-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LIurj27SOVI1yH800Asj6mDKJBlsMbZyD+HBWK0BDgV2KFekpsyEvCkv2UOhHJRW pfvafoIRAApIGBFUnSJjgA== 0000950152-00-003273.txt : 20000501 0000950152-00-003273.hdr.sgml : 20000501 ACCESSION NUMBER: 0000950152-00-003273 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000428 EFFECTIVENESS DATE: 20000428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE VLI SEPARATE ACCOUNT 2 CENTRAL INDEX KEY: 0000820914 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 314156830 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-35783 FILM NUMBER: 611652 BUSINESS ADDRESS: STREET 1: ONE NATIONWIDE PLZ STREET 2: C/O NATIONWIDE LIFE INSURANCE CO CITY: COLUMBUS STATE: OH ZIP: 43216 BUSINESS PHONE: 614-249-7111 MAIL ADDRESS: STREET 1: NATIONWIDE LIFE INSURANCE CO STREET 2: ONE NATIONWIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43216 485BPOS 1 NATIONWIDE VLI SEPARATE ACCOUNT-2 485BPOS 1 Registration Statement No. 33-35783 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 11 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, 2000 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, 2000 [ ] Check box if it is proposed that this filing will become effective on (date) at (time) pursuant to Rule 487. ================================================================================ REDLINED 2 CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS 1......................................................................Nationwide Life Insurance Company The Variable Account 2......................................................................Nationwide Life Insurance Company 3......................................................................Custodian of Assets 4 .....................................................................Distribution of The Policies 5 .....................................................................The Variable Account 6 .....................................................................Not Applicable 7 .....................................................................Not Applicable 8 .....................................................................Not Applicable 9 .....................................................................Legal Proceedings 10.....................................................................Information About The Policies; How The Cash Value Varies; Right to Exchange for a Fixed Benefit Policy; Reinstatement; Other Policy Provisions 11.....................................................................Investments of The Variable Account 12.....................................................................The Variable Account 13.....................................................................Policy Charges Reinstatement 14.....................................................................Underwriting and Issuance - Premium Payments Minimum Requirements for Issuance of a Policy 15.....................................................................Investments of the Variable Account; Premium Payments 16.....................................................................Underwriting and Issuance - Allocation of Cash Value 17.....................................................................Surrendering The Policy for Cash 18.....................................................................Reinvestment 19.....................................................................Not Applicable 20.....................................................................Not Applicable 21.....................................................................Policy Loans 22.....................................................................Not Applicable 23.....................................................................Not Applicable 24.....................................................................Not Applicable 25.....................................................................Nationwide Life Insurance Company 26.....................................................................Not Applicable 27.....................................................................Nationwide Life Insurance Company 28.....................................................................Company Management 29.....................................................................Company Management 30.....................................................................Not Applicable 31.....................................................................Not Applicable 32.....................................................................Not Applicable 33.....................................................................Not Applicable 34.....................................................................Not Applicable 35.....................................................................Nationwide Life Insurance Company 36.....................................................................Not Applicable
3
N-8B-2 ITEM CAPTION IN PROSPECTUS 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
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, 2000 - -------------------------------------------------------------------------------- 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: o American Century VP Balanced o American Century VP Income & Growth FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP): o VIP Equity-Income Portfolio o VIP Growth Portfolio o VIP High Income Portfolio* o VIP Overseas Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II): o VIP II Asset Manager Portfolio NATIONWIDE SEPARATE ACCOUNT TRUST (NSAT): o Capital Appreciation Fund o Government Bond Fund o Money Market Fund o Total Return Fund o Nationwide Small Cap Value Fund (subadviser: The Dreyfus Corporation) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST: o AMT Growth Portfolio o AMT Guardian Portfolio o AMT Limited Maturity Bond Portfolio OPPENHEIMER VARIABLE ACCOUNTS FUNDS: o Oppenheimer Bond Fund/VA o Oppenheimer Multiple Strategies Fund/VA STRONG OPPORTUNITY FUND II, INC. (FORMERLY, STRONG SPECIAL FUND II, INC.) VAN ECK WORLDWIDE INSURANCE TRUST: o Worldwide Bond Fund o Worldwide Hard Assets Fund Not available for policies issued on or after September 27, 1999: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. o American Century VP Capital Appreciation STRONG VARIABLE INSURANCE FUNDS, INC. o Strong Discovery Fund II, Inc. *The VIP High Income Portfolio may invest in lower quality debt securities commonly call junk bonds. For general information or to obtain FREE copies of the: o prospectus, annual report or semi-annual report for any underlying mutual fund; and o any required Nationwide forms, 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 1 5 THIS POLICY IS NOT: o A BANK DEPOSIT; o ENDORSED BY A BANK OR GOVERNMENT AGENCY; o FEDERALLY INSURED; OR o 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. 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. 2 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. 3 7 TABLE OF CONTENTS GLOSSARY OF SPECIAL TERMS....................................................3 SUMMARY OF POLICY EXPENSES...................................................6 UNDERLYING MUTUAL FUND ANNUAL EXPENSES.......................................7 SYNOPSIS OF THE POLICIES.....................................................9 NATIONWIDE LIFE INSURANCE COMPANY............................................9 NATIONWIDE INVESTMENT SERVICES CORPORATION...................................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 Tax 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.....................................................16 POLICY PROVISIONS...........................................................16 Policy Owner Beneficiary Changes in Existing Insurance Coverage OPERATION OF THE POLICY.....................................................17 Allocation of Net Premium and Cash Value How the Investment Experience is Determined Net Investment Factor Determining the Cash Value Transfers RIGHT TO REVOKE.............................................................19 POLICY LOANS................................................................19 Taking a Policy Loan Effect on Investment Performance Interest Effect on Death Benefit and Cash Value Repayment ASSIGNMENT..................................................................20 POLICY OWNER SERVICES.......................................................20 Dollar Cost Averaging DEATH BENEFIT INFORMATION...................................................21 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.............................................................23 GRACE PERIOD ...............................................................24 First Five Policy Years Policy Years Six and After All Policy Years Reinstatement TAX MATTERS.................................................................25 Policy Proceeds Withholding Federal Estate and Generation-Skipping Transfers Taxes Non-Resident Aliens Taxation of Nationwide Tax Changes LEGAL CONSIDERATIONS........................................................28 STATE REGULATION............................................................28 REPORTS TO POLICY OWNERS....................................................28 ADVERTISING.................................................................28 LEGAL PROCEEDINGS...........................................................29 EXPERTS.....................................................................29 REGISTRATION STATEMENTS.....................................................29 DISTRIBUTION OF THE POLICIES................................................30 ADDITIONAL INFORMATION ABOUT NATIONWIDE.....................................32 4 8 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 5 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 tax expense charge from premium payments. The sales load is guaranteed never to exceed 3.5% of each premium payment. The tax expense charge is 2.5% of premiums for all states (see "Sales Load" and "Tax Expense Charge"). Nationwide deducts the following charges from the cash value of the policy: o monthly cost of insurance o monthly cost of any additional benefits provided by riders to the policy o administrative expense charge(1) o 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. 6 10 UNDERLYING MUTUAL FUND ANNUAL EXPENSES (as a percentage of underlying mutual fund net assets, after expense reimbursement)
------------------------------------------------------------------------------------------------------------------ Management Other Total Underlying Fees Expenses 12b-1 Fees Mutual Fund Expenses ------------------------------------------------------------------------------------------------------------------ American Century Variable Portfolios, Inc. - 0.90% 0.00% 0.00% 0.90% American Century VP Balanced ------------------------------------------------------------------------------------------------------------------ American Century Variable Portfolios, Inc. - 1.00% 0.00% 0.00% 1.00% American Century VP Capital Appreciation ------------------------------------------------------------------------------------------------------------------ American Century Variable Portfolios, Inc. - 0.70% 0.00% 0.00% 0.70% American Century VP Income & Growth ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income Portfolio 0.48% 0.08% 0.00% 0.56% ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth Portfolio 0.58% 0.07% 0.00% 0.65% ------------------------------------------------------------------------------------------------------------------ Fidelity VIP High Income Portfolio 0.58% 0.11% 0.00% 0.69% ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas Portfolio 0.73% 0.14% 0.00% 0.87% ------------------------------------------------------------------------------------------------------------------ Fidelity VIP II Asset Manager Portfolio 0.53% 0.09% 0.00% 0.62% ------------------------------------------------------------------------------------------------------------------ NSAT Capital Appreciation Fund 0.60% 0.14% 0.00% 0.74% ------------------------------------------------------------------------------------------------------------------ NSAT Government Bond Fund 0.50% 0.15% 0.00% 0.65% ------------------------------------------------------------------------------------------------------------------ NSAT Money Market Fund 0.39% 0.15% 0.00% 0.54% ------------------------------------------------------------------------------------------------------------------ NSAT Total Return Fund 0.58% 0.14% 0.00% 0.72% ------------------------------------------------------------------------------------------------------------------ NSAT Nationwide Small Cap Value Fund 0.90% 0.15% 0.00% 1.05% ------------------------------------------------------------------------------------------------------------------ Neuberger Berman AMT Growth Portfolio 0.84% 0.08% 0.00% 0.92% ------------------------------------------------------------------------------------------------------------------ Neuberger Berman AMT Guardian Portfolio 0.85% 0.15% 0.00% 1.00% ------------------------------------------------------------------------------------------------------------------ Neuberger Berman AMT Limited Maturity Bond 0.65% 0.11% 0.00% 0.76% Portfolio ------------------------------------------------------------------------------------------------------------------ Oppenheimer Bond Fund/VA 0.72% 0.01% 0.00% 0.73% ------------------------------------------------------------------------------------------------------------------ Oppenheimer Multiple Strategies Fund/VA 0.72% 0.01% 0.00% 0.73% ------------------------------------------------------------------------------------------------------------------ Strong Variable Insurance Funds, Inc., Strong 1.00% 0.14% 0.00% 1.14% Discovery Fund II, Inc. ------------------------------------------------------------------------------------------------------------------ Strong Opportunity Fund II, Inc. (formerly, 1.00% 0.14% 0.00% 1.14% Strong Special Fund II, Inc.) ------------------------------------------------------------------------------------------------------------------ Van Eck Worldwide Insurance Trust -Worldwide 1.00% 0.22% 0.00% 1.22% Bond Fund ------------------------------------------------------------------------------------------------------------------ Van Eck Worldwide Insurance Trust-Worldwide Hard 1.00% 0.34% 0.00% 1.34% Assets Fund ------------------------------------------------------------------------------------------------------------------
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 in calculating 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. 7 11 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.
- -------------------------------------------------- ------------- ------------- -------------- ---------------------- Management Other Total Underlying Fees Expenses 12b-1 Fees Mutual Fund Expenses - -------------------------------------------------- ------------- ------------- -------------- ---------------------- Fidelity VIP Equity-Income Portfolio 0.48% 0.09% 0.00% 0.57% - -------------------------------------------------- ------------- ------------- -------------- ---------------------- Fidelity VIP Growth Portfolio 0.58% 0.08% 0.00% 0.66% - -------------------------------------------------- ------------- ------------- -------------- ---------------------- Fidelity VIP Overseas Portfolio 0.73% 0.14% 0.00% 0.87% - -------------------------------------------------- ------------- ------------- -------------- ---------------------- Fidelity VIP II Asset Manager Portfolio 0.53% 0.10% 0.00% 0.63% - -------------------------------------------------- ------------- ------------- -------------- ---------------------- NSAT Nationwide Small Cap Value Fund 0.90% 0.37% 0.00% 1.27% - -------------------------------------------------- ------------- ------------- -------------- ---------------------- Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.54% 0.00% 1.54% Hard Assets Fund - -------------------------------------------------- ------------- ------------- -------------- ----------------------
8 12 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 group of companies 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. NATIONWIDE INVESTMENT SERVICES CORPORATION The policies are distributed by Nationwide Investment Services Corporation ("NISC"), Two Nationwide Plaza, Columbus, Ohio 43215. (For policies issued in the State of Michigan, references to NISC shall mean Nationwide Investment Svcs. Corporation.) NISC is a wholly owned subsidiary of Nationwide. 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 9 13 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. The investment advisers of the underlying mutual funds may manage publicly traded mutual funds with similar names and investment objectives. However, 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. 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. 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 10 14 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 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 11 15 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: o Nationwide may require satisfactory evidence of insurability before accepting any additional premium payment which results in an increase in the net amount at risk. o 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.) o 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. o 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: o New Year's Day o Independence Day o Martin Luther King, Jr. Day o Labor Day o Presidents' Day o Thanksgiving o Good Friday o Christmas o 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. 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. 12 16 TAX EXPENSE CHARGE A charge equal to 2.5% is deducted from all premium payments when the premium payments are received in order to compensate Nationwide for certain administrative expenses which are incurred by Nationwide for taxes, which include premium or other taxes imposed by various state and local jurisdictions, as well as federal taxes imposed under Section 848 of the Internal Revenue Code. The amount charged 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). ----------- ----------- ----------- ------------ ------------- MALE FEMALE ISSUE NON- NON- MALE FEMALE AGE TOBACCO TOBACCO STANDARD STANDARD ----------- ----------- ----------- ------------ ------------- 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 ----------- ----------- ----------- ------------ ------------- The surrender charge is comprised of two components: o an underwriting component; and o sales component. The underwriting component varies by issue age in the following manner: - ------------------------------------------------------------- ISSUE CHARGE PER $1,000 OF AGE INITIAL SPECIFIED AMOUNT - ------------------------------------------------------------- 0-39 $3.50 - ------------------------------------------------------------- 40-59 $5.00 - ------------------------------------------------------------- 60-75 $6.50 - ------------------------------------------------------------- The underwriting component is designed to cover the administrative expenses associated with underwriting and issuing policies, including the costs of: o processing applications; o conducting medical exams; o determining insurability and the insured's underwriting class; and o 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. Reductions to Surrender Charges Surrender charges are reduced in subsequent policy years as follows: - ---------------------- -------------------------------- COMPLETED SURRENDER CHARGE AS A % OF POLICY YEARS INITIAL SURRENDER CHARGES - ---------------------- -------------------------------- 0 100% - ---------------------- -------------------------------- 1 100% - ---------------------- -------------------------------- 2 100% - ---------------------- -------------------------------- 3 95% - ---------------------- -------------------------------- 4 90% - ---------------------- -------------------------------- 5 85% - ---------------------- -------------------------------- 6 80% - ---------------------- -------------------------------- 7 75% - ---------------------- -------------------------------- 8 50% - ---------------------- -------------------------------- 9+ 0% - ---------------------- -------------------------------- Special guaranteed maximum surrender charges apply in Pennsylvania (see Appendix B). 13 17 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. 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. 14 18 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 statement 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; and 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. 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 15 19 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. 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; 16 20 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 1%. 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 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); 17 21 (b) is the net asset value per share of the underlying mutual fund determined as of the end of the immediately preceding valuation period; and (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: o Nationwide reserves the right to restrict transfers between the fixed account and the sub-accounts to one per policy year. o Transfers made to the fixed account may not be made in the first policy year. o 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. o Nationwide reserves the right to restrict the amount transferred to the fixed account to 25% of the cash value. o Transfers from the fixed account must be made within 30 days after the end of an interest rate guarantee period. o 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 18 22 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: o submitted by any agent acting under a power of attorney on behalf of more than one policy owner; or o 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. o 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: o 10 days after receiving the policy; o 45 days after signing the application; or o 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. The refunded policy value will reflect the deduction of any policy charges, unless otherwise required by law. 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 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. 19 23 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 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. 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 20 24 AMT Limited Maturity Bond Portfolio, NSAT Government Bond Fund and the NSAT Money Market Fund. 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. MALE NON-TOBACCO - ------------------------------------------------------ ISSUE AGE OPTION 1 OPTION 2 - ------------------------------------------------------ - ------------------------------------------------------ 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 - ------------------------------------------------------ FEMALE NON-TOBACCO - ------------------------------------------------------ ISSUE AGE OPTION 1 OPTION 2 - ------------------------------------------------------ - ------------------------------------------------------ 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 - ------------------------------------------------------ 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 of the policy, which depends on investment performance. 21 25 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. APPLICABLE PERCENTAGE OF CASH VALUE
- ----------------------------------------------------------------------------------------------------------- Attained Percentage Attained Percentage Attained Percentage Age of Cash Value Age of Cash Value Age of Cash Value - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- 0-40 250% 60 130% 80 105% - ----------------------------------------------------------------------------------------------------------- 41 243% 61 128% 81 105% - ----------------------------------------------------------------------------------------------------------- 42 236% 62 126% 82 105% - ----------------------------------------------------------------------------------------------------------- 43 229% 63 124% 83 105% - ----------------------------------------------------------------------------------------------------------- 44 222% 64 122% 84 105% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- 45 215% 65 120% 85 105% - ----------------------------------------------------------------------------------------------------------- 46 209% 66 119% 86 105% - ----------------------------------------------------------------------------------------------------------- 47 203% 67 118% 87 105% - ----------------------------------------------------------------------------------------------------------- 48 197% 68 117% 88 105% - ----------------------------------------------------------------------------------------------------------- 49 191% 69 116% 89 105% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- 50 185% 70 115% 90 105% - ----------------------------------------------------------------------------------------------------------- 51 178% 71 113% 91 104% - ----------------------------------------------------------------------------------------------------------- 52 171% 72 111% 92 103% - ----------------------------------------------------------------------------------------------------------- 53 164% 73 109% 93 102% - ----------------------------------------------------------------------------------------------------------- 54 157% 74 107% 94 101% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- 55 150% 75 105% 95 100% - ----------------------------------------------------------------------------------------------------------- 56 146% 76 105% - ----------------------------------------------------------------------------------------------------------- 57 142% 77 105% - ----------------------------------------------------------------------------------------------------------- 58 138% 78 105% - ----------------------------------------------------------------------------------------------------------- 59 134% 79 105% - -----------------------------------------------------------------------------------------------------------
22 26 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 23 27 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. 24 28 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 25 29 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 2000, 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 26 30 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. 27 31 The foregoing is a general explanation as to 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. 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: o 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; o 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 o 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. 28 32 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. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. In November 1997, two plaintiffs, one who was the owner of a variable life insurance contract 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 sought to represent a class of variable life insurance contract 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, motions to dismiss the complaint filed by Nationwide and American Century. The remaining claims against Nationwide allege securities fraud, common law fraud, civil conspiracy, and breach of contract. The District Court, on December 2, 1998, issued an order denying plaintiffs' motion for class certification and the appeals court declined to review the order denying class certification upon interlocutory appeal. On June 11, 1999, the District Court denied the plaintiffs' motion to amend their complaint and reconsider class certification. In January 2000 Nationwide and American Century settled this lawsuit now limited to the claims of the two named plaintiffs. On February 9, 2000 the court dismissed this lawsuit with prejudice. On October 29, 1998, Nationwide was 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). On May 3, 1999, the complaint was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint is brought as a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by Nationwide and the other named Nationwide affiliates which were used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. No class has been certified. On June 11, 1999, Nationwide and the other named defendants filed a motion to dismiss the amended complaint. On March 8, 2000, the Court denied the motion to dismiss the amended complaint filed by Nationwide and the other named defendants. 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. The general distributor, NISC, is not engaged in any litigation of any material nature. 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. 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 29 33 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. 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, NISC. NISC was organized as an Oklahoma corporation on March 19, 1974. NISC is a wholly owned subsidiary of Nationwide and a member of the NASD. NISC acts as general distributor for the following separate accounts, all of which are separate investment accounts of Nationwide or its affiliates: o Nationwide Multi-Flex Variable Account; o NACo Variable Account; o Nationwide DC Variable Account; o Nationwide DCVA II; o Nationwide Variable Account; o Nationwide Variable Account-II; o Nationwide Variable Account-5; o Nationwide Variable Account-6; o Nationwide Variable Account-8; o Nationwide Variable Account-9; o Nationwide Variable Account-10; o Nationwide Variable Account-11; o Nationwide VLI Separate Account-2; o Nationwide VLI Separate Account-3; o Nationwide VLI Separate Account-4; o Nationwide VLI Separate Account-5; o Nationwide VA Separate Account-A; o Nationwide VA Separate Account-B; o Nationwide VA Separate Account-C; o Nationwide VL Separate Account-A; o Nationwide VL Separate Account-B; o Nationwide VL Separate Account-C; and o Nationwide VL Separate Account-D. 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 NISC. 30 34 NATIONWIDE INVESTMENT SERVICES CORPORATION DIRECTORS AND OFFICERS
