-----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, Kg1jFXNNgKfqKQjb+A3dkeJ6iXiNuHq3iiqzuf0cD3aTDdNx35o5jA78bVoxV9bZ kYe2ISU0iE0pdsBJh5NtEw== 0000950152-99-007768.txt : 19990924 0000950152-99-007768.hdr.sgml : 19990924 ACCESSION NUMBER: 0000950152-99-007768 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19990923 EFFECTIVENESS DATE: 19990923 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: 033-42180 FILM NUMBER: 99715695 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 No. 33-42180 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 17 TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ---------------------------- NATIONWIDE VLI SEPARATE ACCOUNT-2 (EXACT NAME OF TRUST) ---------------------------- NATIONWIDE LIFE INSURANCE COMPANY ONE NATIONWIDE PLAZA COLUMBUS, OHIO 43216 (EXACT NAME AND ADDRESS OF DEPOSITOR AND REGISTRANT) 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 September 27, 1999 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 If appropriate check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment Title of Securities being registered: Flexible Premium Variable Universal Life Insurance Policies Approximate date of proposed offering: Continuously on and after September 27, 1999 [ ] Check box if it is proposed that this filing will become effective on (date) at (time) pursuant to Rule 487. ================================================================================ 1 of 139 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 37................................................................................Not Applicable 38................................................................................Distribution of The Policies 39................................................................................Distribution of The Policies
2 of 139 3
N-8B-2 ITEM CAPTION IN PROSPECTUS 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
3 of 139 4 SUPPLEMENT DATED SEPTEMBER 27, 1999 TO PROSPECTUS DATED MAY 1, 1999 FOR FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES ISSUED BY NATIONWIDE LIFE INSURANCE COMPANY THROUGH ITS NATIONWIDE VLI SEPARATE ACCOUNT - 2 THIS SUPPLEMENT UPDATES CERTAIN INFORMATION CONTAINED IN YOUR PROSPECTUS. PLEASE READ IT AND KEEP IT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE. 1. EFFECTIVE JULY 6, 1999, ALL REFERENCES TO WARBURG PINCUS ASSET MANAGEMENT, INC. IN YOUR PROSPECTUS CHANGED TO: Credit Suisse Asset Management, LLC 2. 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. - American Century VP Capital Appreciation Strong Variable Insurance Funds, Inc. - Strong Discovery Fund II, Inc. Strong Variable Insurance Funds, Inc. - International Stock Fund II Warburg Pincus Trust - International Equity Portfolio Warburg Pincus Trust - Post-Venture Capital Portfolio CURRENT POLICIES ARE NOT AFFECTED BY THIS CHANGE. 3. Effective September 1, 1999 "APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS" LOCATED ON PAGES 42 THROUGH 49 OF YOUR PROSPECTUS IS AMENDED AS FOLLOWS: 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. Effective September 1, 1999, the investment advisory services previously performed by Nationwide Advisory Services ("NAS") were transferred to Villanova Mutual Fund Capital Trust ("VMF"), an affiliate of NAS and an indirect subsidiary of Nationwide Financial Services, Inc. The portfolio managers and subadvisers for each of the Funds continue to manage the Funds after the transfer to VMF. 5 NATIONWIDE LIFE INSURANCE COMPANY Flexible Premium Variable Universal Life Insurance Policies Issued by Nationwide Life Insurance Company through its Nationwide VLI Separate Account-2 The date of this prospectus is May 1, 1999 - -------------------------------------------------------------------------------- This prospectus contains basic information you should know about the policies before investing. Please read it and keep it for future reference. THE FOLLOWING UNDERLYING MUTUAL FUNDS ARE AVAILABLE UNDER THE POLICIES: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. A MEMBER OF THE AMERICAN CENTURY(SM) FAMILY OF INVESTMENTS o American Century VP Balanced o American Century VP Capital Appreciation o American Century VP Income & Growth o American Century VP International o American Century VP Value DREYFUS o Dreyfus Stock Index Fund, Inc o The Dreyfus Socially Responsible Growth Fund, Inc. DREYFUS VARIABLE INVESTMENT FUND o Capital Appreciation Portfolio o Growth & Income Portfolio* FIDELITY VARIABLE INSURANCE PRODUCTS FUND o VIP Equity-Income Portfolio o VIP Growth Portfolio o VIP High Income Portfolio* o VIP Overseas Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II o VIP II Asset Manager Portfolio o VIP II Contrafund Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND III o VIP III Growth Opportunities Portfolio MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. o Emerging Markets Debt Portfolio NATIONWIDE SEPARATE ACCOUNT TRUST o Capital Appreciation Fund o Government Bond Fund o Money Market Fund o Total Return Fund o Nationwide Small Cap Value Fund (sub-advised by The Dreyfus Corporation) o Nationwide Small Company Fund (sub-advised by: The Dreyfus Corporation, Neuberger Berman, LLC, Lazard Asset Management, Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc.) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST o AMT Limited Maturity Bond Portfolio o AMT Growth Portfolio o AMT Guardian Portfolio o AMT Partners Portfolio OPPENHEIMER VARIABLE ACCOUNTS FUNDS o Oppenheimer Bond Fund/VA o Oppenheimer Global Securities Fund/VA o Oppenheimer Capital Appreciation Fund/VA (formerly Oppenheimer Growth Fund) o Oppenheimer Multiple Strategies Fund/VA STRONG OPPORTUNITY FUND II, INC. (FORMERLY STRONG SPECIAL FUND II, INC.) STRONG VARIABLE INSURANCE FUNDS, INC. o Strong Discovery Fund II, Inc. o International Stock Fund II VAN ECK WORLDWIDE INSURANCE TRUST o Worldwide Bond Fund o Worldwide Emerging Markets Fund o Worldwide Hard Assets Fund VAN KAMPEN LIFE INVESTMENT TRUST o Morgan Stanley Real Estate Securities Portfolio WARBURG PINCUS TRUST o International Equity Portfolio o Post-Venture Capital Portfolio o Small Company Growth Portfolio *These underlying mutual funds invest in lower quality debt securities commonly referred to as junk bonds. 1 6 To obtain copies of any underlying mutual fund prospectus, please call: 1-800-547-7548 TDD 1-800-238-3035 or write: NATIONWIDE LIFE INSURANCE COMPANY P.O. BOX 182150 COLUMBUS, OHIO 43218-2150 Material incorporated by reference to this prospectus can be found on the SEC website at: www.sec.gov Information about this and other Best of America Products can be found on the world-wide web at: www.bestofamerica.com 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 flexible premium variable universal life insurance policies. They provide flexibility with the amount and frequency of premium payments. A cash surrender value may be offered if the policy is terminated during the lifetime of the insured. 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 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 of money. Nationwide guarantees the death benefit for as long as the policy is in force. Nationwide guarantees to keep the policy in force so long as minimum premium requirements have been met. The cash surrender value is not guaranteed. The policy will lapse if the cash surrender value is insufficient to cover policy charges. 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 7 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. BREAK POINT PREMIUM- The level annual premium at which the sales load is reduced on a current basis. 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 reasonable mortality and expense charges with an annual effective interest rate of 5%. It is calculated pursuant to Rule 6e-3(T) of the Investment Company Act of 1940. SUB-ACCOUNTS- Divisions of the variable account to which underlying mutual fund shares are allocated and for which accumulation units are separately maintained. MATURITY DATE- The policy anniversary on or next following the insured's 95th birthday. NATIONWIDE - Nationwide Life Insurance Company. 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. SPECIFIED AMOUNT- The dollar amount used to determine the death benefit under a policy. VALUATION PERIOD- Each day the New York Stock Exchange is open for business. 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 8
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 ADVISORY SERVICES, INC................................................................10 INVESTING IN THE POLICY..........................................................................10 The Variable Account and Underlying Mutual Funds The Fixed Account INFORMATION ABOUT THE POLICIES...................................................................12 Minimum Requirements for Policy Issuance Premium Payments Pricing POLICY CHARGES...................................................................................13 Sales Load Premium Expense Charge Surrender Charges Reduction to Surrender Charges Monthly Cost of Insurance Charge Monthly Administrative Charge Increase Charge Mortality and Expense Risk Charge Income Tax Reduction of Charges SURRENDERING THE POLICY FOR CASH.................................................................16 Surrender (Redemption) Cash Surrender Value Partial Surrenders Income Tax Withholding VARIATION IN CASH VALUE..........................................................................17 POLICY PROVISIONS................................................................................17 Policy Owner Beneficiary Changes in Existing Insurance Coverage OPERATION OF THE POLICY..........................................................................18 Allocation of Net Premium and Cash Value How the Investment Experience is Determined Net Investment Factor Determining the Cash Value Transfers RIGHT TO REVOKE..................................................................................20 POLICY LOANS.....................................................................................20 Taking a Policy Loan Effect on Investment Performance Interest Effect on Death Benefit and Cash Value Repayment ASSIGNMENT.......................................................................................22 POLICY OWNER SERVICES............................................................................22 Dollar Cost Averaging DEATH BENEFIT INFORMATION........................................................................22 Calculation of the Death Benefit Changes in the Death Benefit Option Proceeds Payable on Death Error in Age or Sex Incontestability Suicide Maturity Proceeds EXCHANGE RIGHTS..................................................................................24 GRACE PERIOD.....................................................................................24 First Three Policy Years Policy Years Four 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 YEAR 2000 COMPLIANCE ISSUES......................................................................28 STATE REGULATION.................................................................................29 REPORTS TO POLICY OWNERS.........................................................................29 ADVERTISING......................................................................................29 LEGAL PROCEEDINGS................................................................................30 EXPERTS..........................................................................................31 REGISTRATION STATEMENT...........................................................................31 LEGAL OPINIONS...................................................................................31
4 9 DISTRIBUTION OF THE POLICIES.....................................................................31 ADDITIONAL INFORMATION ABOUT NATIONWIDE..........................................................34 APPENDIX A: OBJECTIVES FOR UNDERLYING MUTUAL FUNDS...............................................42 APPENDIX B: ILLUSTRATIONS OF SURRENDER CHARGES...................................................50 APPENDIX C: ILLUSTRATIONS OF CASH VALUES, CASH SURRENDER VALUES, AND DEATH BENEFITS..............52 APPENDIX D: PERFORMANCE SUMMARY INFORMATION......................................................70
5 10 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 a premium expense charge for state premium taxes from premium payments. The sales load is guaranteed never to exceed 3.5% of each premium payment. Currently, the sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the annual break point premium (see "Sales Load"). The charge for state premium tax is approximately 2.5% of premiums for all states (see "Premium Expense Charge"). Nationwide deducts a mortality and expense risk charge equal to an annual rate of 0.80% from the daily net assets of the variable account. Nationwide deducts the following charges from the cash value of the policy: o monthly cost of insurance charge o monthly cost of any additional benefits provided by riders to the policy o administrative expense charge(1) o increase charge (applied to increases in the specified amount)(2) o surrender charge(3). (1) Nationwide deducts an administrative expense charge of $12.50 per month in the first year, $5 per month in renewal years. Nationwide guarantees this charge will never exceed $25 per month in the first year and $7.50 per month in renewal years. (2) The increase charge is comprised of an underwriting and administration component of $1.50 per year per $1,000 and a sales component of $0.54 per year per $1,000 (see "Increase Charge") (3) For policies surrendered during the first nine policy years (see "Surrender Charges"). For more information about any policy charge, see "Policy Charges" in this prospectus. 6 11 UNDERLYING MUTUAL FUND ANNUAL EXPENSES (as a percentage of underlying mutual fund net assets, after expense reimbursement)
MANAGEMENT OTHER 12b-1 TOTAL MUTUAL FEES EXPENSES FEES FUND EXPENSES American Century Variable Portfolios, 0.97% 0.00% 0.00% 0.97% Inc.- American Century VP Balanced American Century Variable Portfolios, 1.00% 0.00% 0.00% 1.00% Inc.- American Century VP Capital Appreciation American Century Variable Portfolios, 0.70% 0.00% 0.00% 0.70% Inc.- American Century VP Income & Growth American Century Variable Portfolios, 1.47% 0.00% 0.00% 1.47% Inc.- American Century VP International American Century Variable Portfolios, 1.00% 0.00% 0.00% 1.00% Inc.- American Century VP Value The Dreyfus Socially Responsible Growth 0.75% 0.05% 0.00% 0.80% Fund, Inc. Dreyfus Stock Index Fund, Inc. 0.25% 0.01% 0.00% 0.26% Dreyfus Variable Investment Fund- 0.75% 0.05% 0.00% 0.80% Capital Appreciation Portfolio Dreyfus Variable Investment Fund- 0.75% 0.03% 0.00% 0.78% Growth & Income Portfolio Fidelity VIP Equity-Income Portfolio 0.49% 0.08% 0.00% 0.57% Fidelity VIP Growth Portfolio 0.59% 0.07% 0.00% 0.66% Fidelity VIP High Income Portfolio 0.58% 0.12% 0.00% 0.70% Fidelity VIP Overseas Portfolio 0.74% 0.15% 0.00% 0.89% Fidelity VIP II Asset Manager Portfolio 0.54% 0.09% 0.00% 0.63% Fidelity VIP II Contrafund Portfolio 0.59% 0.07% 0.00% 0.66% Fidelity VIP II Growth Opportunities 0.59% 0.11% 0.00% 0.70% Portfolio Morgan Stanley Dean Witter Universal 0.27% 1.25% 0.00% 1.52% Funds, Inc.- Emerging Markets Debt Portfolio Neuberger Berman AMT- Growth Portfolio 0.83% 0.09% 0.00% 0.92% Neuberger Berman AMT- Guardian Portfolio 0.85% 0.15% 0.00% 1.00% Neuberger Berman AMT- Limited Maturity 0.65% 0.11% 0.00% 0.76% Bond Portfolio Neuberger Berman AMT- Partners 0.78% 0.06% 0.00% 0.84% Portfolio NSAT- Capital Appreciation Fund 0.60% 0.07% 0.00% 0.67% NSAT- Government Bond Fund 0.50% 0.07% 0.00% 0.57% NSAT- Money Market Fund 0.40% 0.06% 0.00% 0.46% NSAT- Nationwide Small Cap Value Fund 0.90% 0.15% 0.00% 1.05% NSAT- Nationwide Small Company Fund 1.00% 0.07% 0.00% 1.07% NSAT- Total Return Fund 0.59% 0.06% 0.00% 0.65% Oppenheimer VAF- Oppenheimer Bond 0.72% 0.02% 0.00% 0.74% Fund/VA Oppenheimer VAF- Oppenheimer Global 0.68% 0.06% 0.00% 0.74% Securities Fund/VA
7 12
MANAGEMENT OTHER 12b-1 TOTAL MUTUAL FEES EXPENSES FEES FUND EXPENSES Oppenheimer Capital Appreciation 0.72% 0.03% 0.00% 0.75% Fund/VA (formerly Oppenheimer VAF - Oppenheimer Growth Fund) Oppenheimer VAF - Oppenheimer Multiple 0.72% 0.04% 0.00% 0.76% Strategies Fund/VA Strong Opportunity Fund II, Inc. 1.00% 0.16% 0.00% 1.16% Strong Variable Insurance Funds, Inc. - 1.00% 0.18% 0.00% 1.18% Discovery Fund II, Inc. Strong Variable Insurance Funds, Inc. - 1.00% 0.62% 0.00% 1.62% International Stock Fund II Van Eck Worldwide Insurance Trust- 1.00% 0.15% 0.00% 1.15% Worldwide Bond Fund Van Eck Worldwide Insurance Trust- 1.00% 0.50% 0.00% 1.50% Worldwide Emerging Markets Fund Van Eck Worldwide Insurance Trust - 1.00% 0.16% 0.00% 1.16% Worldwide Hard Assets Fund Van Kampen Life Investment Trust - 1.20% 0.00% 0.00% 1.20% Morgan Stanley Real Estate Securities Portfolio Warburg Pincus Trust- International 1.00% 0.33% 0.00% 1.33% Equity Portfolio Warburg Pincus Trust - Post-Venture 1.08% 0.32% 0.00% 1.40% Capital Portfolio Warburg Pincus Trust - Small Company 0.90% 0.24% 0.00% 1.14% Growth Portfolio
The expenses shown above are deducted by the underlying mutual fund before it provides Nationwide with the daily net asset value. Nationwide then deducts applicable variable account charges from the net asset value to calculate the unit value of the corresponding sub-account. The management fees and other expenses are more fully described in the prospectus for each underlying mutual fund. Information relating to the underlying mutual funds was provided by the underlying mutual funds and not independently verified by Nationwide. Some underlying mutual funds are subject to fee waivers and expense reimbursements. The following chart shows what the expenses would have been for such funds without fee waivers and expense reimbursements.
