (*) (*) 746,244 746,244 753,706
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
59
<PAGE> 64
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
CURRENT VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 16,547 11,908 211,285 17,594 12,955 212,332 18,642 14,003 213,381
2 20,000 43,050 32,613 27,974 227,351 35,722 31,083 230,460 38,957 34,318 233,695
3 20,000 66,203 48,191 43,552 242,929 54,391 49,752 249,129 61,097 56,458 255,836
4 20,000 90,513 63,246 58,839 257,984 73,579 69,172 268,318 85,205 80,798 279,943
5 20,000 116,038 77,770 73,595 272,509 93,294 89,119 288,032 111,462 107,287 306,201
6 20,000 142,840 91,757 87,814 286,496 113,540 109,596 308,278 140,070 136,127 334,809
7 20,000 170,982 105,157 101,446 299,895 134,280 130,569 329,019 171,208 167,497 365,947
8 20,000 200,531 117,963 114,484 312,701 155,519 152,040 350,258 205,115 201,636 399,853
9 20,000 231,558 130,153 127,834 324,892 177,246 174,926 371,984 242,039 239,720 436,778
10 20,000 264,136 141,679 141,679 336,418 199,420 199,420 394,159 282,225 282,225 476,963
15 20,000 453,150 190,197 190,197 384,936 318,421 318,421 513,160 545,952 545,952 740,690
20 20,000 694,385 216,571 216,571 411,309 444,024 444,024 638,763 949,833 949,833 1,144,572
25 20,000 1,002,269 212,426 212,426 407,165 566,208 566,208 760,946 1,568,052 1,568,052 1,762,790
30 20,000 1,395,216 167,420 167,420 362,158 669,255 669,255 863,994 2,516,798 2,516,798 2,711,536
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) CURRENT VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $5 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
60
<PAGE> 65
<TABLE>
DEATH BENEFIT OPTION 2
$20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT
MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65
GUARANTEED VALUES
<CAPTION>
0.00% HYPOTHETICAL 6.00% HYPOTHETICAL 12.00% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
ANNUAL CASH NET CASH NET CASH NET
PREMIUMS CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH
YEAR PAID AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 20,000 21,000 14,065 9,426 208,804 15,033 10,394 209,771 16,003 11,364 210,741
2 20,000 43,050 27,434 22,795 222,172 30,225 25,586 224,964 33,136 28,497 227,875
3 20,000 66,203 40,082 35,444 234,821 45,548 40,910 240,287 51,479 46,840 246,217
4 20,000 90,513 51,978 47,571 246,716 60,962 56,555 255,700 71,106 66,699 265,844
5 20,000 116,038 63,071 58,896 257,810 76,406 72,231 271,145 92,083 87,908 286,822
6 20,000 142,840 73,294 69,351 268,032 91,798 87,855 286,537 114,461 110,518 309,200
7 20,000 170,982 82,559 78,848 277,298 107,032 103,321 301,771 138,276 134,565 333,014
8 20,000 200,531 90,758 87,279 285,497 121,972 118,493 316,710 163,539 160,060 358,278
9 20,000 231,558 97,782 95,462 292,520 136,475 134,155 331,213 190,265 187,945 385,003
10 20,000 264,136 103,541 103,541 298,279 150,410 150,410 345,149 218,487 218,487 413,225
15 20,000 453,150 111,282 111,282 306,020 207,629 207,629 402,368 384,589 384,589 579,328
20 20,000 694,385 73,398 73,398 268,136 226,517 226,517 421,255 595,047 595,047 789,786
25 20,000 1,002,269 (*) (*) (*) 168,760 168,760 363,499 843,370 843,370 1,038,109
30 20,000 1,395,216 (*) (*) (*) (*) (*) (*) 1,119,536 1,119,536 1,314,275
</TABLE>
(1) ASSUMES NO POLICY LOANS AND NO PARTIAL WITHDRAWALS HAVE BEEN MADE.
(2) GUARANTEED VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND AN
ADMINISTRATIVE EXPENSE CHARGE OF $7.50 PER MONTH.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS INVESTMENT
RETURN LESS ALL CHARGES AND DEDUCTIONS SHOWN IN THE PROSPECTUS APPENDIX.
(*) UNLESS ADDITIONAL PREMIUM IS PAID, THE POLICY WILL NOT STAY IN FORCE.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND RATES OF
INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD
OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
61
<PAGE> 66
<PAGE> 1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide VLI Separate Account-2:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account-2 as of December 31,
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 include
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-2 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
<PAGE> 2
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
American Century VP - American Century VP Balanced (ACVPBal)
667,058 shares (cost $5,343,930) ...................................... $ 5,563,263
American Century VP - American Century VP Capital Appreciation (ACVPCapAp)
1,285,611 shares (cost $13,112,689) ................................... 11,596,209
American Century VP - American Century VP Income & Growth (ACVPIncGr)
227,927 shares (cost $1,413,839) ...................................... 1,545,347
American Century VP - American Century VP International (ACVPInt)
1,806,789 shares (cost $13,291,133) ................................... 13,767,730
American Century VP - American Century VP Value (ACVPValue)
403,199 shares (cost $2,677,987) ...................................... 2,713,527
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
388,872 shares (cost $11,240,402) ..................................... 12,086,156
Dreyfus Stock Index Fund (DryStkIx)
2,430,963 shares (cost $68,540,273) ................................... 79,054,923
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
129,312 shares (cost $4,499,999) ...................................... 4,669,456
Dreyfus VIF - Growth and Income Portfolio (DryGrInc)
97,841 shares (cost $2,176,879) ....................................... 2,214,133
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
3,288,235 shares (cost $68,688,982) ................................... 83,586,925
Fidelity VIP - Growth Portfolio (FidVIPGr)
2,610,901 shares (cost $98,245,877) ................................... 117,151,133
Fidelity VIP - High Income Portfolio (FidVIPHI)
2,372,894 shares (cost $29,208,547) ................................... 27,359,471
Fidelity VIP - Overseas Portfolio (FidVIPOv)
1,108,508 shares (cost $21,869,861) ................................... 22,225,589
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
1,776,182 shares (cost $27,388,181) ................................... 32,255,471
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
2,039,961 shares (cost $38,346,102) ................................... 49,856,648
Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp)
257,373 shares (cost $5,282,575) ...................................... 5,888,693
Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt)
55,772 shares (cost $371,601) ......................................... 340,210
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
1,553,137 shares (cost $38,080,554) ................................... 41,297,903
Nationwide SAT - Government Bond Fund (NSATGvtBd)
1,202,610 shares (cost $14,267,240) ................................... 14,058,510
Nationwide SAT - Money Market Fund (NSATMyMkt)
44,571,880 shares (cost $44,571,880) .................................. 44,571,880
Nationwide SAT - Small Cap Value Fund (NSATSmCapV)
88,617 shares (cost $809,334) ......................................... 840,976
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Nationwide SAT - Small Company Fund (NSATSmCo)
1,093,214 shares (cost $17,223,078) ............................ 17,502,348
Nationwide SAT - Total Return Fund (NSATTotRe)
5,388,073 shares (cost $83,326,583) ............................ 99,140,546
Neuberger &Berman AMT - Growth Portfolio (NBAMTGro)
932,473 shares (cost $22,947,521) .............................. 24,514,709
Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard)
62,015 shares (cost $804,621) .................................. 858,282
Neuberger &Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat)
363,249 shares (cost $5,022,473) ............................... 5,020,101
Neuberger &Berman AMT - Partners Portfolio (NBAMTPart)
1,847,861 shares (cost $36,287,150) ............................ 34,980,006
Oppenheimer VAF - Bond Fund (OppBdFd)
1,003,501 shares (cost $12,261,046) ............................ 12,363,132
Oppenheimer VAF - Global Securities Fund (OppGlSec)
957,560 shares (cost $18,773,976) .............................. 21,133,338
Oppenheimer VAF - Growth Fund (OppGro)
164,365 shares (cost $5,914,563) ............................... 6,027,268
Oppenheimer VAF - Multiple Strategies Fund (OppMult)
833,758 shares (cost $13,141,814) .............................. 14,215,574
Strong Opportunity Fund II, Inc. (StOpp2)
1,429,116 shares (cost $27,438,063) ............................ 31,040,403
Strong VIF - Strong Discovery Fund II (StDisc2)
656,556 shares (cost $8,140,634) ............................... 8,351,399
Strong VIF - Strong International Stock Fund II (StIntStk2)
226,407 shares (cost $2,171,645) ............................... 1,987,856
Van Eck WIT - Worldwide Bond Fund (VEWrldBd)
288,886 shares (cost $3,540,727) ............................... 3,547,526
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
260,082 shares (cost $1,743,623) ............................... 1,851,783
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
448,922 shares (cost $4,172,279) ............................... 4,130,087
Van Kampen American Capital LIT -
Morgan Stanley Real Estate Securities Portfolio (VKMSRESec)
475,308 shares (cost $7,366,326) ............................... 6,540,232
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
845,293 shares (cost $9,714,262) ............................... 9,289,767
Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap)
93,442 shares (cost $1,035,844) ................................ 1,100,743
Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr)
948,154 shares (cost $15,361,244) .............................. 15,179,948
------------
Total investments ........................................... 891,419,201
Accounts receivable .................................................. 2,737,278
------------
Total assets ................................................ 894,156,479
ACCOUNTS PAYABLE ........................................................ -
------------
CONTRACT OWNERS' EQUITY (NOTE 7) ........................................ $894,156,479
============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total ACVPBal
-------------------------------------- ---------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........... $ 11,649,564 9,547,366 6,387,808 73,602 32,123
Mortality and expense charges
(note 3) ..................... (6,238,523) (4,642,993) (2,983,466) (38,972) (27,654)
------------- ------------ ------------ ---------- ---------
Net investment activity ........ 5,411,041 4,904,373 3,404,342 34,630 4,469
------------- ------------ ------------ ---------- ---------
Proceeds from mutual fund
shares sold .................. 760,513,313 443,749,426 275,979,207 1,247,480 2,604,070
Cost of mutual funds sold ...... (729,684,314) (409,583,997) (266,008,543) (1,152,261) (2,212,633)
------------- ------------ ------------ ---------- ---------
Realized gain (loss) on
investments ................ 30,828,999 34,165,429 9,970,664 95,219 391,437
Change in unrealized gain (loss)
on investments ............... 26,818,372 31,280,650 12,175,328 37,264 (79,247)
------------- ------------ ------------ ---------- ---------
Net gain (loss) on investments . 57,647,371 65,446,079 22,145,992 132,483 312,190
------------- ------------ ------------ ---------- ---------
Reinvested capital gains ....... 43,742,310 19,594,720 10,584,883 456,397 126,772
------------- ------------ ------------ ---------- ---------
Net change in contract
owners' equity resulting
from operations .......... 106,800,722 89,945,172 36,135,217 623,510 443,431
------------- ------------ ------------ ---------- ---------
Equity transactions:
Purchase payments received
from contract owners ......... 213,764,519 218,381,791 174,104,282 617,960 560,697
Transfers between funds ........ -- -- -- 1,045,491 402,250
Surrenders ..................... (20,881,099) (11,960,967) (6,124,049) (139,847) (201,818)
Death benefits (note 4) ........ (1,636,729) (664,672) (730,700) (12,665) (18,479)
Policy loans (net of repayments)
(note 5) ..................... (15,272,227) (9,898,715) (6,468,023) (97,880) (62,819)
Deductions for surrender charges
(note 2d) .................... (2,374,941) (1,603,674) (721,263) (16,788) (27,058)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (44,274,845) (34,553,252) (24,075,896) (164,907) (31,708)
Deductions for asset charges
(note 3) .................... (556,243) (227,535) (20,037) (3,475) (1,282)
------------- ------------ ------------ ---------- ---------
Net equity transactions .... 128,768,435 159,472,976 135,964,314 1,227,889 619,783
------------- ------------ ------------ ---------- ---------
Net change in contract
owners' equity ............... 235,569,157 249,418,148 172,099,531 1,851,399 1,063,214
Contract owners' equity
beginning of period .......... 658,587,322 409,169,174 237,069,643 3,711,460 2,648,246
------------- ------------ ------------ ---------- ---------
Contract owners' equity
end of period ................ $ 894,156,479 658,587,322 409,169,174 5,562,859 3,711,460
============= =========== =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
ACVPBal ACVPCapAp
----------- -----------------------------------------
1996 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........... 37,120 -- -- --
Mortality and expense charges
(note 3) ..................... (19,284) (82,384) (104,781) (103,669)
----------- ----------- ----------- -----------
Net investment activity ........ 17,836 (82,384) (104,781) (103,669)
Proceeds from mutual fund
shares sold .................. 308,084 5,476,348 32,724,781 29,396,492
Cost of mutual funds sold ...... (253,217) (6,203,432) (32,719,977) (28,812,207)
Realized gain (loss) on
investments ................ 54,867 (727,084) 4,804 584,285
Change in unrealized gain (loss)
on investments ............... 104,799 (95,403) (649,578) (2,360,038)
----------- ----------- ----------- -----------
Net gain (loss) on investments . 159,666 (822,487) (644,774) (1,775,753)
----------- ----------- ----------- -----------
Reinvested capital gains ....... 48,770 626,545 235,181 1,326,118
----------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations .......... 226,272 (278,326) (514,374) (553,304)
----------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ......... 293,943 2,567,119 2,396,050 1,943,037
Transfers between funds ........ 705,211 (1,460,314) (731,351) 854,921
Surrenders ..................... (50,854) (537,440) (294,647) (333,226)
Death benefits (note 4) ........ (142) (1,791) (279) (6,887)
Policy loans (net of repayments)
(note 5) ..................... (33,101) (208,014) (317,723) (76,974)
Deductions for surrender charges
(note 2d) .................... (5,989) (63,643) (39,505) (39,246)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (15,745) (533,669) (354,495) (285,952)
Deductions for asset charges
(note 3) .................... (130) (7,346) (4,187) (587)
----------- ----------- ----------- -----------
Net equity transactions .... 893,193 (245,098) 653,863 2,055,086
----------- ----------- ----------- -----------
Net change in contract
owners' equity ............... 1,119,465 (523,424) 139,489 1,501,782
Contract owners' equity
beginning of period .......... 1,528,781 12,118,077 11,978,588 10,476,806
----------- ----------- ----------- -----------
Contract owners' equity
end of period ................ 2,648,246 11,594,653 12,118,077 11,978,588
=========== =========== =========== ===========
</TABLE>
<PAGE> 5
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ACVPIncGr ACVPInt
------------------------------------------ --------------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........... $ 7,293 -- -- 48,574 39,611
Mortality and expense charges
(note 3) ..................... (7,590) -- -- (100,304) (43,589)
---------- ------------ ------------ ----------- -----------
Net investment activity ........ (297) -- -- (51,730) (3,978)
---------- ------------ ------------ ----------- -----------
Proceeds from mutual fund
shares sold .................. 579,403 -- -- 26,953,998 12,528,472
Cost of mutual funds sold ...... (585,659) -- -- (26,717,868) (11,671,277)
---------- ------------ ------------ ----------- -----------
Realized gain (loss) on
investments ................ (6,256) -- -- 236,130 857,195
Change in unrealized gain (loss)
on investments ............... 131,508 -- -- 538,699 (221,309)
---------- ------------ ------------ ----------- -----------
Net gain (loss) on investments . 125,252 -- -- 774,829 635,886
---------- ------------ ------------ ----------- -----------
Reinvested capital gains ....... -- -- -- 498,647 76,392
---------- ------------ ------------ ----------- -----------
Net change in contract
owners' equity resulting
from operations .......... 124,955 -- -- 1,221,746 708,300
---------- ------------ ------------ ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ......... 115,227 -- -- 1,075,296 827,281
Transfers between funds ........ 1,333,797 -- -- 5,394,451 1,897,413
Surrenders ..................... (9,343) -- -- (91,333) (37,650)
Death benefits (note 4) ........ (1) -- -- (11,988) --
Policy loans (net of repayments)
(note 5) ..................... (3,122) -- -- (25,253) (123,364)
Deductions for surrender charges
(note 2d) .................... (970) -- -- (7,357) (5,048)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (14,226) -- -- (371,602) (116,507)
Deductions for asset charges
(note 3) .................... (677) -- -- (8,943) (2,276)
---------- ------------ ------------ ----------- -----------
Net equity transactions .... 1,420,685 -- -- 5,953,271 2,439,849
---------- ------------ ------------ ----------- -----------
Net change in contract
owners' equity ............... 1,545,640 -- -- 7,175,017 3,148,149
Contract owners' equity
beginning of period .......... -- -- -- 6,586,196 3,438,047
---------- ------------ ------------ ----------- -----------
Contract owners' equity
end of period ................ $1,545,640 -- -- 13,761,213 6,586,196
========== ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACVPInt ACVPValue
----------- --------------------------------------
1996 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............... 27,668 14,238 1,245 --
Mortality and expense charges
(note 3) ......................... (20,991) (19,998) (7,498) (42)
---------- ---------- ---------- ----------
Net investment activity ............ 6,677 (5,760) (6,253) (42)
---------- ---------- ---------- ---------
Proceeds from mutual fund
shares sold ...................... 2,744,824 3,978,821 2,118,031 --
Cost of mutual funds sold .......... (2,625,412) (4,072,379) (1,966,550) --
---------- ---------- ---------- ---------
Realized gain (loss) on
investments .................... 119,412 (93,558) 151,481 --
Change in unrealized gain (loss)
on investments ................... 131,744 7,367 28,166 (54)
---------- ---------- ---------- ----------
Net gain (loss) on investments ..... 251,156 (86,191) 179,647 (54)
---------- ---------- ---------- ----------
Reinvested capital gains ........... 9,222 169,984 2,540 --
---------- ---------- ---------- ----------
Net change in contract
owners' equity resulting
from operations .............. 267,055 78,033 175,934 (96)
---------- ---------- ---------- ----------
Equity transactions:
Purchase payments received
from contract owners ............. 440,016 402,104 111,600 64
Transfers between funds ............ 1,731,900 705,143 1,429,037 9,189
Surrenders ......................... (30,514) (64,948) (4,196) (19)
Death benefits (note 4) ............ -- (2) -- --
Policy loans (net of repayments)
(note 5) ......................... (14,420) (39,222) (2,706) --
Deductions for surrender charges
(note 2d) ........................ (3,594) (5,005) (563) (2)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ................ (60,957) (76,187) (2,525) (7)
Deductions for asset charges
(note 3) ........................ (168) (1,783) (593) --
---------- ---------- ---------- ----------
Net equity transactions ........ 2,062,263 920,100 1,530,054 9,225
---------- ---------- ---------- ----------
Net change in contract
owners' equity ................... 2,329,318 998,133 1,705,988 9,129
Contract owners' equity
beginning of period .............. 1,108,729 1,715,117 9,129 --
---------- ---------- ---------- ----------
Contract owners' equity
end of period .................... 3,438,047 2,713,250 1,715,117 9,129
========== ========== ========== ==========
</TABLE>
<PAGE> 6
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
DrySRGro DryStkix
----------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........... $ 18,491 24,764 6,374 840,788 488,743 212,732
Mortality and expense charges
(note 3) ..................... (76,955) (44,201) (18,622) (508,329) (258,618) (93,077)
------------ ----------- ----------- ----------- ----------- -----------
Net investment activity ........ (58,464) (19,437) (12,248) 332,459 230,125 119,655
------------ ----------- ----------- ----------- ----------- -----------
Proceeds from mutual fund
shares sold .................. 30,530,607 6,036,906 3,195,875 34,044,658 12,995,115 4,656,338
Cost of mutual funds sold ...... (29,068,944) (5,411,329) (2,863,782) (26,882,152) (10,012,154) (3,763,242)
------------ ----------- ----------- ----------- ----------- -----------
Realized gain (loss) on
investments ................ 1,461,663 625,577 332,093 7,162,506 2,982,961 893,096