------------------------------------------------------------------------------------------------------------------ POSITIONS AND OFFICES NAME AND BUSINESS ADDRESS WITH UNDERWRITER ------------------------------------------------------------------------------------------------------------------ Joseph J. Gasper Chairman of the Board and Director One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Dimon R. McFerson Chairman and Chief Executive Officer and Director One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Richard A. Karas Vice Chairman and Director One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Duane C. Meek President One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Philip C. Gath Director One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Susan A. Wolken Director 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 ------------------------------------------------------------------------------------------------------------------ Mark R. Thresher Senior Vice President and Treasurer One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Barbara J. Shane Vice President - Compliance Officer Two Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Alan A. Todryk Vice President - Taxation One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ John F. Delaloye Assistant Secretary One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Glenn W. Soden Assistant Secretary One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ E. Gary Berndt Assistant Treasurer One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Duane M. Campbell Assistant Treasurer One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------ Terry C. Smetzer Assistant Treasurer One Nationwide Plaza Columbus, OH 43215 ------------------------------------------------------------------------------------------------------------------
31 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 separate investment accounts, each of which is a registered investment company: o Nationwide Variable Account; o Nationwide Variable Account-II; o Nationwide Variable Account-3; o Nationwide Variable Account-4; o Nationwide Variable Account-5; o Nationwide Variable Account-6; o Nationwide Fidelity Advisor Variable Account; o Nationwide Variable Account-8; o Nationwide Variable Account-9; o Nationwide Variable Account-10; o Nationwide Variable Account-11; o MFS Variable Account; o Nationwide Multi-Flex Variable Account; o Nationwide VLI Separate Account; o Nationwide VLI Separate Account-2; o Nationwide VLI Separate Account-3; o Nationwide VLI Separate Account-4; o Nationwide VLI Separate Account-5; o NACo Variable Account; o Nationwide DC Variable Account; and o Nationwide DCVA-II. 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 its 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 group of companies. The companies listed above have substantially common boards of directors and officers. Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of Nationwide. NFS serves as a holding company for other financial institutions. Nationwide is the sole owner of Nationwide Life and Annuity Insurance Company. 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 group of companies. Messrs. McFerson, Gasper, Woodward and Ms. Thomas are also trustees of one or more of the registered investment companies distributed by Nationwide Investment Services Corporation, a registered broker-dealer affiliated with the Nationwide group of companies. 32 36 DIRECTORS OF NATIONWIDE
- ------------------------------------- --------------------------- ---------------------------------------------------- DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR PRINCIPAL OCCUPATION - ------------------------------------- --------------------------- ---------------------------------------------------- Lewis J. Alphin Director Farm Owner and Operator, Bell Farms (1) 519 Bethel Church Road Mount Olive, NC 28365-6107 - ------------------------------------- --------------------------- ---------------------------------------------------- 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, Eckel 1647 Falls Road Farms, Inc. (1) Clarks Summit, PA 18411 - ------------------------------------- --------------------------- ---------------------------------------------------- Willard J. Engel Director Retired General Manager, Lyon County Co-operative 301 East Marshall Street Oil Company (1) Marshall, MN 56258 - ------------------------------------- --------------------------- ---------------------------------------------------- Fred C. Finney Director Owner and Operator, Moreland Fruit Farm; Operator, 1558 West Moreland Road Melrose Orchard (1) Wooster, OH 44691 - ------------------------------------- --------------------------- ---------------------------------------------------- Joseph J. Gasper President and Chief President and Chief Operating Officer, Nationwide One Nationwide Plaza Operating Officer and Life Insurance Company and Nationwide Life and Columbus, OH 43215 Director Annuity Insurance Company (2) - ------------------------------------- --------------------------- ---------------------------------------------------- Dimon R. McFerson Chairman and Chief Chairman and Chief Executive Officer- (2) One Nationwide Plaza Executive Officer and Columbus, OH 43215 Director - ------------------------------------- --------------------------- ---------------------------------------------------- David O. Miller Chairman of the Board and President, Owen Potato Farm, Inc.; Partner, M&M 115 Sprague Drive Director Enterprises (1) Hebron, OH 43025 - ------------------------------------- --------------------------- ---------------------------------------------------- Yvonne L. Montgomery Director Senior Vice President and General Manager, Public Xerox Corporation Sector Worldwide/Document Solutions Group Suite 200 Xerox Corporation (2) 1401 H Street NW Washington, DC 20007 - ------------------------------------- --------------------------- ---------------------------------------------------- Ralph M. Paige Director Executive Director Federation of Southern Federation of Southern Cooperatives/Land Assistance Fund Cooperatives/Land Assistance Fund 2769 Church Street East Point, GA 30344 - ------------------------------------- --------------------------- ---------------------------------------------------- James F. Patterson Director Vice President, Pattersons, Inc.; President, 8765 Mulberry Road Patterson Farms, Inc. (1) Chesterland, OH 44026 - ------------------------------------- --------------------------- ---------------------------------------------------- Arden L. Shisler Director President and Chief Executive Officer, K&B 1356 North Wenger Road Transport, Inc. (1) Dalton, OH 44618 - ------------------------------------- --------------------------- ---------------------------------------------------- Robert L. Stewart Director Owner and Operator Sunnydale Farms and Mining (1) 88740 Fairview Road Jewett, OH 43986 - ------------------------------------- --------------------------- ---------------------------------------------------- Nancy C. Thomas Director Co-owner, Thomas Farms (2) 1767D Westwood Avenue Alliance, OH 44601 - ------------------------------------- --------------------------- ----------------------------------------------------
33 37 (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. Each of the directors is a director of the other major insurance affiliates of the Nationwide group of companies except Mr. Gasper who is a director only of Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. Messrs. McFerson and Gasper are directors of Nationwide Investment Services Corporation, 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 Financial Horizons Investment Trust and Nationwide Mutual Funds, registered investment companies EXECUTIVE OFFICERS OF NATIONWIDE
- ------------------------------------------------------------------------------------------------------------------- OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS - ------------------------------------------------------------------------------------------------------------------- Richard D. Headley Executive Vice President - Chief Information Technology Officer 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 - ------------------------------------------------------------------------------------------------------------------- Charles A. Bryan Senior Vice President - Chief Actuary - Property and Casualty One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- John R. Cook, Jr. Senior Vice President - Chief Communications Officer One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- David A. Diamond Senior Vice President - Corporate Controller One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Philip C. Gath Senior Vice President - Chief Actuary - Nationwide Financial One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Patricia R. Hatler Senior Vice President, General Counsel and Secretary One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- David K. Hollingsworth Senior Vice President One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- David R. Jahn Senior Vice President - Commercial Insurance One Nationwide Plaza Columbus, OH 43215 - -------------------------------------------------------------------------------------------------------------------
34 38 EXECUTIVE OFFICERS OF NATIONWIDE
- ------------------------------------------------------------------------------------------------------------------- OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS - ------------------------------------------------------------------------------------------------------------------- Donna A. James Senior Vice President - Chief Human Resources Officer One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Richard A. Karas Senior Vice President - Sales - Financial Services One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Gregory S. Lashutka Senior Vice President - Corporate Relations One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Edwin P. McCausland, Jr. Senior Vice President - Fixed Income Securities One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Mark D. Phelan Senior Vice President - Technology Services One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Douglas C. Robinette Senior Vice President - Claims and Financial Services One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Mark R. Thresher Senior Vice President - Finance - Nationwide Financial One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Richard M. Waggoner Senior Vice President - Operations One Nationwide Plaza Columbus, OH 43215 - ------------------------------------------------------------------------------------------------------------------- Susan A. Wolken Senior Vice President - Product Management and Nationwide One Nationwide Plaza Financial Marketing Columbus, OH 43215 - -------------------------------------------------------------------------------------------------------------------
DIMON R. MCFERSON has been a Director since April 1988 and Chairman and Chief Executive Officer since April 1996. He was elected Chief Executive Officer in December 1992, and President and Chief Executive Officer in December 1993. He was President and General Manager of Nationwide Mutual Insurance Company from April 1988 to April 1991; President and Chief Operating Officer of Nationwide Mutual Insurance Company from April 1991 to December 1992; and President and Chief Executive Officer of Nationwide Mutual Insurance Company from December 1992 to April 1996. Mr. McFerson has been with Nationwide for 20 years. JOSEPH J. GASPER has been President and Chief Operating Officer and Director of Nationwide 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 33 years. LEWIS J. ALPHIN has been a Director of Nationwide since 1993. Mr. Alphin owns and operates an 800-acre farm in Mt. Olive, NC. He taught agriculture business at James Sprunt Community College in Kenansville, NC for more than 22 years before retiring in 1994. He is the former board chairman of the Cape Fear Farm Credit Association, a member and former vice president, secretary/treasurer, and director of the Duplin County Agribusiness Council, and a former board member of the Southern States Cooperative (1986 to 1993). Mr. Alphin is a member of the Duplin County Farm Bureau, the 35 39 North Carolina Farm Bureau, ad the Farm Credit Council. He is a member and former director of the Oak Wolfe Fire Department. 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 Nationwide for 30 years. CHARLES A. BRYAN has been a Senior Vice President - Chief Actuary - Property and Casualty since 1998. Prior to joining Nationwide, Mr. Bryan was president, Chief Operating Officer of Direct Response Corporation from 1996 to 1998. Prior to that time, Mr. Bryan was a partner with Ernst & Young. 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. Mr. Cook has been with Nationwide for 2 years. KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis is the immediate past president of the Ohio Farm Bureau Federation. He served as a member of the Ohio Farm Bureau Federation's board of trustees from 1989 until 1999. He served as first vice president of the board from 1994 until 1998. Mr. Davis serves on the board of directors of his local rural electric cooperatives and is a member of many agriculture organizations including the Ohio Corn Growers, Ohio Cattlemen's and Ohio Soybean associations. DAVID A. DIAMOND has been Senior Vice President - Corporate Controller since August 1999. He was Vice President-Controller from August 1996 to August 1999. 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 11 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. Mr. Eckel is a member of the Pennsylvania Agricultural Land Preservation Board. He is a former president of the Pennsylvania Farm Bureau, a position he held for 15 years, and the Lackawanna County Cooperative Extension Association. He has served as a board member and executive committee member of the American Farm Bureau Federation. He is a former vice president of the Pennsylvania Council of Cooperative Extension Associations and former board member of the Pennsylvania Vegetable Growers Association. WILLARD J. ENGEL has been a Director of Nationwide since 1994. Mr. Engel served as general manager of Lyon County Co-Operative Oil Co. in Marshall, MN from 1975 to 1997, and occasionally serves on a consulting basis. He previously was a division manager of the Truman Farmers Elevator. He is a former director of the Western Co-op Transport in Montevideo, MN, a former director and legislative committee chairman of the Northwest Petroleum Association in St. Paul, and a former director of Farmland Industries in Kansas City. 36 40 FRED C. FINNEY has been a Director of Nationwide since 1992. Mr. Finney is the owner and operator of the Moreland Fruit Farm and operator of Melrose Orchard in Wooster, OH. He is past president of the Ohio Farm Bureau Federation, the Ohio Fruit Growers Society, Wayne County Farm Bureau, and the Westwood Ruritan Club. He is a member of the American Berry Cooperative. PHILIP C. GATH has been Senior Vice President - Chief Actuary - Nationwide Financial 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 Nationwide for 31 years. PATRICIA R. HATLER has been Senior Vice President, General Counsel and Secretary since April 2000. Previously, she was Senior Vice President and General Counsel from July 1999 to April 2000. Prior to that time, she was General Counsel and Corporate Secretary of Independence Blue Cross from 1983 to July 1999. DAVID K. HOLLINGSWORTH has been Senior Vice President - Multi Channel and Sponsor Relations since August 1999. Previously, he was Senior Vice President - Marketing from June 1999 to August 1999. Prior to that time, has held numerous positions within the Nationwide group of companies. Mr. Hollingsworth has been with Nationwide for 25 years. DAVID R. JAHN has been Senior Vice President - Commercial Insurance since March 1998. Previously, he was Vice President - Property/Casualty Operations and Vice President - Resource Management from March 1996 to January 1998. Prior to that time, Mr. Jahn has held numerous positions within the Nationwide group of companies. Mr. Jahn has been with Nationwide for 28 years. DONNA A. JAMES has been Senior Vice President - Chief Human Resources Officer since May 1999. She was Senior Vice President - Human Resources from December 1997 to May 1999. 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 of Nationwide from March 1996 to July 1996. From May 1994 to March 1996 she was Associate Vice President - Assistant to the CEO for Nationwide. Previously Ms. James held several positions within Nationwide. Ms. James has been with Nationwide for 18 years. RICHARD D. HEADLEY has been Executive Vice President - Chief Information Technology Officer since May 1999. He was Senior Vice President - Chief Information Technology Officer from October 1997 to May 1999. 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. Mr. Headley has been with Nationwide for 2 years. 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 35 years. GREGORY S. LASHUTKA has been Senior Vice President - Corporate Relations since January 2000. Previously, he was the Mayor of the City of Columbus (Ohio) from January 1992 to December 1999. From January 1986 to December 1991, Mr. Lashutka was a Partner with Squire, Sanders & Dempsey. From January 1978 to December 1985, he was City Attorney for the City of Columbus (Ohio). 37 41 EDWIN P. MCCAUSLAND, JR. has been Senior Vice President - Fixed Income Securities since 1999. Mr. McCausland has 29 years of experience in insurance investments beginning his career in 1970 with Connecticut Mutual Life Insurance Company. He joined Phoenix Mutual Life Insurance Company in 1981 as second Vice President of Bond Investments and rising to Vice President of Pension Operations. He was Vice President and Managing Director of Mass Mutual Life Insurance Company prior to joining Nationwide. DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr. Miller has been Chairman of the Board since 1998. Mr. Miller is president of Owen Potato Farm, Inc. and a partner of M&M Enterprises in Licking County, OH. He is a director and board chairman of the National Cooperative Business Association, director of Cooperative Business International and the International Cooperative Alliance, and serves on the educational executive committee of the National Council of Farmer Cooperatives. He was president of the Ohio Farm Bureau Federation from 1981 to 1985 and was vice president for six years. Mr. Miller served a two year term on the board of the American Farm Bureau Association. He is past president of the Ohio Vegetable and Potato Growers Association, and was a director of Landmark, Inc., a farm supply cooperative which is now part of Indianapolis-based Countrymark. YVONNE L. MONTGOMERY has been a Director of Nationwide since April, 1998. Ms. Montgomery is senior vice president/general manager - Public Sector Worldwide/Document Solutions Group for Xerox Corporation. A resident of Washington, DC, Ms. Montgomery is in charge of providing an integrated, industry-focused portfolio of document solutions and services to the public sector worldwide. 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. 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 24 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. JAMES F. PATTERSON has been a Director of Nationwide since April 1989. Mr. Patterson is president of Patterson Farms, Inc. and has operated Patterson Fruit Farm in Chesterland, OH since 1964. Mr. Patterson is on the boards of The Ohio State University Hospitals Health System in Cleveland, Geauga Hospital, Inc. and the National Cooperative Business Association. He is past president of the Ohio Farm Bureau Federation and former member of Cleveland Foundation's Lake and Geauga Advisory Committees. MARK D. PHELAN has been Senior Vice President - Technology Services since 1998. His previous management experience includes five years (1977-1982) with the data processing division's sales group at IBM Corporation. From 1982 through 1990, Mr. Phelan served as director of AT&T's Consumer Communications Services Group and he was subsequently promoted to sales vice president for the Eastern Region of the Business Communications Services Division. In 1992, he became executive vice president-sales and marketing for the Electronic Commerce Division of Checkfree Corporation, a position he held for five years. From 1997 until 1998, he was in private consulting. DOUGLAS C. ROBINETTE has been Senior Vice President - Claims and Financial Services since 1999. Previously, he was Senior Vice President - Marketing and Product Management from May 1998 to 1999. Previously, Mr. Robinette was Executive Vice President, Customer Services of Employers Insurance of Wausau 38 42 (Wausau), a member of the Nationwide group until December 1998, 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 the Nationwide group. Mr. Robinette has been with the Nationwide group for 13 years. ARDEN L. SHISLER has been a Director of Nationwide since 1984. Mr. Shisler is president and chief executive officer of K&B Transport, Inc., a trucking firm in Dalton, OH. He is a director of the National Cooperative Business Association in Washington, DC. He is a former board member and vice president of the Ohio Farm Bureau Federation and past president of the Ohio Agricultural Marketing Association, an Ohio Farm Bureau Federation subsidiary. He is a member of the Ohio Trucking Association, the Ohio Trucking Safety Council, the Wayne County Farm Bureau, Cornerstone Community Church, the Advisory Committee of The Ohio State University Agriculture Technical Institute and a board member of the Wilderness Center. ROBERT L. STEWART has been a Director of Nationwide since 1989. Mr. Stewart is the owner and operator of Sunnydale Farms and Mining in Jewett, OH. He served on the board of the Ohio Farm Bureau Federation and as president of the Ohio Holstein Association board. Mr. Stewart was a director of the Ohio Agricultural Stabilization and Conservation Service board and Landmark, Inc. a farm supply cooperative which is now part of Indianapolis-based Countrymark. NANCY C. THOMAS has been a Director of Nationwide since 1986. Mrs. Thomas is a board member of Farm Credit Services' 4th District and serves on the advisory board of Walsh University in North Canton, OH. She is a past president and former director of the Ohio Agricultural Marketing Association and served on the boards of the Ohio Farm Bureau Federation and Landmark, Inc., a farm supply cooperative which is now part of Indianapolis-based Countrymark, and as the Midwest regional representative on the American Farm Bureau women's committee. MARK R. THRESHER has been Senior Vice President - Finance - Nationwide Financial since May 1999. He was Vice President - Controller from August 1996 to May 1999. He was Vice President and Treasurer from November 1996 to February 1997. Previously, he was Vice President and Treasurer from June 1996 to November 1996. Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP from July 1988 to June 1996. RICHARD M. WAGGONER has been Senior Vice President - Operations since May 1999. Previously, he was President of Nationwide Services from May 1997 to May 1999. Prior to that time, Mr. Waggoner has held numerous positions within the Nationwide group of companies. Mr. Waggoner has been with Nationwide for 23 years. SUSAN A. WOLKEN has been Senior Vice President - Product Management and Nationwide Financial Marketing since May 1999. Previously, Ms. Wolken was Senior Vice President - Life Company Operations from June 1997 to May 1999. 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. Ms. Wolken has been with Nationwide for 25 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 35 years. 39 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. 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, 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 40 44 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: o at least 65% in income-producing debt securities and preferred stocks, including convertible securities; o 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 Nationwide Separate Account Trust ("NSAT") is a diversified open-end management investment company created under the laws of Massachusetts. NSAT offers shares in the mutual funds listed below, each with its own investment objectives. Shares of NSAT will be sold primarily to separate accounts to fund the benefits under variable life insurance policies and variable annuity contracts issued by life insurance companies. The assets of NSAT are managed by Villanova Mutual Fund Capital Trust ("VMF"), an indirect subsidiary of Nationwide Financial Services, Inc. CAPITAL APPRECIATION FUND Investment Objective: Seeks long-term capital appreciation. 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. TOTAL RETURN FUND Investment Objective: To obtain a reasonable long-term total return on invested capital. 41 45 SUBADVISED NATIONWIDE FUNDS NATIONWIDE SMALL CAP VALUE FUND Subadviser:The Dreyfus Corporation Investment Objective: Capital appreciation through investment in a diversified portfolio of equity securities of companies with a median market capitalization of approximately $1 billion. The Fund 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. The Fund will invest in equity securities of domestic and foreign issuers characterized as "value" companies according to criteria established by The Dreyfus Corporation, the Fund's subadviser. 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. 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. 42 46 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 objectives. The Fund seeks capital growth as a secondary objective when consistent with its primary objective. 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. 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: 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. THE FOLLOWING UNDERLYING MUTUAL FUNDS ARE NO LONGER AVAILABLE AS INVESTMENT OPTIONS FOR POLICIES ISSUED ON OR AFTER SEPTEMBER 27, 1999: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC., 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 investment management company which offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. American Century Variable Portfolios, Inc. is managed by American Century Investment Management, Inc. 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 43 47 securities, regardless of the movement of stock prices generally. The Fund may invest in cash and cash equivalents temporarily or when it is unable to find common stocks meeting its criteria of selection. It may purchase securities only of companies that have a record of at least three years continuous operation. There can be no assurance that the Fund will achieve its investment objective. 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. STRONG 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. 44 48 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.
- ------------------------ --------------------- --------------------- ---------------------- --------------------- ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD - ------------------------ --------------------- --------------------- ---------------------- --------------------- 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 - ------------------------ --------------------- --------------------- ---------------------- ---------------------
Reductions to surrender charges.