MANAGEMENT OTHER 12b-1 TOTAL MUTUAL FEES EXPENSES FEES FUND EXPENSES Fidelity VIP Equity Income Portfolio 0.49% 0.09% 0.00% 0.58% Fidelity VIP Growth Portfolio 0.59% 0.09% 0.00% 0.68% Fidelity VIP Overseas Portfolio 0.74% 0.17% 0.00% 0.91% Fidelity VIP II Asset Manager Portfolio 0.54% 0.10% 0.00% 0.64% Fidelity VIP II Contrafund Portfolio 0.59% 0.11% 0.00% 0.70% Fidelity VIP III Growth Opportunities Portfolio 0.59% 0.12% 0.00% 0.71% Morgan Stanley Dean Witter Universal Funds, Inc. - 0.80% 1.25% 0.00% 2.05% Emerging Markets Debt Portfolio NSAT - Nationwide Small Cap Value Fund 0.90% 0.43% 0.00% 1.33% Van Eck Worldwide Insurance Trust - Worldwide Hard 1.00% 0.20% 0.00% 1.20% Assets Fund Van Eck Worldwide Insurance Trust - Worldwide 1.00% 0.61% 0.00% 1.61% Emerging Markets Fund
8 13 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. PREMIUMS The minimum initial premium for which a policy may be issued is equal to the minimum monthly premium. The initial premium is shown on the policy data page. Each premium payment must be at least equal to the minimum monthly premium. Additional premium payments may be made at any time while the policy is in force, subject to certain restrictions (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. RIDERS A rider may be added to the policy (availability varies by state). Riders currently include: o Maturity Extension Endorsement; o Spouse Rider; o Child Rider; o Waiver of Monthly Deductions Rider; o Accidental Death Benefit Rider; o Base Insured Term Rider; o Accelerated Death Benefit Rider; o Change of Insured Rider; and o Guaranteed Minimum Death Benefit Rider. 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, 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. 9 14 NATIONWIDE ADVISORY SERVICES, INC. The policies are distributed by Nationwide Advisory Services, Inc., Three Nationwide Plaza, Columbus, Ohio 43215. NAS 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 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 chargeable with liabilities incurred in any other business of Nationwide. Nationwide is obligated to pay all amounts promised to policy owners under the policies. The variable account is divided into sub-accounts. Policy owners elect to have net premiums allocated among the sub-accounts and the fixed account at the time of application. Nationwide uses the assets of each sub-account to buy shares of the underlying mutual funds based on policy owner instructions. A policy's investment performance depends upon the performance of the underlying mutual fund options chosen by the policy owner. Each underlying mutual fund's prospectus contains more detailed information about that fund. Prospectuses for the underlying mutual funds should be read in conjunction with this prospectus. Underlying mutual funds in the variable account are NOT publicly traded mutual funds. The underlying mutual fund options are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. However the underlying mutual funds are NOT directly related to any publicly traded mutual fund. Policy owners should not compare the performance of a publicly traded fund with the performance of underlying mutual funds participating in the variable account. The performance of the underlying mutual funds could differ substantially from that of any publicly traded funds. Changes of Investment Policy Nationwide may materially change the investment policy of the variable account. Nationwide must inform policy owners and obtain all necessary regulatory approvals. Any change must be submitted to the various state insurance departments which may disapprove it if deemed detrimental to the interests of the policy owners or if it renders Nationwide's operations hazardous to the public. If a policy owner objects, the policy may be converted to a substantially comparable general account life insurance policy offered by Nationwide. The policy owner has the later of 60 days (6 months in Pennsylvania) from the date of the investment policy change or 60 days (6 months in Pennsylvania) from being informed of the change to make the conversion. Nationwide will not require evidence of insurability for this conversion. The new policy will not be affected by the investment experience of any separate account. The new policy will be for an amount of insurance not exceeding the death benefit of the policy converted on the date of the conversion. Voting Rights Policy owners who have allocated assets to the underlying mutual funds are entitled to certain voting rights. Nationwide will vote policy owner shares at special shareholder meetings based on policy owner instructions. However, if 10 15 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 before the shareholder meeting. Notification will contain proxy materials, and a form to return to Nationwide with voting instructions. Nationwide will vote shares for which no instructions are received in the same proportion as those that are received. The number of shares which a policy owner may vote is determined by dividing the cash value of the amount they have allocated to an underlying mutual fund by the net asset value of that underlying mutual fund. Nationwide will designate a date for this determination not more than 90 days before the shareholder meeting. Substitution of Securities Nationwide may substitute, eliminate and/or combine shares of another underlying mutual fund for shares already purchased or to be purchased in the future if either of the following occur: 1. shares of a current underlying mutual fund option are no longer available for investment; or 2. further investment in an underlying mutual fund option is inappropriate. No substitution, elimination, and/or combination of shares may take place without the prior approval of the SEC and state insurance departments. Material Conflicts The underlying mutual funds may be offered through separate accounts of other insurance companies, as well as through other separate accounts of Nationwide. Nationwide does not anticipate any disadvantages to this. However, it is possible that a conflict may arise between the interests of the variable account and one or more of the other separate accounts in which these underlying mutual funds participate. Material conflicts may occur due to a change in law affecting the operations of variable life insurance policies and variable annuity contracts, or differences in the voting instructions of the policy owners and those of other companies. If a material conflict occurs, Nationwide will take whatever steps are necessary to protect policy owners, 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. 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. Premium payments will be allocated to the fixed account by election of the policy owner. 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 4.0% per year. 11 16 Any interest in excess 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 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 ISSUANCE OF A POLICY This policy provides life insurance coverage with the flexibility to vary the amount and frequency of premium payments. Minimum requirements for policy issuance include: o the insured must be age 80 or younger; o Nationwide may require satisfactory evidence of insurability (including a medical exam); and o a minimum specified amount $50,000 ($100,000 in Pennsylvania and New Jersey). Premium Payments Each premium payment must be at least equal to the minimum monthly 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 3 policy years, the total premium payments, less any policy indebtedness, less any partial surrenders, less any partial surrender fee, must be greater than or equal to the minimum premium requirement in order to guarantee the policy remain in force. (The minimum premium requirement is shown on 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. PRICING Premiums will not be priced when the New York Stock Exchange is closed or 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. 12 17 If Nationwide is closed on days when the New York Stock Exchange is open, contract 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 not to exceed 3.5% of each premium payment. Currently, the sales load is reduced to 1.5% on any portion of the annual premium paid in excess of the break point premium. The break point premium is located on the policy data page. The total sales load actually deducted from any policy will be equal to the sum of this front-end sales load plus any sales surrender charge. PREMIUM EXPENSE CHARGE Nationwide deducts a premium expense charge for state premium taxes when incurred, equal to 2.5% of premiums for all states. It is deducted porportionally from the cash value in the sub-accounts and the fixed account. This charge reimburses Nationwide for administrative expenses on an aggregate basis including premium taxes imposed by various state and local jurisdictions. Nationwide expects to pay an average state premium tax rate of approximately 2.50% of premiums for all states. State tax rates can range from 0% to 4%. This charge may be more or less than the amount actually assessed by the state in which a particular policy owner lives. Nationwide does not expect to make a profit from this charge. SURRENDER CHARGES Nationwide deducts a surrender charge from the cash value of any policy surrendered during the first nine years. The charge will be deducted proportionally from the cash value in each sub-account and the fixed account. The maximum initial surrender charge varies by issue age, sex, specified amount and underwriting classification. The surrender charge is calculated based on the initial specified amount. The following tables illustrate the maximum 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). INITIAL SPECIFIED AMOUNT $50,000-$99,999 Male Female Issue Non- Non- Male Female Age Tobacco Tobacco Standard Standard 25 $7.776 $7.521 $8.369 $7.818 35 $8.817 $8.398 $9.811 $8.891 45 $12.191 $11.396 $13.887 $12.169 55 $15.636 $14.011 $18.415 $15.116 65 $22.295 $19.086 $26.577 $20.641 INITIAL SPECIFIED AMOUNT $100,000+ Male Female Issue Non- Non- Male Female Age Tobacco Tobacco Standard Standard 25 $5.776 $5.521 $6.369 $5.818 35 $6.817 $6.398 $7.811 $6.891 45 $9.691 $8.896 $11.387 $9.669 55 $13.136 $11.511 $15.915 $12.616 65 $21.295 $18.086 $25.577 $19.641 The surrender charge is comprised of two components: o an underwriting component; and o sales component. The underwriting component varies by issue age in the following manner: $1,000 OF INITIAL SPECIFIED AMOUNT Specified Issue Amounts less Specified Amounts Age than $100,000 $100,000 or more 0-35 $6.00 $4.00 36-55 $7.50 $5.00 56-80 $7.50 $6.50 The underwriting 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 13 18 o establishing policy records. The remainder of the surrender charge that is not attributable to the underwriting component represents the sales component. In no event will this component exceed 26-1/2% of the lesser of the Guideline Level Premium required in the first year or the premiums actually paid in the first year. The purpose of the sales component is to reimburse Nationwide for 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 90% 3 80% 4 70% 5 60% 6 50% 7 40% 8 30% 9+ 0% The surrender charge is reduced by any partial surrender charge actually paid on previous decreases in specified amount. For the initial specified amount, a completed policy year (in the chart above) is measured from the issue date. For any increase in specified amount, a completed policy year (in the chart above) is measured from the effective date of the increase. Special guaranteed maximum surrender charges apply in Pennsylvania (see Appendix B). MONTHLY COST OF INSURANCE CHARGE The cost of insurance charge for each policy month is determined by multiplying the monthly cost of insurance rate by the net amount at risk. The net amount at risk is the difference between the death benefit and the policy's cash value, each calculated at the beginning of the policy month. 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 specified amounts less than $100,000 are based on the 1980 Commissioners Extended Term Mortality Table, Age Last Birthday (1980 CET). Guaranteed cost of insurance rates for policies issued on specified amounts $100,000 or more are based on the 1980 Commissioners Standard Ordinary Mortality Table, Age Last Birthday (1980 CSO). Guaranteed cost of insurance rates for policies issued on a substandard basis are based on appropriate percentage multiples of the guaranteed cost of insurance rate on a standard basis. These mortality tables are sex distinct. In addition, separate mortality tables will be used for tobacco and non-tobacco. For policies issued in Texas on a standard basis ("Special Class - Standard" in Texas), guaranteed cost of insurance rates for specified amounts less than $100,000 are based on 130% of the 1980 CSO. 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 "non medical" basis to certain categories of individuals. Due to the underwriting criteria established for policies issued on a non medical 14 19 basis, actual rates will be higher than the current cost of insurance rates being charged under policies that are medically underwritten. MONTHLY ADMINISTRATIVE CHARGE Nationwide deducts an administrative expense charge proportionately to the cash value in each sub-account and the fixed account on a monthly basis. This charge reimburses Nationwide for certain actual expenses related to maintenance of the policies including accounting and record keeping, and periodic reporting to policy owners. Nationwide does not expect to recover any amount in excess of aggregate maintenance expenses from this charge. Currently, this charge is $12.50 per month in the first year, $5 per month in renewal years. Nationwide may, at its sole discretion, increase this charge. However, Nationwide guarantees that this charge will never exceed $25 per month in the first year and $7.50 per month in renewal years. INCREASE CHARGE The increase charge is deducted proportionally from the cash value in the sub-accounts and the fixed account when the policy owner requests an increase in the specified amount. It is used to cover the cost of underwriting the requested increase and processing and distribution expenses related to the increase. The increase charge is comprised of two components: underwriting and administration; and sales. The underwriting and administration component is $1.50 per year per $1,000. The sales component is equal to $0.54 per year per $1000. Nationwide does not expect to realize a profit from this charge. 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. The charge is equivalent to an annual effective rate of 0.80% of the daily net assets of the variable account. Each policy anniversary starting on the 10th anniversary, if the cash surrender value is $25,000 or more, the mortality and expense risk charge is reduced to 0.50% on an annual basis. Policy owners receive quarterly and annual statements, advising policy owners of the cancellation of accumulation units for mortality and expense risk charges. For policies issued in New York, the reduction occurs regardless of the cash surrender value. All charges are guaranteed. Nationwide may realize a profit from policy 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. REDUCTION OF CHARGES The policy is available for purchase by individuals, corporations and other groups. Nationwide may reduce or eliminate certain charges (sales load, surrender charge, monthly administrative charge, monthly cost of insurance charge, or other charges), where the size or nature of the group results in savings in sales, underwriting, administrative or other costs, to Nationwide. These charges may be reduced in certain group, sponsored arrangements or special exchange programs made available by Nationwide, (including employees of Nationwide and their families). Eligibility for reduction in charges and the amount of any reduction is determined by a number of factors, including: o the number of insureds; o the total premium expected to be paid; o total assets under management for the policy owner; 15 20 o the nature of the relationship among individual insureds; o the purpose for which the policies are being purchased; o the expected persistency of individual policies; and o any other circumstances which are rationally related to the expected reduction in expenses. The extent and nature of reductions may change from time to time. The charge structure may vary. Variations are determined in a manner not unfairly discriminatory to policy owners which reflects differences in costs of services. 