Change in unrealized gain (loss)
on investments ............... 619,023 301,151 (119,764) 6,892,116 2,734,985 553,288
------------ ----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments . 2,080,686 926,728 212,329 14,054,622 5,717,946 1,446,384
------------ ----------- ----------- ----------- ----------- -----------
Reinvested capital gains ....... 429,304 192,785 114,244 156,109 1,196,951 240,306
------------ ----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations .......... 2,451,526 1,100,076 314,325 14,543,190 7,145,022 1,806,345
------------ ----------- ----------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ......... 2,646,682 1,226,366 387,401 8,792,308 6,007,824 2,423,394
Transfers between funds ........ 1,547,337 2,303,963 1,261,823 15,454,943 16,661,441 7,060,289
Surrenders ..................... (808,738) (145,994) (23,790) (489,388) (380,643) (115,515)
Death benefits (note 4) ........ (3,645) (6,412) (126) (395,851) (33,328) (2,844)
Policy loans (net of repayments)
(note 5) ..................... (431,011) (107,480) (35,903) (500,204) (210,457) (108,558)
Deductions for surrender charges
(note 2d) .................... (101,807) (19,574) (2,802) (44,357) (51,035) (13,605)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (448,348) (82,935) (34,935) (2,263,707) (618,664) (240,014)
Deductions for asset charges
(note 3) .................... (6,861) (2,493) (144) (45,324) (15,198) (758)
------------ ----------- ----------- ----------- ----------- -----------
Net equity transactions .... 2,393,609 3,165,441 1,551,524 20,508,420 21,359,940 9,002,389
------------ ----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity ............... 4,845,135 4,265,517 1,865,849 35,051,610 28,504,962 10,808,734
Contract owners' equity
beginning of period .......... 7,215,240 2,949,723 1,083,874 43,989,896 15,484,934 4,676,200
------------ ----------- ----------- ----------- ----------- -----------
Contract owners' equity
end of period ................ $ 12,060,375 7,215,240 2,949,723 79,041,506 43,989,896 15,484,934
============ ========= ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DryCapAp
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ........... 24,846 4,780 --
Mortality and expense charges
(note 3) ..................... (27,124) (1,877) --
----------- ----------- -----
Net investment activity ........ (2,278) 2,903 --
----------- ----------- -----
Proceeds from mutual fund
shares sold .................. 20,319,146 3,153,711 --
Cost of mutual funds sold ...... (19,666,415) (3,172,025) --
----------- ----------- -----
Realized gain (loss) on
investments ................ 652,731 (18,314) --
Change in unrealized gain (loss)
on investments ............... 173,020 (3,579) --
----------- ----------- -----
Net gain (loss) on investments . 825,751 (21,893) --
----------- ----------- -----
Reinvested capital gains ....... 1,151 400 --
----------- ----------- -----
Net change in contract
owners' equity resulting
from operations .......... 824,624 (18,590) --
----------- ----------- -----
Equity transactions:
Purchase payments received
from contract owners ......... 502,552 26,933 --
Transfers between funds ........ 3,058,005 425,397 --
Surrenders ..................... (44,456) (1,058) --
Death benefits (note 4) ........ (4) -- --
Policy loans (net of repayments)
(note 5) ..................... (18,317) (33) --
Deductions for surrender charges
(note 2d) .................... (5,020) (142) --
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (77,478) (762) --
Deductions for asset charges
(note 3) .................... (2,418) (149) --
----------- ----------- -----
Net equity transactions .... 3,412,864 450,186 --
----------- ----------- -----
Net change in contract
owners' equity ............... 4,237,488 431,596 --
Contract owners' equity
beginning of period .......... 431,596 -- --
----------- ----------- -----
Contract owners' equity
end of period ................ 4,669,084 431,596 --
========= ======= =====
</TABLE>
<PAGE> 7
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
DryGrinc FidVIPEI
------------------------------------------- -------------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........... $ 17,968 8,082 -- 997,915 783,723 46,329
Mortality and expense charges
(note 3) ..................... (15,042) (5,230) -- (614,949) (498,094) (338,519)
----------- ------------ ------------ ------------ ------------ ------------
Net investment activity ........ 2,926 2,852 -- 382,966 285,629 (292,190)
----------- ------------ ------------ ------------ ------------ ------------
Proceeds from mutual fund
shares sold .................. 2,469,056 2,254,831 -- 6,996,930 6,293,311 6,728,246
Cost of mutual funds sold ...... (2,437,658) (2,197,145) -- (4,750,633) (4,356,281) (5,352,183)
----------- ------------ ------------ ------------ ------------ ------------
Realized gain (loss) on
investments ................ 31,398 57,686 -- 2,246,297 1,937,030 1,376,063
Change in unrealized gain (loss)
on investments ............... 115,375 (78,166) -- 1,497,328 7,168,421 2,155,544
----------- ------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments . 146,773 (20,480) -- 3,743,625 9,105,451 3,531,607
----------- ------------ ------------ ------------ ------------ ------------
Reinvested capital gains ....... 29,897 70,270 -- 3,551,403 3,940,387 1,328,108
----------- ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations .......... 179,596 52,642 -- 7,677,994 13,331,467 4,567,525
----------- ------------ ------------ ------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners ......... 1,960,370 186,196 -- 10,207,531 11,073,470 8,100,500
Transfers between funds ........ 533,213 972,727 -- 2,383,113 7,046,924 8,008,996
Surrenders ..................... (701,730) (2,948) -- (904,020) (1,110,322) (532,338)
Death benefits (note 4) ........ (2) -- -- (80,375) (73,247) (146,188)
Policy loans (net of repayments)
(note 5) ..................... (801,908) (3,749) -- (597,978) (781,383) (504,548)
Deductions for surrender charges
(note 2d) .................... (90,325) (395) -- (83,892) (148,867) (62,696)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (66,760) (1,204) -- (4,711,838) (4,404,162) (3,117,070)
Deductions for asset charges
(note 3) .................... (1,341) (416) -- (54,830) (24,090) (2,195)
----------- ------------ ------------ ------------ ------------ ------------
Net equity transactions .... 831,517 1,150,211 -- 6,157,711 11,578,323 11,744,461
----------- ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity ............... 1,011,113 1,202,853 -- 13,835,705 24,909,790 16,311,986
Contract owners' equity
beginning of period .......... 1,202,853 -- -- 69,728,573 44,818,783 28,506,797
----------- ------------ ------------ ------------ ------------ ------------
Contract owners' equity
end of period ................ $ 2,213,966 1,202,853 -- 83,564,278 69,728,573 44,818,783
=========== ============ ============ =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
FidVIPGr
---------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ........... 398,089 370,457 95,668
Mortality and expense charges
(note 3) ..................... (759,610) (560,322) (401,774)
------------ ------------ ------------
Net investment activity ........ (361,521) (189,865) (306,106)
------------ ------------ ------------
Proceeds from mutual fund
shares sold .................. 85,473,779 46,683,280 40,156,823
Cost of mutual funds sold ...... (75,903,979) (40,913,295) (40,192,712)
------------ ------------ ------------
Realized gain (loss) on
investments ................ 9,569,800 5,769,985 (35,889)
Change in unrealized gain (loss)
on investments ............... 10,952,975 5,352,235 2,985,844
------------ ------------ ------------
Net gain (loss) on investments . 20,522,775 11,122,220 2,949,955
------------ ------------ ------------
Reinvested capital gains ....... 10,413,177 1,658,235 2,415,616
------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations .......... 30,574,431 12,590,590 5,059,465
------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners ......... 11,800,595 12,214,633 9,003,984
Transfers between funds ........ 6,611,922 1,631,518 10,555,655
Surrenders ..................... (1,541,170) (1,311,193) (794,363)
Death benefits (note 4) ........ (54,733) (86,298) (141,589)
Policy loans (net of repayments)
(note 5) ..................... (593,726) (970,109) (722,540)
Deductions for surrender charges
(note 2d) .................... (161,482) (175,799) (93,557)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (4,387,847) (2,800,521) (2,100,258)
Deductions for asset charges
(note 3) .................... (67,729) (25,899) (2,639)
------------ ------------ ------------
Net equity transactions .... 11,605,830 8,476,332 15,704,693
------------ ------------ ------------
Net change in contract
owners' equity ............... 42,180,261 21,066,922 20,764,158
Contract owners' equity
beginning of period .......... 74,962,498 53,895,576 33,131,418
------------ ------------ ------------
Contract owners' equity
end of period ................ 117,142,759 74,962,498 53,895,576
=========== ========== ============
</TABLE>
(Continued)
<PAGE> 8
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
FidVIPHI FidVIPOv
--------------------------- ----------------------------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ......................... $ 1,930,736 1,246,428 778,006 372,727 285,975
Mortality and expense charges
(note 3) ................................... (211,621) (183,573) (124,686) (167,806) (153,477)
------------ ----------- ----------- ----------- -----------
Net investment activity ...................... 1,719,115 1,062,855 653,320 204,921 132,498
------------ ----------- ----------- ----------- -----------
Proceeds from mutual fund
shares sold ................................ 16,168,581 10,300,446 8,573,109 23,614,905 13,404,627
Cost of mutual funds sold .................... $(16,734,695) (9,520,272) (8,171,739) (22,518,443) (11,354,404)
------------ ----------- ----------- ----------- -----------
Realized gain (loss) on
investments .............................. (566,114) 780,174 401,370 1,096,462 2,050,223
Change in unrealized gain (loss)
on investments ............................. (3,958,695) 1,203,652 323,859 2,343 (1,243,832)
------------ ----------- ----------- ----------- -----------
Net gain (loss) on investments ............... (4,524,809) 1,983,826 725,229 1,098,805 806,391
------------ ----------- ----------- ----------- -----------
Reinvested capital gains ..................... 1,226,822 154,053 152,219 1,098,564 1,135,234
------------ ----------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ........................ (1,578,872) 3,200,734 1,530,768 2,402,290 2,074,123
------------ ----------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ....................... 5,333,328 6,155,268 3,975,355 3,170,855 3,466,918
Transfers between funds ...................... 1,830,834 2,316,320 3,971,432 (323,986) (393,971)
Surrenders ................................... (481,342) (255,542) (197,286) (367,369) (496,949)
Death benefits (note 4) ...................... (9,509) (22,399) (47,017) (33,198) (56,932)
Policy loans (net of repayments)
(note 5) ................................... (379,699) (282,232) (141,523) (393,533) (309,770)
Deductions for surrender charges
(note 2d) .................................. (54,547) (34,262) (23,236) (41,687) (66,629)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .......................... (2,449,174) (2,961,119) (1,967,104) (1,268,155) (1,319,172)
Deductions for asset charges
(note 3) .................................. (18,869) (8,693) (835) (14,962) (6,596)
------------ ----------- ----------- ----------- -----------
Net equity transactions .................. 3,771,022 4,907,341 5,569,786 727,965 816,899
------------ ----------- ----------- ----------- -----------
Net change in contract
owners' equity ............................. 2,192,150 8,108,075 7,100,554 3,130,255 2,891,022
Contract owners' equity
beginning of period ........................ 25,162,314 17,054,239 9,953,685 19,093,154 16,202,132
------------ ----------- ----------- ----------- -----------
Contract owners' equity
end of period .............................. $ 27,354,464 25,162,314 17,054,239 22,223,409 19,093,154
============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FidVIPOv FidVIPAM
----------- -----------------------------------------
1996 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ........... 145,650 894,977 787,310 678,218
Mortality and expense charges
(note 3) ..................... (127,996) (239,207) (219,940) (188,497)
----------- ----------- ----------- -----------
Net investment activity ........ 17,654 655,770 567,370 489,721
----------- ----------- ----------- -----------
Proceeds from mutual fund
shares sold .................. 5,292,727 3,554,904 2,514,749 2,233,648
Cost of mutual funds sold ...... (4,778,968) (2,948,897) (2,201,452) (2,187,742)
----------- ----------- ----------- -----------
Realized gain (loss) on
investments ................ 513,759 606,007 313,297 45,906
Change in unrealized gain (loss)
on investments ............... 921,192 28,492 1,651,903 1,506,448
----------- ----------- ----------- -----------
Net gain (loss) on investments . 1,434,951 634,499 1,965,200 1,552,354
----------- ----------- ----------- -----------
Reinvested capital gains ....... 160,215 2,684,931 1,974,948 559,232
----------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations .......... 1,612,820 3,975,200 4,507,518 2,601,307
----------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ......... 3,165,767 2,483,246 2,672,468 2,754,552
Transfers between funds ........ 1,580,583 115,769 284,292 (571,349)
Surrenders ..................... (251,317) (1,327,378) (659,510) (268,409)
Death benefits (note 4) ........ (4,564) (17,947) (43,658) (13,007)
Policy loans (net of repayments)
(note 5) ..................... (278,183) (195,419) (323,969) (349,545)
Deductions for surrender charges
(note 2d) .................... (29,599) (149,118) (88,424) (31,612)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ............ (1,115,155) (874,287) (389,701) (319,982)
Deductions for asset charges
(note 3) .................... (793) (21,328) (9,765) (1,093)
----------- ----------- ----------- -----------
Net equity transactions .... 3,066,739 13,538 1,441,733 1,199,555
----------- ----------- ----------- -----------
Net change in contract
owners' equity ............... 4,679,559 3,988,738 5,949,251 3,800,862
Contract owners' equity
beginning of period .......... 11,522,573 28,264,549 22,315,298 18,514,436
----------- ----------- ----------- -----------
Contract owners' equity
end of period ................ 16,202,132 32,253,287 28,264,549 22,315,298
=========== =========== =========== ===========
</TABLE>
<PAGE> 9
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
FidVIPCon FidVIPGrOp
------------------------------------------------ ---------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ 208,958 131,312 -- 20,203 -- --
Mortality and expense charges
(note 3) ....................... (316,241) (184,659) (75,488) (35,749) (4,822) --
------------ ------------ ------------ ------------ ------------ -------
Net investment activity ........ (107,283) (53,347) (75,488) (15,546) (4,822) --
------------ ------------ ------------ ------------ ------------ -------
Proceeds from mutual fund
shares sold .................... 5,270,262 2,972,056 1,863,525 6,596,939 1,418,908 --
Cost of mutual funds sold ........ (3,518,595) (2,266,444) (1,717,849) (6,370,749) (1,383,237) --
------------ ------------ ------------ ------------ ------------ -------
Realized gain (loss) on
investments .................. 1,751,667 705,612 145,676 226,190 35,671 --
Change in unrealized gain (loss)
on investments ................. 6,821,820 3,432,249 1,232,338 577,416 28,661 --
------------ ------------ ------------ ------------ ------------ -------
Net gain (loss) on investments . 8,573,487 4,137,861 1,378,014 803,606 64,332 --
------------ ------------ ------------ ------------ ------------ -------
Reinvested capital gains ......... 1,537,336 347,039 28,665 70,230 -- --
------------ ------------ ------------ ------------ ------------ -------
Net change in contract
owners' equity resulting
from operations ............ 10,003,540 4,431,553 1,331,191 858,290 59,510 --
------------ ------------ ------------ ------------ ------------ -------
Equity transactions:
Purchase payments received
from contract owners ........... 7,814,633 4,330,090 2,045,437 3,299,608 43,645 --
Transfers between funds .......... 7,442,220 7,341,211 7,865,892 3,732,648 1,013,974 --
Surrenders ....................... (1,418,496) (274,806) (71,750) (1,598,688) (2,852) --
Death benefits (note 4) .......... (122,001) (39,015) (2,305) (9,225) -- --
Policy loans (net of repayments)
(note 5) ......................... (1,095,851) (292,640) (45,090) (1,157,827) (2,231) --
Deductions for surrender charges
(note 2d) ...................... (175,050) (36,845) (8,450) (205,666) (382) --
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (1,378,370) (300,404) (148,335) (136,692) (2,262) --
Deductions for asset charges
(note 3) ......................... (28,197) (9,953) (669) (3,187) (383) --
------------ ------------ ------------ ------------ ------------ -------
Net equity transactions ...... 11,038,888 10,717,638 9,634,730 3,920,971 1,049,509 --
------------ ------------ ------------ ------------ ------------ -------
Net change in contract
owners' equity ................. 21,042,428 15,149,191 10,965,921 4,779,261 1,109,019 --
Contract owners' equity
beginning of period ............ 28,807,807 13,658,616 2,692,695 1,109,019 -- --
------------ ------------ ------------ ------------ ------------ -------
Contract owners' equity
end of period .................. $ 49,850,235 28,807,807 13,658,616 5,888,280 1,109,019 --
============ ============ ============ ============ ============ =======
</TABLE>
<TABLE>
<CAPTION>
MSEmMkt
-----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. 37,885 11,378 --
Mortality and expense charges
(note 3) ....................... (2,400) (1,095) --
------------ ------------ ------------
Net investment activity ........ 35,485 10,283 --
------------ ------------ ------------
Proceeds from mutual fund
shares sold .................... 2,208,004 1,348,011 --
Cost of mutual funds sold ........ (2,302,818) (1,367,276) --
------------ ------------ ------------
Realized gain (loss) on
investments .................. (94,814) (19,265) --
Change in unrealized gain (loss)
on investments ................. (33,784) 2,383 --
------------ ------------ ------------
Net gain (loss) on investments . (128,598) (16,882) --
------------ ------------ ------------
Reinvested capital gains ......... -- 4,938 --
------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations ............ (93,113) (1,661) --
------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners ........... 398,199 10,188 --
Transfers between funds .......... 133,381 247,359 --
Surrenders ....................... (214,691) (617) --
Death benefits (note 4) .......... (9) -- --
Policy loans (net of repayments)
(note 5) ......................... (92,787) (2,742) --
Deductions for surrender charges
(note 2d) ...................... (27,689) (83) --
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (14,797) (471) --
Deductions for asset charges
(note 3) ......................... (214) (87) --
------------ ------------ ------------
Net equity transactions ...... 181,393 253,547 --
------------ ------------ ------------
Net change in contract
owners' equity ................. 88,280 251,886 --
Contract owners' equity
beginning of period ............ 251,886 -- --
------------ ------------ ------------
Contract owners' equity
end of period .................. 340,166 251,886 --
============ ============ ============
</TABLE>
(continued)
<PAGE> 10
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NSATCapAp NSATGvtBd
------------------------------------------ --------------------------------------------
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ................ $ 246,198 157,773 73,189 635,908 492,781 350,275
Mortality and expense charges
(note 3) .......................... (258,178) (130,365) (51,198) (111,282) (68,282) (55,348)
------------ ------------ ------------ ------------ ------------ ------------
Net investment activity ........... (11,980) 27,408 21,991 524,626 424,499 294,927
------------ ------------ ------------ ------------ ------------ ------------
Proceeds from mutual fund
shares sold ....................... 41,145,976 22,800,149 4,082,806 43,945,372 10,818,170 1,915,031
Cost of mutual funds sold ........... (37,562,739) (19,539,881) (3,277,635) (43,540,184) (10,417,945) (1,819,552)
------------ ------------ ------------ ------------ ------------ ------------
Realized gain (loss) on
investments ..................... 3,583,237 3,260,268 805,171 405,188 400,225 95,479
Change in unrealized gain (loss)
on investments .................... 2,897,785 41,944 (2,277) (159,490) (140,391) (232,150)
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments .... 6,481,022 3,302,212 802,894 245,698 259,834 (136,671)
------------ ------------ ------------ ------------ ------------ ------------
Reinvested capital gains ............ 1,139,693 463,551 234,567 67,018 -- --