- ----------------------------- --------------------------- --------------------------- --------------------------- SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES - ----------------------------- --------------------------- --------------------------- --------------------------- 0 100% 5 85% - ----------------------------- --------------------------- --------------------------- --------------------------- 1 100% 6 80% - ----------------------------- --------------------------- --------------------------- --------------------------- 2 100% 7 75% - ----------------------------- --------------------------- --------------------------- --------------------------- 3 95% 8 50% - ----------------------------- --------------------------- --------------------------- --------------------------- 4 90% 9+ 0% - ----------------------------- --------------------------- --------------------------- ---------------------------
45 49 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:
- ---------------------------------------------------------------------------------------------------------------------- SURRENDER CHARGE SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- 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% - ----------------------------------------------------------------------------------------------------------------------
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. 46 50 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, 1999. 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. 47 51 DEATH BENEFIT OPTION 1 $2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45 CURRENT VALUES
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 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
(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 52 DEATH BENEFIT OPTION 1 $2,000 ANNUAL PREMIUM: $43,165 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45 GUARANTEED VALUES
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 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
(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 53 DEATH BENEFIT OPTION 2 $2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45 CURRENT VALUES
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 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
(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. 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 54 DEATH BENEFIT OPTION 2 $2,000 ANNUAL PREMIUM: $40,605 SPECIFIED AMOUNT MALE: NON-TOBACCO: SIMPLIFIED ISSUE: AGE 45 GUARANTEED VALUES
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 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
(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. 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 55 DEATH BENEFIT OPTION 1 $5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45 CURRENT VALUES
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 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
(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 56 DEATH BENEFIT OPTION 1 $5,000 ANNUAL PREMIUM: $114,019 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45 GUARANTEED VALUES
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 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
(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 57 DEATH BENEFIT OPTION 2 $5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45 CURRENT VALUES
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 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
(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. 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 58 DEATH BENEFIT OPTION 2 $5,000 ANNUAL PREMIUM: $103,521 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 45 GUARANTEED VALUES
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 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
(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. 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 59 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55 CURRENT VALUES
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 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
(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 60 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $301,625 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55 GUARANTEED VALUES
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 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
(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 61 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55 CURRENT VALUES
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 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
(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. 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 62 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $271,462 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 55 GUARANTEED VALUES
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 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
(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 63 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65 CURRENT VALUES
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 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
(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 64 DEATH BENEFIT OPTION 1 $20,000 ANNUAL PREMIUM: $205,135 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65 GUARANTEED VALUES
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 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
(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 65 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65 CURRENT VALUES
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 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
(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. 62 66 DEATH BENEFIT OPTION 2 $20,000 ANNUAL PREMIUM: $194,739 SPECIFIED AMOUNT MALE: NON-TOBACCO: PREFERRED ISSUE: AGE 65 GUARANTEED VALUES
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 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
(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. 63 67 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 (comprised of the sub-accounts listed in note 1(b)) (collectively, "the Account") as of December 31, 1999, 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 Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1999, 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 the Account as of December 31, 1999, 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 18, 2000 2 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1999
ASSETS: Investments at market value: American Century VP - American Century VP Balanced (ACVPBal) 795,028 shares (cost $6,183,088)................................................................. $ 6,193,268 American Century VP - American Century VP Capital Appreciation (ACVPCapAp) 1,310,237 shares (cost $14,199,026).............................................................. 19,443,915 American Century VP - American Century VP Income & Growth (ACVPIncGr) 602,907 shares (cost $4,444,143)................................................................. 4,823,253 American Century VP - American Century VP International (ACVPInt) 1,980,383 shares (cost $17,427,212).............................................................. 24,754,794 American Century VP - American Century VP Value (ACVPValue) 494,054 shares (cost $3,183,580)................................................................. 2,939,619 The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) 496,132 shares (cost $16,849,441)................................................................ 19,383,887 Dreyfus Stock Index Fund (DryStkIx) 2,927,576 shares (cost $90,937,184).............................................................. 112,565,296 Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) 197,915 shares (cost $7,452,341)................................................................. 7,890,857 Dreyfus VIF - Growth and Income Portfolio (DryGrInc) 111,700 shares (cost $2,578,826)................................................................. 2,846,128 Fidelity VIP - Equity-Income Portfolio (FidVIPEI) 3,387,044 shares (cost $77,450,139).............................................................. 87,080,913 Fidelity VIP - Growth Portfolio (FidVIPGr) 3,224,217 shares (cost $141,002,558)............................................................. 177,106,228 Fidelity VIP - High Income Portfolio (FidVIPHI) 2,300,605 shares (cost $25,431,881).............................................................. 26,019,837 Fidelity VIP - Overseas Portfolio (FidVIPOv) 1,124,389 shares (cost $24,103,083).............................................................. 30,853,234 Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM) 1,773,556 shares (cost $28,218,185).............................................................. 33,112,294 Fidelity VIP-II - Contrafund Portfolio (FidVIPCon) 2,444,413 shares (cost $57,111,827).............................................................. 71,254,625 Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp) 288,757 shares (cost $6,421,936)................................................................. 6,684,726 Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) 101,527 shares (cost $703,568)................................................................... 701,555 Nationwide SAT - Capital Appreciation Fund (NSATCapAp) 1,679,347 shares (cost $42,896,304).............................................................. 43,176,002 Nationwide SAT - Government Bond Fund (NSATGvtBd) 1,238,554 shares (cost $13,874,328).............................................................. 13,363,999 Nationwide SAT - Money Market Fund (NSATMyMkt) 55,921,557 shares (cost $55,921,557)............................................................. 55,921,557 Nationwide SAT - Small Cap Value Fund (NSATSmCapV) 311,019 shares (cost $3,169,694)................................................................. 3,023,109 (Continued)
3 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY, CONTINUED Nationwide SAT - Small Company Fund (NSATSmCo) 1,192,188 shares (cost $19,570,277)........................................................... 26,371,195 Nationwide SAT - Total Return Fund (NSATTotRe) 5,531,257 shares (cost $88,844,610)........................................................... 104,042,949 Neuberger &Berman AMT - Growth Portfolio (NBAMTGro) 833,852 shares (cost $22,437,375)............................................................. 31,077,667 Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) 143,260 shares (cost $2,173,246).............................................................. 2,270,679 Neuberger &Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) 372,342 shares (cost $5,060,841).............................................................. 4,929,804 Neuberger &Berman AMT - Partners Portfolio (NBAMTPart) 1,568,835 shares (cost $30,264,190)........................................................... 30,811,928 Oppenheimer VAF - Bond Fund (OppBdFd) 1,018,671 shares (cost $12,427,086)........................................................... 11,735,087 Oppenheimer VAF - Global Securities Fund (OppGlSec) 1,040,808 shares (cost $22,818,708)........................................................... 34,773,392 Oppenheimer VAF - Growth Fund (OppGro) 246,543 shares (cost $10,439,601)............................................................. 12,287,705 Oppenheimer VAF - Multiple Strategies Fund (OppMult) 855,203 shares (cost $13,847,823)............................................................. 14,931,853 Strong Opportunity Fund II, Inc. (StOpp2) 1,620,714 shares (cost $33,089,344)........................................................... 42,122,346 Strong VIF - Strong Discovery Fund II (StDisc2) 605,084 shares (cost $6,549,719).............................................................. 6,885,853 Strong VIF - Strong International Stock Fund II (StIntStk2) 456,221 shares (cost $6,079,530).............................................................. 7,468,345 Van Eck WIT - Worldwide Bond Fund (VEWrldBd) 254,593 shares (cost $2,789,543).............................................................. 2,721,595 Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) 711,484 shares (cost $8,097,955).............................................................. 10,145,756 Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 391,871 shares (cost $4,137,692).............................................................. 4,294,901 Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio (VKMSRESec) 412,750 shares (cost $5,453,427).............................................................. 5,105,716 Warburg Pincus Trust - International Equity Portfolio (WPIntEq) 818,526 shares (cost $10,822,846)............................................................. 13,669,390 Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) 230,203 shares (cost $3,879,342).............................................................. 4,433,707 Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr) 974,376 shares (cost $17,318,114)............................................................. 25,528,664 -------------- Total investments.......................................................................... 1,144,747,628 Accounts receivable - -------------- Total assets............................................................................... 1,144,747,628 ACCOUNTS PAYABLE....................................................................................... 132,236 -------------- CONTRACT OWNERS' EQUITY (NOTE 7)....................................................................... $ 1,144,615,392 --------------
See accompanying notes to financial statements. 4 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
TOTAL ACVPBal --------------------------------------------- ------------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 14,098,293 11,649,564 9,547,366 104,861 73,602 Mortality and expense charges (note 3)................... (7,660,149) (6,238,523) (4,642,993) (43,480) (38,972) -------------- -------------- -------------- -------------- ------------- Net investment activity.... 6,438,144 5,411,041 4,904,373 61,381 34,630 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 955,670,735 760,513,313 443,749,426 971,140 1,247,480 Cost of mutual funds sold.... (897,919,980) (729,684,314) (409,583,997) (1,022,836) (1,152,261) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 57,750,755 30,828,999 34,165,429 (51,696) 95,219 Change in unrealized gain (loss) on investments............. 93,482,590 26,818,372 31,280,650 (209,153) 37,264 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 151,233,345 57,647,371 65,446,079 (260,849) 132,483 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 39,898,769 43,742,310 19,594,720 723,542 456,397 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 197,570,258 106,800,722 89,945,172 524,074 623,510 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 155,876,754 213,764,519 218,381,791 765,352 617,960 Transfers between funds ..... - - - (71,304) 1,045,491 Surrenders................... (29,241,082) (20,881,099) (11,960,967) (170,759) (139,847) Death benefits (note 4)...... (5,189,106) (1,636,729) (664,672) (3,696) (12,665) Policy loans (net of repayments) (note 5)................... (16,840,767) (15,272,227) (9,898,715) (109,266) (97,880) Deductions for surrender charges (note 2d).................. (4,371,271) (2,374,941) (1,603,674) (25,527) (16,788) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (46,509,797) (44,274,845) (34,553,252) (273,361) (164,907) Asset charges (note 3): MSP contracts ............. (560,395) (433,211) (203,697) (4,829) (2,706) LSFP contracts ............ (275,681) (123,032) (23,838) (912) (769) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 52,888,655 128,768,435 159,472,976 105,698 1,227,889 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 250,458,913 235,569,157 249,418,148 629,772 1,851,399 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 894,156,479 658,587,322 409,169,174 5,562,859 3,711,460 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 1,144,615,392 894,156,479 658,587,322 6,192,631 5,562,859 ============== ============== ============== ============== =============
ACVPBal ACVPCapAp ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ 32,123 - - - Mortality and expense charges (note 3)................... (27,654) (108,580) (82,384) (104,781) -------------- -------------- -------------- -------------- Net investment activity.... 4,469 (108,580) (82,384) (104,781) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 2,604,070 22,591,735 5,476,348 32,724,781 Cost of mutual funds sold.... (2,212,633) (21,828,544) (6,203,432) (32,719,977) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 391,437 763,191 (727,084) 4,804 Change in unrealized gain (loss) on investments............. (79,247) 6,761,369 (95,403) (649,578) -------------- -------------- -------------- -------------- Net gain (loss) on investments 312,190 7,524,560 (822,487) (644,774) -------------- -------------- -------------- -------------- Reinvested capital gains..... 126,772 - 626,545 235,181 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 443,431 7,415,980 (278,326) (514,374) -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 560,697 1,955,940 2,567,119 2,396,050 Transfers between funds ..... 402,250 261,755 (1,460,314) (731,351) Surrenders................... (201,818) (723,035) (537,440) (294,647) Death benefits (note 4)...... (18,479) (23,318) (1,791) (279) Policy loans (net of repayments) (note 5)................... (62,819) (241,323) (208,014) (317,723) Deductions for surrender charges (note 2d).................. (27,058) (108,087) (63,643) (39,505) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (31,708) (687,205) (533,669) (354,495) Asset charges (note 3): MSP contracts ............. (1,148) (3,806) (5,721) (3,748) LSFP contracts ............ (134) (1,392) (1,625) (439) -------------- -------------- -------------- -------------- Net equity transactions.. 619,783 429,529 (245,098) 653,863 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 1,063,214 7,845,509 (523,424) 139,489 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 2,648,246 11,594,653 12,118,077 11,978,588 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD 3,711,460 19,440,162 11,594,653 12,118,077 ============== ============== ============== ==============
5 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACVPIncGr ACVPInt --------------------------------------------- ------------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 655 7,293 - - 48,574 Mortality and expense charges (note 3)................... (27,101) (7,590) - (123,973) (100,304) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (26,446) (297) - (123,973) (51,730) -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 4,520,179 579,403 - 25,003,227 26,953,998 Cost of mutual funds sold.... (4,059,023) (585,659) - (22,517,439) (26,717,868) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 461,156 (6,256) - 2,485,788 236,130 Change in unrealized gain (loss) on investments............. 247,602 131,508 - 6,850,984 538,699 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 708,758 125,252 - 9,336,772 774,829 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... - - - - 498,647 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 682,312 124,955 - 9,212,799 1,221,746 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 482,154 115,227 - 1,793,620 1,075,296 Transfers between funds ..... 2,244,545 1,333,797 - 1,521,029 5,394,451 Surrenders................... (56,332) (9,343) - (363,715) (91,333) Death benefits (note 4)...... - (1) - (15,489) (11,988) Policy loans (net of repayments) (note 5)................... 49,802 (3,122) - (508,785) (25,253) Deductions for surrender charges (note 2d).................. (8,421) (970) - (54,372) (7,357) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (109,013) (14,226) - (578,192) (371,602) Asset charges (note 3): MSP contracts ............. (3,326) (527) - (9,808) (6,965) LSFP contracts ............ (4,278) (150) - (5,962) (1,978) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 2,595,131 1,420,685 - 1,778,326 5,953,271 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 3,277,443 1,545,640 - 10,991,125 7,175,017 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 1,545,640 - - 13,761,213 6,586,196 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 4,823,083 1,545,640 - 24,752,338 13,761,213 ============== ============== ============== ============== =============
ACVPInt ACVPValue -------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ 39,611 26,285 14,238 1,245 Mortality and expense charges (note 3)................... (43,589) (20,993) (19,998) (7,498) -------------- -------------- -------------- -------------- Net investment activity.... (3,978) 5,292 (5,760) (6,253) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 12,528,472 10,125,505 3,978,821 2,118,031 Cost of mutual funds sold.... (11,671,277) (10,140,086) (4,072,379) (1,966,550) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 857,195 (14,581) (93,558) 151,481 Change in unrealized gain (loss) on investments............. (221,309) (279,501) 7,367 28,166 -------------- -------------- -------------- -------------- Net gain (loss) on investments 635,886 (294,082) (86,191) 179,647 -------------- -------------- -------------- -------------- Reinvested capital gains..... 76,392 249,026 169,984 2,540 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 708,300 (39,764) 78,033 175,934 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 827,281 536,794 402,104 111,600 Transfers between funds ..... 1,897,413 (10,220) 705,143 1,429,037 Surrenders................... (37,650) (44,773) (64,948) (4,196) Death benefits (note 4)...... - (18,972) (2) - Policy loans (net of repayments) (note 5)................... (123,364) (46,175) (39,222) (2,706) Deductions for surrender charges (note 2d).................. (5,048) (6,693) (5,005) (563) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (116,507) (138,847) (76,187) (2,525) Asset charges (note 3): MSP contracts ............. (2,038) (3,246) (1,389) (531) LSFP contracts ............ (238) (1,972) (394) (62) -------------- -------------- -------------- -------------- Net equity transactions.. 2,439,849 265,896 920,100 1,530,054 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 3,148,149 226,132 998,133 1,705,988 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 3,438,047 2,713,250 1,715,117 9,129 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD 6,586,196 2,939,382 2,713,250 1,715,117 ============== ============== ============== ==============
6 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
DrySRGro DryStkix ---------------------------------------------- -------------------------------- 1999 1998 1997 1999 1998 -------------- -------------- -------------- -------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 2,403 18,491 24,764 1,066,045 840,788 Mortality and expense charges (note 3)................... (114,846) (76,955) (44,201) (719,164) (508,329) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (112,443) (58,464) (19,437) 346,881 332,459 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 17,180,969 30,530,607 6,036,906 20,339,759 34,044,658 Cost of mutual funds sold.... (15,391,528) (29,068,944) (5,411,329) (15,264,747) (26,882,152) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 1,789,441 1,461,663 625,577 5,075,012 7,162,506 Change in unrealized gain (loss) on investments............. 1,688,692 619,023 301,151 11,113,462 6,892,116 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 3,478,133 2,080,686 926,728 16,188,474 14,054,622 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 646,972 429,304 192,785 920,361 156,109 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 4,012,662 2,451,526 1,100,076 17,455,716 14,543,190 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 2,602,017 2,646,682 1,226,366 13,344,420 8,792,308 Transfers between funds ..... 2,581,796 1,547,337 2,303,963 11,928,413 15,454,943 Surrenders................... (387,508) (808,738) (145,994) (2,827,148) (489,388) Death benefits (note 4)...... (31,507) (3,645) (6,412) (157,295) (395,851) Policy loans (net of repayments) (note 5)................... (488,829) (431,011) (107,480) (1,610,756) (500,204) Deductions for surrender charges (note 2d).................. (57,929) (101,807) (19,574) (422,632) (44,357) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (879,312) (448,348) (82,935) (4,097,507) (2,263,707) Asset charges (note 3): MSP contracts ............. (7,129) (5,343) (2,232) (54,699) (35,299) LSFP contracts ............ (5,332) (1,518) (261) (48,577) (10,025) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 3,326,267 2,393,609 3,165,441 16,054,219 20,508,420 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 7,338,929 4,845,135 4,265,517 33,509,935 35,051,610 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 12,060,375 7,215,240 2,949,723 79,041,506 43,989,896 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 19,399,304 12,060,375 7,215,240 112,551,441 79,041,506 ============== ============== ============== ============== =============
DryStkix DryCapAp -------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 488,743 43,739 24,846 4,780 Mortality and expense charges (note 3)................... (258,618) (57,406) (27,124) (1,877) -------------- -------------- -------------- -------------- Net investment activity.... 230,125 (13,667) (2,278) 2,903 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 12,995,115 6,550,844 20,319,146 3,153,711 Cost of mutual funds sold.... (10,012,154) (6,135,399) (19,666,415) (3,172,025) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 2,982,961 415,445 652,731 (18,314) Change in unrealized gain (loss) on investments............. 2,734,985 269,060 173,020 (3,579) -------------- -------------- -------------- -------------- Net gain (loss) on investments 5,717,946 684,505 825,751 (21,893) -------------- -------------- -------------- -------------- Reinvested capital gains..... 1,196,951 29,215 1,151 400 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 7,145,022 700,053 824,624 (18,590) -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 6,007,824 1,147,358 502,552 26,933 Transfers between funds ..... 16,661,441 2,166,937 3,058,005 425,397 Surrenders................... (380,643) (296,009) (44,456) (1,058) Death benefits (note 4)...... (33,328) (13,006) (4) - Policy loans (net of repayments) (note 5)................... (210,457) (134,352) (18,317) (33) Deductions for surrender charges (note 2d).................. (51,035) (44,251) (5,020) (142) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (618,664) (299,558) (77,478) (762) Asset charges (note 3): MSP contracts ............. (13,606) (3,070) (1,883) (133) LSFP contracts ............ (1,592) (2,988) (535) (16) -------------- -------------- -------------- -------------- Net equity transactions.. 21,359,940 2,521,061 3,412,864 450,186 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 28,504,962 3,221,114 4,237,488 431,596 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 15,484,934 4,669,084 431,596 - -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 43,989,896 7,890,198 4,669,084 431,596 ============== ============== ============== ==============
7 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