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 one year, 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) partial surrenders may not reduce the specified amount to less than $50,000; 3) after a partial surrender, the cash surrender value is greater than $500 or an amount equal to three times the current monthly deduction if higher; 4) maximum total partial surrenders in any policy year are limited to 10% of the total premium payments. Currently, this requirement is waived beginning in the 15th year if the cash surrender value is $10,000 or more after the withdrawal; and 5) after the partial surrender, the policy continues to qualify as life insurance. When a partial surrender is made, the cash value will be 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 that case, a partial surrender will decrease the specified amount by the amount the partial surrender exceeds the difference between the death benefit and specified amount. Surrenders charges are waived for partial surrenders that satisfy the above conditions. Certain partial surrenders may result in currently taxable income and tax penalties. 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. 16 21 In certain employer-sponsored life insurance arrangements, including equity split dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (1) the value each year of the life insurance protection provided; (2) an amount equal to any employer-paid premiums; or (3) some or all of the amount by which the current value exceeds the employer's interest in the policy. Participants should consult with the sponsor or the administrator of the plan, and/or with their personal tax or legal advisor, to determine the tax consequences, if any, of their employer-sponsored life insurance arrangements. VARIATION IN CASH VALUE On any date during the policy year, the cash value equals the cash value on the preceding valuation date plus any net premium applied since the previous valuation date, minus any partial surrenders, plus or minus any investment results, minus any surrender charge for decreases in specified amount, 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. ERROR IN AGE OR SEX If the age or sex of the insured has been misstated, the death benefit and cash value will be adjusted. The cash value will be adjusted to reflect the cost of insurance charges on the correct age and sex from the policy date. 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 and names no contingent policy owner, and dies before the insured, the policy owner's rights in this policy belong to the policy owner's estate. BENEFICIARY The beneficiary(ies) 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 first policy year, the policy owner may request an increase to the specified amount. 17 22 Any increase will be subject to the following conditions: 1. the request must be applied for in writing; 2. satisfactory evidence of insurability must be provided; 3. the increase must be for a minimum of $10,000; 4. the cash surrender value is sufficient to continue the policy in force for at least 3 months; and 5. age limits are the same as for a new issue. Any approved increase will have an effective date of the monthly anniversary day on or next following the date Nationwide approves the supplemental application. Nationwide reserves the right to limit the number of specified amount increases to one each policy year. Specified Amount Decreases After the first policy year, the policy owner may also request a decrease to the specified amount. Any approved decrease will be effective on the monthly anniversary day on or next following the date 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 $50,000 ($100,000 in New Jersey and Pennsylvania); or 2. disqualify the policy as a contract for life insurance. 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. Shares of the underlying mutual funds allocated to the sub-accounts are purchased at net asset value, than converted into accumulation units. All percentage allocations must be in whole numbers, and must be at least 5%. The sum of allocations must equal 100%. Future premium allocations may be changed by giving written notice to Nationwide. Premiums allocated to sub-accounts on the application will be allocated to the NSAT-Money Market Fund during the period that a policy owner can cancel the policy, unless specific state require premiums to be allocated to the fixed account. At the expiration of this 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. 18 23 NET INVESTMENT FACTOR Net investment factor is determined by dividing (a) by (b) and subtracting (c) from the result where: (a) is: (1) the net asset value per share of the underlying mutual fund held in the sub-account as of the end of the current valuation period; and (2) the per share amount of any dividend or income distributions made by the underlying mutual fund (if the "ex-dividend" date occurs during the current valuation period). (b) is the net asset value per share of the underlying mutual fund determined as of the end of the immediately preceding valuation period. (c) is a factor representing the daily mortality and expense risk charge. This factor is equal to an annual rate of 0.80% of the daily net assets of the variable account. Each policy anniversary starting on the 10th the mortality and expense risk charge is reduced to 0.50% on an annual basis of the daily net assets of the variable account if the cash surrender value is $25,000 or more each anniversary. For policies issued in New York, the charge is reduced regardless of the cash surrender value on each anniversary. The net investment factor may be greater or less than one; therefore, the value of an accumulation unit may increase or decrease. Currently, Nationwide does not maintain a tax reserve with respect to the policies since income with respect to the underlying mutual funds is not taxable to Nationwide or the variable account. Nationwide reserves the right to adjust the calculation of the net investment factor to reflect a tax reserve should such income of other items become taxable to Nationwide. It should be noted that changes in the net investment factor may not be directly proportional to changes in the net asset value of underlying mutual fund shares, because of the deduction for mortality and expense risk charge, and any charge or credit for tax reserves. 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. 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 100% of 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 transfers from the fixed account to 25% of the cash value attributable to the fixed account. o Nationwide reserves the right to restrict transfers to the fixed account to 25% of cash value. 19 24 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 instructions it reasonably determined to be genuine. Nationwide may withdraw the telephone exchange privilege upon 30 days written notice to policy owners. Market-Timing Firms Some policy owners may use market-timing firms or other third parties to make transfers on their behalf. Generally, in order to take advantage of perceived market trends, market- timing firms will submit transfer requests on behalf of multiple policy owners at the same time. Sometimes this can result in unusually large transfers of funds. These large transfers might interfere with the ability of Nationwide or the underlying mutual fund to process transactions. This can potentially disadvantage policy owners not using market-timing firms. To avoid this, Nationwide may modify the transfer rights of policy owners who use market-timing firms (or other third parties) to initiate transfers on their behalf. The transfer rights of individual policy owners will not be modified in any way when instructions are submitted directly by the policy owner, or by the policy owner's representative (as authorized by the execution of a valid Nationwide Limited Power of Attorney Form). To protect policy owners, Nationwide may refuse transfer requests: 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. 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. This right varies by state. POLICY LOANS TAKING A POLICY LOAN The policy owner may take a policy loan at any time after the first policy year using the policy as security. Maximum policy indebtedness is limited to 90% of the cash value of the variable account, less any surrender charges, less interest due on the next policy anniversary. For policies issued in Texas, maximum policy indebtedness is limited to 90% of the cash value in the sub-accounts and 100% of the cash value in the fixed account, less surrender charges and interest due on the next policy anniversary. Nationwide will not grant a loan for an amount less than $200. 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. A policy owner considering the use of policy loans in connection with his or her retirement 20 25 income plan should consult his or her personal tax adviser regarding potential tax consequences that may arise if necessary payments are not made to keep the policy from lapsing. The amount of the payments necessary to prevent the policy from lapsing will increase with age. EFFECT ON INVESTMENT PERFORMANCE When a loan is made, an amount equal to the amount of the loan is transferred from the variable account to the policy loan account. If the assets relating to a policy are held in more than one sub-account, withdrawals from sub-accounts will be made in proportion to the assets in each sub-account at the time of the loan. Policy loans will be transferred from the fixed account only when sufficient amounts are not available in the sub-accounts. The amount taken out of the variable account will not be affected by the variable account's investment experience while the loan is outstanding. INTEREST Currently, policy loans are credited with an annual effective rate of 5.1% during policy years 2 through 14 and an annual effective rate of 6% during the 15th and subsequent policy years. Nationwide guarantees the rate will never be lower than 5.1%. Nationwide may change the current interest crediting rate on policy loans at any time at its sole discretion. The loan interest rate is 6% per year for all policy loans. If it is determined that such loans will be treated, as a result of the differential between the interest crediting rate and the loan interest rate, as taxable distributions under any applicable ruling, regulation, or court decision, Nationwide retains the right to increase the net cost (by decreasing the interest crediting rate) on all subsequent policy loans to an amount that would result in the transaction being treated as a loan under federal tax law. 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, at the time a new loan is requested 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 years. EFFECT ON DEATH BENEFIT AND CASH VALUE A policy loan, whether or not repaid, will have a permanent effect on the death benefit and cash value because the investment results of the variable account or the fixed account will apply only to the non-loaned portion of the cash value. The longer the loan is outstanding, the greater the effect is likely to be. Depending on the investment results of the variable account or the fixed account while the loan is outstanding, the effect could be favorable or unfavorable. REPAYMENT All or part of the indebtedness may be repaid at any time while the policy is in force during the insured's lifetime. Any payment intended as a loan repayment, rather than a premium payment, must be identified as such. Loan repayments will be credited to the sub-accounts and the fixed account in proportion to the policy owner's underlying mutual fund allocation factors in effect at the time of the repayment. Each repayment may not be less than $50. 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. 21 26 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 certain sub-accounts and the fixed account into other sub-accounts. Policy owners may participate in this program if their policy value is at least $15,000. Nationwide does not guarantee that this program will result in profit or protect policy owners from loss. Policy owners direct Nationwide to automatically transfer specified amounts from the fixed account and the following underlying mutual fund options: Fidelity VIP High Income Portfolio; NSAT Government Bond Fund; Neuberger Berman AMT Limited Maturity Bond Portfolio; and the NSAT Money Market Fund. The minimum monthly transfer is $100. Transfers from the fixed account must be equal to or less than 1/30th of the fixed account value at the time the program is requested. Transfers occur monthly or on another frequency if permitted by Nationwide. Nationwide will process transfers until either the value in the originating investment option is exhausted, or the policy owner instructs Nationwide in writing to stop the transfers. Nationwide reserves the right to stop establishing new Dollar Cost Averaging programs. Nationwide reserves the right to assess a processing fee for this service. DEATH BENEFIT INFORMATION CALCULATION OF THE DEATH BENEFIT At issue, the policy owner selects the specified amount. While the policy is in force, the death benefit will never be less than the specified amount. The death benefit may vary with the cash value of the policy, which depends on investment performance. The policy owner may choose one of two death benefit options: 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. 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." 22 27
APPLICABLE PERCENTAGE OF CASH VALUE TABLE ATTAINED PERCENTAGE OF ATTAINED PERCENTAGE OF ATTAINED PERCENTAGE OF AGE CASH VALUE AGE CASH VALUE AGE 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%