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations ............... 7,608,735 3,793,171 1,059,452 837,342 684,333 158,256
------------ ------------ ------------ ------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners .............. 4,921,929 2,643,340 912,101 1,866,413 1,870,588 1,418,942
Transfers between funds ............. 9,212,515 8,096,052 3,597,889 3,757,206 1,527,412 960,557
Surrenders .......................... (339,981) (225,077) (86,470) (140,551) (132,876) (70,278)
Death benefits (note 4) ............. (12,217) (5,534) (4,969) (50,211) (6,196) (173)
Policy loans (net of repayments)
(note 5) ............................ (247,383) (353,707) (21,622) (220,482) (245,452) (210,723)
Deductions for surrender charges
(note 2d) ......................... (30,979) (30,177) (10,184) (15,200) (17,815) (8,277)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ................. (1,558,711) (385,883) (80,008) (989,812) (1,333,897) (876,800)
Deductions for asset charges (note 3) (23,020) (7,515) (403) (9,922) (3,117) (327)
------------ ------------ ------------ ------------ ------------ ------------
Net equity transactions ......... 11,922,153 9,731,499 4,306,334 4,197,441 1,658,647 1,212,921
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity .................... 19,530,888 13,524,670 5,365,786 5,034,783 2,342,980 1,371,177
Contract owners' equity
beginning of period ............... 21,752,456 8,227,786 2,862,000 9,022,990 6,680,010 5,308,833
------------ ------------ ------------ ------------ ------------ ------------
Contract owners' equity
end of period ..................... $ 41,283,344 21,752,456 8,227,786 14,057,773 9,022,990 6,680,010
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NSATMyMkt
--------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ................ 2,517,296 2,001,810 1,504,594
Mortality and expense charges
(note 3) .......................... (414,977) (359,665) (292,093)
------------ ------------ ------------
Net investment activity ........... 2,102,319 1,642,145 1,212,501
------------ ------------ ------------
Proceeds from mutual fund
shares sold ....................... 213,040,345 122,915,553 94,947,088
Cost of mutual funds sold ........... (213,040,345) (122,915,553) (94,947,088)
------------ ------------ ------------
Realized gain (loss) on
investments ..................... -- -- --
Change in unrealized gain (loss)
on investments .................... -- -- --
------------ ------------ ------------
Net gain (loss) on investments .... -- -- --
------------ ------------ ------------
Reinvested capital gains ............ -- -- --
------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations ............... 2,102,319 1,642,145 1,212,501
------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners .............. 87,844,599 117,478,803 109,975,355
Transfers between funds ............. (81,357,019) (103,571,498) (89,998,126)
Surrenders .......................... (1,151,432) (2,413,548) (1,011,391)
Death benefits (note 4) ............. (5,841) (37,820) (89,256)
Policy loans (net of repayments)
(note 5) ............................ (233,125) (1,758,491) (2,054,004)
Deductions for surrender charges
(note 2d) ......................... (117,086) (323,598) (119,117)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) ................. (3,968,229) (4,837,509) (4,633,914)
Deductions for asset charges (note 3) (37,000) (15,353) (1,874)
------------ ------------ ------------
Net equity transactions ......... 974,867 4,520,986 12,067,673
------------ ------------ ------------
Net change in contract
owners' equity .................... 3,077,186 6,163,131 13,280,174
Contract owners' equity
beginning of period ............... 44,437,799 38,274,668 24,994,494
------------ ------------ ------------
Contract owners' equity
end of period ..................... 47,514,985 44,437,799 38,274,668
============ ============ ============
</TABLE>
<PAGE> 11
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NSATSmCapV NSATSmCo
---------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ -- -- -- -- -- 13,336
Mortality and expense charges
(note 3) ....................... (3,508) -- -- (115,584) (251,559) (205,531)
----------- ---------- -------- ----------- ----------- -----------
Net investment activity ........ (3,508) -- -- (115,584) (251,559) (192,195)
----------- ---------- -------- ----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 1,549,129 -- -- 12,262,712 16,417,304 5,132,176
Cost of mutual funds sold ........ (1,489,413) -- -- (13,098,101) (14,437,205) (4,970,227)
----------- ---------- -------- ----------- ----------- -----------
Realized gain (loss) on
investments .................. 59,716 -- -- (835,389) 1,980,099 161,949
Change in unrealized gain (loss)
on investments ................. 31,642 -- -- 1,062,670 (943,075) 154,021
----------- ---------- -------- ----------- ----------- -----------
Net gain (loss) on investments . 91,358 -- -- 227,281 1,037,024 315,970
----------- ---------- -------- ----------- ----------- -----------
Reinvested capital gains ......... -- -- -- -- 371,914 32,269
----------- ---------- -------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ 87,850 -- -- 111,697 1,157,379 156,044
----------- ---------- -------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 495,836 -- -- 2,534,601 2,031,832 885,089
Transfers between funds .......... 742,114 -- -- 2,008,259 5,027,832 4,719,727
Surrenders ....................... (342,834) -- -- (175,480) (161,763) (120,346)
Death benefits (note 4) .......... (1) -- -- (24,329) (40,234) --
Policy loans (net of repayments)
(note 5) ........................ (92,219) -- -- (112,094) (171,323) (16,070)
Deductions for surrender charges
(note 2d) ...................... (44,169) -- -- (19,078) (21,689) (14,174)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (5,642) -- -- (497,764) (47,754) (45,634)
Deductions for asset charges
(note 3) ...................... (313) -- -- (10,306) (4,726) (2,163)
----------- ---------- -------- ----------- ----------- -----------
Net equity transactions ...... 752,772 -- -- 3,703,809 6,612,175 5,406,429
----------- ---------- -------- ----------- ----------- -----------
Net change in contract
owners' equity ................. 840,622 -- -- 3,815,506 7,769,554 5,562,473
Contract owners' equity
beginning of period ............ -- -- -- 13,679,771 5,910,217 347,744
----------- ---------- -------- ----------- ----------- -----------
Contract owners' equity
end of period .................. $ 840,622 -- -- 17,495,277 13,679,771 5,910,217
=========== ========== ======== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
NSATTotRe
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. 923,892 906,286 619,079
Mortality and expense charges
(note 3) ....................... (673,496) (342,466) (121,638)
----------- ----------- -----------
Net investment activity ........ 250,396 563,820 497,441
----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 17,758,523 7,806,204 3,735,825
Cost of mutual funds sold ........ (10,907,631) (5,268,505) (2,818,736)
----------- ----------- -----------
Realized gain (loss) on
investments .................. 6,850,892 2,537,699 917,089
Change in unrealized gain (loss)
on investments ................. 2,647,189 8,597,412 2,952,680
----------- ----------- -----------
Net gain (loss) on investments . 9,498,081 11,135,111 3,869,769
----------- ----------- -----------
Reinvested capital gains ......... 3,859,922 2,381,668 1,608,453
----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ 13,608,399 14,080,599 5,975,663
----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 18,994,728 21,089,542 12,792,421
Transfers between funds .......... 6,079,393 12,507,830 10,467,352
Surrenders ....................... (1,330,528) (993,966) (370,512)
Death benefits (note 4) .......... (120,757) (73,080) (155,928)
Policy loans (net of repayments)
(note 5) ........................ (809,785) (1,397,247) (479,238)
Deductions for surrender charges
(note 2d) ...................... (122,860) (133,267) (43,637)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (11,763,303) (12,793,173) (8,037,584)
Deductions for asset charges
(note 3) ...................... (60,051) (25,787) (202)
----------- ----------- -----------
Net equity transactions ...... 10,866,837 18,180,852 14,172,672
----------- ----------- -----------
Net change in contract
owners' equity ................. 24,475,236 32,261,451 20,148,335
Contract owners' equity
beginning of period ............ 74,640,126 42,378,675 22,230,340
----------- ----------- -----------
Contract owners' equity
end of period .................. 99,115,362 74,640,126 42,378,675
=========== =========== ===========
</TABLE>
(Continued)
<PAGE> 12
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NBAMTGro NBAMTGuard
-------------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ -- -- 3,554 -- -- --
Mortality and expense charges
(note 3) ....................... (153,887) (131,622) (100,683) (4,780) -- --
------------ ------------ ------------ ------------ -------- --------
Net investment activity ........ (153,887) (131,622) (97,129) (4,780) -- --
------------ ------------ ------------ ------------ -------- --------
Proceeds from mutual fund
shares sold .................... 28,296,554 11,391,328 9,167,114 1,186,919 -- --
Cost of mutual funds sold ........ (30,054,251) (10,218,717) (8,250,417) (1,243,303) -- --
------------ ------------ ------------ ------------ -------- --------
Realized gain (loss) on
investments .................. (1,757,697) 1,172,611 916,697 (56,384) -- --
Change in unrealized gain (loss)
on investments ................. 273,491 1,144,227 (851,158) 53,662 -- --
------------ ------------ ------------ ------------ -------- --------
Net gain (loss) on investments . (1,484,206) 2,316,838 65,539 (2,722) -- --
------------ ------------ ------------ ------------ -------- --------
Reinvested capital gains ......... 4,778,935 1,172,597 831,750 -- -- --
------------ ------------ ------------ ------------ -------- --------
Net change in contract
owners' equity resulting
from operations ............ 3,140,842 3,357,813 800,160 (7,502) -- --
------------ ------------ ------------ ------------ -------- --------
Equity transactions:
Purchase payments received
from contract owners ........... 3,124,257 2,009,831 1,703,348 149,649 -- --
Transfers between funds .......... 3,739,437 498,211 1,821,036 831,617 -- --
Surrenders ....................... (1,015,843) (419,539) (351,632) (64,538) -- --
Death benefits (note 4)........... (13,565) (7,880) (88,967) (1) -- --
Policy loans (net of repayments)
(note 5) ......................... (1,132,396) (305,567) (67,474) (25,325) -- --
Deductions for surrender charges
(note 2d) ...................... (120,721) (56,250) (41,414) (8,207) -- --
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (741,732) (249,631) (134,631) (17,066) -- --
Deductions for asset charges
(note 3) ......................... (13,721) (6,062) (623) (426) -- --
------------ ------------ ------------ ------------ -------- --------
Net equity transactions ...... 3,825,716 1,463,113 2,839,643 865,703 -- --
------------ ------------ ------------ ------------ -------- --------
Net change in contract
owners' equity ................. 6,966,558 4,820,926 3,639,803 858,201 -- --
Contract owners' equity
beginning of period ............ 17,545,164 12,724,238 9,084,435 -- -- --
------------ ------------ ------------ ------------ -------- --------
Contract owners' equity
end of period .................. $ 24,511,722 17,545,164 12,724,238 858,201 -- --
============ ============ ============ ============ ======== ========
</TABLE>
<TABLE>
<CAPTION>
NBAMTLMat
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. 365,591 166,562 269,872
Mortality and expense charges
(note 3) ....................... (42,729) (37,669) (27,176)
------------ ------------ ------------
Net investment activity ........ 322,862 128,893 242,696
------------ ------------ ------------
Proceeds from mutual fund
shares sold .................... 3,525,682 1,060,839 1,636,406
Cost of mutual funds sold ........ (3,557,763) (1,087,427) (1,665,764)
------------ ------------ ------------
Realized gain (loss) on
investments .................. (32,081) (26,588) (29,358)
Change in unrealized gain (loss)
on investments ................. (88,989) 99,993 (133,639)
------------ ------------ ------------
Net gain (loss) on investments . (121,070) 73,405 (162,997)
------------ ------------ ------------
Reinvested capital gains ......... -- -- --
------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations ............ 201,792 202,298 79,699
------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners ........... 1,227,568 568,335 346,310
Transfers between funds .......... (1,104,263) 2,560,467 (538,197)
Surrenders ....................... (340,366) (49,744) (119,696)
Death benefits (note 4)........... (168,478) (6,820) --
Policy loans (net of repayments)
(note 5) ......................... (490,348) (50,416) (37,533)
Deductions for surrender charges
(note 2d) ...................... (43,208) (6,669) (14,097)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (151,014) (95,419) (59,859)
Deductions for asset charges
(note 3) ......................... (3,810) (2,035) (136)
------------ ------------ ------------
Net equity transactions ...... (1,073,919) 2,917,699 (423,208)
------------ ------------ ------------
Net change in contract
owners' equity ................. (872,127) 3,119,997 (343,509)
Contract owners' equity
beginning of period ............ 5,891,455 2,771,458 3,114,967
------------ ------------ ------------
Contract owners' equity
end of period .................. 5,019,328 5,891,455 2,771,458
============ ============ ============
</TABLE>
<PAGE> 13
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
NBAMTPart OppBdFd
------------------------------------------- --------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ 123,869 38,636 10,660 177,251 444,589 303,136
Mortality and expense charges
(note 3) ....................... (254,428) (171,233) (62,373) (91,564) (64,328) (46,310)
------------ ------------ ------------ ------------ ------------ ------------
Net investment activity ........ (130,559) (132,597) (51,713) 85,687 380,261 256,826
------------ ------------ ------------ ------------ ------------ ------------
Proceeds from mutual fund
shares sold .................... 16,262,946 14,044,895 3,866,535 25,959,216 6,493,858 965,110
Cost of mutual funds sold ........ (15,129,583) (11,426,520) (3,344,085) (25,616,936) (6,309,717) (925,841)
------------ ------------ ------------ ------------ ------------ ------------
Realized gain (loss) on
investments .................. 1,133,363 2,618,375 522,450 342,280 184,141 39,269
Change in unrealized gain (loss)
on investments ................. (3,917,798) 1,495,768 897,631 13,809 7,331 (111,019)
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments . (2,784,435) 4,114,143 1,420,081 356,089 191,472 (71,750)
------------ ------------ ------------ ------------ ------------ ------------
Reinvested capital gains ......... 3,901,869 594,994 133,254 160,413 20,983 2,481
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations ............ 986,875 4,576,540 1,501,622 602,189 592,716 187,557
------------ ------------ ------------ ------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners ........... 5,722,483 3,058,953 1,291,043 1,446,313 1,185,778 736,203
Transfers between funds .......... 2,646,725 11,362,270 5,427,919 2,081,829 1,429,093 1,298,812
Surrenders ....................... (676,703) (291,383) (115,788) (168,318) (151,014) (117,770)
Death benefits (note 4) .......... (11,051) -- (550) (24,489) (6,177) --
Policy loans (net of repayments)
(note 5) ......................... (1,178,884) (215,128) (140,654) (23,153) (97,629) (148,996)
Deductions for surrender charges
(note 2d) ...................... (78,170) (39,067) (13,637) (19,765) (20,247) (13,870)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (1,174,585) (364,291) (159,092) (348,809) (74,240) (34,156)
Deductions for asset charges
(note 3) ...................... (22,686) (9,925) (522) (8,164) (3,049) (292)
------------ ------------ ------------ ------------ ------------ ------------
Net equity transactions ..... 5,227,129 13,501,429 6,288,719 2,935,444 2,262,515 1,719,931
------------ ------------ ------------ ------------ ------------ ------------
Net change in contract
owners' equity ................. 6,214,004 18,077,969 7,790,341 3,537,633 2,855,231 1,907,488
Contract owners' equity
beginning of period ............ 28,728,327 10,650,358 2,860,017 8,824,474 5,969,243 4,061,755
------------ ------------ ------------ ------------ ------------ ------------
Contract owners' equity
end of period .................. $ 34,942,331 28,728,327 10,650,358 12,362,107 8,824,474 5,969,243
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
OppGlSec
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. 389,267 139,580 --
Mortality and expense charges
(note 3) ....................... (147,592) (115,087) (73,271)
------------ ------------ ------------
Net investment activity ........ 241,675 24,493 (73,271)
------------ ------------ ------------
Proceeds from mutual fund
shares sold .................... 4,690,056 2,123,253 1,410,941
Cost of mutual funds sold ........ (3,335,880) (1,585,760) (1,363,666)
------------ ------------ ------------
Realized gain (loss) on
investments .................. 1,354,176 537,493 47,275
Change in unrealized gain (loss)
on investments ................. (702,629) 1,880,371 1,197,144
------------ ------------ ------------
Net gain (loss) on investments . 651,547 2,417,864 1,244,419
------------ ------------ ------------
Reinvested capital gains ......... 1,465,275 -- --
------------ ------------ ------------
Net change in contract
owners' equity resulting
from operations ............ 2,358,497 2,442,357 1,171,148
------------ ------------ ------------
Equity transactions:
Purchase payments received
from contract owners ........... 2,591,457 2,244,408 1,618,641
Transfers between funds .......... 1,052,407 2,806,084 1,527,191
Surrenders ....................... (390,303) (332,828) (109,366)
Death benefits (note 4) .......... (12,688) (1,951) (4,893)
Policy loans (net of repayments)
(note 5) ......................... (265,465) (260,746) (101,645)
Deductions for surrender charges
(note 2d) ...................... (46,476) (44,624) (12,881)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (696,092) (209,063) (129,866)
Deductions for asset charges
(note 3) ...................... (13,160) (5,719) (486)
------------ ------------ ------------
Net equity transactions ..... 2,219,680 4,195,561 2,786,695
------------ ------------ ------------
Net change in contract
owners' equity ................. 4,578,177 6,637,918 3,957,843
Contract owners' equity
beginning of period ............ 16,552,365 9,914,447 5,956,604
------------ ------------ ------------
Contract owners' equity
end of period .................. 21,130,542 16,552,365 9,914,447
============ ============ ============
</TABLE>
(Continued)
<PAGE> 14
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
OppGro OppMult
------------------------------------- ------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ 9,433 -- -- 116,421 401,123 325,992
Mortality and expense charges
(note 3) ....................... (26,246) (2,691) -- (104,971) (88,369) (60,231)
----------- ----------- ------- ----------- ----------- -----------
Net investment activity ........ (16,813) (2,691) -- 11,450 312,754 265,761
----------- ----------- ------- ----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 5,173,603 346,058 -- 1,906,489 1,256,650 669,520
Cost of mutual funds sold ........ (4,835,421) (340,426) -- (1,502,365) (1,026,967) (587,875)
----------- ----------- ------- ----------- ----------- -----------
Realized gain (loss) on
investments .................. 338,182 5,632 -- 404,124 229,683 81,645
Change in unrealized gain (loss)
on investments ................. 109,336 3,346 -- (366,305) 697,954 393,561
----------- ----------- ------- ----------- ----------- -----------
Net gain (loss) on investments . 447,518 8,978 -- 37,819 927,637 475,206
----------- ----------- ------- ----------- ----------- -----------
Reinvested capital gains ......... 113,813 -- -- 675,242 329,608 125,621
----------- ----------- ------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ 544,518 6,287 -- 724,511 1,569,999 866,588
----------- ----------- ------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 1,452,830 32,403 -- 3,243,119 1,361,025 882,926
Transfers between funds .......... 4,492,087 586,430 -- 706,703 1,935,508 1,713,791
Surrenders ....................... (576,151) (2,135) -- (1,061,880) (189,727) (334,495)
Death benefits (note 4) .......... (5) -- -- (182,084) (18,581) (5,755)
Policy loans (net of repayments)
(note 5) ......................... (312,911) (3,203) -- (1,005,743) (138,576) (127,191)
Deductions for surrender charges
(note 2d) ...................... (73,520) (286) -- (126,681) (25,438) (39,395)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (116,339) (433) -- (435,809) (102,354) (67,708)
Deductions for asset charges
(note 3) .................... (2,340) (214) -- (9,359) (4,269) (390)
----------- ----------- ------- ----------- ----------- -----------