DryGrInc FidVIPEi --------------------------------------------- ------------------------------ 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 16,508 17,968 8,082 1,233,625 997,915 Mortality and expense charges (note 3)................... (15,950) (15,042) (5,230) (714,035) (614,949) -------------- -------------- -------------- -------------- ------------- Net investment activity.... 558 2,926 2,852 519,590 382,966 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 1,753,038 2,469,056 2,254,831 21,969,547 6,996,930 Cost of mutual funds sold.... (1,678,061) (2,437,658) (2,197,145) (15,562,997) (4,750,633) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 74,977 31,398 57,686 6,406,550 2,246,297 Change in unrealized gain (loss) on investments............. 230,049 115,375 (78,166) (5,267,170) 1,497,328 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 305,026 146,773 (20,480) 1,139,380 3,743,625 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 87,323 29,897 70,270 2,726,961 3,551,403 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 392,907 179,596 52,642 4,385,931 7,677,994 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 430,878 1,960,370 186,196 10,203,955 10,207,531 Transfers between funds ..... 18,919 533,213 972,727 (3,247,107) 2,383,113 Surrenders................... (34,300) (701,730) (2,948) (2,431,139) (904,020) Death benefits (note 4)...... (18,064) (2) - (137,938) (80,375) Policy loans (net of repayments) (note 5)................... (18,736) (801,908) (3,749) (1,117,875) (597,978) Deductions for surrender charges (note 2d).................. (5,128) (90,325) (395) (363,433) (83,892) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (129,582) (66,760) (1,204) (3,725,075) (4,711,838) Asset charges (note 3): MSP contracts ............. (3,346) (1,044) (372) (46,610) (42,703) LSFP contracts ............ (1,645) (297) (44) (17,059) (12,127) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 238,996 831,517 1,150,211 (882,281) 6,157,711 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 631,903 1,011,113 1,202,853 3,503,650 13,835,705 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 2,213,966 1,202,853 - 83,564,278 69,728,573 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 2,845,869 2,213,966 1,202,853 87,067,928 83,564,278 ============== ============== ============== ============== =============
FidVIPEi FidVIPGr ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 783,723 215,538 398,089 370,457 Mortality and expense charges (note 3)................... (498,094) (1,145,435) (759,610) (560,322) -------------- -------------- -------------- -------------- Net investment activity.... 285,629 (929,897) (361,521) (189,865) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 6,293,311 91,394,903 85,473,779 46,683,280 Cost of mutual funds sold.... (4,356,281) (75,684,409) (75,903,979) (40,913,295) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 1,937,030 15,710,494 9,569,800 5,769,985 Change in unrealized gain (loss) on investments............. 7,168,421 17,198,414 10,952,975 5,352,235 -------------- -------------- -------------- -------------- Net gain (loss) on investments 9,105,451 32,908,908 20,522,775 11,122,220 -------------- -------------- -------------- -------------- Reinvested capital gains..... 3,940,387 13,551,946 10,413,177 1,658,235 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 13,331,467 45,530,957 30,574,431 12,590,590 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 11,073,470 15,418,413 11,800,595 12,214,633 Transfers between funds ..... 7,046,924 13,284,488 6,611,922 1,631,518 Surrenders................... (1,110,322) (3,962,266) (1,541,170) (1,311,193) Death benefits (note 4)...... (73,247) (299,356) (54,733) (86,298) Policy loans (net of repayments) (note 5)................... (781,383) (3,173,351) (593,726) (970,109) Deductions for surrender charges (note 2d).................. (148,867) (592,322) (161,482) (175,799) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (4,404,162) (6,220,078) (4,387,847) (2,800,521) Asset charges (note 3): MSP contracts ............. (21,566) (50,059) (52,749) (23,186) LSFP contracts ............ (2,524) (23,234) (14,980) (2,713) -------------- -------------- -------------- -------------- Net equity transactions.. 11,578,323 14,382,235 11,605,830 8,476,332 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 24,909,790 59,913,192 42,180,261 21,066,922 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 44,818,783 117,142,759 74,962,498 53,895,576 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 69,728,573 177,055,951 117,142,759 74,962,498 ============== ============== ============== ==============
8 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
FidVIPHi FidVIPOv --------------------------------------------- -------------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 2,570,090 1,930,736 1,246,428 332,184 372,727 Mortality and expense charges (note 3)................... (197,828) (211,621) (183,573) (199,894) (167,806) -------------- -------------- -------------- -------------- ------------- Net investment activity.... 2,372,262 1,719,115 1,062,855 132,290 204,921 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 29,571,691 16,168,581 10,300,446 34,092,869 23,614,905 Cost of mutual funds sold.... (32,450,313) (16,734,695) (9,520,272) (31,976,653) (22,518,443) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. (2,878,622) (566,114) 780,174 2,116,216 1,096,462 Change in unrealized gain (loss) on investments............. 2,437,032 (3,958,695) 1,203,652 6,394,423 2,343 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments (441,590) (4,524,809) 1,983,826 8,510,639 1,098,805 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 96,078 1,226,822 154,053 535,780 1,098,564 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 2,026,750 (1,578,872) 3,200,734 9,178,709 2,402,290 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners..... 3,767,754 5,333,328 6,155,268 2,603,811 3,170,855 Transfers between funds ..... (4,726,508) 1,830,834 2,316,320 (1,140,865) (323,986) Surrenders................... (711,931) (481,342) (255,542) (511,027) (367,369) Death benefits (note 4)...... (83,542) (9,509) (22,399) (42,803) (33,198) Policy loans (net of repayments) (note 5)................... (257,597) (379,699) (282,232) (436,230) (393,533) Deductions for surrender charges (note 2d).................. (106,427) (54,547) (34,262) (76,394) (41,687) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (1,219,918) (2,449,174) (2,961,119) (936,056) (1,268,155) Asset charges (note 3): MSP contracts ............. (29,175) (14,696) (7,782) (9,310) (11,653) LSFP contracts ............ (7,937) (4,173) (911) (4,398) (3,309) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. (3,375,281) 3,771,022 4,907,341 (553,272) 727,965 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY (1,348,531) 2,192,150 8,108,075 8,625,437 3,130,255 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 27,354,464 25,162,314 17,054,239 22,223,409 19,093,154 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 26,005,933 27,354,464 25,162,314 30,848,846 22,223,409 ============== ============== ============== ============== =============
FidVIPOv FidVIPAM ------------ --------------------------------------------- 1997 1999 1998 1997 ------------ ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 285,975 1,040,155 894,977 787,310 Mortality and expense charges (note 3)................... (153,477) (270,444) (239,207) (219,940) ------------- -------------- -------------- -------------- Net investment activity.... 132,498 769,711 655,770 567,370 ------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 13,404,627 4,829,331 3,554,904 2,514,749 Cost of mutual funds sold.... (11,354,404) (3,813,802) (2,948,897) (2,201,452) ------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 2,050,223 1,015,529 606,007 313,297 Change in unrealized gain (loss) on investments............. (1,243,832) 26,818 28,492 1,651,903 ------------- -------------- -------------- -------------- Net gain (loss) on investments 806,391 1,042,347 634,499 1,965,200 ------------- -------------- -------------- -------------- Reinvested capital gains..... 1,135,234 1,317,530 2,684,931 1,974,948 ------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 2,074,123 3,129,588 3,975,200 4,507,518 ------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners..... 3,466,918 2,909,351 2,483,246 2,672,468 Transfers between funds ..... (393,971) (2,311,042) 115,769 284,292 Surrenders................... (496,949) (832,733) (1,327,378) (659,510) Death benefits (note 4)...... (56,932) (42,640) (17,947) (43,658) Policy loans (net of repayments) (note 5)................... (309,770) (659,859) (195,419) (323,969) Deductions for surrender charges (note 2d).................. (66,629) (124,486) (149,118) (88,424) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (1,319,172) (1,199,744) (874,287) (389,701) Asset charges (note 3): MSP contracts ............. (5,905) (11,668) (16,611) (8,742) LSFP contracts ............ (691) (2,332) (4,717) (1,023) ------------- -------------- -------------- -------------- Net equity transactions.. 816,899 (2,275,153) 13,538 1,441,733 ------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 2,891,022 854,435 3,988,738 5,949,251 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 16,202,132 32,253,287 28,264,549 22,315,298 ------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD 19,093,154 33,107,722 32,253,287 28,264,549 ============= ============== ============== ==============
9 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
FidVIPCon FidVIPGrOp ---------------------------------------------- --------------------------- 1999 1998 1997 1999 1998 -------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 261,343 208,958 131,312 58,964 20,203 Mortality and expense charges (note 3)................... (460,248) (316,241) (184,659) (47,088) (35,749) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (198,905) (107,283) (53,347) 11,876 (15,546) -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 25,340,625 5,270,262 2,972,056 3,165,507 6,596,939 Cost of mutual funds sold.... (16,733,032) (3,518,595) (2,266,444) (2,711,647) (6,370,749) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 8,607,593 1,751,667 705,612 453,860 226,190 Change in unrealized gain (loss) on investments............. 2,632,252 6,821,820 3,432,249 (343,328) 577,416 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 11,239,845 8,573,487 4,137,861 110,532 803,606 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 1,916,516 1,537,336 347,039 110,237 70,230 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 12,957,456 10,003,540 4,431,553 232,645 858,290 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 8,483,644 7,814,633 4,330,090 1,132,717 3,299,608 Transfers between funds ..... 5,291,011 7,442,220 7,341,211 12,561 3,732,648 Surrenders................... (1,395,137) (1,418,496) (274,806) (135,968) (1,598,688) Death benefits (note 4)...... (199,019) (122,001) (39,015) (53,293) (9,225) Policy loans (net of repayments) (note 5)................... (834,500) (1,095,851) (292,640) (44,200) (1,157,827) Deductions for surrender charges (note 2d).................. (208,560) (175,050) (36,845) (20,326) (205,666) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (2,643,787) (1,378,370) (300,404) (320,411) (136,692) Asset charges (note 3): MSP contracts ............. (36,244) (21,960) (8,910) (5,191) (2,482) LSFP contracts ............ (18,084) (6,237) (1,043) (2,905) (705) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 8,439,324 11,038,888 10,717,638 562,984 3,920,971 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 21,396,780 21,042,428 15,149,191 795,629 4,779,261 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 49,850,235 28,807,807 13,658,616 5,888,280 1,109,019 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 71,247,015 49,850,235 28,807,807 6,683,909 5,888,280 ============== ============== ============== ============== =============
FidVIPGrOp MSEmMkt --------------- ----------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ - 84,322 37,885 11,378 Mortality and expense charges (note 3)................... (4,822) (3,195) (2,400) (1,095) -------------- -------------- -------------- -------------- Net investment activity.... (4,822) 81,127 35,485 10,283 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 1,418,908 1,067,995 2,208,004 1,348,011 Cost of mutual funds sold.... (1,383,237) (1,041,803) (2,302,818) (1,367,276) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 35,671 26,192 (94,814) (19,265) Change in unrealized gain (loss) on investments............. 28,661 29,379 (33,784) 2,383 -------------- -------------- -------------- -------------- Net gain (loss) on investments 64,332 55,571 (128,598) (16,882) -------------- -------------- -------------- -------------- Reinvested capital gains..... - - - 4,938 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 59,510 136,698 (93,113) (1,661) -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 43,645 106,804 398,199 10,188 Transfers between funds ..... 1,013,974 158,219 133,381 247,359 Surrenders................... (2,852) (6,693) (214,691) (617) Death benefits (note 4)...... - - (9) - Policy loans (net of repayments) (note 5)................... (2,231) (7,238) (92,787) (2,742) Deductions for surrender charges (note 2d).................. (382) (1,001) (27,689) (83) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (2,262) (24,247) (14,797) (471) Asset charges (note 3): MSP contracts ............. (343) (425) (167) (78) LSFP contracts ............ (40) (885) (47) (9) -------------- -------------- -------------- -------------- Net equity transactions.. 1,049,509 224,534 181,393 253,547 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 1,109,019 361,232 88,280 251,886 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... - 340,166 251,886 - -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 1,109,019 701,398 340,166 251,886 ============== ============== ============== ==============
10 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NSATCapAp NSATGvtBd --------------------------------------------- ----------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 277,922 246,198 157,773 787,049 635,908 Mortality and expense charges (note 3)................... (323,069) (258,178) (130,365) (121,678) (111,282) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (45,147) (11,980) 27,408 665,371 524,626 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 14,859,491 41,145,976 22,800,149 29,946,083 43,945,372 Cost of mutual funds sold.... (13,314,168) (37,562,739) (19,539,881) (30,797,415) (43,540,184) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 1,545,323 3,583,237 3,260,268 (851,332) 405,188 Change in unrealized gain (loss) on investments............. (2,937,651) 2,897,785 41,944 (301,600) (159,490) -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments (1,392,328) 6,481,022 3,302,212 (1,152,932) 245,698 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 2,820,485 1,139,693 463,551 25,753 67,018 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 1,383,010 7,608,735 3,793,171 (461,808) 837,342 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 6,414,922 4,921,929 2,643,340 755,607 1,866,413 Transfers between funds ..... (902,464) 9,212,515 8,096,052 381,498 3,757,206 Surrenders................... (1,464,698) (339,981) (225,077) (310,304) (140,551) Death benefits (note 4)...... (26,646) (12,217) (5,534) (3,017) (50,211) Policy loans (net of repayments) (note 5)................... (839,186) (247,383) (353,707) (495,291) (220,482) Deductions for surrender charges (note 2d).................. (218,959) (30,979) (30,177) (46,387) (15,200) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (2,416,248) (1,558,711) (385,883) (500,735) (989,812) Asset charges (note 3): MSP contracts ............. (26,238) (17,928) (6,728) (13,045) (7,727) LSFP contracts ............ (15,764) (5,092) (787) (2,382) (2,195) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 504,719 11,922,153 9,731,499 (234,056) 4,197,441 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 1,887,729 19,530,888 13,524,670 (695,864) 5,034,783 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 41,283,344 21,752,456 8,227,786 14,057,773 9,022,990 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 43,171,073 41,283,344 21,752,456 13,361,909 14,057,773 ============== ============== ============== ============== =============
NSATGvtBd NSATMyMkt ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 492,781 2,607,883 2,517,296 2,001,810 Mortality and expense charges (note 3)................... (68,282) (415,133) (414,977) (359,665) -------------- -------------- -------------- -------------- Net investment activity.... 424,499 2,192,750 2,102,319 1,642,145 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 10,818,170 257,299,024 213,040,345 122,915,553 Cost of mutual funds sold.... (10,417,945) (257,299,024) (213,040,345) (122,915,553) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 400,225 - - - Change in unrealized gain (loss) on investments............. (140,391) - - - -------------- -------------- -------------- -------------- Net gain (loss) on investments 259,834 - - - -------------- -------------- -------------- -------------- Reinvested capital gains..... - - - - -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 684,333 2,192,750 2,102,319 1,642,145 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 1,870,588 33,970,462 87,844,599 117,478,803 Transfers between funds ..... 1,527,412 (20,060,327) (81,357,019) (103,571,498) Surrenders................... (132,876) (2,949,962) (1,151,432) (2,413,548) Death benefits (note 4)...... (6,196) (1,748,315) (5,841) (37,820) Policy loans (net of repayments) (note 5)................... (245,452) 257,119 (233,125) (1,758,491) Deductions for surrender charges (note 2d).................. (17,815) (440,992) (117,086) (323,598) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (1,333,897) (2,710,844) (3,968,229) (4,837,509) Asset charges (note 3): MSP contracts ............. (2,790) (55,122) (28,816) (13,745) LSFP contracts ............ (327) (32,642) (8,184) (1,608) -------------- -------------- -------------- -------------- Net equity transactions.. 1,658,647 6,229,377 974,867 4,520,986 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 2,342,980 8,422,127 3,077,186 6,163,131 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 6,680,010 47,514,985 44,437,799 38,274,668 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 9,022,990 55,937,112 47,514,985 44,437,799 ============== ============== ============== ==============
11 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NSATSmCapV NSATSmCo --------------------------------------------- ----------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ - - - - - Mortality and expense charges (note 3)................... (12,857) (3,508) - (133,984) (115,584) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (12,857) (3,508) - (133,984) (115,584) -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 38,165,993 1,549,129 - 12,258,303 12,262,712 Cost of mutual funds sold.... (37,730,603) (1,489,413) - (11,935,965) (13,098,101) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 435,390 59,716 - 322,338 (835,389) Change in unrealized gain (loss) on investments............. (178,227) 31,642 - 6,521,648 1,062,670 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 257,163 91,358 - 6,843,986 227,281 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 463,979 - - 1,017,362 - -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 708,285 87,850 - 7,727,364 111,697 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 205,584 495,836 - 3,047,229 2,534,601 Transfers between funds ..... 1,364,159 742,114 - 108,189 2,008,259 Surrenders................... (9,301) (342,834) - (506,958) (175,480) Death benefits (note 4)...... - (1) - (58,447) (24,329) Policy loans (net of repayments) (note 5)................... (17,764) (92,219) - (304,105) (112,094) Deductions for surrender charges (note 2d).................. (1,390) (44,169) - (75,786) (19,078) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (60,914) (5,642) - (1,042,927) (497,764) Asset charges (note 3): MSP contracts ............. (3,844) (244) - (14,377) (8,027) LSFP contracts ............ (2,270) (69) - (6,706) (2,279) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 1,474,260 752,772 - 1,146,112 3,703,809 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 2,182,545 840,622 - 8,873,476 3,815,506 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 840,622 - - 17,495,277 13,679,771 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 3,023,167 840,622 - 26,368,753 17,495,277 ============== ============== ============== ============== =============
NSATSmCo NSATTotRe ------------- ---------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- -------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ - 663,979 923,892 906,286 Mortality and expense charges (note 3)................... (251,559) (774,887) (673,496) (342,466) -------------- -------------- -------------- -------------- Net investment activity.... (251,559) (110,908) 250,396 563,820 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 16,417,304 7,683,042 17,758,523 7,806,204 Cost of mutual funds sold.... (14,437,205) (4,796,181) (10,907,631) (5,268,505) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 1,980,099 2,886,861 6,850,892 2,537,699 Change in unrealized gain (loss) on investments............. (943,075) (615,625) 2,647,189 8,597,412 -------------- -------------- -------------- -------------- Net gain (loss) on investments 1,037,024 2,271,236 9,498,081 11,135,111 -------------- -------------- -------------- -------------- Reinvested capital gains..... 371,914 3,857,973 3,859,922 2,381,668 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 1,157,379 6,018,301 13,608,399 14,080,599 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 2,031,832 14,477,695 18,994,728 21,089,542 Transfers between funds ..... 5,027,832 (3,544,992) 6,079,393 12,507,830 Surrenders................... (161,763) (2,714,451) (1,330,528) (993,966) Death benefits (note 4)...... (40,234) (233,861) (120,757) (73,080) Policy loans (net of repayments) (note 5)................... (171,323) (2,351,544) (809,785) (1,397,247) Deductions for surrender charges (note 2d).................. (21,689) (405,785) (122,860) (133,267) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (47,754) (6,266,041) (11,763,303) (12,793,173) Asset charges (note 3): MSP contracts ............. (4,231) (46,751) (46,769) (23,085) LSFP contracts ............ (495) (17,691) (13,282) (2,702) -------------- -------------- -------------- -------------- Net equity transactions.. 6,612,175 (1,103,421) 10,866,837 18,180,852 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 7,769,554 4,914,880 24,475,236 32,261,451 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 5,910,217 99,115,362 74,640,126 42,378,675 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 13,679,771 104,030,242 99,115,362 74,640,126 ============== ============== ============== ==============
12 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NBAMTGro NBAMTGuard --------------------------------------------- ----------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ - - - 4,569 - Mortality and expense charges (note 3)................... (183,268) (153,887) (131,622) (12,787) (4,780) ------------- -------------- -------------- -------------- ------------- Net investment activity.... (183,268) (153,887) (131,622) (8,218) (4,780) ------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 90,781,328 28,296,554 11,391,328 8,197,327 1,186,919 Cost of mutual funds sold.... (88,544,143) (30,054,251) (10,218,717) (8,110,096) (1,243,303) ------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 2,237,185 (1,757,697) 1,172,611 87,231 (56,384) Change in unrealized gain (loss) on investments............. 7,073,105 273,491 1,144,227 43,771 53,662 ------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 9,310,290 (1,484,206) 2,316,838 131,002 (2,722) ------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 1,124,154 4,778,935 1,172,597 - - ------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 10,251,176 3,140,842 3,357,813 122,784 (7,502) ------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 2,741,841 3,124,257 2,009,831 241,772 149,649 Transfers between funds ..... (2,585,171) 3,739,437 498,211 1,149,560 831,617 Surrenders................... (733,093) (1,015,843) (419,539) (18,129) (64,538) Death benefits (note 4)...... (1,410,172) (13,565) (7,880) (281) (1) Policy loans (net of repayments) (note 5)................... (530,684) (1,132,396) (305,567) (19,356) (25,325) Deductions for surrender charges (note 2d).................. (109,591) (120,721) (56,250) (2,710) (8,207) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (1,049,294) (741,732) (249,631) (59,481) (17,066) Asset charges (note 3): MSP contracts ............. (9,624) (10,686) (5,427) (1,168) (332) LSFP contracts ............ (4,427) (3,035) (635) (701) (94) ------------- -------------- -------------- -------------- ------------- Net equity transactions.. (3,690,215) 3,825,716 1,463,113 1,289,506 865,703 ------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 6,560,961 6,966,558 4,820,926 1,412,290 858,201 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 24,511,722 17,545,164 12,724,238 858,201 - ------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 31,072,683 24,511,722 17,545,164 2,270,491 858,201 ============= ============== ============== ============== =============
NBAMTGuard NBAMTLMat -------------- --------------------------------------------- 1997 1999 1998 1997 -------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ - 277,113 365,591 166,562 Mortality and expense charges (note 3)................... - (35,738) (42,729) (37,669) -------------- -------------- -------------- -------------- Net investment activity.... - 241,375 322,862 128,893 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ - 1,296,663 3,525,682 1,060,839 Cost of mutual funds sold.... - (1,370,958) (3,557,763) (1,087,427) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. - (74,295) (32,081) (26,588) Change in unrealized gain (loss) on investments............. - (128,665) (88,989) 99,993 -------------- -------------- -------------- -------------- Net gain (loss) on investments - (202,960) (121,070) 73,405 -------------- -------------- -------------- -------------- Reinvested capital gains..... - - - - -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ - 38,415 201,792 202,298 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... - 418,414 1,227,568 568,335 Transfers between funds ..... - (166,249) (1,104,263) 2,560,467 Surrenders................... - (82,093) (340,366) (49,744) Death benefits (note 4)...... - (50,646) (168,478) (6,820) Policy loans (net of repayments) (note 5)................... - (66,552) (490,348) (50,416) Deductions for surrender charges (note 2d).................. - (12,272) (43,208) (6,669) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. - (161,822) (151,014) (95,419) Asset charges (note 3): MSP contracts ............. - (7,656) (2,967) (1,822) LSFP contracts ............ - (487) (843) (213) -------------- -------------- -------------- -------------- Net equity transactions.. - (129,363) (1,073,919) 2,917,699 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY - (90,948) (872,127) 3,119,997 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... - 5,019,328 5,891,455 2,771,458 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ - 4,928,380 5,019,328 5,891,455 ============== ============== ============== ==============
13 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NBAMTPart OppBdFd --------------------------------------------- ----------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 395,343 123,869 38,636 563,814 177,251 Mortality and expense charges (note 3)................... (234,549) (254,428) (171,233) (91,553) (91,564) -------------- -------------- -------------- -------------- ------------- Net investment activity.... 160,794 (130,559) (132,597) 472,261 85,687 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 10,213,406 16,262,946 14,044,895 3,691,017 25,959,216 Cost of mutual funds sold.... (10,762,285) (15,129,583) (11,426,520) (3,697,719) (25,616,936) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. (548,879) 1,133,363 2,618,375 (6,702) 342,280 Change in unrealized gain (loss) on investments............. 1,854,882 (3,917,798) 1,495,768 (794,086) 13,809 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 1,306,003 (2,784,435) 4,114,143 (800,788) 356,089 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 687,554 3,901,869 594,994 54,146 160,413 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 2,154,351 986,875 4,576,540 (274,381) 602,189 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 5,441,082 5,722,483 3,058,953 1,530,602 1,446,313 Transfers between funds ..... (8,211,478) 2,646,725 11,362,270 (747,631) 2,081,829 Surrenders................... (949,302) (676,703) (291,383) (352,928) (168,318) Death benefits (note 4)...... (94,956) (11,051) - (9,225) (24,489) Policy loans (net of repayments) (note 5)................... (473,894) (1,178,884) (215,128) (214,389) (23,153) Deductions for surrender charges (note 2d).................. (141,912) (78,170) (39,067) (52,759) (19,765) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (1,823,914) (1,174,585) (364,291) (496,721) (348,809) Asset charges (note 3): MSP contracts ............. (23,724) (17,668) (8,885) (9,861) (6,358) LSFP contracts ............ (10,391) (5,018) (1,040) (1,060) (1,806) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. (6,288,489) 5,227,129 13,501,429 (353,972) 2,935,444 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY (4,134,138) 6,214,004 18,077,969 (628,353) 3,537,633 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 34,942,331 28,728,327 10,650,358 12,362,107 8,824,474 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 30,808,193 34,942,331 28,728,327 11,733,754 12,362,107 ============== ============== ============== ============== =============