CHANGES IN THE DEATH BENEFIT OPTION After the first policy year, the policy owner may elect to change the death benefit option under the policy from either Option 1 to Option 2, or from Option 2 to Option 1. Only one change of death benefit option is permitted per policy year. The effective date of a change will be the monthly anniversary day following the date the change is approved by Nationwide. If the change is from Option 1 to Option 2, the specified amount will be decreased by the amount of the cash value. Nationwide may require evidence of insurability for a change from Option 1 to Option 2. If the change is from Option 2 to Option 1, the specified amount will be increased by the amount of the cash value. A change in death benefit option will not be permitted if it results in the total premiums paid exceeding the current maximum premium limitations under Section 7702 of the Internal Revenue Code. 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. 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. 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, 23 28 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 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 Three Policy Years The policies will not lapse during the first three policy years provided that on each monthly anniversary day (1) is greater than or equal to (2), where: (1) Is the sum of all premiums paid to date minus any policy indebtedness, minus any partial surrenders, and minus any partial surrender fee; and (2) Is the sum of monthly minimum premiums required since the minimum premium, including the monthly minimum premium for the current monthly anniversary day. If (1) is less than (2) and the cash surrender value is less than zero, a grace period of 61 days from the monthly anniversary day will be allowed for the payment of sufficient premium to satisfy the minimum premium requirement. If sufficient premium is not paid by the end of the grace period, the Policy will lapse without value. In any event, the Policy will not lapse as long as there is a positive cash surrender value. Policy Years Four and After If the cash surrender value on a monthly anniversary day is not sufficient to cover the current policy charges, a grace period of 61 days from the monthly anniversary day will be allowed for the payment of sufficient premium to cover the current policy charges due, plus an amount equal to three times the current monthly deduction. All Policy Years 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 an amount of premium equal to the minimum monthly premiums missed since the beginning of the grace period, 24 29 if the policy terminated to the first 3 policy years; 4. paying sufficient premium to cover all policy charges that were due and unpaid during the grace period if the policy terminated in the fourth or later policy year; 5. paying sufficient premium to keep the policy in force for 3 months from the date of reinstatement; and 6. paying or reinstating any indebtedness against the policy which existed at the end of the grace period. The effective date of a reinstated policy will be the monthly anniversary day on or next following the date the application for reinstatement is approved by 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. Amounts allocated to underlying mutual funds at the start of the grace period will be reinstated, unless the policy owner provides otherwise. 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. 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 25 30 817(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 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 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 if no Taxpayer Identification Number is provided to Nationwide, or if the IRS notifies Nationwide that back-up withholding is required. FEDERAL ESTATE AND GENERATION-SKIPPING TRANSFER TAXES The federal estate tax is integrated with the federal gift tax under a unified tax rate schedule. In general, in 1999, an estate of less than $625,000 (inclusive of certain pre-death gifts) will not incur a federal estate tax liability. In addition, an unlimited marital deduction may be available for federal estate tax purposes, for certain amounts that pass to the surviving spouse. When the insured dies, the death benefit will generally be included in the insured's federal gross estate if: (1) the proceeds were payable to or for the benefit of the insured's estate; or (2) the insured held any "incident of ownership" in the policy at death or at any time within three years of death. An incident of ownership is, in general, any right that may be exercised by the policy owner, such as the right to borrow on the policy, or the right to name a new beneficiary. If the policy owner (whether or not he or she is the insured) transfers ownership of the policy to another person, such transfer may be subject to a federal gift tax. In addition, if such policy owner transfers the policy to someone two or more generations younger than the policy owner, the transfer may be subject to the federal generation-skipping transfer tax ("GSTT"), the taxable amount being the value of the policy. Similarly, if the beneficiary is two or more generations younger than the insured, the payment of the death proceeds at the death of the insured may be subject to the GSTT. Pursuant to regulations recently promulgated by the U.S. Treasury Department, Nationwide may be required to withhold a portion of the death 26 31 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 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 27 32 enacted into law. In addition, the U.S. Treasury Department may amend existing regulations, issue new regulations, or adopt new interpretations of existing law that may be at variance with its current positions on these matters. In addition, current state law (which is not discussed herein), and future amendments to state law, may affect the tax consequences of the policy. If the policy owner, insured, or beneficiary or other person receiving any benefit or interest in or from the policy is not both a resident and citizen of the United States, there may be a tax imposed by a foreign country, in addition to any tax imposed by the United States. The foreign law (including regulations, rulings, and case law) may change and impose additional taxes on the policy, the Death Proceeds, or other distributions and/or ownership of the policy, or a treaty may be amended and all or part of the favorable treatment may be eliminated. Any or all of the foregoing may change from time to time without any notice, and the tax consequences arising out of a policy may be changed retroactively. There is no way of predicting if, when, or to what extent any such change may take place. No representation is made as to the likelihood of the continuation of these current laws, interpretations, and policies. The foregoing is a general explanation as to certain tax matters pertaining to insurance policies. It is not intended to be legal or tax advise, and should not take the place of your independent legal, tax and/or financial advisor. LEGAL CONSIDERATIONS On July 6, 1983, the U.S. Supreme Court held in Arizona Governing Committee v. Norris that certain annuity benefits provided by employers' retirement and fringe benefit programs may not vary between men and women on the basis of sex. This decision applies only to benefits derived from premiums made on or after August 1, 1983. The policies offered by this prospectus are based upon actuarial tables which distinguish between men and women. Thus the policies provide different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of Norris on any employment related insurance or benefit program before purchasing this policy. YEAR 2000 COMPLIANCE ISSUES Nationwide has developed and implemented a plan to address issues related to the Year 2000. The problem relates to many existing computer systems using only two digits to identify a year in a date field. These systems were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer systems could fail or create erroneous results when processing information dated after December 31, 1999. Like many organizations, Nationwide is required to renovate or replace many computer systems so that the systems will function properly after December 31, 1999. Nationwide has completed an inventory and assessment of all computer systems and has implemented a plan to renovate or replace all applications that were identified as not Year 2000 compliant. Nationwide has renovated all applications that required renovation. Testing of the renovated programs included running each application in a Year 2000 environment and was completed as planned during 1998. For applications being replaced, Nationwide had all replacement systems in place and functioning as planned by year-end 1998. Conversions of existing traditional life policies will continue through second quarter, 1999. In addition, the shareholder services system that support our mutual fund products will be fully deployed in the first quarter of 1999. Nationwide has completed an inventory and assessment of all vendor products and has tested and certified that each vendor product is Year 2000 compliant. Any vendor products that could not be certified as Year 2000 compliant were replaced or eliminated in 1998. Nationwide has also addressed issues associated with the exchange of electronic data with external organizations. Nationwide has completed an inventory and assessment of all business partners including electronic interfaces. Processes have been put in place and programs initiated to process data irrespective of the 28 33 format by converting non-compliant data into a Year 2000 compliant format. Systems supporting Nationwide's infrastructure such as telecommunications, voice and networks will be compliant by March 1999. Nationwide's assessment of Year 2000 issues has also included non-information technology systems with embedded computer chips. Nationwide's building systems such as fire, security, elevators and escalators supporting facilities in Columbus, Ohio have been tested and are Year 2000 compliant. In addition to resolving internal Year 2000 readiness issues, Nationwide is surveying significant external organizations (business partners) to assess if they will be Year 2000 compliant and be in a position to do business in the Year 2000 and beyond. Specifically, Nationwide has contacted mutual fund organizations that provide funds for our variable annuity and life products. The same action will continue during the first quarter of 1999 with wholesale producers. Nationwide continues its efforts to identify external risk factors and is planning to develop contingency plans as part of its ongoing risk management strategy. Operating expenses in 1998 and 1997 included approximately $44.7 million and $45.4 million, respectively, for technology projects, including costs related to Year 2000. Nationwide anticipates spending approximately $5 million on Year 2000 activities in 1999. These expenses have no affect on the assets of the variable account and are not charged through to the policy owner. Management does not anticipate that the completion of Year 2000 renovation and replacement activities will result in a reduction in operating expenses. Rather, personnel and resources currently allocated to Year 2000 issues will be assigned to other technology-related projects. STATE REGULATION Nationwide is subject to the laws of Ohio governing insurance companies and to regulation by the Ohio Insurance Department. An annual statement in a prescribed form is filed with the Insurance Department each year covering the operation of Nationwide for the preceding year and its financial condition as of the end of such year. Regulation by the Insurance Department includes periodic examination to determine Nationwide's contract liabilities and reserves so that the Insurance Department may certify the items are correct. Nationwide's books and accounts are subject to review by the Insurance Department at all times and a full examination of its operations is conducted periodically by the National Association of Insurance Commissioners. Such regulation does not, however, involve any supervision of management or investment practices or policies. In addition, Nationwide is subject to regulation under the insurance laws of other jurisdictions in which it may operate. REPORTS TO POLICY OWNERS Nationwide will mail to the policy owner at the last known address of record: 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 beneficial 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 29 34 Nationwide. The ratings are not intended to reflect the investment experience or financial strength of the variable account. Nationwide may advertise these ratings from time to time. In addition, Nationwide may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Nationwide or the policies. Furthermore, Nationwide may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. LEGAL PROCEEDINGS Nationwide is a party to litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on Nationwide. The general distributor, Nationwide Advisory Services, Inc. is not engaged in any litigation of any material nature. In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits, relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements. In February 1997, Nationwide was named as a defendant in a lawsuit filed in New York state court related to the sale of whole life policies on a "vanishing premium" basis (John H. Snyder v. Nationwide Life Insurance Company). In April 1998, Nationwide was named as a defendant in a lawsuit filed in Ohio state court similar to the Snyder case (David and Joan Mishler v. Nationwide Life Insurance Company). In August 1998, Nationwide Mutual Insurance Company and Nationwide and the plaintiffs executed a stipulation of settlement and submitted it to the New York state court for approval. On August 20, 1998, the court in the Snyder case signed an order preliminarily approving a class for settlement purposes (which would include the Mishler case) and scheduled a fairness hearing for December 17, 1998. At the hearing, the court reviewed the fairness and reasonableness of the proposed settlement and issued a final order and judgment. The approved settlement provides for dismissal of both the Snyder and Mishler cases, bars class members from pursuing litigation against Nationwide Mutual Insurance Company and its affiliates, including Nationwide and its subsidiaries, relating to the allegations in the Snyder case, and provides class members with a potential value of approximately $100 million in policy adjustments, discounted premiums and discounted products. In November 1997, two plaintiffs, one who was the owner of a variable life insurance policy and the other who was the owner of a variable annuity contract, commenced a lawsuit in a federal court in Texas against Nationwide and the American Century group of defendants (Robert Young and David D. Distad v. Nationwide Life Insurance Company et al.). In this lawsuit, plaintiffs seek to represent a class of variable life insurance policy owners and variable annuity contract owners whom they claim were allegedly misled when purchasing these variable contracts into believing that the performance of their underlying mutual fund option managed by American Century, whose shares may only be purchased by insurance companies, would track the performance of a mutual fund, also managed by American Century, whose shares are publicly traded. The amended complaint seeks unspecified compensatory and punitive damages. On April 27, 1998, the district court denied, in part, and granted, in part, Nationwide and American Century's motions to dismiss the complaint. The remaining claims against Nationwide allege securities fraud, common law fraud, civil conspiracy and breach of contract. On December 2, 1998, the district court issued an order denying plaintiffs' motion for class certification. On December 10, 1998, the district court stayed the lawsuit pending plaintiffs' petition to the federal appeals court for interlocutory review of the order denying class certification. On December 14, 1998, plaintiffs filed their petition for interlocutory review, on which the federal appeals court has not yet ruled. Nationwide intends to defend the case vigorously. 30 35 On October 29, 1998, Nationwide and certain of its subsidiaries were named in a lawsuit filed in Ohio state court related to the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company). The plaintiff in such lawsuit seeks to represent a national class of Nationwide's customers and seeks unspecified compensatory and punitive damages. Nationwide currently is evaluating this lawsuit, which has not been certified as a class. Nationwide intends to defend this lawsuit vigorously. There can be no assurance that any litigation relating to pricing or sales practices will not have a material adverse effect on Nationwide in the future. EXPERTS The audited financial statements have been included herein in reliance upon the reports of KPMG LLP, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing. REGISTRATION STATEMENT A Registration Statement has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the policies offered hereby. This prospectus does not contain all the information set forth in the Registration Statement and amendments thereto and exhibits filed as a part thereof, to all of which reference is hereby made for further information concerning the variable account, Nationwide, and the policies offered hereby. Statements contained in this prospectus as to the content of policies and other legal instruments are summaries. For a complete statement of the terms thereof, reference is made to such instruments as filed. LEGAL OPINIONS Legal matters in connection with the policies described herein are being passed upon by Dietrich, Reynolds & Koogler, LLP One Nationwide Plaza, Columbus, Ohio 43215. All the members of such firm are employed by the Nationwide Mutual Insurance Company. DISTRIBUTION OF THE POLICIES The policies will be sold by licensed insurance agents in those states where the policies may lawfully be sold. Agents are registered representatives of broker dealers registered under the Securities Exchange Act of 1934 who are member firms of the National Association of Securities Dealers, Inc. ("NASD"). The policies will be distributed by the general distributor, Nationwide Advisory Services, Inc. NAS is a wholly owned subsidiary of Nationwide and a member of the NASD. NAS was organized as an Ohio corporation on April 8, 1965. NAS 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 Nationwide DCVA-II o Nationwide Variable Account-II o Nationwide VLI Separate Account-3 o Nationwide VLI Separate Account-4 o Nationwide VLI Separate Account-5 o Nationwide Variable Account o Nationwide Variable Account-5 o Nationwide Variable Account-6 o Nationwide Variable Account-9 o Nationwide Variable Account-10 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 o Nationwide VL Separate Account-D. NAS also acts as principal underwriter for the following open-end management investment companies: 31 36 o Nationwide Mutual Funds; o Nationwide Separate Account Trust; and o Nationwide Asset Allocation Trust. Gross first year commissions plus any expense allowance payments paid by Nationwide on the sale of these policies provided by the General Distributor will not exceed 80% of the target premium plus 4% of any excess premium payments. Gross renewal commissions in years 2 through 10 paid by Nationwide will not exceed 4% of actual premium payment, and will not exceed 1% in policy years 11 and thereafter. 