Net equity transactions ........ 4,863,651 612,562 -- 1,128,266 2,817,588 2,021,783
----------- ----------- ------- ----------- ----------- -----------
Net change in contract
owners' equity ................. 5,408,169 618,849 -- 1,852,777 4,387,587 2,888,371
Contract owners' equity
beginning of period ............ 618,849 -- -- 12,354,982 7,967,395 5,079,024
----------- ----------- ------- ----------- ----------- -----------
Contract owners' equity
end of period .................. $ 6,027,018 618,849 -- 14,207,759 12,354,982 7,967,395
=========== =========== ======= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
StOpp2
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. 71,635 79,875 104,072
Mortality and expense charges
(note 3) ....................... (220,760) (185,205) (132,256)
----------- ----------- -----------
Net investment activity ........ (149,125) (105,330) (28,184)
----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 3,215,306 3,417,734 2,078,877
Cost of mutual funds sold ........ (2,191,788) (2,305,866) (1,767,607)
----------- ----------- -----------
Realized gain (loss) on
investments .................. 1,023,518 1,111,868 311,270
Change in unrealized gain (loss)
on investments ................. (1,078,872) 1,866,652 1,442,512
----------- ----------- -----------
Net gain (loss) on investments . (55,354) 2,978,520 1,753,782
----------- ----------- -----------
Reinvested capital gains ......... 3,488,003 1,736,733 467,556
----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ 3,283,524 4,609,923 2,193,154
----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 5,452,015 3,291,881 2,757,995
Transfers between funds .......... 470,365 1,720,221 1,427,887
Surrenders ....................... (1,037,130) (584,361) (225,124)
Death benefits (note 4) .......... (143,979) (46,618) (8,328)
Policy loans (net of repayments)
(note 5) ......................... (1,307,454) (446,793) (266,027)
Deductions for surrender charges
(note 2d) ...................... (121,009) (78,349) (26,514)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (946,709) (237,366) (127,661)
Deductions for asset charges
(note 3) .................... (19,684) (8,777) (842)
----------- ----------- -----------
Net equity transactions ........ 2,346,415 3,609,838 3,531,386
----------- ----------- -----------
Net change in contract
owners' equity ................. 5,629,939 8,219,761 5,724,540
Contract owners' equity
beginning of period ............ 25,405,845 17,186,084 11,461,544
----------- ----------- -----------
Contract owners' equity
end of period .................. 31,035,784 25,405,845 17,186,084
=========== =========== ===========
</TABLE>
<PAGE> 15
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
StDisc2 StlntStk2
------------------------------------------ ----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ -- -- 523,958 22,725 35,008 5,657
Mortality and expense charges
(note 3) ....................... (58,150) (62,162) (56,198) (15,028) (16,592) (8,901)
----------- ----------- ----------- ----------- ----------- -----------
Net investment activity ........ (58,150) (62,162) 467,760 7,697 18,416 (3,244)
----------- ----------- ----------- ----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 4,234,899 6,947,379 1,458,502 4,328,033 1,180,714 1,503,391
Cost of mutual funds sold ........ (3,682,201) (7,014,226) (1,298,009) (4,573,810) (1,254,173) (1,466,992)
----------- ----------- ----------- ----------- ----------- -----------
Realized gain (loss) on
investments .................. 552,698 (66,847) 160,493 (245,777) (73,459) 36,399
Change in unrealized gain (loss)
on investments ................. (128,321) 897,855 (1,253,670) 138,162 (320,243) (2,354)
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments . 424,377 831,008 (1,093,177) (107,615) (393,702) 34,045
----------- ----------- ----------- ----------- ----------- -----------
Reinvested capital gains ......... 120,028 -- 645,525 -- 54,007 --
----------- ----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ 486,255 768,846 20,108 (99,918) (321,279) 30,801
----------- ----------- ----------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 686,440 1,157,860 1,076,505 1,319,108 396,577 134,707
Transfers between funds .......... 154,482 (800,200) 485,660 (186,236) 159,418 1,618,370
Surrenders ....................... (128,257) (159,830) (123,465) (444,664) (39,345) (21,946)
Death benefits (note 4) .......... (23,649) (17,470) (5,438) (5,993) -- --
Policy loans (net of repayments)
(note 5) ......................... (104,497) (79,472) (84,412) (462,567) (28,189) (23,320)
Deductions for surrender charges
(note 2d) ...................... (15,109) (21,429) (14,541) (56,530) (5,275) (2,585)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (244,196) (50,118) (27,103) (61,036) (4,583) (4,827)
Deductions for asset charges
(note 3) ...................... (5,185) (2,607) (331) (1,340) (686) (90)
----------- ----------- ----------- ----------- ----------- -----------
Net equity transactions ....... 320,029 26,734 1,306,875 100,742 477,917 1,700,309
----------- ----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity ................. 806,284 795,580 1,326,983 824 156,638 1,731,110
Contract owners' equity
beginning of period ............ 7,545,548 6,749,968 5,422,985 1,986,172 1,829,534 98,424
----------- ----------- ----------- ----------- ----------- -----------
Contract owners' equity
end of period .................. $ 8,351,832 7,545,548 6,749,968 1,986,996 1,986,172 1,829,534
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
VEWrldBd
------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. 24,030 73,945 54,317
Mortality and expense charges
(note 3) ....................... (26,599) (20,793) (19,810)
----------- ----------- -----------
Net investment activity ........ (2,569) 53,152 34,507
----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 7,510,962 1,289,613 851,361
Cost of mutual funds sold ........ (7,101,791) (1,326,687) (817,166)
----------- ----------- -----------
Realized gain (loss) on
investments .................. 409,171 (37,074) 34,195
Change in unrealized gain (loss)
on investments ................. (35,624) 23,130 (31,601)
----------- ----------- -----------
Net gain (loss) on investments . 373,547 (13,944) 2,594
----------- ----------- -----------
Reinvested capital gains ......... -- -- --
----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ 370,978 39,208 37,101
----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 173,889 303,361 291,664
Transfers between funds .......... 663,078 89,247 (8,294)
Surrenders ....................... (47,678) (109,226) (58,485)
Death benefits (note 4) .......... (35,715) -- --
Policy loans (net of repayments)
(note 5) ......................... (21,466) (20,191) (33,856)
Deductions for surrender charges
(note 2d) ...................... (5,615) (14,645) (6,888)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (77,084) (10,312) (6,755)
Deductions for asset charges
(note 3) ...................... (2,372) (874) (110)
----------- ----------- -----------
Net equity transactions ....... 647,037 237,360 177,276
----------- ----------- -----------
Net change in contract
owners' equity ................. 1,018,015 276,568 214,377
Contract owners' equity
beginning of period ............ 2,529,206 2,252,638 2,038,261
----------- ----------- -----------
Contract owners' equity
end of period .................. 3,547,221 2,529,206 2,252,638
=========== =========== ===========
</TABLE>
(Continued)
<PAGE> 16
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
VEWrldEMkt VEWrldHAs
----------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ 20,182 1,791 -- 35,945 118,188 58,970
Mortality and expense charges
(note 3) ....................... (14,186) (10,449) (15) (38,345) (54,934) (45,454)
----------- ----------- ----------- ----------- ----------- -----------
Net investment activity ........ 5,996 (8,658) (15) (2,400) 63,254 13,516
----------- ----------- ----------- ----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 4,758,410 3,744,118 -- 13,571,199 19,348,273 20,434,481
Cost of mutual funds sold ........ (6,579,731) (3,668,967) -- (17,132,731) (18,769,875) (19,926,482)
----------- ----------- ----------- ----------- ----------- -----------
Realized gain (loss) on
investments .................. (1,821,321) 75,151 -- (3,561,532) 578,398 507,999
Change in unrealized gain (loss)
on investments ................. 923,464 (815,392) -- 644,209 (898,401) 173,786
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments . (897,857) (740,241) -- (2,917,323) (320,003) 681,785
----------- ----------- ----------- ----------- ----------- -----------
Reinvested capital gains ......... 17,939 -- -- 882,647 160,126 57,828
----------- ----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ (873,922) (748,899) (15) (2,037,076) (96,623) 753,129
----------- ----------- ----------- ----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 701,612 585,373 27 1,602,107 840,495 555,530
Transfers between funds .......... (173,962) 2,650,105 3,213 (1,198,538) (282,076) 1,779,241
Surrenders ....................... (41,678) (8,373) (7) (132,778) (171,081) (65,411)
Death benefits (note 4) .......... (4,922) -- -- (3,026) (99) --
Policy loans (net of repayments)
(note 5) ......................... (80,091) (71,376) -- (200,964) (124,185) (132,561)
Deductions for surrender charges
(note 2d) ...................... (5,094) (1,123) (1) (13,168) (22,938) (7,704)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (68,777) (8,419) (2) (199,756) (142,112) (93,537)
Deductions for asset charges
(note 3) ......................... (1,265) (829) -- (3,419) (2,182) (309)
----------- ----------- ----------- ----------- ----------- -----------
Net equity transactions ...... 325,823 3,145,358 3,230 (149,542) 95,822 2,035,249
----------- ----------- ----------- ----------- ----------- -----------
Net change in contract
owners' equity ................. (548,099) 2,396,459 3,215 (2,186,618) (801) 2,788,378
Contract owners' equity
beginning of period ............ 2,399,674 3,215 -- 6,316,203 6,317,004 3,528,626
----------- ----------- ----------- ----------- ----------- -----------
Contract owners' equity
end of period .................. $ 1,851,575 2,399,674 3,215 4,129,585 6,316,203 6,317,004
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
VKMSRESec
----------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. 12,298 193,749 33,201
Mortality and expense charges
(note 3) ....................... (52,029) (47,059) (16,174)
----------- ----------- -----------
Net investment activity ........ (39,731) 146,690 17,027
----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 4,635,925 8,117,619 2,711,361
Cost of mutual funds sold ........ (5,200,298) (7,257,679) (2,487,998)
----------- ----------- -----------
Realized gain (loss) on
investments .................. (564,373) 859,940 223,363
Change in unrealized gain (loss)
on investments ................. (513,939) (625,237) 303,132
----------- ----------- -----------
Net gain (loss) on investments . (1,078,312) 234,703 526,495
----------- ----------- -----------
Reinvested capital gains ......... 121,016 641,054 15,620
----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ (997,027) 1,022,447 559,142
----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 1,337,143 827,543 110,695
Transfers between funds .......... (908,402) 2,852,464 2,319,779
Surrenders ....................... (163,286) (100,507) (41,251)
Death benefits (note 4) .......... (22,389) -- --
Policy loans (net of repayments)
(note 5) ......................... (78,704) (85,370) (50,080)
Deductions for surrender charges
(note 2d) ...................... (19,126) (13,476) (4,858)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (232,710) (65,828) (9,078)
Deductions for asset charges
(note 3) ......................... (4,639) (2,636) (156)
----------- ----------- -----------
Net equity transactions ...... (92,113) 3,412,190 2,325,051
----------- ----------- -----------
Net change in contract
owners' equity ................. (1,089,140) 4,434,637 2,884,193
Contract owners' equity
beginning of period ............ 7,628,431 3,193,794 309,601
----------- ----------- -----------
Contract owners' equity
end of period .................. 6,539,291 7,628,431 3,193,794
=========== =========== ===========
</TABLE>
<PAGE> 17
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
WPIntEq WPPVenCap
------------------------------------------ --------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment activity:
Reinvested dividends ............. $ 50,333 79,669 106,181 -- 70 --
Mortality and expense charges
(note 3) ....................... (72,995) (79,873) (46,519) (6,193) (3,334) --
----------- ----------- ----------- ----------- ----------- --------------
Net investment activity ........ (22,662) (204) 59,662 (6,193) (3,264) --
----------- ----------- ----------- ----------- ----------- --------------
Proceeds from mutual fund
shares sold .................... 9,538,799 7,769,039 6,857,480 4,879,898 1,898,871 --
Cost of mutual funds sold ........ (9,941,358) (7,238,368) (6,604,093) (4,873,755) (1,856,944) --
----------- ----------- ----------- ----------- ----------- --------------
Realized gain (loss) on
investments .................. (402,559) 530,671 253,387 6,143 41,927 --
Change in unrealized gain (loss)
on investments ................. 929,287 (1,377,503) (5,493) 66,492 (1,622) --
----------- ----------- ----------- ----------- ----------- --------------
Net gain (loss) on investments . 526,728 (846,832) 247,894 72,635 40,305 --
----------- ----------- ----------- ----------- ----------- --------------
Reinvested capital gains ......... -- 551,360 47,244 -- -- --
----------- ----------- ----------- ----------- ----------- --------------
Net change in contract
owners' equity resulting
from operations ............ 504,066 (295,676) 354,800 66,442 37,041 --
----------- ----------- ----------- ----------- ----------- --------------
Equity transactions:
Purchase payments received
from contract owners ........... 1,111,024 1,506,986 1,046,656 105,973 70,984 --
Transfers between funds .......... (1,578,624) 674,324 5,515,236 180,265 668,066 --
Surrenders ....................... (168,491) (113,178) (47,964) (1,367) (2,034) --
Death benefits (note 4) .......... (7,848) (16,165) (1,774) (1) -- --
Policy loans (net of repayments)
(note 5) ......................... (259,475) (84,201) (65,730) 4,787 (5,947) --
Deductions for surrender charges
(note 2d) ...................... (18,111) (15,174) (5,649) (7) (273) --
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (265,303) (65,212) (91,320) (21,553) (897) --
Deductions for asset charges
(note 3) ...................... (6,508) (3,447) (411) (552) (265) --
----------- ----------- ----------- ----------- ----------- --------------
Net equity transactions ...... (1,193,336) 1,883,933 6,349,044 267,545 729,634 --
----------- ----------- ----------- ----------- ----------- --------------
Net change in contract
owners' equity ................. (689,270) 1,588,257 6,703,844 333,987 766,675 --
Contract owners' equity
beginning of period ............ 9,978,378 8,390,121 1,686,277 766,675 -- --
----------- ----------- ----------- ----------- ----------- --------------
Contract owners' equity
end of period .................. $ 9,289,108 9,978,378 8,390,121 1,100,662 766,675 --
=========== =========== =========== =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
WPSmCoGr
------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Investment activity:
Reinvested dividends ............. -- -- --
Mortality and expense charges
(note 3) ....................... (106,735) (99,826) (49,642)
----------- ----------- -----------
Net investment activity ........ (106,735) (99,826) (49,642)
----------- ----------- -----------
Proceeds from mutual fund
shares sold .................... 11,652,539 13,210,500 7,405,511
Cost of mutual funds sold ........ (11,657,359) (11,590,838) (6,950,257)
----------- ----------- -----------
Realized gain (loss) on
investments .................. (4,820) 1,619,662 455,254
Change in unrealized gain (loss)
on investments ................. (287,723) 18,436 (150,978)
----------- ----------- -----------
Net gain (loss) on investments . (292,543) 1,638,098 304,276
----------- ----------- -----------
Reinvested capital gains ......... -- -- --
----------- ----------- -----------
Net change in contract
owners' equity resulting
from operations ............ (399,278) 1,538,272 254,634
----------- ----------- -----------
Equity transactions:
Purchase payments received
from contract owners ........... 2,471,813 2,516,266 1,034,674
Transfers between funds .......... (1,849,405) 4,654,236 2,826,415
Surrenders ....................... (200,485) (128,687) (63,271)
Death benefits (note 4) .......... (10,544) -- --
Policy loans (net of repayments)
(note 5) ......................... 19,268 (162,099) (96,502)
Deductions for surrender charges
(note 2d) ...................... (20,649) (17,254) (7,452)
Redemptions to pay cost of
insurance charges and
administration charges
(notes 2b and 2c) .............. (454,770) (88,146) (50,847)
Deductions for asset charges
(note 3) ...................... (9,517) (5,401) (359)
----------- ----------- -----------
Net equity transactions ...... (54,289) 6,768,915 3,642,658
----------- ----------- -----------
Net change in contract
owners' equity ................. (453,567) 8,307,187 3,897,292
Contract owners' equity
beginning of period ............ 15,632,197 7,325,010 3,427,718
----------- ----------- -----------
Contract owners' equity
end of period .................. 15,178,630 15,632,197 7,325,010
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 18
NATIONWIDE VLI SEPARATE ACCOUNT-2
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-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 Single Premium, Modified Single Premium, Flexible
Premium and Last Survivor 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:
Portfolios of the American Century Variable Portfolios, Inc.
(American Century VP) (formerly TCI Portfolios, Inc.);
American Century VP - American Century VP Balanced (ACVPBal)
(formerly TCI Portfolios - TCI Balanced)
American Century VP - American Century VP Capital Appreciation
(ACVPCapAp) (formerly TCI Portfolios - TCI Growth)
American Century VP - American Century VP Income & Growth
(ACVPIncGr)
American Century VP - American Century VP International
(ACVPInt) (formerly TCI Portfolios - TCI International)
American Century VP - American Century VP Value (ACVPValue)
(formerly TCI Portfolios - TCI Value)
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp)
Dreyfus VIF - Growth and Income Portfolio (DryGrInc)
Fidelity Advisor High Yield Fund - Class T (FAHiYld)
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - Growth Portfolio (FidVIPGr)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Fidelity VIP - Overseas Portfolio (FidVIPOv)
Portfolios of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
Portfolio of the Fidelity Variable Insurance Products Fund III
(Fidelity VIP-III);
Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp)
<PAGE> 19
Portfolio of the Morgan Stanley Universal Funds, Inc.
(Morgan Stanley);
Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Small Cap Value Fund (NSATSmCapV)
Nationwide SAT - Small Company Fund (NSATSmCo)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolios of the Neuberger & Berman Advisers Management Trust
(Neuberger &Berman AMT);
Neuberger & Berman AMT - Growth Portfolio (NBAMTGro)
Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard)
Neuberger & Berman AMT - Limited Maturity Bond Portfolio
(NBAMTLMat)
Neuberger & Berman AMT - Partners Portfolio (NBAMTPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer VAF);
Oppenheimer VAF - Aggressive Growth Fund (OppAggGro)
(formerly Oppenheimer VAF - Capital Appreciation Fund)
Oppenheimer VAF - Bond Fund (OppBdFd)
Oppenheimer VAF - Global Securities Fund (OppGlSec)
Oppenheimer VAF - Growth Fund (OppGro)
Oppenheimer VAF - Multiple Strategies Fund (OppMult)
Strong Opportunity Fund II, Inc. (StOpp2) (formerly Strong
Special Fund II)
Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF);
Strong VIF - Strong Discovery Fund II (StDisc2)
Strong VIF - Strong International Stock Fund II (StIntStk2)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT);
Van Eck WIT - Worldwide Bond Fund (VEWrldBd)
Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt)
Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs)
(formerly Van Eck WIT - Gold and Natural Resources Fund)
Portfolio of the Van Kampen American Capital Life Investment Trust
(Van Kampen American Capital LIT);
Van Kampen American Capital LIT - Morgan Stanley Real Estate
Securities Portfolio (VKMSRESec)
(formerly Van Kampen American Capital LIT - Real Estate
Securities Fund)
Portfolios of the Warburg Pincus Trust;
Warburg Pincus Trust - International Equity Portfolio (WPIntEq)
Warburg Pincus Trust - Post Venture Capital Portfolio
(WPPVenCap)
Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1998, contract owners have invested in all of the above
funds except for Fidelity Advisor High Yield Fund Class T and
Oppenheimer VAF - Aggressive Growth Fund. The contract owners' equity
is affected by the investment results of each fund, equity transactions
by contract owners and certain contract expenses (see notes 2 and 3).