OppBdFd OppGlSec ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 444,589 255,944 389,267 139,580 Mortality and expense charges (note 3)................... (64,328) (190,529) (147,592) (115,087) -------------- -------------- -------------- -------------- Net investment activity.... 380,261 65,415 241,675 24,493 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 6,493,858 6,535,136 4,690,056 2,123,253 Cost of mutual funds sold.... (6,309,717) (4,397,501) (3,335,880) (1,585,760) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 184,141 2,137,635 1,354,176 537,493 Change in unrealized gain (loss) on investments............. 7,331 9,595,322 (702,629) 1,880,371 -------------- -------------- -------------- -------------- Net gain (loss) on investments 191,472 11,732,957 651,547 2,417,864 -------------- -------------- -------------- -------------- Reinvested capital gains..... 20,983 717,222 1,465,275 - -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 592,716 12,515,594 2,358,497 2,442,357 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 1,185,778 3,377,203 2,591,457 2,244,408 Transfers between funds ..... 1,429,093 127,319 1,052,407 2,806,084 Surrenders................... (151,014) (755,080) (390,303) (332,828) Death benefits (note 4)...... (6,177) (44,903) (12,688) (1,951) Policy loans (net of repayments) (note 5)................... (97,629) (343,214) (265,465) (260,746) Deductions for surrender charges (note 2d).................. (20,247) (112,877) (46,476) (44,624) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (74,240) (1,110,398) (696,092) (209,063) Asset charges (note 3): MSP contracts ............. (2,730) (9,874) (10,249) (5,120) LSFP contracts ............ (319) (4,111) (2,911) (599) -------------- -------------- -------------- -------------- Net equity transactions.. 2,262,515 1,124,065 2,219,680 4,195,561 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 2,855,231 13,639,659 4,578,177 6,637,918 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 5,969,243 21,130,542 16,552,365 9,914,447 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 8,824,474 34,770,201 21,130,542 16,552,365 ============== ============== ============== ==============
14 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OppGro OppMult --------------------------------------------- ----------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 16,006 9,433 - 480,400 116,421 Mortality and expense charges (note 3)................... (48,619) (26,246) (2,691) (115,579) (104,971) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (32,613) (16,813) (2,691) 364,821 11,450 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 25,212,861 5,173,603 346,058 2,796,637 1,906,489 Cost of mutual funds sold.... (24,502,814) (4,835,421) (340,426) (2,391,468) (1,502,365) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 710,047 338,182 5,632 405,169 404,124 Change in unrealized gain (loss) on investments............. 1,735,399 109,336 3,346 10,270 (366,305) -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 2,445,446 447,518 8,978 415,439 37,819 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 175,824 113,813 - 694,901 675,242 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 2,588,657 544,518 6,287 1,475,161 724,511 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 1,214,511 1,452,830 32,403 1,717,678 3,243,119 Transfers between funds ..... 3,004,317 4,492,087 586,430 (1,101,933) 706,703 Surrenders................... (60,102) (576,151) (2,135) (382,853) (1,061,880) Death benefits (note 4)...... (6,703) (5) - (36,757) (182,084) Policy loans (net of repayments) (note 5)................... (111,846) (312,911) (3,203) (234,710) (1,005,743) Deductions for surrender charges (note 2d).................. (8,985) (73,520) (286) (57,233) (126,681) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (351,903) (116,339) (433) (646,532) (435,809) Asset charges (note 3): MSP contracts ............. (4,217) (1,822) (192) (8,700) (7,289) LSFP contracts ............ (3,718) (518) (22) (1,730) (2,070) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 3,671,354 4,863,651 612,562 (752,770) 1,128,266 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 6,260,011 5,408,169 618,849 722,391 1,852,777 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 6,027,018 618,849 - 14,207,759 12,354,982 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 12,287,029 6,027,018 618,849 14,930,150 14,207,759 ============== ============== ============== ============== =============
OppMult StOpp2 ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 401,123 - 71,635 79,875 Mortality and expense charges (note 3)................... (88,369) (283,101) (220,760) (185,205) -------------- -------------- -------------- -------------- Net investment activity.... 312,754 (283,101) (149,125) (105,330) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 1,256,650 6,031,119 3,215,306 3,417,734 Cost of mutual funds sold.... (1,026,967) (4,291,744) (2,191,788) (2,305,866) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 229,683 1,739,375 1,023,518 1,111,868 Change in unrealized gain (loss) on investments............. 697,954 5,430,662 (1,078,872) 1,866,652 -------------- -------------- -------------- -------------- Net gain (loss) on investments 927,637 7,170,037 (55,354) 2,978,520 -------------- -------------- -------------- -------------- Reinvested capital gains..... 329,608 3,541,869 3,488,003 1,736,733 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 1,569,999 10,428,805 3,283,524 4,609,923 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 1,361,025 4,448,212 5,452,015 3,291,881 Transfers between funds ..... 1,935,508 (12,621) 470,365 1,720,221 Surrenders................... (189,727) (1,148,838) (1,037,130) (584,361) Death benefits (note 4)...... (18,581) (104,927) (143,979) (46,618) Policy loans (net of repayments) (note 5)................... (138,576) (753,805) (1,307,454) (446,793) Deductions for surrender charges (note 2d).................. (25,438) (171,741) (121,009) (78,349) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (102,354) (1,589,094) (946,709) (237,366) Asset charges (note 3): MSP contracts ............. (3,822) (9,653) (15,330) (7,857) LSFP contracts ............ (447) (4,177) (4,354) (920) -------------- -------------- -------------- -------------- Net equity transactions.. 2,817,588 653,356 2,346,415 3,609,838 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 4,387,587 11,082,161 5,629,939 8,219,761 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 7,967,395 31,035,784 25,405,845 17,186,084 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 12,354,982 42,117,945 31,035,784 25,405,845 ============== ============== ============== ============== (Continued)
15 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
StDisc2 StintStk2 --------------------------------------------- ----------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ - - - 7,958 22,725 Mortality and expense charges (note 3)................... (53,820) (58,150) (62,162) (22,468) (15,028) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (53,820) (58,150) (62,162) (14,510) 7,697 -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 8,370,593 4,234,899 6,947,379 12,615,085 4,328,033 Cost of mutual funds sold.... (9,362,894) (3,682,201) (7,014,226) (11,285,141) (4,573,810) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. (992,301) 552,698 (66,847) 1,329,944 (245,777) Change in unrealized gain (loss) on investments............. 125,370 (128,321) 897,855 1,572,604 138,162 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments (866,931) 424,377 831,008 2,902,548 (107,615) -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... 1,035,670 120,028 - - - -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 114,919 486,255 768,846 2,888,038 (99,918) -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 1,126,745 686,440 1,157,860 428,882 1,319,108 Transfers between funds ..... (2,017,437) 154,482 (800,200) 2,309,650 (186,236) Surrenders................... (201,408) (128,257) (159,830) (56,239) (444,664) Death benefits (note 4)...... (1,033) (23,649) (17,470) (4,048) (5,993) Policy loans (net of repayments) (note 5)................... (115,906) (104,497) (79,472) 52,892 (462,567) Deductions for surrender charges (note 2d).................. (30,109) (15,109) (21,429) (8,407) (56,530) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (340,295) (244,196) (50,118) (125,810) (61,036) Asset charges (note 3): MSP contracts ............. (1,300) (4,038) (2,334) (2,085) (1,044) LSFP contracts ............ (513) (1,147) (273) (1,753) (296) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. (1,581,256) 320,029 26,734 2,593,082 100,742 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY (1,466,337) 806,284 795,580 5,481,120 824 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 8,351,832 7,545,548 6,749,968 1,986,996 1,986,172 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 6,885,495 8,351,832 7,545,548 7,468,116 1,986,996 ============== ============== ============== ============== =============
StintStk2 VEWrldBd ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 35,008 135,225 24,030 73,945 Mortality and expense charges (note 3)................... (16,592) (25,601) (26,599) (20,793) -------------- -------------- -------------- -------------- Net investment activity.... 18,416 109,624 (2,569) 53,152 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 1,180,714 4,442,114 7,510,962 1,289,613 Cost of mutual funds sold.... (1,254,173) (4,822,035) (7,101,791) (1,326,687) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. (73,459) (379,921) 409,171 (37,074) Change in unrealized gain (loss) on investments............. (320,243) (74,747) (35,624) 23,130 -------------- -------------- -------------- -------------- Net gain (loss) on investments (393,702) (454,668) 373,547 (13,944) -------------- -------------- -------------- -------------- Reinvested capital gains..... 54,007 60,420 - - -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ (321,279) (284,624) 370,978 39,208 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 396,577 232,837 173,889 303,361 Transfers between funds ..... 159,418 (449,720) 663,078 89,247 Surrenders................... (39,345) (98,243) (47,678) (109,226) Death benefits (note 4)...... - (25,665) (35,715) - Policy loans (net of repayments) (note 5)................... (28,189) (70,184) (21,466) (20,191) Deductions for surrender charges (note 2d).................. (5,275) (14,686) (5,615) (14,645) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (4,583) (113,947) (77,084) (10,312) Asset charges (note 3): MSP contracts ............. (614) (1,809) (1,847) (782) LSFP contracts ............ (72) (145) (525) (92) -------------- -------------- -------------- -------------- Net equity transactions.. 477,917 (541,562) 647,037 237,360 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 156,638 (826,186) 1,018,015 276,568 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 1,829,534 3,547,221 2,529,206 2,252,638 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 1,986,172 2,721,035 3,547,221 2,529,206 ============== ============== ============== ==============
16 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
VEWrldEMkt VEWrldHAs --------------------------------------------- -------------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ - 20,182 1,791 61,762 35,945 Mortality and expense charges (note 3)................... (32,044) (14,186) (10,449) (36,567) (38,345) -------------- -------------- -------------- -------------- ------------- Net investment activity.... (32,044) 5,996 (8,658) 25,195 (2,400) -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 26,145,515 4,758,410 3,744,118 19,298,812 13,571,199 Cost of mutual funds sold.... (24,002,878) (6,579,731) (3,668,967) (18,689,697) (17,132,731) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 2,142,637 (1,821,321) 75,151 609,115 (3,561,532) Change in unrealized gain (loss) on investments............. 1,939,640 923,464 (815,392) 199,401 644,209 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 4,082,277 (897,857) (740,241) 808,516 (2,917,323) -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... - 17,939 - - 882,647 -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 4,050,233 (873,922) (748,899) 833,711 (2,037,076) -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 580,564 701,612 585,373 602,994 1,602,107 Transfers between funds ..... 4,022,991 (173,962) 2,650,105 (822,875) (1,198,538) Surrenders................... (107,435) (41,678) (8,373) (289,205) (132,778) Death benefits (note 4)...... - (4,922) - (1,818) (3,026) Policy loans (net of repayments) (note 5)................... (70,361) (80,091) (71,376) 77,240 (200,964) Deductions for surrender charges (note 2d).................. (16,061) (5,094) (1,123) (43,233) (13,168) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (157,046) (68,777) (8,419) (189,825) (199,756) Asset charges (note 3): MSP contracts ............. (3,494) (985) (742) (1,809) (2,663) LSFP contracts ............ (1,983) (280) (87) (322) (756) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. 4,247,175 325,823 3,145,358 (668,853) (149,542) -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 8,297,408 (548,099) 2,396,459 164,858 (2,186,618) CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 1,851,575 2,399,674 3,215 4,129,585 6,316,203 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 10,148,983 1,851,575 2,399,674 4,294,443 4,129,585 ============== ============== ============== ============== =============
VEWrldHAs VKMSRESec ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 118,188 400,217 12,298 193,749 Mortality and expense charges (note 3)................... (54,934) (44,010) (52,029) (47,059) -------------- -------------- -------------- -------------- Net investment activity.... 63,254 356,207 (39,731) 146,690 -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 19,348,273 6,089,310 4,635,925 8,117,619 Cost of mutual funds sold.... (18,769,875) (7,139,977) (5,200,298) (7,257,679) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 578,398 (1,050,667) (564,373) 859,940 Change in unrealized gain (loss) on investments............. (898,401) 478,383 (513,939) (625,237) -------------- -------------- -------------- -------------- Net gain (loss) on investments (320,003) (572,284) (1,078,312) 234,703 -------------- -------------- -------------- -------------- Reinvested capital gains..... 160,126 - 121,016 641,054 -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ (96,623) (216,077) (997,027) 1,022,447 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 840,495 1,006,759 1,337,143 827,543 Transfers between funds ..... (282,076) (1,435,388) (908,402) 2,852,464 Surrenders................... (171,081) (187,346) (163,286) (100,507) Death benefits (note 4)...... (99) (2,653) (22,389) - Policy loans (net of repayments) (note 5)................... (124,185) (131,155) (78,704) (85,370) Deductions for surrender charges (note 2d).................. (22,938) (28,007) (19,126) (13,476) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (142,112) (432,919) (232,710) (65,828) Asset charges (note 3): MSP contracts ............. (1,953) (4,975) (3,613) (2,360) LSFP contracts ............ (229) (2,459) (1,026) (276) -------------- -------------- -------------- -------------- Net equity transactions.. 95,822 (1,218,143) (92,113) 3,412,190 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY (801) (1,434,220) (1,089,140) 4,434,637 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 6,317,004 6,539,291 7,628,431 3,193,794 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 6,316,203 5,105,071 6,539,291 7,628,431 ============== ============== ============== ==============
17 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED STATEMENTS OF OPERATIONS, CONTINUED YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
WPIntEq WPPVenCap ----------------------------------------- ----------------------------- 1999 1998 1997 1999 1998 ------------- ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 106,392 50,333 79,669 - - Mortality and expense charges (note 3)................... (70,225) (72,995) (79,873) (13,686) (6,193) -------------- -------------- -------------- -------------- ------------- Net investment activity.... 36,167 (22,662) (204) (13,686) (6,193) -------------- -------------- -------------- -------------- ------------- Proceeds from mutual fund shares sold................ 19,261,615 9,538,799 7,769,039 11,451,361 4,879,898 Cost of mutual funds sold.... (18,047,381) (9,941,358) (7,238,368) (10,619,693) (4,873,755) -------------- -------------- -------------- -------------- ------------- Realized gain (loss) on investments.............. 1,214,234 (402,559) 530,671 831,668 6,143 Change in unrealized gain (loss) on investments............. 3,271,039 929,287 (1,377,503) 489,466 66,492 -------------- -------------- -------------- -------------- ------------- Net gain (loss) on investments 4,485,273 526,728 (846,832) 1,321,134 72,635 -------------- -------------- -------------- -------------- ------------- Reinvested capital gains..... - - 551,360 - - -------------- -------------- -------------- -------------- ------------- Net change in contract owners' equity resulting from operations........ 4,521,440 504,066 (295,676) 1,307,448 66,442 -------------- -------------- -------------- -------------- ------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 1,411,984 1,111,024 1,506,986 139,661 105,973 Transfers between funds ..... (167,066) (1,578,624) 674,324 2,043,854 180,265 Surrenders................... (642,724) (168,491) (113,178) (28,894) (1,367) Death benefits (note 4)...... (124,597) (7,848) (16,165) - (1) Policy loans (net of repayments) (note 5)................... (83,407) (259,475) (84,201) (72,651) 4,787 Deductions for surrender charges (note 2d).................. (96,081) (18,111) (15,174) (4,319) (7) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (427,942) (265,303) (65,212) (50,521) (21,553) Asset charges (note 3): MSP contracts ............. (8,596) (5,069) (3,086) (847) (430) LSFP contracts ............ (3,905) (1,439) (361) (855) (122) -------------- -------------- -------------- -------------- ------------- Net equity transactions.. (142,334) (1,193,336) 1,883,933 2,025,428 267,545 -------------- -------------- -------------- -------------- ------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 4,379,106 (689,270) 1,588,257 3,332,876 333,987 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 9,289,108 9,978,378 8,390,121 1,100,662 766,675 -------------- -------------- -------------- -------------- ------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 13,668,214 9,289,108 9,978,378 4,433,538 1,100,662 ============== ============== ============== ============== =============
WPPVenCap WPSmCoGr ------------- --------------------------------------------- 1997 1999 1998 1997 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY: Reinvested dividends ........ $ 70 - - - Mortality and expense charges (note 3)................... (3,334) (114,737) (106,735) (99,826) -------------- -------------- -------------- -------------- Net investment activity.... (3,264) (114,737) (106,735) (99,826) -------------- -------------- -------------- -------------- Proceeds from mutual fund shares sold................ 1,898,871 12,560,036 11,652,539 13,210,500 Cost of mutual funds sold.... (1,856,944) (11,995,881) (11,657,359) (11,590,838) -------------- -------------- -------------- -------------- Realized gain (loss) on investments.............. 41,927 564,155 (4,820) 1,619,662 Change in unrealized gain (loss) on investments............. (1,622) 8,391,845 (287,723) 18,436 -------------- -------------- -------------- -------------- Net gain (loss) on investments 40,305 8,956,000 (292,543) 1,638,098 -------------- -------------- -------------- -------------- Reinvested capital gains..... - 709,970 - - -------------- -------------- -------------- -------------- Net change in contract owners' equity resulting from operations........ 37,041 9,551,233 (399,278) 1,538,272 -------------- -------------- -------------- -------------- EQUITY TRANSACTIONS: Purchase payments received from contract owners....... 70,984 2,658,532 2,471,813 2,516,266 Transfers between funds ..... 668,066 (248,812) (1,849,405) 4,654,236 Surrenders................... (2,034) (301,023) (200,485) (128,687) Death benefits (note 4)...... - (60,498) (10,544) - Policy loans (net of repayments) (note 5)................... (5,947) (288,744) 19,268 (162,099) Deductions for surrender charges (note 2d).................. (273) (45,000) (20,649) (17,254) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c).. (897) (902,731) (454,770) (88,146) Asset charges (note 3): MSP contracts ............. (237) (9,685) (7,412) (4,835) LSFP contracts ............ (28) (5,597) (2,105) (566) -------------- -------------- -------------- -------------- Net equity transactions.. 729,634 796,442 (54,289) 6,768,915 -------------- -------------- -------------- -------------- NET CHANGE IN CONTRACT OWNERS' EQUITY 766,675 10,347,675 (453,567) 8,307,187 CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... - 15,178,630 15,632,197 7,325,010 -------------- -------------- -------------- -------------- CONTRACT OWNERS' EQUITY END OF PERIOD $ 766,675 25,526,305 15,178,630 15,632,197 ============== ============== ============== ==============
See accompanying notes to financial statements. 18 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations The Nationwide VLISeparate 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); American Century VP - American Century VP Balanced (ACVPBal) American Century VP - American Century VP Capital Appreciation (ACVPCapAp) American Century VP - American Century VP Income & Growth (ACVPIncGr) American Century VP - American Century VP International (ACVPInt) American Century VP - American Century VP Value (ACVPValue) 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) 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) Portfolio of the Morgan Stanley Universal Funds, Inc. (Morgan Stanley); Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) 19 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED 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 - 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) 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) Portfolio of the Van Kampen Life Investment Trust (Van Kampen LIT); Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio (VKMSRESec) 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, 1999, contract owners have invested in all of the above funds. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain 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. 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. 20 (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, 1999. 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 prior year amounts have been reclassified to conform with the current year 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. (Continued) 21 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED 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. 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 and are reflected in the table below. For modified single premium contracts (MSP), 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 (LSFP), 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%. This charge is assessed monthly against each contract by liquidating units. The following table provides mortality and expense risk charges for all single premium contracts and multiple payment and flexible payment contracts for the year ended December 31, 1999:
TOTAL ACVPBal ACVCapAp ACVPincGr ACVPint ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 22,217 126 315 79 360 Single Premium contracts issued on or after April 16, 1990.... 1,597,906 9,070 22,650 5,653 25,861 Multiple Payment and Flexible Premium contracts............. 6,040,026 34,284 85,615 21,369 97,752 ------------ ------------ ------------ ------------ ------------ Total....................... $ 7,660,149 43,480 108,580 27,101 123,973 ============ ============ ============ ============ ============ ACVPValue DrySRGro DryStkix DryCapAp DryGrinc ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 61 333 2,086 166 46 Single Premium contracts issued on or after April 16, 1990.... 4,379 23,957 150,018 11,975 3,327 Multiple Payment and Flexible Premium contracts............. 16,553 90,556 567,060 45,265 12,577 ------------ ------------ ------------ ------------ ------------ Total....................... $ 20,993 114,846 719,164 57,406 15,950 ============ ============ ============ ============ ============ FidVIPEI FidVIPGr FidVIPHI FidVIPOv FidVIPAM ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 2,071 3,322 574 580 784 Single Premium contracts issued on or after April 16, 1990.... 148,948 238,938 41,267 41,698 56,415 Multiple Payment and Flexible Premium contracts............. 563,016 903,175 155,987 157,616 213,245 ------------ ------------ ------------ ------------ ------------ Total....................... $ 714,035 1,145,435 197,828 199,894 270,444 ============ ============ ============ ============ ============ (Continued)
23 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED
FidVIPCon FidVIPGrOp MSEmMkt NSATCapAp NSATGvtBd ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 1,335 137 9 937 352 Single Premium contracts issued on or after April 16, 1990.... 96,008 9,823 666 67,386 25,386 Multiple Payment and Flexible Premium contracts............. 362,905 37,128 2,520 254,746 95,940 ------------ ------------ ------------ ------------ ------------ Total....................... $ 460,248 47,088 3,195 323,069 121,678 ============ ============ ============ ============ ============ NSATMyMkt NSATSmCapV NSATSmCo NSATTotRe NBAMTGro ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 1,204 37 389 2,247 531 Single Premium contracts issued on or after April 16, 1990.... 86,597 2,682 27,949 161,641 38,230 Multiple Payment and Flexible Premium contracts............. 327,332 10,138 105,646 610,999 144,507 ------------ ------------ ------------ ------------ ------------ Total....................... $ 415,133 12,857 133,984 774,887 183,268 ============ ============ ============ ============ ============ NBAMTGuard NBAMTLMat NBAMTPart OppBdFd OppGlSec ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 37 104 680 266 553 Single Premium contracts issued on or after April 16, 1990.... 2,667 7,455 48,927 19,098 39,744 Multiple Payment and Flexible Premium contracts............. 10,083 28,179 184,942 72,189 150,232 ------------ ------------ ------------ ------------ ------------ Total....................... $ 12,787 35,738 234,549 91,553 190,529 ============ ============ ============ ============ ============ OppGro OppMult StOpp2 StDisc2 StintStk2 ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 141 335 821 156 65 Single Premium contracts issued on or after April 16, 1990.... 10,142 24,110 59,055 11,227 4,687 Multiple Payment and Flexible Premium contracts............. 38,336 91,134 223,225 42,437 17,716 ------------ ------------ ------------ ------------ ------------ Total....................... $ 48,619 115,579 283,101 53,820 22,468 ============ ============ ============ ============ ============ VEWrldBd VEWrldEMkt VEWrldHAs VKMSRESec WPintEq ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 74 93 106 128 204 Single Premium contracts issued on or after April 16, 1990.... 5,340 6,684 7,628 9,180 14,649 Multiple Payment and Flexible Premium contracts............. 20,187 25,267 28,833 34,702 55,372 ------------ ------------ ------------ ------------ ------------ Total....................... $ 25,601 32,044 36,567 44,010 70,225 ============ ============ ============ ============ ============ WPPVenCap WPSMCoGr ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 40 333 Single Premium contracts issued on or after April 16, 1990.... 2,855 23,934 Multiple Payment and Flexible Premium contracts............. 10,791 90,470 ------------ ------------ Total....................... $ 13,686 114,737 ============ ============