32 37 NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS NAME AND POSITIONS AND OFFICES BUSINESS ADDRESS WITH UNDERWRITER Joseph J. Gasper President and Director One Nationwide Plaza Columbus, OH 43215 Dimon R. McFerson Chairman and One Nationwide Plaza Chief Executive Officer and Director Columbus, OH 43215 Robert A. Oakley Executive Vice President - Chief Financial One Nationwide Plaza Officer and Director Columbus, OH 43215 Paul J. Hondros Director One Nationwide Plaza Columbus, OH 43215 Susan A. Wolken Director One Nationwide Plaza Columbus, OH 43215 Robert J. Woodward, Jr. Executive Vice President - Chief One Nationwide Plaza Investment Officer and Director Columbus, OH 43215 Edwin P. McCausland, Jr. Senior Vice President-Fixed Income One Nationwide Plaza Securities Columbus, OH 43215 Charles S. Bath Vice President - Investments One Nationwide Plaza Columbus, OH 43215 Dennis W. Click Vice President and Secretary One Nationwide Plaza Columbus, OH 43215 William G. Goslee Vice President One Nationwide Plaza Columbus, OH 43215 James F. Laird, Jr. Vice President and General One Nationwide Plaza Manager Columbus, OH 43215 Joseph P. Rath Vice President - Office of Product and One Nationwide Plaza Market Compliance Columbus, OH 43215 Alan A. Todryk Vice President - Taxation One Nationwide Plaza Columbus, OH 43215 Christopher A. Cray Treasurer One Nationwide Plaza Columbus, OH 43215 33 38 NATIONWIDE ADVISORY SERVICES, INC. DIRECTORS AND OFFICERS (CONTINUED) NAME AND POSITIONS AND OFFICES BUSINESS ADDRESS WITH UNDERWRITER Elizabeth A. Davin Assistant Secretary One Nationwide Plaza Columbus, OH 43215 David E. Simaitis Assistant Secretary One Nationwide Plaza Columbus, OH 43215 Patricia J. Smith Assistant Secretary One Nationwide Plaza Columbus, OH 43215 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-9, o Nationwide Variable Account-10, 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 the 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 Home Office, other facilities and equipment with Nationwide Mutual Insurance Company. 34 39 Company Management Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company, together with Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Property and Casualty Insurance Company and Nationwide General Insurance Company and their affiliated companies comprise the Nationwide Insurance Enterprise. The companies listed above have substantially common boards of directors and officers. Nationwide Financial Services, Inc. ("NFS") is the sole shareholder of Nationwide Life Insurance Company. NFS serves as a holding company for other financial institutions. Nationwide Life Insurance Company is the sole owner of Nationwide Life and Annuity Insurance Company. Each of the directors and officers listed below is a director or officer respectively of at least one or more of the other major insurance affiliates of the Nationwide Insurance Enterprise. Messrs. McFerson, Gasper, Woodward, and Ms. Thomas are also trustees of one or more of the registered investment companies distributed by Nationwide Advisory Services, a registered broker-dealer affiliated with the Nationwide Insurance Enterprise. 35 40 DIRECTORS OF NATIONWIDE
DIRECTORS OF THE DEPOSITOR NAME AND POSITIONS AND OFFICES PRINCIPAL OCCUPATION PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR Lewis J. Alphin Director Farm Owner and Operator (1) 519 Bethel Church Road Mount Olive, NC 28365 A. I. Bell Director Farm Owner and Operator (1) 4121 North River Road West Zanesville, OH 43701 Kenneth D. Davis Director Farm Owner and Operator (1) 7229 Woodmansee Road Leesburg, OH 45135 Keith W. Eckel Director Partner, Fred W. Eckel Sons; President, 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 44691 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 Columbus, OH 43215 Director 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-General Manager Southern Suite 1600 Customer Operations for U.S. Customer Operations, 2859 Paces Ferry Road Xerox Corporation (2) Atlanta, GA 30339 Ralph M. Paige Director Executive Director 2769 Church Street Federation of Southern Cooperatives/Land East Point, Ga 30344 Assistance Fund 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 Farm Owner and Operator, Da-Ma-Lor Farms (1) 1733A Westwood Avenue Alliance, OH 44601
(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 Insurance Enterprise, except Mr. Gasper who is a director only of Nationwide Life Insurance Company and 36 41 Nationwide Life and Annuity Insurance Company. Messrs. McFerson and Gasper are directors of Nationwide Advisory Services, Inc., a registered broker-dealer. Messrs. McFerson, Miller, Patterson and Shisler are directors of Nationwide Financial Services, Inc. Mr. McFerson and Ms. Thomas are trustees of Nationwide Mutual Funds, a registered investment company. Messrs. McFerson, Gasper and Woodward are trustees of Nationwide Separate Account Trust and Nationwide Asset Allocation Trust, registered investment companies. Mr. McFerson is trustee of Nationwide Mutual Funds, a registered investment company. Mr. Engel is a director of Western Cooperative Transport. EXECUTIVE OFFICERS OF NATIONWIDE OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS Dennis W. Click Vice President - Secretary One Nationwide Plaza Columbus, OH 43215 Robert A. Oakley Executive Vice President - Chief One Nationwide Plaza Financial Officer Columbus, OH 43215 Robert J. Woodward, Jr. Executive Vice President - Chief One Nationwide Plaza Investment Officer Columbus, OH 43215 James E. Brock Senior Vice President - Corporate One Nationwide Plaza Development Columbus, OH 43215 John R. Cook, Jr. Senior Vice President - Chief One Nationwide Plaza Communications Officer Columbus, OH 43215 Phillip C. Gath Senior Vice President and Chief One Nationwide Plaza Actuary - Nationwide Financial Columbus, OH 43215 Services Richard D. Headley Senior Vice President - Chief One Nationwide Plaza Information Technology Officer Columbus, OH 43215 Donna A. James Senior Vice President - Human One Nationwide Plaza Resources Columbus, OH 43215 Richard A. Karas Senior Vice President - Sales and One Nationwide Plaza Financial Services Columbus, OH 43215 Doublas C. Robinette Senior Vice President - Marketing One Nationwide Plaza and Product Management Columbus, OH 43215 Susan A. Wolken Senior Vice President - Life Company One Nationwide Plaza Operations Columbus, OH 43215 37 42 EXECUTIVE OFFICERS OF NATIONWIDE (CONTINUED) OFFICERS OF THE DEPOSITOR OFFICES OF THE DEPOSITOR NAME AND PRINCIPAL BUSINESS ADDRESS Bruce C. Barnes Vice President - Technology Strategy One Nationwide Plaza and Planning Columbus, OH 43215 David A. Diamond Vice President - Enterprise Controller One Nationwide Plaza of Nationwide Financial Services Columbus, OH 43215 Matthew S. Easley Vice President - Investment Life One Nationwide Plaza Actuarial Columbus, OH 43215 R. Dennis Noice Vice President Systems - Nationwide One Nationwide Plaza Financial Services Columbus, OH 43215 Joseph P. Rath Vice President - Product and Market One Nationwide Plaza Compliance Columbus, OH 43215 Mark R. Thresher Vice President - Finance and Treasurer One Nationwide Plaza Columbus, OH 43215 38 43 JOSEPH J. GASPER has been President and Chief Operating Officer of Nationwide and Director since April 1996. Previously, he was Executive Vice President - Property/Casualty Operations of Nationwide Mutual Insurance Company from April 1995 to April 1996. He was Senior Vice President - Property/Casualty Operations of Nationwide Mutual Insurance Company from September 1993 to April 1995. Prior to that time, Mr. Gasper held numerous positions within Nationwide. Mr. Gasper has been with Nationwide for 32 years. BRUCE C. BARNES has been Vice President - Technology Strategy and Planning since May 1998. Previously, Mr. Barnes was Vice President - Information Systems from February 1997 to May 1998. Mr. Barnes was Vice President - Life Systems from May 1996 to May 1998. Previously, he was Vice President - Investment Product Systems from April 1995 to May 1996. Prior to that time, Mr. Barnes was Vice President - Individual Investment Products/Common Systems from May 1994 to April 1995 and Associate Vice President - Individual Investment Products/Common Systems from May 1992 to May 1994. Mr. Barnes was Vice President - Information Services of PHP Benefits Systems, Inc. from January 1987 to January 1992. Mr. Barnes has been with Nationwide for 7 years. A. I. BELL has been a Director of Nationwide since April, 1998. Mr. Bell has served as a state trustee of the Ohio Farm Bureau Federation from 1991 to 1998 and as president that last four years. He oversees the Bell family farm in Zanesville, Ohio. The farm is the hub of a multi-family swine network, in addition to grain and beef operations. Mr. Bell has represented the Ohio Farm Bureau at state and national level activities, and has traveled internationally representing Ohio agriculture. In 1995, he was introduced into The Ohio State University Department of Animal Sciences Hall of Fame. JAMES E. BROCK has been Senior Vice President - Corporate Development since July 1997. Previously, he was Senior Vice President - Company Operations from December 1996 to July 1997 and was also Senior Vice President - Life Company Operations from April 1996 to July 1997. Mr. Brock was Senior Vice President - Investment Products Operations from November 1990 to April 1996. Prior to that time, Mr. Brock held several positions within Nationwide. Mr. Brock has been with Nationwide for 29 years. DENNIS W. CLICK has been Vice President - Secretary since December 1997. Previously, he was Vice President - Assistant Secretary from December 1996 to December 1997. Mr. Click was Vice President - Assistant Secretary from August 1994 to December 1997. Mr. Click was Associate Vice President and Assistant Secretary from August 1989 to August 1994. Prior to that time, he held several positions within Nationwide. Mr. Click has been with Nationwide for 38 years. JOHN R. COOK, JR. has been Senior Vice President - Chief Communications Officer since May 1997. Previously, Mr. Cook was Senior Vice President - Chief Communications Officer of USAA from July 1989 to May 1997. KENNETH D. DAVIS has been a Director of Nationwide since April 1999. Mr. Davis has been Chairman of the Board of South Central Power Company since August 1979, and currently oversees the Davis family farm located in Leesburg, Ohio. Mr. Davis served as Director of the Farm Bureau Bancorp from October 1998 to March 1998. In addition, Mr. Davis has served in various officer positions with the Ohio Farm Bureau Federation since December 1989, with his most recent position as Trustee and President, a position he held from March 1998 to March 1999. Mr. Davis also held officer positions with the Highland County Farm Bureau from June 1997 to September 1997, including Trustee and President from September 1984 to September 1997. DAVID A. DIAMOND has been Vice President - Enterprise Controller since August 1996. 39 44 Previously, he was Vice President - Controller from October 1993 to August 1996. Prior to that time, Mr. Diamond held several positions within Nationwide. Mr. Diamond has been with Nationwide for 10 years. MATTHEW S. EASLEY has been Vice President - Investment Life Actuarial since June 1998. Mr. Easley was Vice President - Marketing and Administrative Services from December 1996 to June 1998. Mr. Easley was Vice President - Life Marketing and Administrative Services from May 1996 to June 1998. Mr. Easley was Vice President - Annuity and Pension Actuarial from August 1989 to May 1996. Prior to that time, Mr. Easley held several positions within Nationwide. Mr. Easley has been with Nationwide for 16 years. KEITH W. ECKEL has been a Director of Nationwide since April 1996. Mr. Eckel is a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc., in northeast Pennsylvania. He received the Master Farmer award from Penn State University in 1982. He is a former president of the Pennsylvania Farm Bureau, a position he held for 15 years, and the Lackawanna County Cooperative Extension Association. Mr. Eckel has served as a board member and executive committee member of the American Farm Bureau. He is a former vice president of the Pennsylvania Council of Cooperative Extension Associations, and former board member of the Pennsylvania Vegetable Grower's Association. PHILIP C. GATH has been Senior Vice President - Chief Actuary since May 1998. Previously, Mr. Gath was Vice President - Product Manager - Individual Variable Annuity from July 1997 to May 1998. Mr. Gath was Vice President - Individual Life Actuary from August 1989 to July 1997. Prior to that time, Mr. Gath held several positions within Nationwide. Mr. Gath has been with Nationwide for 30 years. RICHARD D. HEADLEY has been Senior Vice President - Chief Information Technology Officer since October 1997. Previously, Mr. Headley was Chairman and Chief Executive Officer of Banc One Services Corporation from 1992 to October 1997. From January 1975 until 1992 Mr. Headley held several positions with Banc One Corporation. DONNA A. JAMES has been Senior Vice President - Human Resources since December 1997. Previously, she was Vice President - Human Resources from July 1996 to December 1997. Prior to that time Ms. James was Vice President - Assistant to the CEO from March 1996 to July 1996. From May 1994 to March 1996 she was Associate Vice President - Assistant to the CEO. Prior to that time Ms. James held several positions within Nationwide. Ms. James has been with Nationwide for 17 years. RICHARD A. KARAS has been Senior Vice President - Sales - Financial Services since March 1993. Previously, he was Vice President - Sales - Financial Services from February 1989 to March 1993. Prior to that time, Mr. Karas held several positions within Nationwide. Mr. Karas has been with Nationwide for 34 years. DAVID O. MILLER has been a Director of Nationwide since November 1996. Mr. Miller has been a farm owner and land developer since 1962. He is the President of the Owen Potato Farm Inc. and is a partner of M&M Enterprises in Licking County, Ohio. He is Chairman of the Board of the Wausau Insurance Companies and serves on the board of directors of several companies of the Nationwide group. He is also a director of the National Cooperative Business Association. YVONNE L. MONTGOMERY has been a Director since April, 1998. Ms. Montgomery is senior vice president/general manager of southern customer operations for United States Customer Operations for Xerox Corporation. A resident of Atlanta, Georgia, Ms. Montgomery