The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their
contracts and exclude any purchase payments for fixed dollar benefits,
the latter being included in the accounts of the Company.
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.
<PAGE> 20
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.
(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.
On last survivor flexible premium contracts, the Company deducts a
charge for state premium taxes equal to 3.5% of all premiums received
to cover the payment of these premium taxes. The Company also deducts a
sales load from each premium payment received not to exceed 5% of each
premium payment during the first ten years and 1.5% of each premium
payment thereafter.
The Company may at its sole discretion reduce this sales loading.
(b) Cost of Insurance
A cost of insurance charge is assessed monthly against each contract by
liquidating units. The amount of the charge is based upon age, sex,
rate class and net amount at risk (death benefit less total contract
value).
For last survivor flexible premium contracts, the monthly cost of
insurance is determined in a manner that reflects the anticipated
mortality of the two insureds and the fact that the death benefit is
not payable until the death of the second insured policyholder.
(c) Administrative Charges
An administrative charge is assessed against each contract to recover
policy maintenance, accounting, record keeping and other administrative
expenses and is assessed against each contract by liquidating units.
<PAGE> 21
For single premium contracts, the Company deducts an annual
administrative charge which is determined as follows:
Contracts issued prior to April 16, 1990:
Purchase payments totalling less than $25,000 - $10/month
Purchase payments totalling $25,000 or more - none
Contracts issued on or after April 16, 1990:
Purchase payments totalling less than $25,000 - $90/year
($65/year in New York) Purchase payments totalling $25,000 or
more - $50/year
For multiple payment contracts, the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum).
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $12.50 during the first policy year and $5 per
month thereafter (may deduct up to $7.50, maximum). Additionally, the
Company deducts an increase charge of $2.04 per year per $1,000 applied
to any increase in the specified amount during the first 12 months
after the increase becomes effective.
For modified single premium contracts, the monthly charge is equal to
an annual rate of .30% multiplied by the policy's cash value. For
policy years 11 and later, this monthly charge is reduced to an annual
rate of 0.15% of the policy's cash value. The monthly charge is subject
to a $10 minimum.
For last survivor flexible premium contracts, the Company deducts a
monthly administrative charge equal to the sum of the policy charge and
the basic coverage charge. For policy years one through ten the policy
charge is $10. Additionally, there is a $0.04 per $1000 basic coverage
charge (not less than $20 or more than $80 per policy). For policy
years eleven and after, the policy charge is $5. Additionally, there is
a $0.02 per $1000 basic coverage charge (not less than $10 or more than
$40 per policy). Additionally, the Company deducts a monthly increase
charge of $2.40 per $1000 applied to any increase in the specified
amount during the first 12 months after the increase becomes effective.
The charge may be raised to $3.60 per $1000 of increase per year at the
Company's discretion.
(d) Surrender Charges
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or
designee. The surrender proceeds consist of the contract value, less
any outstanding policy loans, and less a surrender charge, if
applicable. The charge is determined according to contract type.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. For single
premium contracts issued prior to April 16, 1990, the charge is 8% in
the first year and declines to 0% after the ninth year. For single
premium contracts issued on or after April 16, 1990, the charge is 8.5%
in the first year, and declines to 0% after the ninth year.
For multiple payment contracts and flexible premium contracts, the
amount charged is based upon a specified percentage of the initial
surrender charge, which varies by issue age, sex and rate class. The
charge is 100% of the initial surrender charge in the first year,
declining to 0% after the ninth year.
For modified single premium contracts, the amount charged is based on
the original purchase payment. The charge is 10% in the first year,
declining to 0% in the ninth year.
For last survivor flexible premium contracts, the charge is 100% of the
initial surrender charge, declining to 0% in the fourteenth year if the
average issue age is 74 or less. The charge is 100% of the initial
surrender charge, declining to 0% in the ninth year if the average
issue age is 75 or greater. For last survivor flexible payment
contracts, the initial surrender charge is comprised of two components,
an underwriting surrender charge and a sales surrender charge.
The Company may waive the surrender charge for certain contracts in
which the sales expenses normally associated with the distribution of a
contract are not incurred.
<PAGE> 22
(3) ASSET CHARGES
For single premium contracts, the Company deducts a charge from the
contract to cover mortality and expense risk charges related to operations,
and to recover policy maintenance and premium tax charges. For contracts
issued prior to April 16, 1990, the charge is equal to an annual rate of
.95% during the first ten policy years, and .50% thereafter. A reduction of
charges on these contracts is possible in policy years six through ten for
those contracts achieving certain investment performance criteria. For
single premium contracts issued on or after April 16, 1990, the charge is
equal to an annual rate of 1.30% during the first ten policy years, and
1.00% thereafter.
For multiple payment contracts and flexible premium contracts, the Company
deducts a charge equal to an annual rate of .80%, with certain exceptions,
to cover mortality and expense risk charges related to operations. The
above charges are assessed through the daily unit value calculation.
For modified single premium contracts, the Company deducts an annual rate
of .90% charged against the cash value of the contracts. This charge is
assessed monthly against each contract by liquidating units.
For last survivor flexible premium contracts, the Company deducts an annual
rate of .80% in policy years one through ten. This charge is assessed
monthly by liquidating units. In policy years eleven and greater, the
Company deducts an annual rate of .80% if the cash value of the contract is
less than $100,000. If the cash value is greater than or equal to $100,000,
the Company reduces the annual asset fee rate to .30%.
The following table provides mortality and expense risk charges by contract
type for the period ended December 31, 1998:
<TABLE>
<CAPTION>
TOTAL ACVPBal ACVCapAp ACVPincGr ACVPint
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 19,963 - 1,274 - -
Single Premium contracts issued
on or after April 16, 1990.... 1,519,080 10,112 21,146 2,536 34,065
Multiple Payment and Flexible
Premium contracts............. 4,699,480 28,860 59,964 5,054 66,239
------------ ------------ ------------ ------------ ------------
Total....................... $ 6,238,523 38,972 82,384 7,590 100,304
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ACVPValue DrySRGro DryStkix DryCapAp DryGrinc
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ - - 3,655 102 -
Single Premium contracts issued
on or after April 16, 1990.... 4,104 9,572 112,048 10,336 2,255
Multiple Payment and Flexible
Premium contracts............. 15,894 67,383 392,626 16,686 12,787
------------ ------------ ------------ ------------ ------------
Total....................... $ 19,998 76,955 508,329 27,124 15,042
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FidVIPEI FidVIPGr FidVIPHI FidVIPOv FidVIPAM
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 2,438 2,343 842 1,068 296
Single Premium contracts issued
on or after April 16, 1990.... 194,440 188,365 49,966 53,993 86,061
Multiple Payment and Flexible
Premium contracts............. 418,071 568,902 160,813 112,745 152,850
------------ ------------ ------------ ------------ ------------
Total....................... $ 614,949 759,610 211,621 167,806 239,207
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FidVIPCon FidVIPGrOp MSEmMkt NSATCapAp NSATGvtBd
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 128 - - 654 305
Single Premium contracts issued
on or after April 16, 1990.... 71,967 10,876 635 43,608 65,744
Multiple Payment and Flexible
Premium contracts............. 244,146 24,873 1,765 213,916 45,233
------------ ------------ ------------ ------------ ------------
Total....................... $ 316,241 35,749 2,400 258,178 111,282
============ ============ ============ ============ ============
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
NSATMyMkt NSATSmCapV NSATSmCo NSATTotRe NBAMTGro
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 1,358 - - 1,584 1,581
Single Premium contracts issued
on or after April 16, 1990.... 137,439 3,094 13,672 58,566 43,543
Multiple Payment and Flexible
Premium contracts............. 276,180 414 101,912 613,346 108,763
------------ ------------ ------------ ------------ ------------
Total....................... $ 414,977 3,508 115,584 673,496 153,887
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NBAMTGuard NBAMTLMat NBAMTPart OppBdFd OppGlSec
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ - 930 - - -
Single Premium contracts issued
on or after April 16, 1990.... 553 14,562 50,988 20,073 20,102
Multiple Payment and Flexible
Premium contracts............. 4,227 27,237 203,440 71,491 127,490
------------ ------------ ------------ ------------ ------------
Total....................... $ 4,780 42,729 254,428 91,564 147,592
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
OppGro OppMult StOpp2 StDisc2 StintStk2
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ - - 120 - -
Single Premium contracts issued
on or after April 16, 1990.... 4,182 31,490 41,028 13,873 4,013
Multiple Payment and Flexible
Premium contracts............. 22,064 73,481 179,612 44,277 11,015
------------ ------------ ------------ ------------ ------------
Total....................... $ 26,246 104,971 220,760 58,150 15,028
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
VEWrldBd VEWrldEMkt VEWrldHAs VKMSRESec WPintEq
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ 39 - 486 575 185
Single Premium contracts issued
on or after April 16, 1990.... 11,374 1,792 17,613 13,117 13,450
Multiple Payment and Flexible
Premium contracts............. 15,186 12,394 20,246 38,337 59,360
------------ ------------ ------------ ------------ ------------
Total....................... $ 26,599 14,186 38,345 52,029 72,995
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
WPPVenCap WPSMCoGr
------------ ------------
<S> <C> <C>
Single Premium contracts Issued
prior to April 16, 1990....... $ - -
Single Premium contracts issued
on or after April 16, 1990.... 3,460 29,267
Multiple Payment and Flexible
Premium contracts............. 2,733 77,468
------------ ------------
Total....................... $ 6,193 106,735
============ ============
</TABLE>
(4) DEATH BENEFITS
Death benefits result in a redemption of the contract value from the
Account and payment of the death benefit proceeds, less any outstanding
policy loans (and policy charges), to the legal beneficiary. For last
survivor flexible premium contracts, the proceeds are payable on the death
of the last surviving insured. The excess of the death benefit proceeds
over the contract value on the date of death is paid by the Company's
general account.
<PAGE> 24
(5) POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% (50% during
first year of single and modified single premium contracts) of a policy's
cash surrender value. For single premium contracts issued prior to April
16, 1990, 6.5% interest is due and payable annually in advance. For single
premium contracts issued on or after April 16, 1990, multiple payment,
flexible premium, modified single and last survivor flexible premium
contracts, 6% interest is due and payable in advance on the policy
anniversary when there is a loan outstanding on the policy.
At the time the loan is granted, the amount of the loan is transferred from
the Account to the Company's general account as collateral for the
outstanding loan. Collateral amounts in the general account are credited
with the stated rate of interest in effect at the time the loan is made,
subject to a guaranteed minimum rate. Loan repayments result in a transfer
of collateral, including interest, back to the Account.
(6) 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.
<PAGE> 25
(7) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1998,
for each product in the accumulation phase.
<TABLE>
<CAPTION>
Contract owners' equity represented by: ANNUAL
UNITS UNIT VALUE RETURN(b)
----- ---------- ---------
Single Premium contracts issued prior to
April 16, 1990:
<S> <C> <C> <C> <C>
American Century VP - American Century
VP Capital Appreciation ............................. 6,437 $22.339504 $143,799 (3)%
Dreyfus Stock Index Fund ............................... 14,798 27.871347 412,440 27%
Dreyfus VIF -
Capital Appreciation Portfolio ...................... 876 13.168334 11,535 29%
Fidelity VIP - Equity-Income Portfolio ................. 6,566 41.890019 275,050 11%
Fidelity VIP - Growth Portfolio ........................ 4,551 58.102055 264,422 38%
Fidelity VIP - High Income Portfolio ................... 3,510 27.054068 94,960 (5)%
Fidelity VIP - Overseas Portfolio ...................... 4,966 24.255551 120,453 12%
Fidelity VIP-II - Asset Manager Portfolio .............. 1,193 27.955691 33,351 14%
Fidelity VIP-II - Contrafund Portfolio ................. 684 21.098746 14,432 29%
Nationwide SAT -
Capital Appreciation Fund ........................... 2,354 31.356408 73,813 29%
Nationwide SAT -
Government Bond Fund ................................ 1,481 23.252862 34,437 8%
Nationwide SAT - Money Market Fund ..................... 9,477 16.171326 153,256 4%
Nationwide SAT - Total Return Fund ..................... 4,462 40.062865 178,761 17%
Neuberger &Berman AMT -
Growth Portfolio .................................... 4,910 36.321304 178,338 14%
Neuberger &Berman AMT -
Limited Maturity Bond Portfolio ..................... 5,842 17.967444 104,966 3%
Strong Opportunity Fund II, Inc. ....................... 452 29.946506 13,536 12%
Van Eck WIT - Worldwide Bond Fund ...................... 264 16.631673 4,391 12%
Van Eck WIT -
Worldwide Hard Assets Fund .......................... 5,479 9.998900 54,784 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio ................................ 4,103 15.812545 64,879 (12)%
Warburg Pincus Trust -
International Equity Portfolio ...................... 1,777 11.754581 20,888 4%
Single Premium contracts issued on or
after April 16, 1990:
American Century VP -
American Century VP Balanced ........................ 43,205 18.685028 807,287 14%
</TABLE>
(Continued)
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C>
American Century VP - American Century
VP Capital Appreciation .............. 113,249 14.906965 1,688,199 (3)%
American Century VP - American Century
VP Income & Growth ................... 18,703 10.826437 202,487 8%(a)
American Century VP -
American Century VP International .... 168,629 16.127264 2,719,524 17%
American Century VP -
American Century VP Value ............ 25,086 13.059452 327,609 3%
The Dreyfus Socially Responsible
Growth Fund, Inc. .................... 27,695 27.592332 764,170 28%
Dreyfus Stock Index Fund ................ 326,895 27.364353 8,945,270 27%
Dreyfus VIF -
Capital Appreciation Portfolio ....... 62,982 13.101026 825,129 29%
Dreyfus VIF -
Growth and Income Portfolio .......... 14,240 12.644103 180,052 10%
Fidelity VIP - Equity-Income Portfolio .. 456,214 34.025630 15,522,969 10%
Fidelity VIP - Growth Portfolio ......... 376,885 39.900577 15,037,929 38%
Fidelity VIP - High Income Portfolio .... 144,326 27.638937 3,989,017 (6)%
Fidelity VIP - Overseas Portfolio ....... 248,471 17.348011 4,310,478 11%
Fidelity VIP-II - Asset Manager
Portfolio ............................. 253,412 27.112311 6,870,585 14%
Fidelity VIP-II - Contrafund Portfolio .. 275,660 20.842351 5,745,402 28%
Fidelity VIP-III -
Growth Opportunities Portfolio ....... 64,568 13.447707 868,292 23%
Morgan Stanley -
Emerging Markets Debt Portfolio ...... 7,315 6.935753 50,735 (29)%
Nationwide SAT -
Capital Appreciation Fund ............ 113,664 30.628674 3,481,378 28%
Nationwide SAT -
Government Bond Fund ................. 274,184 19.142839 5,248,660 8%
Nationwide SAT - Money Market Fund ...... 814,530 13.470763 10,972,341 4%
Nationwide SAT - Small Cap Value Fund ... 28,961 8.529271 247,016 (15)%(a)
Nationwide SAT - Small Company Fund ..... 68,318 15.976308 1,091,469 0%
Nationwide SAT - Total Return Fund ...... 136,311 34.300994 4,675,603 17%
Neuberger &Berman AMT -
Growth Portfolio ..................... 136,629 25.442656 3,476,205 14%
Neuberger & Berman AMT -
Guardian Portfolio ................... 4,760 9.282948 44,187 (7)%(a)
Neuberger &Berman AMT -
Limited Maturity Bond Portfolio ...... 76,004 15.295923 1,162,551 3%
Neuberger &Berman AMT -
Partners Portfolio ................... 176,971 23.001381 4,070,577 3%
Oppenheimer VAF - Bond Fund ............. 84,868 18.882225 1,602,497 5%
</TABLE>
<PAGE> 27
<TABLE>
<S> <C> <C> <C> <C>
Oppenheimer VAF -
Global Securities Fund ............ 88,848 18.062180 1,604,789 13%
Oppenheimer VAF - Growth Fund ........ 26,155 12.764150 333,846 22%
Oppenheimer VAF -
Multiple Strategies Fund .......... 110,357 22.780548 2,513,993 5%
Strong Opportunity Fund II, Inc. ..... 111,969 29.253391 3,275,473 12%
Strong VIF - Strong Discovery
Fund II ............................ 58,970 18.780910 1,107,510 6%
Strong VIF -
Strong International Stock
Fund II ......................... 35,834 8.939643 320,343 (6)%
Van Eck WIT - Worldwide Bond Fund .... 56,294 16.129801 908,011 11%
Van Eck WIT -
Worldwide Emerging Markets Fund ... 25,018 5.717162 143,032 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund ........ 128,220 10.966233 1,406,090 (32)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio .............. 67,042 15.620311 1,047,217 (13)%
Warburg Pincus Trust -
International Equity Portfolio .... 92,476 11.611647 1,073,799 4%
Warburg Pincus Trust -
Post Venture Capital Portfolio .... 23,108 11.954408 276,242 5%
Warburg Pincus Trust -
Small Company Growth Portfolio .... 152,727 15.298780 2,336,537 (4)%
Multiple Payment contracts and
Flexible Premium contracts:
American Century VP -
American Century VP Balanced ...... 215,629 19.320541 4,166,069 15%
American Century VP - American Century
VP Capital Appreciation ........... 649,478 14.277913 9,273,190 (3)%
American Century VP - American Century
VP Income & Growth ................ 73,815 10.862660 801,827 9%(a)
American Century VP -
American Century VP International . 568,779 16.487231 9,377,591 18%
American Century VP -
American Century VP Value ......... 140,522 13.192098 1,853,780 4%
The Dreyfus Socially Responsible
Growth Fund, Inc. ................. 359,871 28.323603 10,192,843 28%
Dreyfus Stock Index Fund ............. 2,166,290 28.091438 60,854,201 27%
Dreyfus VIF -
Capital Appreciation Portfolio .... 257,361 13.197284 3,396,466 29%
Dreyfus VIF -
Growth and Income Portfolio ....... 125,274 12.772496 1,600,062 11%
Fidelity VIP - Equity-Income Portfolio 1,726,955 35.444796 61,211,568 11%
</TABLE>
(Continued)
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP - Growth Portfolio ......... 2,346,630 40.998916 96,209,286 38%
Fidelity VIP - High Income Portfolio .... 737,225 26.133234 19,266,073 (5)%
Fidelity VIP - Overseas Portfolio ....... 871,214 18.969496 16,526,490 12%
Fidelity VIP-II - Asset Manager
Portfolio ............................. 961,754 24.821550 23,872,225 14%
Fidelity VIP-II - Contrafund Portfolio .. 1,826,890 21.209617 38,747,637 29%
Fidelity VIP-III -
Growth Opportunities Portfolio ....... 315,036 13.546531 4,267,645 24%
Morgan Stanley -
Emerging Markets Debt Portfolio ...... 34,905 6.986851 243,876 (29)%
Nationwide SAT -
Capital Appreciation Fund ............ 1,058,148 31.669989 33,511,536 29%
Nationwide SAT -
Government Bond Fund ................. 414,068 18.081576 7,487,002 8%
Nationwide SAT - Money Market Fund ...... 1,953,963 13.319323 26,025,464 4%
Nationwide SAT - Small Cap Value Fund ... 50,840 8.557853 435,081 (14)%(a)
Nationwide SAT - Small Company Fund ..... 879,309 16.233001 14,273,824 0%
Nationwide SAT - Total Return Fund ...... 2,650,483 33.070880 87,653,805 17%