24 The following table provides mortality and expense risk charges for all single premium contracts and multiple payment and flexible payment contracts for the year ended December 31, 1998:
TOTAL ACVPBal ACVCapAp ACVPincGr ACVPint ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ ACVPValue DrySRGro DryStkix DryCapAp DryGrinc ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ FidVIPEI FidVIPGr FidVIPHI FidVIPOv FidVIPAM ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ FidVIPCon FidVIPGrOp MSEmMkt NSATCapAp NSATGvtBd ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ NSATMyMkt NSATSmCapV NSATSmCo NSATTotRe NBAMTGro ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ NBAMTGuard NBAMTLMat NBAMTPart OppBdFd OppGlSec ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ (Continued)
25 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED
OppGro OppMult StOpp2 StDisc2 StintStk2 ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ VEWrldBd VEWrldEMkt VEWrldHAs VKMSRESec WPintEq ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ WPPVenCap WPSMCoGr ------------ ------------ 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 ============ ============ The following table provides mortality and expense risk charges for all single premium contracts and multiple payment and flexible payment contracts for the year ended December 31, 1997: TOTAL ACVPBal ACVCapAp ACVPint ACVPValue ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 17,545 105 396 165 28 Single Premium contracts issued on or after April 16, 1990.... 1,003,388 5,976 22,644 9,420 1,620 Multiple Payment and Flexible Premium contracts............. 3,622,060 21,573 81,741 34,004 5,850 ------------ ------------ ------------ ------------ ------------ Total....................... $ 4,642,993 27,654 104,781 43,589 7,498 ============ ============ ============ ============ ============ DryCapAp DrySRGro DryStkix DryGrinc FidVIPEI ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 7 167 977 20 1,882 Single Premium contracts issued on or after April 16, 1990.... 406 9,552 55,889 1,130 107,642 Multiple Payment and Flexible Premium contracts............. 1,464 34,482 201,752 4,080 388,570 ------------ ------------ ------------ ------------ ------------ Total....................... $ 1,877 44,201 258,618 5,230 498,094 ============ ============ ============ ============ ============
26
FidVIPGr FidVIPHI FidVIPOv FidVIPAM FidVIPCon ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 2,117 694 580 831 698 Single Premium contracts issued on or after April 16, 1990.... 121,090 39,672 33,168 47,531 39,906 Multiple Payment and Flexible Premium contracts............. 437,115 143,207 119,729 171,578 144,055 ------------ ------------ ------------ ------------ ------------ Total....................... $ 560,322 183,573 153,477 219,940 184,659 ============ ============ ============ ============ ============ FidVIPGrOp MSEmMkt NSATCapAp NSATGvtBd NSATMyMkt ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 18 4 493 258 1,358 Single Premium contracts issued on or after April 16, 1990.... 1,042 237 28,173 14,750 77,730 Multiple Payment and Flexible Premium contracts............. 3,762 854 101,699 53,274 280,577 ------------ ------------ ------------ ------------ ------------ Total....................... $ 4,822 1,095 130,365 68,282 359,665 ============ ============ ============ ============ ============ NSATSmCo NSATTotRe NBAMTGro NBAMTLMat NBAMTPart ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 951 1,294 497 142 647 Single Premium contracts issued on or after April 16, 1990.... 54,364 74,010 28,445 8,141 37,005 Multiple Payment and Flexible Premium contracts............. 196,244 267,162 102,680 29,386 133,581 ------------ ------------ ------------ ------------ ------------ Total....................... $ 251,559 342,466 131,622 37,669 171,233 ============ ============ ============ ============ ============ OppBdFd OppGlSec OppGro OppMult StOpp2 ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 243 435 10 334 700 Single Premium contracts issued on or after April 16, 1990.... 13,902 24,871 582 19,097 40,024 Multiple Payment and Flexible Premium contracts............. 50,183 89,781 2,099 68,938 144,481 ------------ ------------ ------------ ------------ ------------ Total....................... $ 64,328 115,087 2,691 88,369 185,205 ============ ============ ============ ============ ============ StDisc2 StintStk2 VEWrldBd VEWrldEMkt VEWrldHAs ------------ ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 235 63 79 39 208 Single Premium contracts issued on or after April 16, 1990.... 13,434 3,586 4,494 2,258 11,872 Multiple Payment and Flexible Premium contracts............. 48,493 12,943 16,220 8,152 42,854 ------------ ------------ ------------ ------------ ------------ Total....................... $ 62,162 16,592 20,793 10,449 54,934 ============ ============ ============ ============ ============ VKMSRESec WPintEq WPPVenCap WPSMCoGr ------------ ------------ ------------ ------------ Single Premium contracts Issued prior to April 16, 1990....... $ 178 302 13 377 Single Premium contracts issued on or after April 16, 1990.... 10,170 17,261 721 21,573 Multiple Payment and Flexible Premium contracts............. 36,711 62,310 2,600 77,876 ------------ ------------ ------------ ------------ Total....................... $ 47,059 79,873 3,334 99,826 ============ ============ ============ ============ (Continued)
27 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED (4) DEATH BENEFITS Death benefit proceeds result in a redemption of the contract value from the Account and payment of those 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. In the event that the guaranteed death benefit exceeds the contract value on the date of death, the excess is paid by the Company's general account. (5) POLICY LOANS (NET OF REPAYMENTS) Contract provisions allow contract owners to borrow up to 90% (50% during first year of single 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. 28 (7) Components of contract owners' equity The following is a summary of contract owners' equity at December 31, 1999, for each product in the accumulation phase. Contract owners' equity represented by:
ANNUAL UNITS UNIT VALUE RETURN* --------- ----------- --------- Single Premium contracts issued prior to April 16, 1990: American Century VP - American Century VP Capital Appreciation 6,108 $ 36.406768 $ 222,373 63% American Century VP - American Century VP International 2,459 26.614141 65,444 62% The Dreyfus Socially Responsible Growth Fund, Inc. 1,699 36.209915 61,521 29% Dreyfus Stock Index Fund 16,208 33.296352 539,667 19% Dreyfus VIF - Capital Appreciation Portfolio 868 14.538186 12,619 10% Fidelity VIP - Equity-Income Portfolio 5,082 44.120448 224,220 5% Fidelity VIP - Growth Portfolio 3,009 79.099308 238,010 36% Fidelity VIP - High Income Portfolio 2,115 28.983767 61,301 7% Fidelity VIP - Overseas Portfolio 4,084 34.268141 139,951 41% Fidelity VIP-II - Asset Manager Portfolio 1,185 30.762893 36,454 10% Fidelity VIP-II - Contrafund Portfolio 677 25.968332 17,581 23% Fidelity VIP-III - Growth Opportunities Portfolio 1,477 13.960952 20,620 3% Morgan Stanley - Emerging Markets Debt Portfolio 1,518 8.934183 13,562 28% Nationwide SAT - Capital Appreciation Fund 1,979 32.388538 64,097 3% Nationwide SAT - Government Bond Fund 1,747 22.492327 39,294 (3)% Nationwide SAT - Money Market Fund 16,350 16.794246 274,586 4% Nationwide SAT - Small Cap Value Fund 2,201 10.825871 23,828 27% Nationwide SAT - Small Company Fund 913 23.047417 21,042 43% Nationwide SAT - Total Return Fund 4,738 42.439374 201,078 6% Neuberger & Berman AMT - Growth Portfolio 3,041 54.109841 164,548 49% Neuberger & Berman AMT - Guardian Portfolio 561 10.593122 5,943 14% Neuberger & Berman AMT - Limited Maturity Bond Portfolio 5,986 18.060558 108,111 1% Strong Opportunity Fund II, Inc. 450 40.018322 18,008 34% Van Eck WIT - Worldwide Bond Fund 1,325 15.185599 20,121 (9)% Van Eck WIT - Worldwide Emerging Markets Fund 6,267 11.423096 71,589 98% Van Eck WIT - Worldwide Hard Assets Fund 10 11.984540 120 20% (Continued)
29 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED
ANNUAL UNITS UNIT VALUE RETURN* ---------- ----------- ---------- Single Premium contracts issued on or after April 16, 1990: American Century VP - American Century VP Balanced 36,043 20.298769 731,629 9% American Century VP - American Century VP Capital Appreciation 134,822 24.209204 3,263,933 62% American Century VP - American Century VP Income & Growth 53,220 12.612413 671,233 16% American Century VP - American Century VP International 162,982 26.114709 4,256,228 62% American Century VP - American Century VP Value 26,781 12.781220 342,294 (2)% The Dreyfus Socially Responsible Growth Fund, Inc. 31,488 35.428815 1,115,583 28% Dreyfus Stock Index Fund 315,343 32.576553 10,272,788 19% Dreyfus VIF - Capital Appreciation Portfolio 81,279 14.413356 1,171,503 10% Dreyfus VIF - Growth and Income Portfolio 9,941 14.588194 145,021 15% Fidelity VIP - Equity-Income Portfolio 395,355 35.712129 14,118,969 5% Fidelity VIP - Growth Portfolio 355,884 54.130524 19,264,187 36% Fidelity VIP - High Income Portfolio 105,520 29.506936 3,113,572 7% Fidelity VIP - Overseas Portfolio 213,601 24.423718 5,216,931 41% Fidelity VIP-II - Asset Manager Portfolio 211,956 29.730624 6,301,584 10% Fidelity VIP-II - Contrafund Portfolio 290,335 25.563198 7,421,891 23% Fidelity VIP-III - Growth Opportunities Portfolio 21,868 13.841079 302,677 3% Morgan Stanley - Emerging Markets Debt Portfolio 6,540 8.857388 57,927 28% Nationwide SAT - Capital Appreciation Fund 62,075 31.526314 1,956,996 3% Nationwide SAT - Government Bond Fund 240,383 18.452016 4,435,551 (4)% Nationwide SAT - Money Market Fund 1,082,615 13.940225 15,091,897 3% Nationwide SAT - Small Cap Value Fund 23,585 10.762831 253,841 26% Nationwide SAT - Small Company Fund 66,890 22.712185 1,519,218 42% Nationwide SAT - Total Return Fund 115,322 36.208762 4,175,667 6% Neuberger &Berman AMT - Growth Portfolio 97,552 37.771042 3,684,641 48% Neuberger & Berman AMT - Guardian Portfolio 2,945 10.531438 31,015 13% Neuberger &Berman AMT - Limited Maturity Bond Portfolio 58,827 15.321478 901,317 0%
30
ANNUAL UNITS UNIT VALUE RETURN* --------- ----------- -------- Neuberger & Berman AMT - Partners Portfolio 69,118 24.377639 1,684,934 6% Oppenheimer VAF - Bond Fund 70,351 18.355321 1,291,315 (3)% Oppenheimer VAF - Global Securities Fund 99,036 28.256521 2,798,413 56% Oppenheimer VAF - Growth Fund 60,384 17.847892 1,077,727 40% Oppenheimer VAF - Multiple Strategies Fund 106,259 25.139330 2,671,280 10% Strong Opportunity Fund II, Inc. 102,073 38.955700 3,976,325 33% Strong VIF - Strong Discovery Fund II 32,996 19.481837 642,823 4% Strong VIF - Strong International Stock Fund II 142,490 16.519505 2,353,864 85% Van Eck WIT - Worldwide Bond Fund 34,273 14.675886 502,987 (9)% Van Eck WIT - Worldwide Emerging Markets Fund 123,914 11.302972 1,400,596 98% Van Eck WIT - Worldwide Hard Assets Fund 71,735 13.098076 939,590 19% Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio 39,678 14.898574 591,146 (5)% Warburg Pincus Trust - International Equity Portfolio 81,838 17.586224 1,439,221 51% Warburg Pincus Trust - Post Venture Capital Portfolio 88,739 19.293144 1,712,054 61% Warburg Pincus Trust - Small Company Growth Portfolio 114,996 25.533360 2,936,234 67% Multiple Payment contracts and Flexible Premium contracts: American Century VP - American Century VP Balanced 222,611 21.094348 4,695,834 9% American Century VP - American Century VP Capital Appreciation 643,372 23.303640 14,992,909 63% American Century VP - American Century VP Income & Growth 235,223 12.717991 2,991,564 17% American Century VP - American Century VP International 649,836 26.831062 17,435,790 63% American Century VP - American Century VP Value 156,791 12.975752 2,034,481 (2)% The Dreyfus Socially Responsible Growth Fund, Inc. 450,901 36.549891 16,480,382 29% Dreyfus Stock Index Fund 2,592,791 33.609618 87,142,715 20% Dreyfus VIF - Capital Appreciation Portfolio 404,377 14.591996 5,900,668 11% Dreyfus VIF - Growth and Income Portfolio 138,815 14.810164 2,055,873 16%
31 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED
ANNUAL UNITS UNIT VALUE RETURN* --------- ----------- ---------- Fidelity VIP - Equity-Income Portfolio 1,750,754 37.388084 65,457,338 5% Fidelity VIP - Growth Portfolio 2,613,902 55.899014 146,114,544 36% Fidelity VIP - High Income Portfolio 672,537 28.039263 18,857,442 7% Fidelity VIP - Overseas Portfolio 863,446 26.840170 23,175,037 41% Fidelity VIP-II - Asset Manager Portfolio 917,098 27.355020 25,087,234 10% Fidelity VIP-II - Contrafund Portfolio 2,151,780 26.143948 56,256,024 23% Fidelity VIP-III - Growth Opportunities Portfolio 385,372 14.012663 5,400,088 3% Morgan Stanley - Emerging Markets Debt Portfolio 43,728 8.967304 392,122 28% Nationwide SAT - Capital Appreciation Fund 1,104,444 32.761545 36,183,292 3% Nationwide SAT - Government Bond Fund 402,906 17.516435 7,057,477 (3)% Nationwide SAT - Money Market Fund 2,312,418 13.853330 32,034,690 4% Nationwide SAT - Small Cap Value Fund 165,130 10.852975 1,792,152 27% Nationwide SAT - Small Company Fund 907,754 23.192622 21,053,195 43% Nationwide SAT - Total Return Fund 2,622,351 35.085217 92,005,754 6% Neuberger & Berman AMT - Growth Portfolio 660,524 37.818375 24,979,944 49% Neuberger & Berman AMT - Guardian Portfolio 181,217 10.619652 1,924,461 14% Neuberger & Berman AMT - Limited Maturity Bond Portfolio 203,409 14.959827 3,042,963 1% Neuberger & Berman AMT - Partners Portfolio 1,008,241 25.046437 25,252,845 7% Oppenheimer VAF - Bond Fund 520,266 17.686402 9,201,634 (2)% Oppenheimer VAF - Global Securities Fund 1,018,848 29.152831 29,702,304 57% Oppenheimer VAF - Growth Fund 535,283 18.069110 9,672,087 41% Oppenheimer VAF - Multiple Strategies Fund 437,927 25.171538 11,023,296 11% Strong Opportunity Fund II, Inc. 898,106 40.478200 36,353,714 34% Strong VIF - Strong Discovery Fund II 296,260 20.243703 5,997,399 4% Strong VIF - Strong International Stock Fund II 219,407 16.868902 3,701,155 86% Van Eck WIT - Worldwide Bond Fund 143,676 14.003753 2,012,003 (9)% Van Eck WIT - Worldwide Emerging Markets Fund 576,742 11.474995 6,618,112 99% Van Eck WIT - Worldwide Hard Assets Fund 206,979 14.660562 3,034,428 20%
32
ANNUAL UNITS UNIT VALUE RETURN* --------- ----------- ---------- Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio 246,788 15.237208 3,760,360 (4)% Warburg Pincus Trust - International Equity Portfolio 555,966 17.985801 9,999,494 52% Warburg Pincus Trust - Post Venture Capital Portfolio 123,907 19.586645 2,426,922 62% Warburg Pincus Trust - Small Company Growth Portfolio 754,487 26.113570 19,702,349 68% Modified Single Premium contracts and Last Survivor Flexible Premium contracts: American Century VP - American Century VP Balanced 47,439 16.129489 765,167 10% American Century VP - American Century VP Capital Appreciation 67,671 14.200282 960,947 65% American Century VP - American Century VP Income & Growth 90,023 12.888778 1,160,286 18% American Century VP - American Century VP International 120,278 24.899615 2,994,876 64% American Century VP - American Century VP Value 42,323 13.293167 562,607 (1)% The Dreyfus Socially Responsible Growth Fund, Inc. 72,077 24.166067 1,741,818 30% Dreyfus Stock Index Fund 619,532 23.560156 14,596,271 21% Dreyfus VIF - Capital Appreciation Portfolio 54,118 14.882433 805,408 11% Dreyfus VIF - Growth and Income Portfolio 42,510 15.172345 644,976 17% Fidelity VIP - Equity-Income Portfolio 442,948 16.406894 7,267,401 6% Fidelity VIP - Growth Portfolio 462,592 24.728511 11,439,211 37% Fidelity VIP - High Income Portfolio 301,341 13.186454 3,973,619 8% Fidelity VIP - Overseas Portfolio 121,065 19.137888 2,316,928 43% Fidelity VIP-II - Asset Manager Portfolio 98,987 16.996678 1,682,450 11% Fidelity VIP-II - Contrafund Portfolio 334,798 22.555449 7,551,519 24% Fidelity VIP-III - Growth Opportunities Portfolio 67,209 14.291602 960,524 4% Morgan Stanley - Emerging Markets Debt Portfolio 25,999 9.146001 237,787 29% Nationwide SAT - Capital Appreciation Fund 234,699 21.161942 4,966,687 4% Nationwide SAT - Government Bond Fund 146,891 12.455412 1,829,588 (2)% Nationwide SAT - Money Market Fund 710,620 12.011954 8,535,935 5% Nationwide SAT - Small Cap Value Fund 86,677 10.998838 953,346 28% (Continued)
33 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS, CONTINUED
ANNUAL UNITS UNIT VALUE RETURN* --------- ----------- ------- Nationwide SAT - Small Company Fund 210,131 17.966399 3,775,297 44% Nationwide SAT - Total Return Fund 408,867 18.704720 7,647,743 7% Neuberger & Berman AMT - Growth Portfolio 101,415 22.122463 2,243,550 50% Neuberger & Berman AMT - Guardian Portfolio 28,718 10.762335 309,073 15% Neuberger & Berman AMT - Limited Maturity Bond Portfolio 73,941 11.847132 875,989 1% Neuberger & Berman AMT - Partners Portfolio 229,651 16.853460 3,870,414 7% Oppenheimer VAF - Bond Fund 101,438 12.232154 1,240,805 (2)% Oppenheimer VAF - Global Securities Fund 94,622 23.984739 2,269,484 58% Oppenheimer VAF - Growth Fund 83,414 18.428739 1,537,215 42% Oppenheimer VAF - Multiple Strategies Fund 80,822 15.287602 1,235,575 12% Strong Opportunity Fund II, Inc. 85,543 20.690172 1,769,899 35% Strong VIF - Strong Discovery Fund II. 19,763 12.410693 245,273 5% Strong VIF - Strong International Stock Fund II 91,170 15.499580 1,413,097 87% Van Eck WIT - Worldwide Bond Fund 16,613 11.191476 185,924 (8)% Van Eck WIT - Worldwide Emerging Markets Fund 175,122 11.755719 2,058,685 100% Van Eck WIT - Worldwide Hard Assets Fund 38,783 8.258894 320,305 21% Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio 53,125 14.184757 753,565 (3)% Warburg Pincus Trust - International Equity Portfolio 142,042 15.696053 2,229,499 53% Warburg Pincus Trust - Post Venture Capital Portfolio 14,680 20.065541 294,562 63% Warburg Pincus Trust - Small Company Growth Portfolio 154,684 18.668523 2,887,722 69% ======= ========= -------------- $1,144,615,392 ==============
* The annual return does not include contract charges satisfied by surrendering units. 68 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Columbus, Ohio January 28, 2000 2 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions, except per share amounts)
December 31, ----------------------------- Assets 1999 1998 ------ --------- --------- Investments: Securities available-for-sale, at fair value: Fixed maturity securities $15,294.0 $14,245.1 Equity securities 92.9 127.2 Mortgage loans on real estate, net 5,786.3 5,328.4 Real estate, net 254.8 243.6 Policy loans 519.6 464.3 Other long-term investments 73.8 44.0 Short-term investments 416.0 289.1 --------- --------- 22,437.4 20,741.7 --------- --------- Cash 4.8 3.4 Accrued investment income 238.6 218.7 Deferred policy acquisition costs 2,554.1 2,022.2 Other assets 305.9 420.3 Assets held in separate accounts 67,135.1 50,935.8 --------- --------- $92,675.9 $74,342.1 ========= ========= Liabilities and Shareholder's Equity ------------------------------------ Future policy benefits and claims $21,861.6 $19,767.1 Other liabilities 914.2 866.1 Liabilities related to separate accounts 67,135.1 50,935.8 --------- --------- 89,910.9 71,569.0 --------- --------- Commitments and contingencies (notes 8 and 13) 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 766.1 914.7 Retained earnings 2,011.0 1,579.0 Accumulated other comprehensive income (15.9) 275.6 --------- --------- 2,765.0 2,773.1 --------- --------- $92,675.9 $74,342.1 ========= =========
See accompanying notes to consolidated financial statements. 3 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Income (in millions)
Years ended December 31, --------------------------------------------- 1999 1998 1997 -------- -------- -------- Revenues: Policy charges $ 895.5 $ 698.9 $ 545.2 Life insurance premiums 220.8 200.0 205.4 Net investment income 1,520.8 1,481.6 1,409.2 Realized (losses) gains on investments (11.6) 28.4 11.1 Other 66.1 66.8 46.5 -------- -------- -------- 2,691.6 2,475.7 2,217.4 -------- -------- -------- Benefits and expenses: Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6 Other benefits and claims 210.4 175.8 178.2 Policyholder dividends on participating policies 42.4 39.6 40.6 Amortization of deferred policy acquisition costs 272.6 214.5 167.2 Other operating expenses 463.4 419.7 384.9 -------- -------- -------- 2,085.1 1,918.6 1,787.5 -------- -------- -------- Income before federal income tax expense 606.5 557.1 429.9 Federal income tax expense 201.4 190.4 150.2 -------- -------- -------- Net income $ 405.1 $ 366.7 $ 279.7 ======== ======== ========
See accompanying notes to consolidated financial statements. 4 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, 1999, 1998 and 1997 (in millions)
Accumulated Additional other Total Common paid-in Retained comprehensive shareholder's stock capital earnings income equity -------- -------- ---------- -------- ---------- 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 Comprehensive income: Net income -- -- 405.1 -- 405.1 Net unrealized losses on securities available-for-sale arising during the year -- -- -- (315.0) (315.0) -------- Total comprehensive income 90.1 -------- Capital contribution -- 26.4 87.9 23.5 137.8 -------- Dividends to shareholder -- (175.0) (61.0) -- (236.0) ------ -------- -------- ------ -------- December 31, 1999 $ 3.8 $ 766.1 $2,011.0 $(15.9) $2,765.0 ====== ======== ======== ====== ========
See accompanying notes to consolidated financial statements. 5 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Statements of Cash Flows (in millions)
Years ended December 31, ------------------------------------- 1999 1998 1997 --------- --------- --------- Cash flows from operating activities: Net income $ 405.1 $ 366.7 $ 279.7 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 1,096.3 1,069.0 1,016.6 Capitalization of deferred policy acquisition costs (637.0) (584.2) (487.9) Amortization of deferred policy acquisition costs 272.6 214.5 167.2 Amortization and depreciation 2.4 (8.5) (2.0) Realized (gains) losses on invested assets, net 11.6 (28.4) (11.1) Increase in accrued investment income (7.9) (8.2) (0.3) Decrease (increase) in other assets 122.9 16.4 (12.7) Decrease in policy liabilities (20.9) (8.3) (23.1) Increase (decrease) in other liabilities 149.7 (34.8) 230.6 Other, net (8.6) (11.3) (10.9) --------- --------- --------- Net cash provided by operating activities 1,386.2 982.9 1,146.1 --------- --------- --------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 2,307.9 1,557.0 993.4 Proceeds from sale of securities available-for-sale 513.1 610.5 574.5 Proceeds from repayments of mortgage loans on real estate 696.7 678.2 437.3 Proceeds from sale of real estate 5.7 103.8 34.8 Proceeds from repayments of policy loans and sale of other invested assets 40.9 23.6 22.7 Cost of securities available-for-sale acquired (3,724.9) (3,182.8) (2,828.1) Cost of mortgage loans on real estate acquired (971.4) (829.1) (752.2) Cost of real estate acquired (14.2) (0.8) (24.9) Short-term investments, net (27.5) 69.3 (354.8) Other, net (110.9) (88.4) (62.5) --------- --------- --------- Net cash used in investing activities (1,284.6) (1,058.7) (1,959.8) --------- --------- --------- Cash flows from financing activities: Proceeds from capital contributions -- -- 836.8 Cash dividends paid (188.5) (100.0) -- Increase in investment product and universal life insurance product account balances 3,799.4 2,682.1 2,488.5 Decrease in investment product and universal life insurance product account balances (3,711.1) (2,678.5) (2,379.8) --------- --------- --------- Net cash used in financing activities (100.2) (96.4) 945.5 --------- --------- --------- Net increase (decrease) in cash 1.4 (172.2) 131.8 Cash, beginning of year 3.4 175.6 43.8 --------- --------- --------- Cash, end of year $ 4.8 $ 3.4 $ 175.6 ========= ========= =========
See accompanying notes to consolidated financial statements. 6 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements December 31, 1999, 1998 and 1997 (1) Organization and Description of Business Nationwide Life Insurance Company (NLIC) is a leading provider of long-term savings and retirement products in the United States and is a wholly owned subsidiary of Nationwide Financial Services, Inc. (NFS). The Company develops and sells a diverse range of products including variable annuities, fixed annuities and life insurance as well as investment management and administrative services. NLIC markets its products through a broad network of distribution channels, including independent broker/dealers, national and regional brokerage firms, financial institutions, pension plan administrators, life insurance specialists, Nationwide Retirement Solutions sales representatives, and Nationwide agents. Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC), Nationwide Advisory Services, Inc., and Nationwide Investment Services Corporation. NLIC and its subsidiaries are collectively referred to as "the Company." (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. 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. All significant intercompany balances and transactions have been eliminated. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (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 accumulated other comprehensive income in 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, 1999 or 1998. 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. (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. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (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. 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). 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. (e) Separate Accounts Separate account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. For all but $915.4 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 5.6%, 6.0% and 6.1% for the years ended December 31, 1999, 1998 and 1997, 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. 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 29% in 1999 (40% in 1998 and 50% in 1997) of the Company's life insurance in force, 69% in 1999 (74% in 1998 and 77% in 1997) of the number of life insurance policies in force, and 13% in 1999 (14% in 1998 and 27% in 1997) 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. (j) Recently Issued Accounting Pronouncements In March 1998, The American Institute of Certified Public Accountant's Accounting Standards Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP, which has been adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the Company expensed internal use software related costs as incurred. The effect of adopting the SOP was to increase net income for 1999 by $8.3 million. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. Contracts that contain embedded derivatives, such as certain investment and insurance contracts, are also addressed by the Statement. FAS 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. In July 1999 the FASB issued Statement No. 137 which delayed the effective date of FAS 133 to fiscal years beginning after June 15, 2000. The Company plans to adopt this Statement in first quarter 2001 and is currently evaluating the impact on results of operations and financial condition. (k) Reclassification Certain items in the 1998 and 1997 consolidated financial statements have been reclassified to conform to the 1999 presentation. 10 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, 1999 and 1998 were:
Gross Gross Amortized unrealized unrealized Estimated (in millions) cost gains losses fair value --------- ------ ------- --------- December 31, 1999: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 428.4 $ 23.4 $ (2.4) $ 449.4 Obligations of states and political subdivisions 0.8 -- -- 0.8 Debt securities issued by foreign governments 110.6 0.6 (0.8) 110.4 Corporate securities 11,414.7 118.9 (218.6) 11,315.0 Mortgage-backed securities 3,422.8 25.8 (30.2) 3,418.4 --------- ------ ------- --------- Total fixed maturity securities 15,377.3 168.7 (252.0) 15,294.0 Equity securities 84.9 12.4 (4.4) 92.9 --------- ------ ------- --------- $15,462.2 $181.1 $(256.4) $15,386.9 ========= ====== ======= ========= 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 ========= ====== ======= =========
The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 1999, 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.