oversees eight customer business units across the southern United States as well as all business and marketing functions in the regions. Ms. Montgomery joined Xerox in 1976 as a sales 40 45 representative and progressed through management positions, including Vice President - Field Operations, and Executive Assistant to the Chairman and CEO. R. DENNIS NOICE has been Vice President - Systems since April 1998. Previously, he was Vice President - Retail Operations from March 1997 to April 1998. Prior to that time, Mr. Noice was Vice President - Individual Investment Products from October 1989 to March 1997. Prior to that time, Mr. Noice held several positions within Nationwide. Mr. Noice has been with Nationwide for 27 years. ROBERT A. OAKLEY has been Executive Vice President - Chief Financial Officer since April 1995. Previously, he was Senior Vice President - Chief Financial Officer from October 1993 to April 1995. Prior to that time, Mr. Oakley held several positions within Nationwide. Mr. Oakley has been with Nationwide for 23 years. RALPH M. PAIGE has been a Director of Nationwide since April 1999. Mr. Paige has been the Executive Director of the Federation of Southern Cooperatives/Land Assistance Fund since 1969. Mr. Paige also served as the National Field Director/Georgia State Director from 1981 to 1984. JOSEPH P. RATH has been Vice President - Product and Market Compliance since April 1997. Previously, he was Vice President - Associate General Counsel from October 1988 to April 1997. Prior to that time, Mr. Rath held several positions within Nationwide. Mr. Rath has been with Nationwide for 22 years. DOUGLAS C. ROBINETTE has been Senior Vice President - Marketing and Product Management since May 1998. Previously, Mr. Robinette was Executive Vice President, Customer Services of Employers Insurance of Wausau (Wausau), a member of the Nationwide group 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 12 years. MARK R. THRESHER has been Vice President - Controller since August 1996. He was Vice President and Treasurer from November 1996 to February 1997. Previously, he was Vice President and Treasurer from June 1996 to August 1996. Prior to joining Nationwide, Mr. Thresher served as a partner with KPMG LLP. SUSAN A. WOLKEN has been Senior Vice President - Life Company Operations since June 1997. Previously, she was Senior Vice President - Enterprise Administration from July 1996 to June 1997. Prior to that time, she was Senior Vice President - Human Resources from April 1995 to July 1996. From September 1993 to April 1995, Ms. Wolken was Vice President - Human Resources. From October 1989 to September 1993 she was Vice President - Individual Life and Health Operations. Ms. Wolken has been with Nationwide for 24 years. ROBERT J. WOODWARD, JR. has been Executive Vice President - Chief Investment Officer since August 1995. Previously, he was Senior Vice President - Fixed Income Investments from March 1991 to August 1995. Prior to that time, Mr. Woodward held several positions within Nationwide. Mr. Woodward has been with Nationwide for 34 years. 41 46 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. (formerly "TCI Portfolios, Inc.") was organized as a Maryland corporation in 1987. It is a diversified, open-end management company, designed only to provide investment vehicles for variable annuity and variable life insurance products of insurance companies. A member of the American Century(SM) Family of Investments, American Century Variable Portfolios, Inc. is managed by American Century Investment Management, Inc. o 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. There can be no assurance that the Fund will achieve its investment objective. o AMERICAN CENTURY VP CAPITAL APPRECIATION Investment Objective: Capital growth. The Fund will seek to achieve its objective by investing in common stocks (including securities convertible into common stocks and other equity equivalents) that meet certain fundamental and technical standards of selection and have, in the opinion of the Fund's investment manager, better than average potential for appreciation. The Fund tries to stay fully invested in such securities, regardless of the movement of stock prices generally. 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. 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 Stock Index. 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. o AMERICAN CENTURY VP INTERNATIONAL Investment Objective: To seek capital growth. The Fund will seek to achieve its investment objective by investing primarily in securities of foreign companies that meet certain fundamental and technical standards of selection and, in the opinion of the investment manager, have potential for appreciation. Under normal conditions, the Fund will invest at least 65% of its assets in common stocks or other equity securities of issuers from at least three countries outside the United States. Securities of United States issuers may be included in the portfolio from time to time. Although the primary investment of the Fund will be common stocks (defined to include depository receipts for common stocks), the Fund may also invest in other types of securities consistent with the Fund's objective. When the manager believes 42 47 that the total return potential of other securities equals or exceeds the potential return of common stocks, the Fund may invest up to 35% of its assets in such other securities. There can be no assurance that the Fund will achieve its objectives. o AMERICAN CENTURY VP VALUE Investment Objective: The investment objective of the Fund is long-term capital growth; income is a secondary objective. Under normal market conditions, the Fund expects to invest at least 80% of the value of its total asset in equity securities, including common and preferred stock, convertible preferred stock and convertible debt obligations. The equity securities in which the Fund will invest will be primarily securities of well-established companies with intermediate-to-large market capitalizations that are believed by management to be undervalued at the time of purchase. (Although the Statement of Additional Information concerning American Century Variable Portfolios, Inc., refers to redemptions of securities in kind under certain conditions, all surrendering or redeeming Policy Owners will receive cash from the Company.) THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND The Dreyfus Socially Responsible Growth Fund is an open-end, diversified, management investment company. It was incorporated under Maryland law on July 20, 1992, and commenced operations on October 7, 1993. The Dreyfus Corporation ("Dreyfus") serves as the Fund's investment advisor. NCM Capital Management Group, Inc. serves as the Fund's sub-investment adviser and provides day-to-day management of the Fund's portfolio. Investment Objective: The Fund's primary goal is to provide capital growth through equity investment in companies that, in the opinion of the Fund's management, not only meet traditional investment standards, but which also show evidence that they conduct their business in a manner that contributes to the enhancement of the quality of life in America. Current income is secondary to the primary goal. DREYFUS STOCK INDEX FUND, INC. Dreyfus Stock Index Fund, Inc. is an open-end, non-diversified, management investment company. It was incorporated under Maryland law on January 24, 1989, and commenced operations on September 29, 1989. Mellon Equity Associates serves as the Fund's index fund manager. As of May 1, 1994, Dreyfus Life and Annuity Index Fund began doing business as Dreyfus Stock Index Fund. Investment Objective: To provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation. DREYFUS VARIABLE INVESTMENT FUND Dreyfus Variable Investment Fund (the "Fund") is an open-end, management investment company. It was organized as an unincorporated business trust under the laws of the Commonwealth of Massachusetts on October 29,1986 and commenced operations August 31, 1990. The Fund offers its shares only as investment vehicles for variable annuity and variable life insurance products of insurance companies. Dreyfus serves as the Fund's manager. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation. o CAPITAL APPRECIATION PORTFOLIO Investment Objective: The Portfolio's primary investment objective is to provide long-term capital growth consistent with the preservation of capital; current income is a secondary investment objective. This Portfolio invests primarily in the common stocks of domestic and foreign issuers. o GROWTH AND INCOME PORTFOLIO Investment Objective: To provide long-term capital growth, current income and growth of income, consistent with reasonable investment risk. The Portfolio invests in equity securities, debt securities and money market instruments of domestic and foreign issuers. The proportion of the Portfolio's assets invested in each type of security will vary from time to time in accordance with Dreyfus' assessment of 43 48 economic conditions and investment opportunities. In purchasing equity securities, Dreyfus will invest in common stocks, preferred stocks and securities convertible into common stocks, particularly those which offer opportunities for capital appreciation and growth of earnings, while paying current dividends. The Portfolio will generally invest in investment-grade debt obligations, except that it may invest up to 35% of the value of its net assets in convertible debt securities rated not lower than Caa by Moody's Investor Service, Inc. or CCC by Standard & Poor's Ratings Group, Fitch Investors Service, L.P. or Duff & Phelps Credit Rating Co., or if unrated, deemed to be of comparable quality by Dreyfus. These securities are considered to have predominantly speculative characteristics with respect to capacity to pay interest and repay principal and are considered to be of poor standing. See "Investment Considerations and Risks-Lower Rated Securities" in the Portfolio's prospectuses. FIDELITY VARIABLE INSURANCE PRODUCTS FUND Fidelity Variable Insurance Products Fund ("VIP") is an open-end, diversified, management investment company organized as a Massachusetts business trust on November 13, 1981. VIP's shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. Fidelity Management & Research Company ("FMR") is VIP's manager. o VIP EQUITY-INCOME PORTFOLIO Investment Objective: To seek reasonable income by investing primarily in income-producing equity securities. In choosing these securities FMR also will consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Composite Stock Price Index. o VIP GROWTH PORTFOLIO Investment Objective: Seeks to achieve capital appreciation. This Portfolio will invest in the securities of both well-known and established companies, and smaller, less well-known companies which may have a narrow product line or whose securities are thinly traded. These latter securities will often involve greater risk than may be found in the ordinary investment security. FMR's analysis and expertise plays an integral role in the selection of securities and, therefore, the performance of the Portfolio. Many securities which FMR believes would have the greatest potential may be regarded as speculative, and investment in the Portfolio may involve greater risk than is inherent in other mutual funds. It is also important to point out that the Portfolio makes most sense for you if you can afford to ride out changes in the stock market, because it invests primarily in common stocks. FMR also can make temporary investments in securities such as investment-grade bonds, high-quality preferred stocks and short-term notes, for defensive purposes when it believes market conditions warrant. o VIP HIGH INCOME PORTFOLIO Investment Objective: Seeks to obtain a high level of current income by investing primarily in high-risk, high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. The portfolio's manager will seek high current income normally by investing the Portfolio's assets as follows: - - at least 65% in income-producing debt securities and preferred stocks, including convertible securities, zero coupon securities, and mortgage-backed and asset-backed securities. - - up to 20% in common stocks and other equity securities when consistent with the Portfolio's primary objective or acquired as part of a unit combining fixed-income and equity securities. Higher yields are usually available on securities that are lower-rated or that are unrated. Lower-rated securities are usually defined as Ba or lower by Moody's; BB or lower by Standard & Poor's and may be deemed to be of a speculative nature. The Portfolio may also purchase lower-quality bonds such as those rated Ca3 by Moody's or C- by Standard & Poor's which provide poor protection for payment of principal and interest (commonly referred to as "junk bonds"). For a further discussion of lower-rated securities, please see the "Risks of Lower-Rated Debt Securities" section of the Portfolio's prospectus. 44 49 o VIP OVERSEAS PORTFOLIO Investment Objective: To seek long term growth of capital primarily through investments in foreign securities. The Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. FIDELITY VARIABLE INSURANCE PRODUCTS FUND II 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 shares are purchased by insurance companies to fund benefits under variable insurance and annuity policies. FMR is the manager of VIP II. o VIP II ASSET MANAGER PORTFOLIO Investment Objective: To seek to obtain high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds and short-term fixed income instruments. o VIP II CONTRAFUND PORTFOLIO Investment Objective: To seek capital appreciation by investing primarily in companies that the fund manager believes to be undervalued due to an overly pessimistic appraisal by the public. This strategy can lead to investments in domestic or foreign companies, small and large, many of which may not be well known. The fund primarily invests in common stock and securities convertible into common stock, but it has the flexibility to invest in any type of security that may produce capital appreciation. FIDELITY VARIABLE INSURANCE PRODUCTS FUND III VIP III is an open-end, diversified, management investment company organized as a Massachusetts business trust on July 14, 1994. VIP III's name was changed from Fidelity Advisor Annuity Fund to Variable Insurance Products Fund III on December 30, 1996. VIP III shares are purchased by insurance companies to fund benefits under variable life insurance and annuity contracts. Fidelity Management & Research Company ("FMR") is the manager of VIP III. o VIP III GROWTH OPPORTUNITIES PORTFOLIO Investment Objective: To provide capital growth by investing primarily in common stocks and securities convertible into common stocks. The Portfolio, under normal conditions, will invest at least 65% of its total assets in securities of companies that FMR believes have long-term growth potential. Although the Portfolio invests primarily in common stock and securities convertible into common stock, it has the ability to purchase other securities, such as preferred stock and bonds, that may produce capital growth. The Portfolio may invest in foreign securities without limitation. MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. Morgan Stanley Dean Witter Universal Funds, Inc. (the "Fund") is a mutual fund designed to provide investment vehicles for variable annuity contracts and variable life insurance policies and for certain tax-qualified investors. The Fund is an open-end management investment company, or mutual fund. At present it offers 17 separate investment portfolios, each with a distinct investment objective. o EMERGING MARKETS DEBT PORTFOLIO Investment Objective: The Portfolio seeks high total return by investing primarily in dollar- and non-dollar denominated Fixed Income Securities of government and private-sector issuers located in emerging market countries, in order to provide a high level of current income, while at the same time holding the potential for capital appreciation if the perceived creditworthiness of the issuer improves due to improving economic, financial, political, social or other conditions in the country in which the issuer is located. 