Neuberger &Berman AMT -
Growth Portfolio ..................... 767,489 25.347646 19,454,039 15%
Neuberger & Berman AMT -
Guardian Portfolio ................... 71,761 9.314041 668,385 (7)%(a)
Neuberger &Berman AMT -
Limited Maturity Bond Portfolio ...... 195,748 14.860392 2,908,892 4%
Neuberger &Berman AMT -
Partners Portfolio ................... 1,151,452 23.514569 27,075,898 3%
Oppenheimer VAF - Bond Fund ............. 532,098 18.103341 9,632,752 6%
Oppenheimer VAF -
Global Securities Fund ............... 980,014 18.542353 18,171,766 13%
Oppenheimer VAF - Growth Fund ........... 342,717 12.857977 4,406,647 23%
Oppenheimer VAF -
Multiple Strategies Fund ............. 460,679 22.696024 10,455,582 6%
Strong Opportunity Fund II, Inc. ........ 874,006 30.245312 26,434,584 13%
Strong VIF - Strong Discovery Fund II ... 360,468 19.418031 6,999,579 6%
Strong VIF -
Strong International Stock Fund II ... 149,776 9.083353 1,360,468 (6)%
Van Eck WIT - Worldwide Bond Fund ....... 154,980 15.314274 2,373,406 12%
Van Eck WIT -
Worldwide Emerging Markets Fund ...... 253,188 5.775322 1,462,242 (35)%
Van Eck WIT -
Worldwide Hard Assets Fund ........... 206,325 12.213208 2,519,890 (32)%
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C>
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio ................. 287,075 15.895654 4,563,245 (12)%
Warburg Pincus Trust -
International Equity Portfolio ....... 579,078 11.816371 6,842,600 5%
Warburg Pincus Trust -
Post Venture Capital Portfolio ....... 64,081 12.075838 773,832 6%
Warburg Pincus Trust -
Small Company Growth Portfolio ....... 731,702 15.568525 11,391,521 (4)%
Modified Single Premium contracts and
Last Survivor Flexible Premium contracts:
American Century VP -
American Century VP Balanced ......... 40,224 14.655512 589,503 16%
American Century VP - American Century
VP Capital Appreciation .............. 56,709 8.631172 489,465 (2)%
American Century VP - American Century
VP Income & Growth ................... 49,568 10.920877 541,326 9%(a)
American Century VP -
American Century VP International .... 109,633 15.178805 1,664,098 19%
American Century VP -
American Century VP Value ............ 39,670 13.407134 531,861 5%
The Dreyfus Socially Responsible
Growth Fund, Inc. .................... 59,391 18.577940 1,103,362 29%
Dreyfus Stock Index Fund ................ 451,985 19.535151 8,829,595 28%
Dreyfus VIF -
Capital Appreciation Portfolio ....... 32,649 13.352746 435,954 30%
Dreyfus VIF -
Growth and Income Portfolio .......... 33,423 12.980656 433,852 12%
Fidelity VIP - Equity-Income Portfolio .. 424,796 15.430209 6,554,691 12%
Fidelity VIP - Growth Portfolio ......... 312,967 17.992701 5,631,122 39%
Fidelity VIP - High Income Portfolio .... 328,441 12.192188 4,004,414 (4)%
Fidelity VIP - Overseas Portfolio ....... 94,348 13.418281 1,265,988 13%
Fidelity VIP-II - Asset Manager
Portfolio ............................ 96,546 15.299714 1,477,126 15%
Fidelity VIP-II - Contrafund Portfolio .. 294,323 18.152724 5,342,764 30%
Fidelity VIP-III -
Growth Opportunities Portfolio ....... 54,891 13.706120 752,343 25%
Morgan Stanley -
Emerging Markets Debt Portfolio ...... 6,444 7.069376 45,555 (28)%
Nationwide SAT -
Capital Appreciation Fund ............ 207,778 20.293858 4,216,617 30%
Nationwide SAT -
Government Bond Fund ................. 100,956 12.754801 1,287,674 9%
Nationwide SAT - Money Market Fund ...... 904,630 11.456534 10,363,924 5%
</TABLE>
(Continued)
<PAGE> 30
<TABLE>
<S> <C> <C> <C> <C>
Nationwide SAT - Small Cap Value
Fund ............................... 18,425 8.603810 158,525 (14)%(a)
Nationwide SAT - Small Company Fund .. 170,740 12.475012 2,129,984 1%
Nationwide SAT - Total Return Fund ... 377,762 17.490359 6,607,193 18%
Neuberger &Berman AMT -
Growth Portfolio .................. 95,390 14.709510 1,403,140 16%
Neuberger & Berman AMT -
Guardian Portfolio ................ 15,552 9.364011 145,629 (6)%(a)
Neuberger &Berman AMT -
Limited Maturity Bond Portfolio ... 72,201 11.674617 842,919 4%
Neuberger &Berman AMT -
Partners Portfolio ................ 241,826 15.696640 3,795,856 4%
Oppenheimer VAF - Bond Fund .......... 90,724 12.420731 1,126,858 7%
Oppenheimer VAF -
Global Securities Fund ............ 89,467 15.133929 1,353,987 14%
Oppenheimer VAF - Growth Fund ........ 98,891 13.009524 1,286,525 24%
Oppenheimer VAF -
Multiple Strategies Fund .......... 90,548 13.674340 1,238,184 7%
Strong Opportunity Fund II, Inc. ..... 85,559 15.336685 1,312,191 14%
Strong VIF - Strong Discovery
Fund II ............................ 20,724 11.809640 244,743 7%
Strong VIF -
Strong International Stock
Fund II ......................... 36,980 8.279751 306,185 (5)%
Van Eck WIT - Worldwide Bond Fund .... 21,531 12.141253 261,413 13%
Van Eck WIT -
Worldwide Emerging Markets Fund ... 41,962 5.869611 246,301 (34)%
Van Eck WIT -
Worldwide Hard Assets Fund ........ 21,804 6.825397 148,821 (31)%
Van Kampen American Capital LIT -
Morgan Stanley Real Estate
Securities Portfolio .............. 58,853 14.679798 863,950 (12)%
Warburg Pincus Trust -
International Equity Portfolio .... 132,142 10.230064 1,351,821 5%
Warburg Pincus Trust -
Post Venture Capital Portfolio .... 4,122 12.272697 50,588 7%
Warburg Pincus Trust -
Small Company Growth Portfolio .... 131,376 11.041376 1,450,572 (3)%
======= ========= ========= ==
$894,156,479
=============
</TABLE>
(a) This investment option was not being utilized for the entire period.
Accordingly, the annual return was computed for such period as the
investment option was utilized.
(b) The annual return does not include contract charges satisfied by
surrendering units.
<PAGE> 67
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Nationwide Life
Insurance Company and subsidiaries (collectively the Company), a wholly owned
subsidiary of Nationwide Financial Services, Inc., as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
January 29, 1999
<PAGE> 2
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Balance Sheets
(in millions of dollars, except per share amounts)
December 31,
-----------------------
Assets 1998 1997
------ --------- ---------
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities $14,245.1 $13,204.1
Equity securities 127.2 80.4
Mortgage loans on real estate, net 5,328.4 5,181.6
Real estate, net 243.6 311.4
Policy loans 464.3 415.3
Other long-term investments 44.0 25.2
Short-term investments 289.1 358.4
--------- ---------
20,741.7 19,576.4
--------- ---------
Cash 3.4 175.6
Accrued investment income 218.7 210.5
Deferred policy acquisition costs 2,022.2 1,665.4
Other assets 420.3 438.4
Assets held in separate accounts 50,935.8 37,724.4
--------- ---------
$74,342.1 $59,790.7
========= =========
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims $19,767.1 $18,702.8
Other liabilities 866.1 885.6
Liabilities related to separate accounts 50,935.8 37,724.4
--------- ---------
71,569.0 57,312.8
--------- ---------
Commitments and contingencies (notes 7 and 12)
Shareholder's equity:
Common stock, $1 par value. Authorized 5.0 million shares;
3.8 million shares issued and outstanding 3.8 3.8
Additional paid-in capital 914.7 914.7
Retained earnings 1,579.0 1,312.3
Accumulated other comprehensive income 275.6 247.1
--------- ---------
2,773.1 2,477.9
--------- ---------
$74,342.1 $59,790.7
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Income
(in millions of dollars)
Years ended December 31,
-----------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Policy charges $ 698.9 $ 545.2 $ 400.9
Life insurance premiums 200.0 205.4 198.6
Net investment income 1,481.6 1,409.2 1,357.8
Realized gains (losses) on investments 28.4 11.1 (0.3)
Other 66.8 46.5 35.9
-------- -------- --------
2,475.7 2,217.4 1,992.9
-------- -------- --------
Benefits and expenses:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Other benefits and claims 175.8 178.2 178.3
Policyholder dividends on participating policies 39.6 40.6 41.0
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Other operating expenses 419.7 384.9 342.4
-------- -------- --------
1,918.6 1,787.5 1,677.4
-------- -------- --------
Income from continuing operations before federal income tax expense 557.1 429.9 315.5
Federal income tax expense 190.4 150.2 110.9
-------- -------- --------
Income from continuing operations 366.7 279.7 204.6
Income from discontinued operations (less federal income tax expense
of $4.5 in 1996) -- -- 11.3
-------- -------- --------
Net income $ 366.7 $ 279.7 $ 215.9
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1998, 1997 and 1996
(in millions of dollars)
Accumulated
Additional other Total
Common paid-in Retained comprehensive shareholder's
stock capital earnings income equity
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ 3.8 $ 657.2 $1,583.2 $ 384.3 $2,628.5
Comprehensive income:
Net income -- -- 215.9 -- 215.9
Net unrealized losses on securities
available-for-sale arising during
the year -- -- -- (170.9) (170.9)
--------
Total comprehensive income 45.0
--------
Dividends to shareholder -- (129.3) (366.5) (39.8) (535.6)
------ ------- -------- ------- --------
December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9
Comprehensive income:
Net income -- -- 279.7 -- 279.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 73.5 73.5
--------
Total comprehensive income 353.2
--------
Capital contribution -- 836.8 -- -- 836.8
Dividend to shareholder -- (450.0) (400.0) -- (850.0)
------ ------- -------- ------- --------
December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9
Comprehensive income:
Net income -- -- 366.7 -- 366.7
Net unrealized gains on securities
available-for-sale arising during
the year -- -- -- 28.5 28.5
--------
Total comprehensive income 395.2
--------
Dividend to shareholder -- -- (100.0) -- (100.0)
------ ------- -------- ------- --------
December 31, 1998 $ 3.8 $ 914.7 $1,579.0 $ 275.6 $2,773.1
====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Consolidated Statements of Cash Flows
(in millions of dollars)
Years ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 366.7 $ 279.7 $ 215.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholder account balances 1,069.0 1,016.6 982.3
Capitalization of deferred policy acquisition costs (584.2) (487.9) (422.6)
Amortization of deferred policy acquisition costs 214.5 167.2 133.4
Amortization and depreciation (8.5) (2.0) 7.0
Realized gains on invested assets, net (28.4) (11.1) (0.3)
(Increase) decrease in accrued investment income (8.2) (0.3) 2.8
(Increase) decrease in other assets 16.4 (12.7) (38.9)
Decrease in policy liabilities (8.3) (23.1) (151.0)
(Decrease) increase in other liabilities (34.8) 230.6 191.4
Other, net (11.3) (10.9) (61.7)
--------- --------- ---------
Net cash provided by operating activities 982.9 1,146.1 858.3
--------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,557.0 993.4 1,162.8
Proceeds from sale of securities available-for-sale 610.5 574.5 299.6
Proceeds from repayments of mortgage loans on real estate 678.2 437.3 309.0
Proceeds from sale of real estate 103.8 34.8 18.5
Proceeds from repayments of policy loans and sale of other invested assets 23.6 22.7 22.8
Cost of securities available-for-sale acquired (3,182.8) (2,828.1) (1,573.6)
Cost of mortgage loans on real estate acquired (829.1) (752.2) (972.8)
Cost of real estate acquired (0.8) (24.9) (7.9)
Policy loans issued and other invested assets acquired (88.4) (62.5) (57.7)
Short-term investments, net 69.3 (354.8) 28.0
--------- --------- ---------
Net cash used in investing activities (1,058.7) (1,959.8) (771.3)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions -- 836.8 --
Cash dividends paid (100.0) -- (50.0)
Increase in investment product and universal life insurance
product account balances 2,682.1 2,488.5 1,781.8
Decrease in investment product and universal life insurance
product account balances (2,678.5) (2,379.8) (1,784.5)
--------- --------- ---------
Net cash (used in) provided by financing activities (96.4) 945.5 (52.7)
--------- --------- ---------
Net (decrease) increase in cash (172.2) 131.8 34.3
Cash, beginning of year 175.6 43.8 9.5
--------- --------- ---------
Cash, end of year $ 3.4 $ 175.6 $ 43.8
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Organization and Description of Business
----------------------------------------
Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
wholly owned by Nationwide Corporation (Nationwide Corp.). On that
date, Nationwide Corp. contributed the outstanding shares of NLIC's
common stock to Nationwide Financial Services, Inc. (NFS), a holding
company formed by Nationwide Corp. in November 1996 for NLIC and the
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. On March 11,
1997, NFS completed an initial public offering of its Class A common
stock.
During 1996 and 1997, Nationwide Corp. and NFS completed certain
transactions in anticipation of the initial public offering that
focused the business of NFS on long-term savings and retirement
products. On September 24, 1996, NLIC declared a dividend payable to
Nationwide Corp. on January 1, 1997 consisting of the outstanding
shares of common stock of certain subsidiaries that do not offer or
distribute long-term savings or retirement products. In addition,
during 1996, NLIC entered into two reinsurance agreements whereby all
of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. These subsidiaries,
through December 31, 1996, and all accident and health and group life
insurance business have been accounted for as discontinued operations
for all periods presented. See notes 10 and 14. Additionally, NLIC paid
$900.0 million of dividends, $50.0 million to Nationwide Corp. on
December 31, 1996 and $850.0 million to NFS, which then made an
equivalent dividend to Nationwide Corp., on February 24, 1997.
NFS contributed $836.8 million to the capital of NLIC during March
1997.
Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
The Company is a leading provider of long-term savings and retirement
products, including variable annuities, fixed annuities and life
insurance.
(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, which differ
from statutory accounting practices prescribed or permitted by
regulatory authorities. Annual Statements for NLIC and NLAIC, filed
with the Department of Insurance of the State of Ohio (the Department),
are prepared on the basis of accounting practices prescribed or
permitted by the Department. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The Company has
no material permitted statutory accounting practices.
<PAGE> 7
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
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 consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Operations that are classified
and reported as discontinued operations are not consolidated but
rather are reported as "Income from discontinued operations" in
the accompanying consolidated statements of income. All
significant intercompany balances and transactions have been
eliminated.
(b) Valuation of Investments and Related Gains and Losses
-----------------------------------------------------
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity,
available-for-sale or trading. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified
as held-to-maturity and all equity securities are classified as
available-for-sale and are stated at fair value, with the
unrealized gains and losses, net of adjustments to deferred policy
acquisition costs and deferred federal income tax, reported as a
separate component of shareholder's equity. The adjustment to
deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have
been required as a charge or credit to operations had such
unrealized amounts been realized. The Company has no fixed
maturity securities classified as held-to-maturity or trading as
of December 31, 1998 or 1997.
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 is included in interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are
determined on the basis of specific security identification.
Estimates for valuation allowances and other than temporary
declines are included in realized gains and losses on investments.
<PAGE> 8
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(c) Revenues and Benefits
---------------------
Investment Products and Universal Life Insurance Products:
Investment products consist primarily of individual and group
variable and fixed deferred annuities. Universal life insurance
products include universal life insurance, variable universal life
insurance, corporate owned life insurance and other
interest-sensitive life insurance policies. Revenues for
investment products and universal life insurance products consist
of net investment income, asset fees, cost of insurance, policy
administration and surrender charges that have been earned and
assessed against policy account balances during the period. Policy
benefits and claims that are charged to expense include interest
credited to policy account balances and benefits and claims
incurred in the period in excess of related policy account
balances.
Traditional Life Insurance Products: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result
in recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
(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 sales expenses have been deferred. For
investment products and universal life insurance products,
deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present
value of estimated future gross profits from projected interest
margins, asset fees, cost of insurance, policy administration and
surrender charges. For years in which gross profits are negative,
deferred policy acquisition costs are amortized based on the
present value of gross revenues. For traditional life 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. 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. For all but $743.9 million of separate
account assets, the investment income and gains or losses of these
accounts accrue directly to the contractholders. The activity of
the separate accounts is not reflected in the consolidated
statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
----------------------
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges. The average interest rate credited on investment product
policy reserves was 6.0%, 6.1% and 6.3% for the years ended
December 31, 1998, 1997 and 1996, respectively.
Future policy benefits for traditional life insurance policies
have been calculated by the net level premium method using
interest rates varying from 6.0% to 10.5% and 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.
<PAGE> 9
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(g) Participating Business
----------------------
Participating business represents approximately 40% in 1998 (50%
in 1997 and 52% in 1996) of the Company's life insurance in force,
74% in 1998 (77% in 1997 and 78% in 1996) of the number of life
insurance policies in force, and 14% in 1998 (27% in 1997 and 40%
in 1996) of life insurance statutory premiums. The provision for
policyholder dividends is based on current dividend scales and is
included in "Future policy benefits and claims" in the
accompanying consolidated balance sheets.
(h) Federal Income Tax
------------------
The Company files a consolidated federal income tax return with
Nationwide Mutual Insurance Company (NMIC), the majority
shareholder of Nationwide Corp. The members of the consolidated
tax return group have a tax sharing arrangement which provides, in
effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
(i) Reinsurance Ceded
-----------------
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to
affiliates and is accounted for as discontinued operations. See
notes 10 and 14.
<PAGE> 10
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(j) Recently Issued Accounting Pronouncements
-----------------------------------------
On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures
about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards
for public business enterprises to report information about
operating segments in annual financial statements and selected
information about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
adoption of SFAS 131 did not affect results of operations or
financial position, nor did it affect the manner in which the
Company defines its operating segments. The segment information
required for annual financial statements is included in note 13.
On January 1, 1998, the Company adopted SFAS No. 132 - Employers'
Disclosures about Pensions and Other Postretirement Benefits (SFAS
132). SFAS 132 revises employers' disclosures about pension and
other postretirement benefit plans. The Statement does not change
the measurement or recognition of benefit plans in the financial
statements. The revised disclosures required by SFAS 132 are
included in note 8.