Amortized Estimated (in millions) cost fair value --------- --------- Fixed maturity securities available for sale: Due in one year or less $ 847.0 $ 847.0 Due after one year through five years 5,240.5 5,205.7 Due after five years through ten years 5,046.9 5,005.2 Due after ten years 4,242.9 4,236.1 --------- --------- $15,377.3 $15,294.0 ========= =========
11 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The components of unrealized (losses) gains on securities available-for-sale, net, were as follows as of December 31:
(in millions) 1999 1998 ------ ------- Gross unrealized (losses) gains $(75.3) $ 540.6 Adjustment to deferred policy acquisition costs 50.9 (116.6) Deferred federal income tax 8.5 (148.4) ------ ------- $(15.9) $ 275.6 ====== =======
An analysis of the change in gross unrealized (losses) gains on securities available-for-sale for the years ended December 31:
(in millions) 1999 1998 1997 ------- ----- ------ Securities available-for-sale: Fixed maturity securities $(607.1) $52.6 $137.5 Equity securities (8.8) 4.2 (2.7) ------- ----- ------ $(615.9) $56.8 $134.8 ======= ===== ======
Proceeds from the sale of securities available-for-sale during 1999, 1998 and 1997 were $513.1 million, $610.5 million and $574.5 million, respectively. During 1999, gross gains of $10.4 million ($9.0 million and $9.9 million in 1998 and 1997, respectively) and gross losses of $28.0 million ($7.6 million and $18.0 million in 1998 and 1997, 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 Company had $15.6 million of real estate investments at December 31, 1999 that were non-income producing the preceding twelve months. During 1998 the Company had investments of $42.4 million that were non-income producing, which consisted of $32.7 million of securities available-for-sale and $9.7 million of real estate. Real estate is presented at cost less accumulated depreciation of $24.8 million as of December 31, 1999 ($21.5 million as of December 31, 1998) and valuation allowances of $5.5 million as of December 31, 1999 ($5.4 million as of December 31, 1998). The recorded investment of mortgage loans on real estate considered to be impaired was $3.7 million as of both December 31, 1999 and 1998. No valuation allowance has been recorded for these loans as of December 31, 1999 or 1998. During 1999, the average recorded investment in impaired mortgage loans on real estate was approximately $3.7 million ($9.1 million in 1998) and there was no interest income recognized on those loans. Interest income recognized on impaired loans was $0.3 million in 1998 which is equal to interest income recognized using a cash-basis method of income recognition. 12 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:
(in millions) 1999 1998 1997 ----- ----- ----- Allowance, beginning of year $42.4 $42.5 $51.0 Additions (reductions) charged to operations 0.7 (0.1) (1.2) Direct write-downs charged against the allowance -- -- (7.3) Allowance on acquired mortgage loans 1.3 -- -- ----- ----- ----- Allowance, end of year $44.4 $42.4 $42.5 ===== ===== =====
An analysis of investment income by investment type follows for the years ended December 31:
(in millions) 1999 1998 1997 -------- -------- -------- Gross investment income: Securities available-for-sale: Fixed maturity securities $1,031.3 $ 982.5 $ 911.6 Equity securities 2.5 0.8 0.8 Mortgage loans on real estate 460.4 458.9 457.7 Real estate 28.8 40.4 42.9 Short-term investments 18.6 17.8 22.7 Other 26.5 30.7 21.0 -------- -------- -------- Total investment income 1,568.1 1,531.1 1,456.7 Less investment expenses 47.3 49.5 47.5 -------- -------- -------- Net investment income $1,520.8 $1,481.6 $1,409.2 ======== ======== ========
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
(in millions) 1999 1998 1997 ------- ----- ----- Securities available-for-sale: Fixed maturity securities $(25.0) $(0.7) $ 3.6 Equity securities 7.4 2.1 2.7 Mortgage loans on real estate (0.6) 3.9 1.6 Real estate and other 6.6 23.1 3.2 ------ ----- ----- $(11.6) $28.4 $11.1 ====== ===== =====
Fixed maturity securities with an amortized cost of $9.1 million as of December 31, 1999 and $6.5 million as of December 31, 1998 were on deposit with various regulatory agencies as required by law. (4) Derivative Financial Instruments The Company uses derivative financial instruments, principally interest rate swaps, interest rate futures contracts and foreign currency swaps, to manage market risk exposures associated with changes in interest rates and foreign currency exchange rates. Provided they meet specific criteria, interest rate swaps and futures are considered hedges and are accounted for under the accrual method and deferral method, respectively. The Company has no significant derivative positions that are not considered hedges. 13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Interest rate swaps are primarily used to convert specific investment securities and interest bearing policy liabilities from a fixed-rate to a floating-rate basis. Amounts receivable or payable under these agreements are recognized as an adjustment to net investment income or interest credited to policyholder account balances consistent with the nature of the hedged item. The changes in fair value of the interest rate swap agreements are not recognized on the balance sheet, except for interest rate swaps designated as hedges of fixed maturity securities available-for-sale, for which changes in fair values are reported in accumulated other comprehensive income. Interest rate futures contracts are primarily used to hedge the risk of adverse interest rate changes related to the Company's mortgage loan commitments and anticipated purchases of fixed rate investments. Gains and losses are deferred and, at the time of closing, reflected as an adjustment to the carrying value of the related mortgage loans or investments. The carrying value adjustments are amortized into net investment income over the life of the related mortgage loans or investments. Foreign currency swaps are used to convert cash flows from specific policy liabilities and investments denominated in foreign currencies into U.S. dollars at specified exchange rates. Gains and losses on foreign currency swaps are recorded in earnings based on the related spot foreign exchange rate at the end of the reporting period. Gains and losses on these contracts offset those recorded as a result of translating the hedged foreign currency denominated liabilities and investments to U.S. dollars. The following table summarizes the notional amount of derivative financial instruments classified as hedges outstanding as of December 31, 1999. Prior to 1999 the Company's activities in derivatives were not significant.
(in millions) ------------- Interest rate swaps Pay fixed/receive variable rate swaps hedging investments $362.7 Pay variable/receive fixed rate swaps hedging investments $ 28.5 Other contracts hedging investments $ 19.1 Pay variable/receive fixed rate swaps hedging liabilities $577.2 Foreign currency swaps Hedging foreign currency denominated investments $ 14.8 Hedging foreign currency denominated liabilities $577.2 Interest rate futures contracts $781.6
14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (5) Federal Income Tax The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 1999 and 1998 are as follows:
(in millions) 1999 1998 ---- ---- Deferred tax assets: Fixed maturity securities $ 5.3 $ -- Future policy benefits 149.5 207.7 Liabilities in separate accounts 373.6 319.9 Mortgage loans on real estate and real estate 18.5 17.5 Other assets and other liabilities 51.1 58.9 ----- ------ Total gross deferred tax assets 598.0 604.0 Less valuation allowance (7.0) (7.0) ----- ------ Net deferred tax assets 591.0 597.0 ----- ------ Deferred tax liabilities: Deferred policy acquisition costs 724.4 568.7 Fixed maturity securities -- 212.2 Deferred tax on realized investment gains 34.7 34.8 Equity securities and other long-term investments 10.8 9.6 Other 26.5 21.6 ------ ------ Total gross deferred tax liabilities 796.4 846.9 ------ ------ Net deferred tax liability $205.4 $249.9 ====== ======
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, 1999, 1998 and 1997. The Company's current federal income tax liability was $104.7 million and $72.8 million as of December 31, 1999 and 1998, respectively. Federal income tax expense for the years ended December 31 was as follows: (in millions) 1999 1998 1997 ------ ------ ------ Currently payable $ 53.6 $186.1 $121.7 Deferred tax expense 147.8 4.3 28.5 ------ ------ ------ $201.4 $190.4 $150.2 ====== ====== ====== 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, 1999, 1998 and 1997 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
1999 1998 1997 ---------------- ---------------- ---------------- (in millions) Amount % Amount % Amount % ------ ---- ------ ---- ------ ---- Computed (expected) tax expense $212.3 35.0 $195.0 35.0 $150.5 35.0 Tax exempt interest and dividends received deduction (7.3) (1.2) (4.9) (0.9) -- -- Income tax credits (4.3) (0.7) -- -- -- -- Other, net 0.7 0.1 0.3 0.1 (0.3) (0.1) ------ ---- ------ ---- ------ ---- Total (effective rate of each year) $201.4 33.2 $190.4 34.2 $150.2 34.9 ====== ==== ====== ==== ====== ====
Total federal income tax paid was $29.8 million, $173.4 million and $91.8 million during the years ended December 31, 1999, 1998 and 1997, respectively. (6) Comprehensive Income Comprehensive Income includes net income as well as certain items that are reported directly within separate components of shareholder's 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:
(in millions) 1999 1998 1997 ------- ------ ------ Unrealized gains (losses) on securities available-for-sale arising during the period: Gross $(665.3) $ 58.2 $141.1 Adjustment to deferred policy acquisition costs 167.5 (12.9) (21.8) Related federal income tax (expense) benefit 171.4 (15.9) (41.7) ------- ------ ------ Net (326.4) 29.4 77.6 ------- ------ ------ Reclassification adjustment for net (gains) losses on securities available-for-sale realized during the period: Gross 17.6 (1.4) (6.3) Related federal income tax expense (benefit) (6.2) 0.5 2.2 ------- ------ ------ Net 11.4 (0.9) (4.1) ------- ------ ------ Total Other Comprehensive Income $(315.0) $ 28.5 $ 73.5 ======= ====== ======
(7) 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. 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 fixed maturity and equity securities exclude the fair value of derivatives contracts designated as hedges of fixed maturity and 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. 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 8. Futures contracts: The fair value for futures contracts is based on quoted market prices. Interest rate and foreign currency swaps: The fair value for interest rate and foreign currency swaps are calculated with pricing models using current rate assumptions. 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:
1999 1998 ------------------------ ------------------------- Carrying Estimated Carrying Estimated (in millions) amount fair value amount fair value --------- --------- --------- ---------- Assets: Investments: Securities available-for-sale: Fixed maturity securities $15,294.0 $15,294.0 $14,245.1 $14,245.1 Equity securities 92.9 92.9 128.5 128.5 Mortgage loans on real estate, net 5,786.3 5,745.5 5,328.4 5,527.6 Policy loans 519.6 519.6 464.3 464.3 Short-term investments 416.0 416.0 289.1 289.1 Cash 4.8 4.8 3.4 3.4 Assets held in separate accounts 67,135.1 67,135.1 50,935.8 50,935.8 Liabilities: Investment contracts (16,977.7) (16,428.6) (15,468.7) (15,158.6) Policy reserves on life insurance contracts (4,883.9) (4,607.9) (3,914.0) (3,768.9) Liabilities related to separate accounts (67,135.1) (66,318.7) (50,935.8) (49,926.5) Derivative financial instruments: Interest rate swaps hedging assets 4.3 4.3 - - Interest rate swaps hedging liabilities - (24.2) - - Foreign currency swaps (11.8) (11.8) - - Futures contracts 1.3 1.3 (1.3) (1.3)
(8) 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. 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued 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. 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 and derivative financial instruments. 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 $216.2 million extending into 2000 were outstanding as of December 31, 1999. The Company also had $28.0 million of commitments to purchase fixed maturity securities outstanding as of December 31, 1999. Notional amounts of derivative financial instruments, primarily interest rate swaps, interest rate futures contracts and foreign currency swaps, significantly exceed the credit risk associated with these instruments and represent contractual balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to NLIC, including accrued interest receivable due from counterparties. Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements and other contract provisions. At December 31, 1999, NLIC's credit risk from these derivative financial instruments was $6.1 million. 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 23% (22% in 1998) in any geographic area and no more than 2% (2% in 1998) with any one borrower as of December 31, 1999. As of December 31, 1999, 39% (42% in 1998) of the remaining principal balance of the Company's commercial mortgage loan portfolio financed retail properties. 19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued 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 $143.6 million and $187.9 million as of December 31, 1999 and 1998, 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. (9) 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. Pension cost (benefit) charged to operations by the Company during the years ended December 31, 1999, 1998 and 1997 were $(8.3) million, $2.0 million and $7.5 million, respectively. The Company has recorded a prepaid pension asset of $13.3 million and $5.0 million as of December 31, 1999 and 1998, respectively. 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, 1999 and 1998 was $49.6 million and $40.1 million, respectively, and the net periodic postretirement benefit cost (NPPBC) for 1999, 1998 and 1997 was $4.9 million, $4.1 million and $3.0 million, respectively. 20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued 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, 1999 and 1998 follows:
Pension Benefits Postretirement Benefits ------------------ ----------------------- (in millions) 1999 1998 1999 1998 --------------------------------------------------------- -------- -------- ------- ------- Change in benefit obligation: Benefit obligation at beginning of year $2,185.0 $2,033.8 $ 270.1 $ 237.9 Service cost 80.0 87.6 14.2 9.8 Interest cost 109.9 123.4 17.6 15.4 Actuarial (gain) loss (95.0) 123.2 (64.4) 15.6 Plan settlement in 1999/curtailment in 1998 (396.1) (107.2) -- -- Benefits paid (72.4) (75.8) (11.0) (8.6) Acquired companies -- -- 13.3 -- -------- -------- ------- ------- Benefit obligation at end of year 1,811.4 2,185.0 239.8 270.1 -------- -------- ------- ------- Change in plan assets: Fair value of plan assets at beginning of year 2,541.9 2,212.9 77.9 69.2 Actual return on plan assets 161.8 300.7 3.5 5.0 Employer contribution 12.4 104.1 20.9 12.1 Plan settlement (396.1) -- -- -- Benefits paid (72.4) (75.8) (11.0) (8.4) -------- -------- ------- ------- Fair value of plan assets at end of year 2,247.6 2,541.9 91.3 77.9 -------- -------- ------- ------- Funded status 436.2 356.9 (148.5) (192.2) Unrecognized prior service cost 28.2 31.5 -- -- Unrecognized net (gains) losses (402.0) (345.7) (46.7) 16.0 Unrecognized net (asset) obligation at transition (7.7) (11.0) 1.1 1.3 -------- -------- ------- ------- Prepaid (accrued) benefit cost $ 54.7 $ 31.7 $(194.1) $(174.9) ======== ======== ======= =======
21 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:
Pension Benefits Postretirement Benefits ---------------- ----------------------- 1999 1998 1999 1998 ---- ---- ------- ------ Weighted average discount rate 7.00% 5.50% 7.80% 6.65% Rate of increase in future compensation levels 5.25% 3.75% -- -- Assumed health care cost trend rate: Initial rate -- -- 15.00% 15.00% Ultimate rate -- -- 5.50% 8.00% Uniform declining period -- -- 5 Years 15 Years
The net periodic pension cost for the pension plan as a whole for the years ended December 31, 1999, 1998 and 1997 follows:
(in millions) 1999 1998 1997 -------------------------------------------------------------------------------- ----------- ------------ Service cost (benefits earned during the period) $ 80.0 $ 87.6 $ 77.3 Interest cost on projected benefit obligation 109.9 123.4 118.6 Expected return on plan assets (160.3) (159.0) (139.0) Recognized gains (9.1) (3.8) -- Amortization of prior service cost 3.2 3.2 3.2 Amortization of unrecognized transition obligation (asset) (1.4) 4.2 4.2 ------- ------- -------- $ 22.3 $ 55.6 $ 64.3 ======= ======= ========
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its affiliation with Nationwide Insurance 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). During 1999, the plan transferred assets to settle its obligation related to WSC employees . A settlement gain of $32.9 million was recognized. Basis for measurements, net periodic pension cost for the pension plan:
1999 1998 1997 ------ ----- ----- Weighted average discount rate 6.08% 6.00% 6.50% Rate of increase in future compensation levels 4.33% 4.25% 4.75% Expected long-term rate of return on plan assets 7.33% 7.25% 7.25%
22 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, 1999, 1998 and 1997 was as follows:
(in millions) 1999 1998 1997 ------- ----------- ----------- Service cost (benefits attributed to employee service during the year) $14.2 $ 9.8 $ 7.0 Interest cost on accumulated postretirement benefit obligation 17.6 15.4 14.0 Actual return on plan assets (3.5) (5.0) (3.6) Amortization of unrecognized transition obligation of affiliates 0.6 0.2 0.2 Net amortization and deferral (1.8) 1.2 (0.5) ----- ----- ----- $27.1 $21.6 $17.1 ===== ===== =====
Actuarial assumptions used for the measurement of the NPPBC for the postretirement benefit plan for 1999, 1998 and 1997 were as follows:
1999 1998 1997 ------- ------ ------ Discount rate 6.65% 6.70% 7.25% Long term rate of return on plan assets, net of tax 7.15% 5.83% 5.89% Assumed health care cost trend rate: Initial rate 15.00% 12.00% 11.00% Ultimate rate 5.50% 6.00% 6.00% Uniform declining period 5 Years 12 Years 12 Years
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, 1999 and have no impact on the NPPBC for the year ended December 31, 1999. (10) 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, 1999, 1998 and 1997 was $1.35 billion, $1.32 billion and $1.13 billion, respectively. The statutory net income of NLIC for the years ended December 31, 1999, 1998 and 1997 was $276.2 million, $171.0 million and $111.7 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, 1999 $40.2 million of dividends could be paid by NLIC without prior approval. 23 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. (11) Transactions With Affiliates During second quarter 1999 the Company entered into a modified coinsurance arrangement to reinsure the 1999 operating results of an affiliated company, Employers Life Insurance Company of Wausau (ELOW) retroactive to January 1, 1999. In September 1999, NFS acquired ELOW for $120.8 million and immediately merged ELOW into NLIC terminating the modified coinsurance arrangement. Because ELOW was an affiliate, the Company accounted for the merger similar to poolings-of-interests; however, prior period financial statements were not restated due to immateriality. The reinsurance and merger combined contributed $1.46 million to year to date net income. The Company has a reinsurance agreement with NMIC whereby all of the Company's accident and health business is ceded to NMIC on a modified coinsurance basis. The agreement covers individual accident and health business for all periods presented and group and franchise accident and health business since July 1, 1999. Either party may terminate the agreement on January 1 of any year with prior notice. Prior to July 1, 1999 group and franchise accident and health business and a block of group life insurance policies were ceded to ELOW under a modified coinsurance agreement. Under a modified coinsurance agreement, 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 the reinsurer. Risk of asset default is retained by the Company, although a fee is paid to the Company for the retention of such risk. 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. Revenues ceded to NMIC and ELOW for the years ended December 31, 1999, 1998 and 1997 were $193.0 million, $216.9 million, and $315.3 million, respectively, while benefits, claims and expenses ceded were $216.9 million, $259.3 million, and $326.6 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 such agreement are subject to allocation among NMIC and such subsidiaries. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commission expense and other methods agreed to by the participating companies that are within industry guidelines and practices. In addition, beginning in 1999 Nationwide Services Company, a subsidiary of NMIC, provides computer, telephone, mail, employee benefits administration, and other services to NMIC and certain of its direct and indirect subsidiaries, including the Company, based on specified rates for units of service consumed. For the years ended December 31, 1999, 1998 and 1997, the Company made payments to NMIC and Nationwide Services Company totaling $124.1 million, $95.0 million, and $85.8 million, respectively. In addition, the Company does not believe that expenses recognized under these agreements are materially different than expenses that would have been recognized had the Company operated on a stand-alone basis. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 1999, 1998 and 1997, the Company made lease payments to NMIC and its subsidiaries of $9.9 million, $8.0 million and $8.4 million, respectively. 24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued 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 1999 and 1998 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. 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 $411.7 million and $248.4 million as of December 31, 1999 and 1998, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. As part of certain restructuring activities that occurred prior to the March 1997 IPO, the Company paid a dividend valued at $485.7 million to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of ELOW, National Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC). Also, on February 24, 1997, the Company 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. 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, 1999 were $56.0 million, $60.0 million and $66.1 million, respectively. (12) Bank Lines of Credit NFS, NLIC and NMIC are parties to 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 any party. NFS, NLIC and NMIC pay facility and usage fees to the financial institutions to maintain the revolving credit facility. As of December 31, 1999 the Company had no amounts outstanding under the agreement. (13) Contingencies On October 29, 1998, the Company was 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). On May 3, 1999, the complaint was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint is brought as a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by the Company and the other named Company affiliates which were used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. No class has been certified. On June 11, 1999, the Company and the other named defendants filed a motion to dismiss the amended complaint. On March 8, 2000, the court denied the motion to dismiss the amended complaint filed by the Company and other named defendants. The Company intends to defend this lawsuit vigorously. (14) 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. 25 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The Variable Annuities segment consists of annuity contracts that provide the customer with access to a wide range of investment options, tax-deferred accumulation of savings, asset protection in the event of an untimely death, and flexible payout options including a lump sum, systematic withdrawal or a stream of payments for life. 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, tax-deferred accumulation of savings, and flexible payout options including a lump sum, systematic withdrawal or a stream of payments for life. 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, revenues and expenses related to group annuity contracts sold to Nationwide Insurance employee and agent benefit plans and all realized gains and losses on investments in a Corporate and Other segment. During 1999 the Company revised the allocation of net investment income among its Life Insurance and Corporate and Other segments. Also, certain amounts previously reported as other income were reclassified to operating expense. Amounts reported for prior periods have been restated to reflect these changes. The following table summarizes the financial results of the Company's business segments for the years ended December 31, 1999, 1998 and 1997.