In June 1998, the FASB issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Contracts that contain
embedded derivatives, such as certain insurance contracts, are
also addressed by the Statement. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. The Statement is effective for fiscal years beginning
after June 15, 1999. It may be implemented earlier provided
adoption occurs as of the beginning of any fiscal quarter after
issuance. The Company plans to adopt this Statement in first
quarter 2000 and is currently evaluating the impact on results of
operations and financial condition.
In March 1998, The American Institute of Certified Public
Accountant's Accounting Standards Executive Committee issued
Statement of Position 98-1 - Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1). SOP
98-1 provides guidance intended to standardize accounting
practices for costs incurred to develop or obtain computer
software for internal use. Specifically, SOP 98-1 provides
guidance for determining whether computer software is for internal
use and when costs incurred for internal use software are to be
capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does
not expect the adoption of SOP 98-1, which occurred on January 1,
1999, to have a material impact on the Company's financial
statements.
(k) Reclassification
----------------
Certain items in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the 1998
presentation.
<PAGE> 11
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(3) Investments
-----------
The amortized cost, gross unrealized gains and losses and estimated
fair value of securities available-for-sale as of December 31, 1998 and
1997 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(in millions of dollars) cost gains losses fair value
------------------------ ---- ----- ------ ----------
<S> <C> <C> <C> <C>
December 31, 1998:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 106.5 4.5 -- 111.0
Corporate securities 9,899.6 423.2 (18.7) 10,304.1
Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5
--------- ------ ------ ---------
Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1
Equity securities 110.4 18.3 (1.5) 127.2
--------- ------ ------ ---------
$13,831.7 $563.2 $(22.6) $14,372.3
========= ====== ====== =========
December 31, 1997:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $ 305.1 $ 8.6 $ -- $ 313.7
Obligations of states and political subdivisions 1.6 -- -- 1.6
Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8
Corporate securities 8,698.7 355.5 (11.5) 9,042.7
Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3
--------- ------ ------ ---------
Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1
Equity securities 67.8 12.9 (0.3) 80.4
--------- ------ ------ ---------
$12,800.7 $498.3 $(14.5) $13,284.5
========= ====== ====== =========
</TABLE>
As of December 31, 1998 the Company had entered into S&P 500 futures
contracts with a notional amount of $20.0 million to reduce the risk of
changes in the fair market value of certain investments classified as
equity securities. These contracts had an unrealized loss of $1.3
million as of December 31, 1998 which is included in the recorded
amount of the equity securities and in accumulated other comprehensive
income, net of tax, similar to other unrealized gains and losses on
securities available-for-sale.
<PAGE> 12
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amortized cost and estimated fair value of fixed maturity
securities available-for-sale as of December 31, 1998, by expected
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(in millions of dollars) cost fair value
---- ----------
<S> <C> <C>
Fixed maturity securities available for sale:
Due in one year or less $ 2,019.9 $ 2,048.0
Due after one year through five years 8,169.1 8,470.6
Due after five years through ten years 2,795.0 2,927.7
Due after ten years 737.3 798.8
--------- ---------
$13,721.3 $14,245.1
========= =========
</TABLE>
The components of unrealized gains on securities available-for-sale,
net, were as follows as of December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Gross unrealized gains $ 540.6 $ 483.8
Adjustment to deferred policy acquisition costs (116.6) (103.7)
Deferred federal income tax (148.4) (133.0)
------- -------
$ 275.6 $ 247.1
======= =======
</TABLE>
An analysis of the change in gross unrealized gains (losses) on
securities available-for-sale and fixed maturity securities
held-to-maturity follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $52.6 $137.5 $(289.2)
Equity securities 4.2 (2.7) 8.9
----- ------ -------
$56.8 $134.8 $(280.3)
===== ====== =======
</TABLE>
Proceeds from the sale of securities available-for-sale during 1998,
1997 and 1996 were $610.5 million, $574.5 million and $299.6 million,
respectively. During 1998, gross gains of $9.0 million ($9.9 million
and $6.6 million in 1997 and 1996, respectively) and gross losses of
$7.6 million ($18.0 million and $6.9 million in 1997 and 1996,
respectively) were realized on those sales. In addition, gross gains of
$15.1 million and gross losses of $0.7 million were realized in 1997
when the Company paid a dividend to NFS, which then made an equivalent
dividend to Nationwide Corp., consisting of securities having an
aggregate fair value of $850.0 million.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1998 was $3.7 million. No valuation
allowance has been recorded for these loans as of December 31, 1998.
The recorded investment of mortgage loans on real estate considered to
be impaired as of December 31, 1997 was $19.9 million which includes
$3.9 million of impaired mortgage loans on real estate for which the
related valuation allowance was $0.1 million and $16.0 million of
impaired mortgage loans on real estate for which there was no valuation
allowance. During 1998, the average recorded investment in impaired
mortgage loans on real estate was approximately $9.1 million ($31.8
million in 1997) and interest income recognized on those loans was $0.3
million ($1.0 million in 1997), which is equal to interest income
recognized using a cash-basis method of income recognition.
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Allowance, beginning of year $42.5 $51.0
Reductions credited to operations (0.1) (1.2)
Direct write-downs charged against the allowance -- (7.3)
----- -----
Allowance, end of year $42.4 $42.5
===== =====
</TABLE>
Real estate is presented at cost less accumulated depreciation of $21.5
million as of December 31, 1998 ($45.1 million as of December 31, 1997)
and valuation allowances of $5.4 million as of December 31, 1998 ($11.1
million as of December 31, 1997).
Investments that were non-income producing for the twelve month period
preceding December 31, 1998 amounted to $42.4 million ($19.4 million
for 1997) and consisted of $32.7 million ($3.0 million in 1997) in
securities available-for-sale and $9.7 million ($16.4 million in 1997)
in real estate.
An analysis of investment income by investment type follows for the
years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $ 982.5 $ 911.6 $ 917.1
Equity securities 0.8 0.8 1.3
Mortgage loans on real estate 458.9 457.7 432.8
Real estate 40.4 42.9 44.3
Short-term investments 17.8 22.7 4.2
Other 30.7 21.0 4.0
-------- -------- --------
Total investment income 1,531.1 1,456.7 1,403.7
Less investment expenses 49.5 47.5 45.9
-------- -------- --------
Net investment income $1,481.6 $1,409.2 $1,357.8
======== ======== ========
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(0.7) $ 3.6 $(3.5)
Equity securities 2.1 2.7 3.2
Mortgage loans on real estate 3.9 1.6 (4.1)
Real estate and other 23.1 3.2 4.1
----- ----- -----
$28.4 $11.1 $(0.3)
===== ===== =====
</TABLE>
Fixed maturity securities with an amortized cost of $6.5 million and
$6.2 million as of December 31, 1998 and 1997, respectively, were on
deposit with various regulatory agencies as required by law.
<PAGE> 14
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(4) Federal Income Tax
------------------
The Company's current federal income tax liability was $72.8 million
and $60.1 million as of December 31, 1998 and 1997, respectively.
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policy benefits $207.7 $200.1
Liabilities in Separate Accounts 319.9 242.0
Mortgage loans on real estate and real estate 17.5 19.0
Other assets and other liabilities 58.9 59.2
------ ------
Total gross deferred tax assets 604.0 520.3
Less valuation allowance (7.0) (7.0)
------ ------
Net deferred tax assets 597.0 513.3
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs 568.7 480.5
Fixed maturity securities 212.2 193.3
Deferred tax on realized investment gains 34.8 40.1
Equity securities and other long-term investments 9.6 7.5
Other 21.6 22.2
------ ------
Total gross deferred tax liabilities 846.9 743.6
------ ------
Net deferred tax liability $249.9 $230.3
====== ======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of the
total gross deferred tax assets will not be realized. Nearly all future
deductible amounts can be offset by future taxable amounts or recovery
of federal income tax paid within the statutory carryback period. There
has been no change in the valuation allowance for the years ended
December 31, 1998, 1997 and 1996.
Federal income tax expense attributable to income from continuing
operations for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable $186.1 $121.7 $116.5
Deferred tax expense (benefit) 4.3 28.5 (5.6)
------ ------ ------
$190.4 $150.2 $110.9
====== ====== ======
</TABLE>
<PAGE> 15
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Total federal income tax expense for the years ended December 31, 1998,
1997 and 1996 differs from the amount computed by applying the U.S.
federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(in millions of dollars) Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax expense $195.0 35.0 $150.5 35.0 $110.4 35.0
Tax exempt interest and dividends
received deduction (4.9) (0.9) - 0.0 (0.2) (0.1)
Other, net 0.3 0.1 (0.3) (0.1) 0.7 0.3
------ ---- ------ ---- ------ ----
Total (effective rate of each year) $190.4 34.2 $150.2 34.9 $110.9 35.2
====== ==== ====== ==== ====== ====
</TABLE>
Total federal income tax paid was $173.4 million, $91.8 million and
$115.8 million during the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) Comprehensive Income
--------------------
Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the
Company adopted January 1, 1998, the Consolidated Statements of
Shareholder's Equity include a new measure called "Comprehensive
Income". Comprehensive Income includes net income as well as certain
items that are reported directly within separate components of
shareholders' equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal tax amounts are as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized gains (losses) on securities
available-for-sale arising during the period:
Gross $ 58.2 $141.1 $(272.4)
Adjustment to deferred policy acquisition costs (12.9) (21.8) 57.0
Related federal income tax (expense) benefit (15.9) (41.7) 44.0
------ ------ ------
Net 29.4 77.6 (171.4)
------ ------ ------
Reclassification adjustment for net (gains) losses
on securities available-for-sale realized
during the period:
Gross (1.4) (6.3) 0.7
Related federal income tax expense (benefit) 0.5 2.2 (0.2)
------ ------ -------
Net (0.9) (4.1) 0.5
------ ------ -------
Total Other Comprehensive Income $ 28.5 $ 73.5 $(170.9)
====== ====== =======
</TABLE>
(6) Fair Value of Financial Instruments
-----------------------------------
The following disclosures summarize the carrying amount and estimated
fair value of the Company's financial instruments. Certain assets and
liabilities are specifically excluded from the disclosure requirements
of financial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
<PAGE> 16
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The fair value of a financial instrument is defined 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 to be based on estimates using
present value or other valuation techniques. Many of the Company's
assets and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management
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.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically exempted
from the disclosure requirements, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair value
disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can
have a significant effect on fair value estimates and have not been
considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
Fixed maturity and equity securities: The 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. The carrying amount and fair value for
equity securities exclude the fair value of futures contracts
designated as hedges of equity securities.
Mortgage loans on real estate, net: 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 mortgage loans in default is the estimated fair
value of the underlying collateral.
Policy loans, short-term investments and cash: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Separate account assets and liabilities: The fair value of assets
held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the
amount payable on demand, which is net of certain surrender
charges.
Investment contracts: The 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.
<PAGE> 17
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Policy reserves on life insurance contracts: Included are
disclosures for individual life insurance, universal life
insurance and supplementary contracts with life contingencies for
which the estimated fair value is the amount payable on demand.
Also included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
Commitments to extend credit: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 7.
Futures contracts: The fair value for futures contracts is based
on quoted market prices.
Carrying amount and estimated fair value of financial instruments
subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Carrying Estimated Carrying Estimated
(in millions of dollars) amount fair value amount fair value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturity securities $14,245.1 $14,245.1 $13,204.1 $13,204.1
Equity securities 128.5 128.5 80.4 80.4
Mortgage loans on real estate, net 5,328.4 5,527.6 5,181.6 5,509.7
Policy loans 464.3 464.3 415.3 415.3
Short-term investments 289.1 289.1 358.4 358.4
Cash 3.4 3.4 175.6 175.6
Assets held in separate accounts 50,935.8 50,935.8 37,724.4 37,724.4
Liabilities:
Investment contracts 15,468.7 15,158.6 14,708.2 14,322.1
Policy reserves on life insurance contracts 3,914.0 3,768.9 3,345.4 3,182.4
Liabilities related to separate accounts 50,935.8 49,926.5 37,724.4 36,747.0
Futures contracts 1.3 1.3 -- --
</TABLE>
(7) Risk Disclosures
----------------
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
Credit Risk: The risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company
will default or that other parties, including reinsurers, which owe the
Company money, will not pay. The Company minimizes this risk by
adhering to a conservative investment strategy, by maintaining
reinsurance and credit and collection policies and by providing for any
amounts deemed uncollectible.
Interest Rate Risk: 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.
<PAGE> 18
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Legal/Regulatory Risk: The risk that changes in the legal or regulatory
environment in which an insurer operates will result in increased
competition, reduced demand for a company's products, or create
additional expenses not anticipated by the insurer in pricing its
products. 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.
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 75% of
collateral value. Should the commitment be funded, the Company's
exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amounts of these commitments less the
net realizable value of the collateral. The contractual amounts also
represent the cash requirements for all unfunded commitments.
Commitments on mortgage loans on real estate of $156.0 million
extending into 1999 were outstanding as of December 31, 1998. The
Company also had $40.0 million of commitments to purchase fixed
maturity securities outstanding as of December 31, 1998.
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 22% (20% in 1997) in any geographic area and no more than 2% (2%
in 1997) with any one borrower as of December 31, 1998. As of December
31, 1998, 42% (46% in 1997) of the remaining principal balance of the
Company's commercial mortgage loan portfolio financed retail
properties.
Reinsurance: The Company has entered into a reinsurance contract to
cede a portion of its general account individual annuity business to
The Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $187.9 million and $220.2 million as of December 31,
1998 and 1997, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder.
Under the terms of the contract, Franklin has established a trust as
collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all
times be greater than or equal to 102% of the reinsured reserves.
(8) Pension Plan and Postretirement Benefits Other Than Pensions
------------------------------------------------------------
The Company is a participant, together with other affiliated companies,
in a pension plan covering all employees who have completed at least
one year 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. Assets of the
Retirement Plan are invested in group annuity contracts of NLIC and
Employers Life Insurance Company of Wausau (ELICW).
Pension costs charged to operations by the Company during the years
ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million
and $7.4 million, respectively. The Company has recorded a prepaid
pension asset of $5.0 million as of December 31, 1998 and no prepaid or
accrued pension asset or expense as of December 31, 1997.
<PAGE> 19
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition to the defined benefit pension plan, the Company, together
with other affiliated companies, participates in life and health care
defined benefit plans for qualifying retirees. Postretirement life and
health care benefits are contributory and generally available to full
time employees who have attained age 55 and have accumulated 15 years
of service with the Company after reaching age 40. Postretirement
health care benefit contributions are adjusted annually and contain
cost-sharing features such as deductibles and coinsurance. In addition,
there are caps on the Company's portion of the per-participant cost of
the postretirement health care benefits. These caps can increase
annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the
discretion of management. Plan assets are invested primarily in group
annuity contracts of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation (APBO), however, certain affiliated
companies elected to amortize their initial transition obligation over
periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31,
1998 and 1997 was $40.1 million and $36.5 million, respectively, and
the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and
1996 was $4.1 million, $3.0 million and $3.3 million, respectively.
Information regarding the funded status of the pension plan as a whole
and the postretirement life and health care benefit plan as a whole as
of December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
--------------------- -----------------------
(in millions of dollars) 1998 1997 1998 1997
--------------------------------------------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,033.8 $1,847.8 $237.9 $ 200.7
Service cost 87.6 77.3 9.8 7.0
Interest cost 123.4 118.6 15.4 14.0
Actuarial loss 123.2 60.0 15.6 24.4
Plan curtailment in 1998/merger in 1997 (107.2) 1.5 - -
Benefits paid (75.8) (71.4) (8.6) (8.2)
-------- -------- ------- -------
Benefit obligation at end of year 2,185.0 2,033.8 270.1 237.9
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 2,212.9 1,947.9 69.2 63.0
Actual return on plan assets 300.7 328.1 5.0 3.6
Employer contribution 104.1 7.2 12.1 10.6
Plan merger - 1.1 - -
Benefits paid (75.8) (71.4) (8.4) (8.0)
-------- -------- ------- -------
Fair value of plan assets at end of year 2,541.9 2,212.9 77.9 69.2
-------- -------- ------- -------
Funded status 356.9 179.1 (192.2) (168.7)
Unrecognized prior service cost 31.5 34.7 - -
Unrecognized net (gains) losses (345.7) (330.7) 16.0 1.6
Unrecognized net (asset) obligation at transition (11.0) 33.3 1.3 1.5
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ 31.7 $ (83.6) $(174.9) $(165.6)
======== ======== ======= =======
</TABLE>
<PAGE> 20
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Basis for measurements, funded status of the pension plan and
postretirement life and health care benefit plan:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- -----------------------
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Weighted average discount rate 5.50% 6.00% 6.65% 6.70%
Rate of increase in future compensation levels 3.75% 4.25% -- --
Assumed health care cost trend rate:
Initial rate -- -- 15.00% 12.13%
Ultimate rate -- -- 8.00% 6.12%
Uniform declining period -- -- 15 Years 12 Years
</TABLE>
The net periodic pension cost for the pension plan as a whole for the
years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
-------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Service cost (benefits earned during the period) $ 87.6 $ 77.3 $ 75.5
Interest cost on projected benefit obligation 123.4 118.6 105.5
Expected return on plan assets (159.0) (139.0) (116.1)
Recognized gains (3.8) - -
Amortization of prior service cost 3.2 3.2 3.2
Amortization of unrecognized transition obligation 4.2 4.2 4.1
------- ------- -------
$ 55.6 $ 64.3 $ 72.2
======= ======= =======
</TABLE>
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
affiliation with the Nationwide Insurance Enterprise and employees of
WSC ended participation in the plan. A curtailment gain of $67.1
million resulted (consisting of a $107.2 million reduction in the
projected benefit obligation, net of the write-off of the $40.1 million
remaining unamortized transition obligation related to WSC). The
Company anticipates that the plan will settle the obligation related to
WSC employees with a transfer of assets during 1999.
Basis for measurements, net periodic pension cost for the pension plan:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 6.00% 6.50% 6.00%
Rate of increase in future compensation levels 4.25% 4.75% 4.25%
Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
</TABLE>
<PAGE> 21
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The amount of NPPBC for the postretirement benefit plan as a whole for
the years ended December 31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 9.8 $ 7.0 $ 6.5
Interest cost on accumulated postretirement benefit obligation 15.4 14.0 13.7
Actual return on plan assets (5.0) (3.6) (4.3)
Amortization of unrecognized transition obligation of affiliates 0.2 0.2 0.2
Net amortization and deferral 1.2 (0.5) 1.8
----- ----- -----
$21.6 $17.1 $17.9
===== ===== =====
</TABLE>
Actuarial assumptions used for the measurement of the accumulated
postretirement benefit obligation (APBO) and the NPPBC for the
postretirement benefit plan for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
NPPBC:
Discount rate 6.70% 7.25% 6.65%
Long term rate of return on plan
assets, net of tax 5.83% 5.89% 4.80%
Assumed health care cost trend rate:
Initial rate 12.00% 11.00% 11.00%
Ultimate rate 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years
</TABLE>
For the postretirement benefit plan as a whole, a one percentage point
increase or decrease in the assumed health care cost trend rate would
have no impact on the APBO as of December 31, 1998 and have no impact
on the NPPBC for the year ended December 31, 1998.
(9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
----------------------------------------------------------------------
and Dividend Restrictions
-------------------------
Ohio, NLIC's and NLAIC'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 NLAIC each exceed
the minimum risk-based capital requirements.
The statutory capital and surplus of NLIC as of December 31, 1998, 1997
and 1996 was $1.32 billion, $1.13 billion and $1.00 billion,
respectively. The statutory net income of NLIC for the years ended
December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and
$73.2 million, respectively.
The Company is limited in the amount of shareholder dividends it may
pay without prior approval by the Department. As of December 31, 1998,
the maximum amount available for dividend payment from the Company to
its shareholder without prior approval of the Department was $71.0
million.
<PAGE> 22
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the
amount of statutory profits on NLIC's participating policies (measured
before dividends to policyholders) that can inure to the benefit of the
Company and its shareholder.
The Company currently does not expect such regulatory requirements to
impair its ability to pay operating expenses and shareholder dividends
in the future.
(10) Transactions With Affiliates
----------------------------
As part of the restructuring described in note 1, NLIC paid a dividend
valued at $485.7 million to Nationwide Corp. on January 1, 1997
consisting of the outstanding shares of common stock of ELICW, National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
an equivalent dividend to Nationwide Corp., consisting of securities
having an aggregate fair value of $850.0 million. The Company
recognized a gain of $14.4 million on the transfer of securities.
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the
Company made lease payments to NMIC and its subsidiaries of $8.0
million, $8.4 million and $9.1 million, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as sales support,
advertising, personnel and general management services, to those
subsidiaries. Expenses covered by this agreement are subject to
allocation among NMIC, the Company and other affiliates. Amounts
allocated to the Company were $95.0 million, $85.8 million and $101.6
million in 1998, 1997 and 1996, respectively. The allocations are based
on techniques and procedures in accordance with insurance regulatory
guidelines. Measures used to allocate expenses among companies include
individual employee estimates of time spent, special cost studies,
salary expense, commissions expense and other methods agreed to by the
participating companies that are within industry guidelines and
practices. The Company believes these allocation methods are
reasonable. In addition, the Company does not believe that expenses
recognized under the inter-company agreements are materially different
than expenses that would have been recognized had the Company operated
on a stand alone basis. Amounts payable to NMIC from the Company under
the cost sharing agreement were $31.9 million and $20.5 million as of
December 31, 1998 and 1997, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the securities
will be repurchased by the seller at the original sales price plus a
price differential. Transactions under the agreements during 1998 and
1997 were not material. The Company believes that the terms of the
repurchase agreements are materially consistent with what the Company
could have obtained with unaffiliated parties.
<PAGE> 23
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Intercompany reinsurance agreements exist between NLIC and,
respectively, NMIC and ELICW whereby all of NLIC's accident and health
and group life insurance business is ceded on a modified coinsurance
basis. NLIC entered into the reinsurance agreements during 1996 because
the accident and health and group life insurance business was unrelated
to the Company's long-term savings and retirement products.
Accordingly, the accident and health and group life insurance business
has been accounted for as discontinued operations for all periods
presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment
risk associated with changes in interest rates is borne by ELICW or
NMIC, as the case may be. Risk of asset default is retained by the
Company, although a fee is paid by ELICW or NMIC, as the case may be,
to the Company for the Company's retention of such risk. The agreements
will remain in force until all policy obligations are settled. However,
with respect to the agreement between NLIC and NMIC, either party may
terminate the contract on January 1 of any year with prior notice. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company believes that the terms of
the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated
parties. Amounts ceded to NMIC and ELICW for the years ended December
31, 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------
(in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums $90.1 $106.3 $ 91.4 $199.8 $ 97.3 $224.2
Net investment income and other
revenue $11.1 $ 9.4 $ 10.7 $ 13.4 $ 10.9 $ 14.8
Benefits, claims and expenses $98.8 $160.5 $100.7 $225.9 $100.5 $246.6
</TABLE>
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC), an affiliate, under which
NCMC acts as a common agent in handling the purchase and sale of
short-term securities for the respective accounts of the participants.
Amounts on deposit with NCMC were $248.4 million and $211.0 million as
of December 31, 1998 and 1997, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
Certain annuity products are sold through three affiliated companies,
which are also subsidiaries of NFS. Total commissions and fees paid to
these affiliates for the three years ended December 31, 1998 were $60.0
million, $66.1 million and $76.9 million, respectively.
(11) Bank Lines of Credit
--------------------
In August 1996, NLIC, along with NMIC, entered into a $600.0 million
revolving credit facility which provides for a $600.0 million loan over
a five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several and
not joint liability with respect to any amount drawn by either NLIC or
NMIC. NLIC and NMIC pay facility and usage fees to the financial
institutions to maintain the revolving credit facility. All previously
existing line of credit agreements were canceled. In September 1997,
the credit agreement was amended to include NFS as a party to and
borrower under the agreement. As of December 31, 1998 the Company had
no amounts outstanding under the agreement.
<PAGE> 24
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
(12) Contingencies
-------------
On October 29, 1998, the Company and certain of its affiliates were
named in a lawsuit filed in the Common Pleas Court of Franklin County,
Ohio related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
The plaintiff in such lawsuit seeks to represent a national class of
the Company's customers and seeks unspecified compensatory and punitive
damages. The Company is currently evaluating this lawsuit, which is in
an early stage and has not been certified as a class. The Company
intends to defend this lawsuit vigorously.
(13) Segment Information
-------------------
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports three product segments:
Variable Annuities, Fixed Annuities and Life Insurance.
The Variable Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company, with
investment returns accumulating on a tax-deferred basis. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis.
Such contracts consist of single premium deferred annuities, flexible
premium deferred annuities and single premium immediate annuities. The
Fixed Annuities segment includes the fixed option under variable
annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, that provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
revenues and expenses of its investment advisor subsidiary (other than
the portion allocated to the Variable Annuities and Life Insurance
segments), revenues and expenses related to group annuity contracts
sold to Nationwide Insurance Enterprise employee and agent benefit
plans and all realized gains and losses on investments in a Corporate
and Other segment.
<PAGE> 25
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
The following table summarizes the financial results of the Company's business
segments for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
- ------------------------------------ --------- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1998:
Net investment income (1) $ (31.3) $ 1,116.6 $ 231.6 $ 164.7 $ 1,481.6
Other operating revenue 560.8 35.7 319.6 49.6 965.7
--------- --------- -------- -------- ---------
Total operating revenue (2) 529.5 1,152.3 551.2 214.3 2,447.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 828.6 115.4 125.0 1,069.0
Amortization of deferred policy
acquisition costs 123.9 44.2 46.4 -- 214.5
Other benefits and expenses 187.2 104.2 294.6 49.1 635.1
--------- --------- -------- -------- ---------
Total expenses 311.1 977.0 456.4 174.1 1,918.6
--------- --------- -------- -------- ---------
Operating income (loss) before
federal income tax 218.4 175.3 94.8 40.2 528.7
Realized gains on investments -- -- -- 28.4 28.4
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 218.4 $ 175.3 $ 94.8 $ 68.6 $ 557.1
========= ========= ======== ======== =========
Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1
========= ========= ======== ======== =========
1997:
Net investment income (1) $ (26.9) $ 1,098.2 $ 189.1 $ 148.8 $ 1,409.2
Other operating revenue 430.9 43.2 284.0 39.0 797.1
--------- --------- -------- -------- ---------
Total operating revenue (2) 404.0 1,141.4 473.1 187.8 2,206.3
--------- --------- -------- -------- ---------
Interest credited to policyholder
account balances -- 823.4 78.5 114.7 1,016.6
Amortization of deferred policy
acquisition costs 87.8 39.8 39.6 -- 167.2
Other benefits and expenses 165.3 108.7 284.1 45.6 603.7
--------- --------- -------- -------- ---------
Total expenses 253.1 971.9 402.2 160.3 1,787.5
--------- --------- -------- -------- ---------
Operating income before federal
income tax 150.9 169.5 70.9 27.5 418.8
Realized gains on investments -- -- -- 11.1 11.1
--------- --------- -------- -------- ---------
Consolidated income before
federal tax expense $ 150.9 $ 169.5 $ 70.9 $ 38.6 $ 429.9
========= ========= ======== ======== =========
Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7
========= ========= ======== ======== =========
</TABLE>
<PAGE> 26
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Variable Fixed Life Corporate
(in millions of dollars) Annuities Annuities Insurance and Other Total
------------------------------------ ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Net investment income (1) $ (21.5) $ 1,050.6 $ 174.0 $ 154.7 $ 1,357.8
Other operating revenue 306.1 42.0 261.6 25.7 635.4
---------- ---------- --------- --------- ---------
Total operating revenue (2) 284.6 1,092.6 435.6 180.4 1,993.2
---------- ---------- --------- --------- ---------
Interest credited to policyholder
account balances -- 805.0 70.2 107.1 982.3
Amortization of deferred policy
acquisition costs 57.4 38.6 37.4 -- 133.4
Benefits and expenses 136.9 113.6 260.8 50.4 561.7
---------- ---------- --------- --------- ---------
Total expenses 194.3 957.2 368.4 157.5 1,677.4
---------- ---------- --------- --------- ---------
Operating income before federal
income tax 90.3 135.4 67.2 22.9 315.8
Realized losses on investments -- -- -- (0.3) (0.3)
---------- ---------- --------- --------- ---------
Consolidated income from
continuing operations before
federal tax expense $ 90.3 $ 135.4 $ 67.2 $ 22.6 $ 315.5
========== ========== ======== ======== =========
Assets as of year end $ 25,069.7 $ 13,994.7 $3,353.3 $5,348.5 $47,766.2
========== ========== ======== ======== =========
</TABLE>
-----------
(1) The Company's method of allocating net investment income results
in a charge (negative net investment income) to the Variable
Annuities segment which is recognized in the Corporate and Other
segment. The charge relates to non-invested assets which support
this segment on a statutory basis.
(2) Excludes realized gains and losses on investments.
The Company has no significant revenue from customers located outside
of the United States nor does the Company have any significant
long-lived assets located outside the United States.
(14) Discontinued Operations
-----------------------
As discussed in note 1, NFS is a holding company for NLIC and certain
other companies within the Nationwide Insurance Enterprise that offer
or distribute long-term savings and retirement products. Prior to the
contribution by Nationwide Corp. of the outstanding common stock of
NLIC to NFS, NLIC effected certain transactions with respect to certain
subsidiaries and lines of business that were unrelated to long-term
savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend
payable to Nationwide Corp. on January 1, 1997 consisting of the
outstanding shares of common stock of three subsidiaries: ELICW, NCC
and WCLIC. ELICW writes group accident and health and group life
insurance business and maintains it offices in Wausau, Wisconsin. NCC
is a property and casualty company with offices in Scottsdale, Arizona
that serves as a fronting company for a property and casualty
subsidiary of NMIC. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC and
WCLIC have been accounted for as discontinued operations in the
accompanying consolidated financial statements through December 31,
1996. The Company did not recognize any gain or loss on the disposal of
these subsidiaries.
<PAGE> 27
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to Consolidated Financial Statements, Continued
Also, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was
ceded to ELICW and NMIC, effective January 1, 1996. See note 10 for a
complete discussion of the reinsurance agreements. The Company has
discontinued its accident and health and group life insurance business
and in connection therewith has entered into reinsurance agreements to
cede all existing and any future writings to other affiliated
companies. NLIC's accident and health and group life insurance business
is accounted for as discontinued operations for all periods presented.
The Company did not recognize any gain or loss on the disposal of the
accident and health and group life insurance business. The assets,
liabilities, results of operations and activities of discontinued
operations are distinguished physically, operationally and for
financial reporting purposes from the remaining assets, liabilities,
results of operations and activities of the Company.
A summary of the results of operations of discontinued operations for
the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C>
Revenues $ -- $ -- $ 668.9
Net income $ -- $ -- $ 11.3
</TABLE>
A summary of the assets and liabilities of discontinued operations as
of December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(in millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets, consisting primarily of investments $221.5 $247.3 $3,288.5
Liabilities, consisting primarily of policy benefits and claims $221.5 $247.3 $2,802.8
</TABLE>
<PAGE> 68
PART II - OTHER INFORMATION
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 9 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 123 pages.
Representations and Undertakings.
Accountants' Consent.
The Signatures.
The following exhibits required by Forms N-8B-2 and S-6:
<TABLE>
<S> <C>
1. Power of Attorney dated April 1, 1999 Attached hereto.
2. Resolution of the Depositor's Board of Included with the Registration Statement on Form
Directors authorizing the establishment of N-8B-2 for the Nationwide VL Separate Account-A
the Registrant, adopted. (File No. 811-6137), and hereby incorporated
herein by reference.
3. Distribution Contracts Included with the Registration Statement on
Form N-8B-2 for the Nationwide VL Separate
Account-A (File No. 811-6137), and hereby
incorporated herein by reference.
4. Form of Security Included with Pre-Effective Amendment No. 1 and
hereby incorporated herein by reference.
5. Articles of Incorporation of Depositor Included with the Registration Statement on
Form N-8B-2 for the Nationwide VL Separate
Account-A (File No. 811-6137), and hereby
incorporated herein by reference.
6. Application form of Security Included with Pre-Effective Amendment No. 1 and
hereby incorporated herein by reference.
7. Opinion of Counsel Included with Pre-Effective Amendment No. 1 and
hereby incorporated herein by reference.
</TABLE>
<PAGE> 69
REPRESENTATIONS AND UNDERTAKINGS
The Registrant and Nationwide 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 "1940 Act"). The Registrant and
Nationwide elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
1940 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 1940 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 Nationwide under the policies. Nationwide 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 Nationwide, and will be
made available to the Securities and Exchange Commission (the
"Commission") on request.
(c) Nationwide 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) Nationwide 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 Nationwide,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Commission such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in
that section.
(f) Represent that the fees and charges deducted under the contract in the
aggregate are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by Nationwide.
<PAGE> 70
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of Nationwide VLI Separate Account-2:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Columbus, Ohio
April 29, 1999
<PAGE> 71
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
the Securities Act Rule 485(b) for effectiveness of the 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 hereunto
affixed and attested, all in the City of Columbus, and State of Ohio, on this
29th day of April, 1999.
NATIONWIDE VLI SEPARATE ACCOUNT-2
-----------------------------------------
(Registrant)
(Seal) NATIONWIDE LIFE INSURANCE COMPANY
-----------------------------------------
Attest: (Depositor)
By: /s/ GLENN W. SODEN By: /s/ JOSEPH P. RATH
- ---------------------------------- -----------------------------------------
Glenn W. Soden Joseph P. Rath
Assistant Secretary Vice President-Product
and Market Compliance
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 29th day of April, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
LEWIS J. ALPHIN Director
- -----------------------------------------
Lewis J. Alphin
A. I. BELL Director
- -----------------------------------------
A. I. Bell
KENNETH D. DAVIS Director
- -----------------------------------------
Kenneth D. Davis
KEITH W. ECKEL Director
- -----------------------------------------
Keith W. Eckel
WILLARD J. ENGEL Director
- -----------------------------------------
Willard J. Engel
FRED C. FINNEY Director
- -----------------------------------------
Fred C. Finney
JOSEPH J. GASPER President and Chief Operating
- ----------------------------------------- Officer and Director
Joseph J. Gasper
DIMON R. MCFERSON Chairman and Chief
- ----------------------------------------- Executive
Dimon R. McFerson Officer and Director
DAVID O. MILLER Chairman of the Board and
- ----------------------------------------- Director
David O. Miller
YVONNE L. MONTGOMERY Director
- -----------------------------------------
Yvonne L. Montgomery
ROBERT A. OAKLEY Executive Vice President and Chief
- ----------------------------------------- Financial Officer
Robert A. Oakley
RALPH M. PAIGE Director
- -----------------------------------------
Ralph M. Paige
JAMES F. PATTERSON Director
- -----------------------------------------
James F. Patterson
ARDEN L. SHISLER Director By /s/ JOSEPH P. RATH
- ----------------------------------------- ---------------------------
Arden L. Shisler Joseph P. Rath
Attorney-in-Fact
ROBERT L. STEWART Director
- -----------------------------------------
Robert L. Stewart
NANCY C. THOMAS Director
- -----------------------------------------
Nancy C. Thomas
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as directors
and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE LIFE AND
ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or will file
with the U.S. Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, various Registration Statements and
amendments thereto for the registration under said Act of Individual Deferred
Variable Annuity Contracts in connection with MFS Variable Account, Nationwide
Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3,
Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide
Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide Variable
Account-9, Nationwide Variable Account-10, Nationwide VA Separate Account-A,
Nationwide VA Separate Account-B, Nationwide VA Separate Account-C and
Nationwide VA Separate Account-Q; and the registration of fixed interest rate
options subject to a market value adjustment offered under some or all of the
aforementioned individual Variable Annuity Contracts in connection with
Nationwide Multiple Maturity Separate Account and Nationwide Multiple Maturity
Account-A, and the registration of Group Flexible Fund Retirement Contracts in
connection with Nationwide DC Variable Account, Nationwide DCVA-II, and NACo
Variable Account; and the registration of Group Common Stock Variable Annuity
Contracts in connection with Separate Account No. 1; and the registration of
variable life insurance policies in connection with Nationwide VLI Separate
Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3,
Nationwide VLI Separate Account-4, Nationwide VLI Separate Account-5, Nationwide
VL Separate Account-A and Nationwide VL Separate Account-B, Nationwide VL
Separate Account-C, Nationwide VL Separate Account-D, hereby constitutes and
appoints Dimon Richard McFerson, Joseph J. Gasper, Robert J. Woodward, Jr.,
Philip C. Gath Richard A. Karas, Edwin P. McCausland, Jr., Douglas C. Robinette,
Susan A. Wolken, Mark B. Koogler, Joseph P. Rath, and Mark R. Thresher, and each
of them with power to act without the others, his/her attorney, with full power
of substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve, and sign such Registration Statements and
any and all amendments thereto, with power to affix the corporate seal of said
corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, hereby gaining unto said attorneys, and each
of them, full power and authority to do and perform all and every act and thing
requisite to all intents and purposes as he/she might or could do in person,
hereby ratifying and confirming that which said attorneys, or any of them, may
lawfully do or cause to be done by virtue hereof. This instrument may be
executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names and seals
as of this 1st day of April, 1999.
/s/ Lewis J. Alphin /s/ David O. Miller
- ------------------------------------- -------------------------------------
Lewis J. Alphin, Director David O. Miller, Chairman of the
Board, Director
/s/ A. I. Bell /s/ Yvonne L. Montgomery
- ------------------------------------- -------------------------------------
A. I. Bell, Director Yvonne L. Montgomery, Director
/s/ Kenneth D. Davis /s/ Robert A. Oakley
- ------------------------------------- -------------------------------------
Kenneth D. Davis, Director Robert A. Oakley, Executive Vice
President and Chief Financial Officer
/s/ Keith W. Eckel /s/ Ralph M. Paige
- ------------------------------------- -------------------------------------
Keith W. Eckel, Director Ralph M. Paige, Director
/s/ Willard J. Engel /s/ James F. Patterson
- ------------------------------------- -------------------------------------
Willard J. Engel, Director James F. Patterson, Director
/s/ Fred C. Finney /s/ Arden L. Shisler
- ------------------------------------- -------------------------------------
Fred C. Finney, Director Arden L. Shisler, Director
/s/ Joseph J. Gasper /s/ Robert L. Stewart
- ------------------------------------- -------------------------------------
Joseph J. Gasper, President and Robert L. Stewart, Director
Chief Operating Officer and Director
/s/ Dimon Richard McFerson /s/ Nancy C. Thomas
- ------------------------------------- -------------------------------------
Dimon Richard McFerson, Chairman and Nancy C. Thomas, Director
Chief Executive Officer and Director