Variable Fixed Life Corporate (in millions) Annuities Annuities Insurance and Other Total ------------------------------------ --------- --------- --------- --------- --------- 1999: Net investment income (1) $ (41.5) $ 1,134.5 $ 253.1 $ 174.7 $ 1,520.8 Other operating revenue 668.2 43.4 393.0 77.8 1,182.4 --------- --------- -------- -------- --------- Total operating revenue (2) 626.7 1,177.9 646.1 252.5 2,703.2 --------- --------- -------- -------- --------- Interest credited to policyholder account balances -- 837.5 130.5 128.3 1,096.3 Amortization of deferred policy acquisition costs 162.8 49.7 60.1 -- 272.6 Other benefits and expenses 173.6 113.5 334.7 94.4 716.2 --------- --------- -------- -------- --------- Total expenses 336.4 1,000.7 525.3 222.7 2,085.1 --------- --------- -------- -------- --------- Operating income before federal income tax 290.3 177.2 120.8 29.8 618.1 Realized losses on investments -- -- -- (11.6) (11.6) --------- --------- -------- -------- --------- Consolidated income before federal tax expense $ 290.3 $ 177.2 $ 120.8 $ 18.2 $ 606.5 ========= ========= ======== ======== ========= Assets as of year end $62,599.7 $17,134.8 $6,616.7 $6,324.7 $92,675.9 ========= ========= ======== ======== =========
26 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued
Variable Fixed Life Corporate (in millions) Annuities Annuities Insurance and Other Total ------------------------------------ --------- --------- --------- --------- --------- 1998: Net investment income (1) $ (31.3) $ 1,116.6 $ 225.6 $ 170.7 $ 1,481.6 Other operating revenue 532.9 35.7 318.5 78.6 965.7 --------- --------- -------- -------- --------- Total operating revenue (2) 501.6 1,152.3 544.1 249.3 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 159.3 104.2 293.5 78.1 635.1 --------- --------- -------- -------- --------- Total expenses 283.2 977.0 455.3 203.1 1,918.6 --------- --------- -------- -------- --------- Operating income before federal income tax 218.4 175.3 88.8 46.2 528.7 Realized gains on investments -- -- -- 28.4 28.4 --------- --------- -------- -------- --------- Consolidated income before federal tax expense $ 218.4 $ 175.3 $ 88.8 $ 74.6 $ 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) $ (26.8) $ 1,098.2 $ 184.9 $ 152.9 $ 1,409.2 Other operating revenue 413.9 43.2 283.4 56.6 797.1 --------- --------- -------- -------- --------- Total operating revenue (2) 387.1 1,141.4 468.3 209.5 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 Benefits and expenses 148.4 108.7 283.5 63.1 603.7 --------- --------- -------- -------- --------- Total expenses 236.2 971.9 401.6 177.8 1,787.5 --------- --------- -------- -------- --------- Operating income before federal income tax 150.9 169.5 66.7 31.7 418.8 Realized gains on investments -- -- -- 11.1 11.1 --------- --------- -------- -------- --------- Consolidated income before federal tax expense $ 150.9 $ 169.5 $ 66.7 $ 42.8 $ 429.9 ========= ========= ======== ======== ========= Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7 ========= ========= ======== ======== =========
- ---------- (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. 69 PART II - OTHER INFORMATION CONTENTS OF REGISTRATION STATEMENT This Post-Effective Amendment No. 11 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 122 pages. Representations and Undertakings. Independent Auditors' Consent. The Signatures. The following exhibits required by Forms N-8B-2 and S-6: 1. Power of Attorney dated April 5, 2000 Attached hereto. 2. Resolution of the Depositor's Board of Included with the Registration Directors authorizing the establishment Statement on Form N-8B-2 for of the Registrant, adopted. the Nationwide VL Separate Account-A (File No. 811-6137), and hereby incorporated herein by reference. 3. Distribution Contracts Attached hereto. 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. 70 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. 71 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 28, 2000 72 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. 11 and has duly caused this Post-Effective Amendment No. 11 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 28th day of April, 2000. NATIONWIDE VLI SEPARATE ACCOUNT-2 --------------------------------- (Registrant) (Seal) NATIONWIDE LIFE INSURANCE COMPANY --------------------------------- Attest: (Depositor) By: /s/ GLENN W. SODEN By: /s/ STEVEN SAVINI, ESQ. - ------------------------ ------------------------------ Glenn W. Soden Steven Savini, Esq. Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No.11 has been signed below by the following persons in the capacities indicated on the 28th day of April, 2000. SIGNATURE TITLE 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 - ---------------------------------------- Officer and Director Dimon R. McFerson 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 - ---------------------------------------- Arden L. Shisler ROBERT L. STEWART Director - ---------------------------------------- Robert L. Stewart NANCY C. THOMAS Director - ---------------------------------------- Nancy C. Thomas By /s/ STEVEN SAVINI, ESQ. - -------------------------------------- Steven Savini, Esq. Attorney-in-Fact EX-1 2 EXHIBIT 1 1 POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENT, 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, and if applicable, the Investment Company Act of 1940, as amended, various Registration Statements and amendments thereto for the registration under said Act(s) of Immediate or Deferred Variable Annuity contracts in connection with MFS Variable Account, Nationwide Multi-Flex Variable Account, Nationwide Variable Account, Nationwide Variable Account-11, Nationwide Variable Account-3, Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide Variable Account-8, Nationwide Variable Account-9, Nationwide Variable Account-10, Nationwide Variable Account-11, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B, and Nationwide VA Separate Account-C; 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 Separate 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, Nationwide VL Separate Account-B, Nationwide VL Separate Account-C and Nationwide VL Separate Account-D, as well as any future separate accounts established by said corporation for the purpose of registering variable annuities, variable life insurance policies or market value adjustment products with the U.S. Securities and Exchange Commission, hereby constitute and appoint 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, Steven R. Savini 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 granting unto said attorneys, and each of them, full power and authority to do and perform all and every act and thing requisite to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming that which said attorneys, or any of them, may lawfully do or cause to be done by virtue hereof. This instrument may be executed in one or more counterparts. IN WITNESS WHEREOF, the undersigned have herewith set their names and seals as of this 5th day of April, 2000. /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 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 R. McFerson /s/ Nancy C. Thomas - ------------------------------------- ------------------------------------- Dimon R. McFerson, Chairman and Chief Nancy C. Thomas, Director Executive Officer and Director EX-3 3 EXHIBIT 3 1 MARKETING COORDINATION AND ADMINISTRATIVE SERVICES AGREEMENT This Agreement entered into this 1st day of May, 2000, between Nationwide Life Insurance Company ("Nationwide"), and Nationwide Investment Services Corporation ("NISC"). Nationwide proposes to develop, issue and administer, and NISC proposes to provide the exclusive national distribution services for certain annuity and life products (the "Products"). The parties hereby agree as follows: A. ADMINISTRATION OF PRODUCTS 1. Appointment of Product Administration Nationwide is hereby appointed Product Administrator for the Products. 2. Duties of Nationwide Nationwide will perform in a proper and timely manner, those functions enumerated in the column marked "Nationwide" in the "Analysis of Administrative Functions," attached hereto as EXHIBIT A, and incorporated herein by reference. 3. Duties of NISC NISC will perform in a proper and timely manner, those functions enumerated in the column marked "NISC" in the "Analysis of Administrative Functions," attached hereto as EXHIBIT A, and incorporated herein by reference. B. MARKETING COORDINATION AND SALES ADMINISTRATION 1. Distribution of Products The Products will be distributed through registered representatives of NASD broker-dealer firms, appointed by Nationwide, who shall be duly qualified and licensed as agents (the "Agents"), in accordance with applicable state insurance authority. 2. NISC shall be the exclusive National Distributor of the Products. 2 3. Appointment and Termination of Agents Appointment and termination of Agents shall be processed and executed by Nationwide. NISC reserves the right to require Nationwide to consult with it regarding licensing decisions. 4. Advertising NISC shall not print, publish or distribute any advertisement, circular or document relating to the Products or relating to Nationwide unless such advertisement, circular or document has been approved in writing by Nationwide. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within five (5) business days. Neither Nationwide nor any of its affiliates shall print, publish or distribute any advertisement, circular or document relating to the Products or relating to NISC unless such advertisement, circular or document has been approved in writing by NISC. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within five (5) business days. However, nothing herein shall prohibit any person from advertising the Products on a generic basis. 5. Marketing Conduct The parties will jointly develop standards, practices and procedures respecting the marketing of the Products. Such standards, practices and procedures are intended to help Nationwide meet its obligations as an issuer under the securities laws, to assure compliance with state insurance laws, and to help NISC meet its obligations under the securities laws as National Distributor. These standards, practices and procedures are subject to continuing review and neither Nationwide nor NISC will object unreasonably to changes to such standards, practices and procedures recommended by the other to comply with the intent of this provision. 6. Sales Material and Other Documents a. Sales Material 1) Nationwide shall develop and prepare all promotional material to be used in the distribution of the Products, in consultation with NISC. 2) Nationwide is responsible for the printing and the expense of providing such promotional material. 3) Nationwide is responsible for approval of such promotional material by state insurance regulators, where required. 3 4) NISC and Nationwide agree to abide by the Advertising and Sales Promotion Material Guidelines, attached hereto as EXHIBIT B, and incorporated herein by reference. b. Prospectuses 1) Nationwide is responsible for the preparation and regulatory clearance of any required registration statements and prospectuses for the Products. 2) Nationwide is responsible for the printing of Product prospectuses in such quantities as the parties agree are necessary to assure sufficient supplies. 3) Nationwide is responsible for supplying Agents with sufficient quantities of Product prospectuses. c. Contracts, Applications and Related Forms 1) Nationwide, in consultation with NISC, is responsible for the design and printing of adequate supplies of Product applications, contracts, related forms, and such service forms as the parties agree are necessary. 2) Nationwide is responsible for supplying adequate quantities of all such forms to the Agents. 7. Appointment of Agents a. NISC will assist Nationwide in facilitating the appointment of Agents by Nationwide. b. Nationwide will forward all appointment forms and applications to the appropriate states and maintain all contacts with the states. c. Nationwide will maintain appointment files on Agents, and NISC will have access to such files as needed. 8. Licensing and Appointment Guide Nationwide shall provide to NISC a Licensing and Appointment Guide (as well periodic updates thereto), setting forth the requirements for licensing and appointment, in such quantities as NISC may reasonably require. 4 9. Other a. Product Training Nationwide is responsible for any Product training for the Agents. b. Field Sales Material 1) Nationwide, in consultation with NISC, is responsible for the development, printing and distribution of non-public field sales material to be used by Agents. 2) NISC shall have the right to review all field sales materials and to require any modification mandated by regulatory requirements. c. Production Reports Nationwide will deliver to NISC the items listed in Production Reports to be Provided, attached hereto as EXHIBIT C, and incorporated herein by reference. d. Customer Service Each party will notify the other of all material pertinent inquiries and complaints it receives, from whatever source and to whomever directed, and will consult with the other in responding to such inquiries and complaints. e. Records and Books All books and records maintained by Nationwide in connection with the offer and sale of variable annuity interests funded by a Separate Account are maintained and preserved in conformity with the requirements of Rule 17a-3 and 17a-4 under the 1934 Exchange Act, to the extent such requirements are applicable to the variable annuity operations. All such books and records are maintained and held by Nationwide on behalf of and as agent for NISC, whose property they are and shall remain. Such books and records are at all times subject to inspection by the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. 5 C. GENERAL PROVISIONS 1. Waiver The forbearance or neglect of either party to insist upon strict compliance by the other with any of the provisions of this Agreement, whether continuing or not, or to declare a forfeiture of termination against the other, shall not be construed as a waiver of any rights or privileges of the forbearing party in the event of a further default or failure of performance. 2. Limitations Neither party shall have authority on behalf of the other to: make, alter or discharge any contractual terms of the Products; waive any forfeiture; extend the time of making any contributions to the products; guarantee dividends; alter the forms which either may prescribe; nor substitute other forms in place of those prescribed by the other. 3. Binding Effect This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective successors and assigns, provided that neither party shall assign or sub-contract this Agreement or any rights or obligations hereunder without prior written consent of the other. 4. Indemnification Each party ("Indemnifying Party") hereby agrees to release, indemnify and hold harmless the other party, its officers, directors, employers, agents, servants, predecessors or successors from any claims or liability arising out of the acts or omissions of the Indemnifying Party not authorized by this Agreement, including the violation of any federal or state law or regulation. 5. Notices All notices, requests, demands and other communication under this Agreement shall be in writing and shall be deemed to have been given on the date of service if served personally on the party to whom notice is to be given, or on the date of mailing if sent postage prepaid by First Class Mail, Registered or Certified mail, by overnight mail, properly addressed as follows: TO NATIONWIDE: Nationwide Life Insurance Company Michael C. Butler, Vice President-Sales Three Nationwide Plaza Columbus, Ohio 43215 6 TO NISC: Nationwide Investment Services Corporation. Barbara Shane, Vice President-Compliance Officer Two Nationwide Plaza Columbus, Ohio 43215 6. Governing Law This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio. 7. Arbitration The parties agree that misunderstandings or disputes arising from this Agreement shall be decided by arbitration, conducted upon request of either party before three arbitrators (unless the parties agree on a single arbitrator) designated by the American Arbitration Association, and in accordance with the rules of such Association. The expenses of the arbitration proceedings conducted hereunder shall be borne equally by both parties. 8. Confidentiality Any information, documents and materials, whether printed or oral, furnished by either party or its agents or employees to the other shall be held in confidence. No such information shall be given to any third party, other than to such sub-contractors of NISC as may be permitted herein, or under requirements of a lawful authority, without the express written consent of the other party. D. TERM OF AGREEMENT This Agreement, including the Exhibits attached hereto, shall remain in full force and effect until terminated, and may be amended only by mutual agreement of the parties in writing. Any decision by either party to cease issuance or distribution of any specific Product shall not effect a termination of the Agreement unless such termination is mutually agreed upon, or unless notice is given pursuant to Section E.2. hereof. E. TERMINATION 1. Either party may terminate this Agreement for cause at any time, upon written notice to the other, if the other knowingly and willfully: (a) fails to comply with the laws or regulations of any state or governmental agency or body having jurisdiction over the sale of insurance or securities; (b) misappropriates any money or property belonging to the other; (c) subjects the other to any actual or potential liability due to misfeasance, malfeasance, or nonfeasance; (d) commits any fraud upon the other; (e) has an assignment for the benefit of creditors; (f) incurs bankruptcy; or (g) commits a material breach of this Agreement. 7 2. Either party may terminate this Agreement, without regard to cause, upon six months prior written notice to the other. 3. In the event of termination of this Agreement, the following conditions shall apply: a) The parties irrevocably acknowledge the continuing right to use any Product trademark that might then be associated with any Products, but only with respect to all business in force at the time of termination. b) In the event this Agreement is terminated the parties will use their best efforts to preserve in force the business issued pursuant to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date first above written. NATIONWIDE LIFE INSURANCE COMPANY By: __________________________ Michael C. Butler Title: Vice President - Sales NATIONWIDE INVESTMENT SERVICES CORPORATION By: ________________________ Barbara Shane Title: Vice President - Compliance Officer 8 EXHIBIT A ANALYSIS OF ADMINISTRATIVE FUNCTIONS A. PRODUCT UNDERWRITING/ISSUE NATIONWIDE NISC - - Establishes underwriting criteria for - Consults with regard to new business application processing and rejections. procedures and processing. - - Reviews the completed application. Applies underwriting/issue criteria to application. - - Notifies Agent and/or customer of any error or missing data necessary to underwrite application and establish records for owner of Product ("Contract Owner"). - - Prepares policy data page for approved business and mails with policy to Contract Owner. - - Establishes and maintains all records required for each Contract Owner, as applicable. - - Prepares and mails confirmation and other statements to Contract Owners and Agents, as required. - - Prints, provides all forms ancillary to issue of contract/policy forms for Products. - - Maintains supply of approved specimen policy forms and all ancillary forms, distributes same to Agents. 9 B. BILLING AND COLLECTION NATIONWIDE - - Receives premium/purchase payments and reconciles amount received with remittance media. - - Updates Contract Owner records to reflect receipt of premium/purchase payment and performs accounting/ investment allocation of each payment received. - - Deposits all cash received under the Products in accordance with the terms of the Products. C. BANKING NATIONWIDE - - Balances, edits, endorses and prepares daily deposit. - - Places deposits in depository account. - - Prepares daily cash journal summary reports and maintains same for review by NISC. 10 D. PRICING/VALUATION/ACCOUNTING/TRADING NATIONWIDE NISC - - Maintains and makes available, as - Cooperates in annual audit of separate reasonably requested, records used in account financials conducted for purposes determining "Net Amount Available for of financial statement certification and Investment." publication. - - Collects information needed in - Will clear and settle Mutual Fund determining Variable Account unit trades on behalf of the separate accounts values from the Funds including using the National Securities Clearing daily net asset value, capital Corporation FUND/Serv System. gains or dividend distributions, and the number of Fund Shares acquired or sold during the immediately preceding valuation period. - - Performs daily unit valuation calculation. 11 E. CONTRACT OWNER SERVICE/ RECORD MAINTENANCE NATIONWIDE NISC - - Receives and processes all - Accommodates customer service function Contract Owner service requests, by providing any supporting information including but not limited to or documentation which may be in the informational requests, beneficiary control of NISC. changes, and transfers of Contract Value among eligible investment options. - - Maintains daily records of all changes made to Contract Owner accounts. - - Researches and responds to all Contract Owner/Agent inquiries. - - Keeps all required Contract Owner records. - - Maintains adequate number of toll free lines to service Contract Owner/ Agent inquiries. F. DISBURSEMENTS (SURRENDERS, DEATH CLAIMS, LOANS) NATIONWIDE NISC - - Receives and processes surrenders, loans, and death claims in accordance with established guidelines. - - Prepares checks for surrenders, loans, and death claims, and forwards to Contract Owner or Beneficiary. Prepares and mails confirmation statement of disbursement to Contract Owner/Beneficiary with copy to Agent. 12 G. COMMISSIONS NATIONWIDE NISC - - Ascertains, on receipt of - Receives and performs record keeping applications, whether writing Agent for investment company payments made is appropriately licensed. under a 12b-1 Plan. - - Pays commissions and other fees in accordance with agreements relating to same. H. PROXY PROCESSING NATIONWIDE NISC - - Receives record date information from Funds Receives proxy solicitation materials from Funds. - - Prepares Voting Instruction cards and mails solicitation, if necessary. - - Tabulates and votes all Fund Shares in accordance with SEC requirements. I. PERIODIC REPORTS TO CONTRACT OWNERS NATIONWIDE NISC - - Prepares and mails quarterly and annual Statements of Account to Contract Owners. - - Prepares and mails all semi-annual and annual reports of Variable Account(s) to Contract Owners. 13 J. REGULATORY/STATEMENT REPORTS NATIONWIDE NISC - - Prepares and files Separate Account - Prepares and files periodic FOCUS Annual Statements. Reports with the NASDR and SEC, as applicable. - - Prepares and mails the appropriate, - Prepares and files annual audited required IRS reports at the Contract financial statements with required Owner level. Files same with required regulatory agencies. regulatory agencies. - - Prepares and files form N-SAR for the Separate Account. K. PREMIUM TAXES NATIONWIDE NISC - - Collects, pays and accounts for premium taxes as appropriate. - - Prepares and maintains all premium tax records by state. - - Maintains liabilities in General Account ledger for accrual of premium tax collected. - - Integrates all company premium taxes due and performs related accounting. L. FINANCIAL AND MANAGEMENT REPORTS NATIONWIDE NISC - - Provides periodic reports in - Provides periodic reports in accordance accordance with the Schedule of with the Schedule of Reports to be Reports to be prepared jointly by prepared jointly by Nationwide and NISC. Nationwide and NISC. (See EXHIBIT C) (See EXHIBIT C) 14 M. AGENT LICENSE RECORDKEEPING NATIONWIDE NISC - - Receives, establishes, processes, - Maintains securities registrations and and maintains Agent appointment assumes supervisory responsibility for records. representatives of affiliated sales and marketing companies involved in the wholesale distribution of Nationwide variable contract products. - Maintains training, supervisory, and other required records for and on behalf of registered representatives of NISC. 15 EXHIBIT B ADVERTISING AND SALES PROMOTION MATERIAL GUIDELINES FOR APPROVAL BY NATIONWIDE AND NISC In order to assure compliance with state and federal regulatory requirements and to maintain control over the distribution of promotional materials dealing with the Products, Nationwide and NISC require that all variable contract promotional materials be reviewed and approved by both Nationwide and NISC prior to their use. These guidelines are intended to provide appropriate regulatory and distribution controls. 1. Sufficient lead time must be allowed in the submission of all promotional material. Nationwide and NISC shall approve in writing all promotional material. Such approval shall not be unreasonably withheld, and shall be given promptly, normally within five (5) days. 2. All promotional material will be submitted in "draft" form to permit any changes or corrections to be made prior to the printing. 3. Nationwide and NISC will provide each other with details as to each and every use of all promotional material submitted. Approval for one use will not constitute approval for any other use. Different standards of review may apply when the same advertising material is intended for different uses. The following information will be provided for each item of promotional material: a. In what jurisdiction(s) the material will be used. b. Whether distribution will be to broker/dealer, entity, participant, etc. c. How the material will be used (e.g., brochure, mailing, web site, etc.) d. The projected date of initial use. 4. Each party will advise the other of the date it discontinues the use of any material. 5. Any changes to previously approved promotional material must be resubmitted, following these procedures. When approved material is to be put to a different use, request for approval of the material for the new use must be submitted. 6. Nationwide will assign a form number to each item of advertising and sales promotional material. This number will appear on each piece of advertising and sales promotional material. It will be used to aid in necessary filings, and to maintain appropriate controls. 7. Nationwide and NISC will provide written approval for all material to be used. 8. Nationwide will be responsible to effect necessary state filings. 9 NISC will coordinate SEC/NASD filings of sales and promotional material. 10. All telephone communication and written correspondence regarding promotional materials should be directed to Office of Product and Market Compliance, Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43215 -----END PRIVACY-ENHANCED MESSAGE-----