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 six separate Mutual Funds listed below, each with its own investment objectives. Currently, shares of NSAT will be sold only to life insurance company separate accounts to fund the benefits under variable life insurance policies or variable annuity contracts issued by life insurance companies. The assets of NSAT are managed 45 50 by Nationwide Advisory Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a wholly-owned subsidiary of Nationwide Life Insurance Company. o NSAT - CAPITAL APPRECIATION FUND Investment Objective: The Capital Appreciation Fund seeks long-term capital appreciation. o NSAT - 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. o NSAT - MONEY MARKET FUND Investment Objective: The Fund seeks as high a level of current income as is consistent with the preservation of capital and maintenance of liquidity. o NSAT-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. o NSAT-NATIONWIDE SMALL COMPANY FUND Investment Objective: Under normal market conditions, the Fund will invest at least 65% of its total assets in equity securities of investment are similar to the market capitalizations of companies in the Russell 2000 Small Stock Index. NAS, the Fund's adviser, has contracted with a group of sub-advisers, each of which will manage a portion of the Fund's portfolio. These sub-advisers are Dreyfus, Neuberger Berman, LLC, Lazard Asset Management, Strong Capital Management, Inc. and Warburg Pincus Asset Management, Inc. The sub-advisers were chosen because they utilize a number of different investment styles when investing in small company stocks. By utilizing a number of investment styles, NAS hopes to increase prospects for investment return and to reduce market risk and volatility. o NSAT - TOTAL RETURN FUND Investment Objective: The investment objective of the Fund is to obtain a reasonable, long-term total return on invested capital. NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST Neuberger Berman Advisers Management Trust is an open-end diversified management investment company established as a Massachusetts business trust on December 14, 1983. Shares of the Trust are offered in connection with certain variable annuity contracts and variable life insurance policies issued through life insurance company separate accounts and are also offered directly to qualified pension and retirement plans outside of the separate account context. The investment adviser is Neuberger Berman Management Incorporated. o AMT GROWTH PORTFOLIO Investment Objective: The Portfolio seeks capital growth through investments in common stocks of companies that the investment adviser believes will have above average earnings or otherwise provide investors with above average potential for capital appreciation. To maximize this potential, the investment adviser may also utilize, from time to time, securities convertible into common stocks, warrants and options to purchase such stocks. o 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. 46 51 o AMT LIMITED MATURITY BOND PORTFOLIO Investment Objective: To provide the high level of current income, consistent with low risk to principal and liquidity. As a secondary objective, it also seeks to enhance its total return through capital appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. It seeks to achieve its objectives through investments in a diversified portfolio of limited maturity debt securities. The Portfolio invests in securities which are at least investment grade and does not invest in junk bonds. o AMT PARTNERS PORTFOLIO Investment Objective: To seek capital growth. This Portfolio will seek to achieve its objective by investing primarily in the common stock of established companies. Its investment program seeks securities believed to be undervalued based on fundamentals such as low price-to-earnings ratios, consistent cash flows, and support from asset values. The objective of the Partners Portfolio is not fundamental and can be changed by the Trustees of the Trust without shareholder approval. Shareholders will, however, receive at least 30 days prior notice thereof. There is no assurance the investment objective will be met. OPPENHEIMER VARIABLE ACCOUNT FUNDS The Oppenheimer Variable Account Funds is an open-ended, diversified management investment company organized as a Massachusetts business trust in 1984. Shares of the Funds are sold only to provide benefits under variable life insurance policies and variable annuity contracts. OppenheimerFunds, Inc. is the Funds' investment advisor. o OPPENHEIMER BOND FUND/VA Investment Objective: Seeks a high level of current income by investing at least 65% of its total assets in investment grade debt securities, U.S. government securities and money market instruments. Investment grade debt securities would include those rated in one of the four highest ranking categories by any nationally-recognized rating organization or if unrated or split-rated (rated investment grade and below investment grade by different rating organizations), determined by OppenheimerFunds, Inc. to be of comparable quality. The Fund may invest up to 35% of its total assets in debt securities rated less than investment grade when consistent with the Fund's investment objectives. The Fund seeks capital growth as a secondary objective when consistent with its primary objective. o OPPENHEIMER GLOBAL SECURITIES FUND/VA Investment Objective: To seek long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations which are considered to have appreciation possibilities. Current income is not an objective. These securities may be considered to be speculative. o OPPENHEIMER CAPITAL APPRECIATION FUND/VA (FORMERLY OPPENHEIMER GROWTH FUND) Investment Objective: The Fund seeks to achieve capital appreciation by investing in securities of well-known established companies. In seeking its objective of capital appreciation, the Fund will emphasize investments in securities of well-known and established companies. Such securities generally have a history of earnings and dividends and are issued by seasoned companies (having an operating history of at least five years including predecessors). Current income is a secondary consideration in the selection of the Fund's portfolio securities. o OPPENHEIMER MULTIPLE STRATEGIES FUND/VA Investment Objective: To seek a total investment return (which includes current income and capital appreciation in the value of its shares) from investments in common stocks and other equity securities, bonds and other debt securities, and "money market" securities. STRONG OPPORTUNITY FUND II, INC. (FORMERLY STRONG SPECIAL FUND II, INC.) The Strong Opportunity Fund II, Inc. is a diversified, open-end management company commonly called a Mutual Fund. The Strong Opportunity Fund II, Inc. was incorporated in Wisconsin and may only be purchased by the separate accounts of insurance companies for the 47 52 purpose of funding variable annuity contracts and variable life insurance policies. Strong Capital Management Inc. is the investment advisor for the Fund. Investment Objective: To seek capital appreciation through investments in a diversified portfolio of equity securities. STRONG VARIABLE INSURANCE FUNDS, INC. Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end management investment company, commonly referred to as a Mutual Fund. Incorporated in the State of Wisconsin, the Corporation has been authorized to issue shares of common stock and series and classes of series of common stock. The International Stock Fund II and The Strong Discovery Fund II, Inc. ("Funds") are offered by the Corporation to insurance company separate accounts for the purpose of funding variable life insurance policies and variable annuity contracts. Strong Capital Management, Inc. is the investment advisor to the Funds. o 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. o INTERNATIONAL STOCK FUND II Investment Objective: To seek capital growth by investing primarily in the equity securities of issuers located outside the United States. VAN ECK WORLDWIDE INSURANCE TRUST Van Eck Worldwide Insurance Trust is an open-end management investment company organized as a "business trust" under the laws of the Commonwealth of Massachusetts on January 7, 1987. Shares of the Trust are offered only to separate accounts of various insurance companies to fund benefits of variable insurance and annuity policies. The assets of the Trust are managed by Van Eck Associates Corporation. o WORLDWIDE BOND FUND Investment Objective: To seek high total return through a flexible policy of investing globally, primarily in debt securities. The Fund does not invest in junk bonds. o WORLDWIDE EMERGING MARKETS FUND Investment Objective: Seeks long-term capital appreciation by investing primarily in equity securities in emerging markets around the world. The Fund specifically emphasizes investment in countries that, compared to the world's major economies, exhibit relatively low gross national product per capita, as well as the potential for rapid economic growth. o WORLDWIDE HARD ASSETS FUND Investment Objective: To seek long-term capital appreciation by investing globally, primarily in "Hard Assets Securities." Hard assets are tangible, finite assets, such as real estate, energy, timber, and industrial and precious metals. Income is a secondary consideration. VAN KAMPEN LIFE INVESTMENT TRUST The Van Kampen Life Investment Trust is an open-end diversified management investment company organized as a Massachusetts business trust on June 3, 1985. The Trust offers shares in separate funds which are sold only to insurance companies to provide funding for variable life insurance policies and variable annuity contracts. Van Kampen Asset Management, Inc. serves as the Fund's investment adviser. o MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO Investment Objective: To seek long-term capital growth by investing in a portfolio of securities of companies operating in the real estate industry ("Real Estate Securities"). Current income is a secondary consideration. Real Estate Securities include equity securities, common stocks and convertible securities, as well as non-convertible preferred stocks and debt securities of real estate industry companies. A "real estate industry company" is a company that derives at least 50% of its assets (marked to market), gross income or net profits from the 48 53 ownership, construction, management or sale of residential, commercial or industrial real estate. Under normal market conditions, at least 65% of the Fund's total assets will be invested in Real Estate Securities, primarily equity securities of real estate investment trusts. The Fund may invest up to 25% of its total assets in securities issued by foreign issuers, some or all of which may also be Real Estate Securities. There can be no assurance that the Fund will achieve its investment objective. WARBURG PINCUS TRUST The Warburg Pincus Trust ("Trust") is an open-end management investment company organized in March 1995 as a business trust under the laws of The Commonwealth of Massachusetts. The Trust offers its shares to insurance companies for allocation to separate accounts for the purpose of funding variable annuity and variable life contracts. Trust portfolios are managed by Warburg, Pincus Asset Management, Inc. ("Warburg"). o INTERNATIONAL EQUITY PORTFOLIO Investment Objective: To seek long-term capital appreciation by investing primarily in a broadly diversified portfolio of equity securities of companies, wherever organized, that in the judgment of Warburg have their principal business activities and interests outside the United States. The Portfolio will ordinarily invest substantially all of its assets, but no less than 65% of its total assets, in common stocks, warrants and securities convertible into or exchangeable for common stocks. The Portfolio intends to invest principally in the securities of financially strong companies with opportunities for growth within growing international economies and markets through increased earning power and improved utilization or recognition of assets. o POST-VENTURE CAPITAL PORTFOLIO Investment Objective: The Portfolio seeks long-term growth of capital by investing primarily in equity securities of issuers in their post-venture capital stage of development and pursues an aggressive investment strategy. Under normal market conditions, the Portfolio will invest at least 65% of its total assets in equity securities of "post-venture capital companies." A post-venture capital company is one that has received venture capital financing either (a) during the early stages of the company's existence or the early stages of the development of a new product or service or (b) as a part of a restructuring or recapitalization of the company. The Portfolio may invest up to 10% of its assets in venture capital and other investment funds. o SMALL COMPANY GROWTH PORTFOLIO Investment Objective: To seek capital growth by investing in a portfolio of equity securities of small-sized domestic companies. The Portfolio ordinarily will invest at least 65% of its total assets in common stocks or warrants of small-sized companies (i.e., companies having stock market capitalizations of between $25 million and $1 billion at the time of purchase) that represent attractive opportunities for capital growth. The Portfolio intends to invest primarily in companies whose securities are traded on domestic stock exchanges or in the over-the-counter market. The Portfolio's investments will be made on the basis of their equity characteristics and securities ratings generally will not be a factor in the selection process. 49 54 APPENDIX B: ILLUSTRATION OF SURRENDER CHARGES Example 1: A female non-tobacco, age 45, purchases a policy with a specified amount of $50,000 and a scheduled premium of $750. She now wishes to surrender the policy during the first policy year. By using the "Initial Surrender Charge" table reproduced below, (also see "Surrender Charges") the total surrender charge per thousand, multiplied by the specified amount expressed in thousands, equals the total Surrender Charge of $569.80 ($11.396 x 50=569.80). Example 2: A male non-tobacco, age 35, purchases a policy with a specified amount of $100,000 and a scheduled premium of $1100. He now wants to surrender the policy in the sixth policy year. The total initial surrender charge is calculated using the method illustrated above. (Surrender charge per 1000 6.817 x 100=681.70 maximum initial surrender charge). Because the fifth policy year has been completed, the maximum initial surrender charge is reduced by multiplying it by the applicable percentage factor from the "Reductions to Surrender Charges" table below. (Also see "Reductions to Surrender Charges"). In this case, $681.70 x 60%=$409.02 which is the amount Nationwide deducts as a total surrender charge. Maximum surrender charge per $1,000 of initial specified amount for policies which are issued on a standard basis.
Initial Specified Amount $50,000-$99,999 ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD 25 $7.776 $7.521 $8.369 $7.818 35 8.817 8.398 9.811 8.891 45 12.191 11.396 13.887 12.169 55 15.636 14.011 18.415 15.116 65 22.295 19.086 26.577 20.641
Initial Specified Amount $100,000+ ISSUE MALE FEMALE MALE FEMALE AGE NON-TOBACCO NON-TOBACCO STANDARD STANDARD 25 $5.776 $5.521 $6.369 $5.818 35 6.817 6.398 7.811 6.891 45 9.691 8.896 11.387 9.669 55 13.136 11.511 15.915 12.616 65 21.295 18.086 25.577 19.641
Reductions to Surrender Charges SURRENDER CHARGE SURRENDER CHARGE COMPLETED AS A % OF INITIAL COMPLETED AS A % OF INITIAL POLICY YEARS SURRENDER CHARGES POLICY YEARS SURRENDER CHARGES 0 100% 5 60% 1 100% 6 50% 2 90% 7 40% 3 80% 8 30% 4 70% 9+ 0%
50 55 The current surrender charges are the same for all states. However, in Pennsylvania, the guaranteed maximum surrender charges are spread out over 14 years. The guaranteed maximum surrender charges in subsequent years in Pennsylvania are reduced in the following manner.
COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE COMPLETED SURRENDER CHARGE POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL POLICY AS A % OF INITIAL YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES YEARS SURRENDER CHARGES 0 100% 5 60% 10 20% 1 100% 6 50% 11 15% 2 90% 7 40% 12 10% 3 80% 8 30% 13 5% 4 70% 9 25% 14+ 0%
The illustrations of current values in this prospectus are the same for Pennsylvania. However, the illustrations of guaranteed values in this prospectus do not reflect guaranteed maximum surrender charges which are spread out over 14 years. If this policy is issued in Pennsylvania, please contact the home office for an illustration. Nationwide has no plans to change the current surrender charges. 51 56 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 indebtedness, no additional premium payments are made, no cash values are allocated to the fixed account, and there are no changes in the specified amount or death benefit option. The amounts shown for the cash value, cash surrender value and death benefit as of each policy anniversary reflect the fact that the net investment return on the assets held in the sub-accounts is lower than the gross return. This is due to the daily charges made against the assets of the sub-accounts for assuming mortality and expense risks. The mortality and expense risk charges are equivalent to an annual effective rate of 0.80% of the daily net assets of the variable account. On each policy anniversary beginning with the 10th, the mortality and expense risk charge is reduced to 0.50% on an annual basis of the daily net assets of the variable account, provided the cash surrender value is $25,000 or more on such anniversary. In addition, the net investment returns also reflect the deduction of underlying mutual fund investment advisory fees and other expenses which are equivalent to an annual effective rate of 0.90% of the daily net assets of the variable account. This effective rate is based on the average of the fund expenses, after expense reimbursement, for the preceding year for all underlying mutual fund options available under the policy as of March 13, 1999. 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 0.95%. 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 and 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 underlying mutual fund expenses, gross annual rates of return of 0%, 6% and 12% correspond to net investment experience at constant annual rates of -1.70%, 4.30% and 10.30%. On each policy anniversary beginning with the 10th, the gross annual rates of return of 0%, 6%, and 12% correspond to net investment experience at constant annual rates of -1.50%, 4.60%, and 10.60%, provided the cash surrender value is $25,000 or more on such anniversary. This is due to a guaranteed reduction in the mortality and expense risk charge from an annual effective rate of 0.80% to an annual effective rate of 0.50% if the aforementioned conditions apply. The illustrations also reflect the fact that 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. Policies issued on a substandard basis would result in lower cash values and death benefits than those illustrated. The illustrations also reflect the fact that Nationwide deducts a sales load from each premium payment. Current values reflect a deduction of 3.5% of each premium payment up 52 57 to break point premium and 1.5% of any excess. Guaranteed values reflect a deduction of 3.5% of each premium payment. The illustrations also reflect the fact that Nationwide deducts a charge for state premium taxes equal to 2.5% of all premium payments. The cash surrender values shown in the illustrations reflect the fact that Nationwide will deduct a surrender charge from the cash value for any policy surrendered in full during the first nine years. 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 $12.50 per month in the first year, $5 per month in renewal years. The illustrations assume a monthly administrative expense charge of $25 per month in the first year and $7.50 per month in renewal years. The illustrations also reflect the fact that no charges for federal or state income taxes are currently made against the variable account. If such a charge is made in the future, it will require a higher gross investment return than illustrated in order to produce the net after-tax returns shown in the illustrations. Upon request, Nationwide will furnish a comparable illustration based on the proposed Insured's age, sex, smoking classification, rating classification and premium payment requested. 53 58 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 788 390 0 50,000 422 0 50,000 454 0 50,000 2 1,614 852 278 50,000 943 369 50,000 1,038 464 50,000 3 2,483 1,296 780 50,000 1,476 959 50,000 1,670 1,154 50,000 4 3,394 1,717 1,258 50,000 2,016 1,557 50,000 2,352 1,893 50,000 5 4,351 2,116 1,714 50,000 2,563 2,161 50,000 3,087 2,686 50,000 6 5,357 2,493 2,149 50,000 3,118 2,774 50,000 3,883 3,539 50,000 7 6,412 2,854 2,567 50,000 3,689 3,402 50,000 4,752 4,465 50,000 8 7,520 3,193 2,964 50,000 4,268 4,039 50,000 5,696 5,467 50,000 9 8,683 3,512 3,340 50,000 4,859 4,687 50,000 6,725 6,553 50,000 10 9,905 3,810 3,810 50,000 5,462 5,462 50,000 7,847 7,847 50,000 11 11,188 4,083 4,083 50,000 6,071 6,071 50,000 9,069 9,069 50,000 12 12,535 4,330 4,330 50,000 6,688 6,688 50,000 10,403 10,403 50,000 13 13,949 4,546 4,546 50,000 7,308 7,308 50,000 11,856 11,856 50,000 14 15,434 4,729 4,729 50,000 7,929 7,929 50,000 13,441 13,441 50,000 15 16,993 4,869 4,869 50,000 8,542 8,542 50,000 15,166 15,166 50,000 16 18,630 4,968 4,968 50,000 9,149 9,149 50,000 17,052 17,052 50,000 17 20,349 5,018 5,018 50,000 9,743 9,743 50,000 19,113 19,113 50,000 18 22,154 5,008 5,008 50,000 10,316 10,316 50,000 21,367 21,367 50,000 19 24,049 4,940 4,940 50,000 10,867 10,867 50,000 23,843 23,843 50,000 20 26,039 4,804 4,804 50,000 11,389 11,389 50,000 26,568 26,568 50,000 21 28,129 4,595 4,595 50,000 11,877 11,877 50,000 29,668 29,668 50,000 22 30,323 4,303 4,303 50,000 12,324 12,324 50,000 33,114 33,114 50,000 23 32,626 3,916 3,916 50,000 12,719 12,719 50,000 36,961 36,961 50,000 24 35,045 3,422 3,422 50,000 13,052 13,052 50,000 41,274 41,274 50,000 25 37,585 2,816 2,816 50,000 13,320 13,320 50,000 46,105 46,105 53,482 26 40,252 2,084 2,084 50,000 13,510 13,510 50,000 51,420 51,420 59,132 27 43,052 1,192 1,192 50,000 13,596 13,596 50,000 57,274 57,274 64,719 28 45,992 131 131 50,000 13,570 13,570 50,000 63,731 63,731 70,741 29 49,079 (*) (*) (*) 13,415 13,415 50,000 70,863 70,863 77,240 30 52,321 (*) (*) (*) 13,108 13,108 50,000 78,753 78,753 84,266
(1) No policy loans and no partial withdrawals have been made. (2) Current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums up to the break point premium and 4% on premiums in excess of break point for any single policy year. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 54 59 DEATH BENEFIT OPTION 1 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 788 175 0 50,000 200 0 50,000 225 0 50,000 2 1,614 539 0 50,000 606 33 50,000 678 104 50,000 3 2,483 879 362 50,000 1,012 496 50,000 1,158 641 50,000 4 3,394 1,194 735 50,000 1,416 957 50,000 1,667 1,208 50,000 5 4,351 1,484 1,082 50,000 1,816 1,415 50,000 2,208 1,806 50,000 6 5,357 1,744 1,400 50,000 2,210 1,865 50,000 2,781 2,436 50,000 7 6,412 1,973 1,686 50,000 2,593 2,306 50,000 3,385 3,098 50,000 8 7,520 2,167 1,937 50,000 2,961 2,732 50,000 4,021 3,792 50,000 9 8,683 2,320 2,148 50,000 3,309 3,137 50,000 4,688 4,516 50,000 10 9,905 2,429 2,429 50,000 3,632 3,632 50,000 5,386 5,386 50,000 11 11,188 2,490 2,490 50,000 3,924 3,924 50,000 6,116 6,116 50,000 12 12,535 2,499 2,499 50,000 4,180 4,180 50,000 6,877 6,877 50,000 13 13,949 2,453 2,453 50,000 4,396 4,396 50,000 7,673 7,673 50,000 14 15,434 2,346 2,346 50,000 4,563 4,563 50,000 8,504 8,504 50,000 15 16,993 2,170 2,170 50,000 4,672 4,672 50,000 9,369 9,369 50,000 16 18,630 1,916 1,916 50,000 4,711 4,711 50,000 10,267 10,267 50,000 17 20,349 1,576 1,576 50,000 4,669 4,669 50,000 11,198 11,198 50,000 18 22,154 1,132 1,132 50,000 4,526 4,526 50,000 12,158 12,158 50,000 19 24,049 571 571 50,000 4,262 4,262 50,000 13,143 13,143 50,000 20 26,039 (*) (*) (*) 3,855 3,855 50,000 14,153 14,153 50,000 21 28,129 (*) (*) (*) 3,281 3,281 50,000 15,185 15,185 50,000 22 30,323 (*) (*) (*) 2,511 2,511 50,000 16,240 16,240 50,000 23 32,626 (*) (*) (*) 1,514 1,514 50,000 17,320 17,320 50,000 24 35,045 (*) (*) (*) 248 248 50,000 18,427 18,427 50,000 25 37,585 (*) (*) (*) (*) (*) (*) 19,559 19,559 50,000 26 40,252 (*) (*) (*) (*) (*) (*) 20,711 20,711 50,000 27 43,052 (*) (*) (*) (*) (*) (*) 21,878 21,878 50,000 28 45,992 (*) (*) (*) (*) (*) (*) 23,051 23,051 50,000 29 49,079 (*) (*) (*) (*) (*) (*) 24,221 24,221 50,000 30 52,321 (*) (*) (*) (*) (*) (*) 25,386 25,386 50,000
(1) No policy loans and no partial withdrawals have been made. (2) Guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 55 60 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 788 388 0 50,388 420 0 50,420 452 0 50,452 2 1,614 847 273 50,847 937 363 50,937 1,032 458 51,032 3 2,483 1,286 770 51,286 1,464 948 51,464 1,657 1,141 51,657 4 3,394 1,700 1,241 51,700 1,995 1,536 51,995 2,327 1,868 52,327 5 4,351 2,089 1,688 52,089 2,529 2,128 52,529 3,046 2,645 53,046 6 5,357 2,454 2,110 52,454 3,068 2,724 53,068 3,819 3,475 53,819 7 6,412 2,801 2,514 52,801 3,617 3,330 53,617 4,657 4,370 54,657 8 7,520 3,123 2,893 53,123 4,170 3,941 54,170 5,560 5,331 55,560 9 8,683 3,422 3,250 53,422 4,729 4,556 54,729 6,536 6,363 56,536 10 9,905 3,697 3,697 53,697 5,291 5,291 55,291 7,590 7,590 57,590 11 11,188 3,944 3,944 53,944 5,852 5,852 55,852 8,726 8,726 58,726 12 12,535 4,161 4,161 54,161 6,411 6,411 56,411 9,949 9,949 59,949 13 13,949 4,344 4,344 54,344 6,962 6,962 56,962 11,264 11,264 61,264 14 15,434 4,489 4,489 54,489 7,499 7,499 57,499 12,674 12,674 62,674 15 16,993 4,585 4,585 54,585 8,013 8,013 58,013 14,179 14,179 64,179 16 18,630 4,635 4,635 54,635 8,501 8,501 58,501 15,788 15,788 65,788 17 20,349 4,630 4,630 54,630 8,955 8,955 58,955 17,502 17,502 67,502 18 22,154 4,560 4,560 54,560 9,359 9,359 59,359 19,320 19,320 69,320 19 24,049 4,425 4,425 54,425 9,714 9,714 59,714 21,253 21,253 71,253 20 26,039 4,217 4,217 54,217 10,005 10,005 60,005 23,301 23,301 73,301 21 28,129 3,932 3,932 53,932 10,225 10,225 60,225 25,469 25,469 75,469 22 30,323 3,560 3,560 53,560 10,361 10,361 60,361 27,845 27,845 77,845 23 32,626 3,092 3,092 53,092 10,396 10,396 60,396 30,360 30,360 80,360 24 35,045 2,517 2,517 52,517 10,314 10,314 60,314 33,015 33,015 83,015 25 37,585 1,837 1,837 51,837 10,110 10,110 60,110 35,825 35,825 85,825 26 40,252 1,041 1,041 51,041 9,767 9,767 59,767 38,794 38,794 88,794 27 43,052 103 103 50,103 9,248 9,248 59,248 41,907 41,907 91,907 28 45,992 (*) (*) (*) 8,546 8,546 58,546 45,178 45,178 95,178 29 49,079 (*) (*) (*) 7,639 7,639 57,639 48,610 48,610 98,610 30 52,321 (*) (*) (*) 6,508 6,508 56,508 52,209 52,209 102,209
(1) No policy loans and no partial withdrawals have been made. (2) Current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums up to the break point premium and 4% on premiums in excess of break point for any single policy year. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 56 61 DEATH BENEFIT OPTION 2 $750 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 788 173 0 50,173 198 0 50,198 223 0 50,223 2 1,614 533 0 50,533 600 27 50,600 671 97 50,671 3 2,483 868 352 50,868 1,000 483 51,000 1,143 627 51,143 4 3,394 1,176 717 51,176 1,394 935 51,394 1,641 1,182 51,641 5 4,351 1,455 1,053 51,455 1,781 1,379 51,781 2,164 1,763 52,164 6 5,357 1,703 1,359 51,703 2,156 1,812 52,156 2,712 2,368 52,712 7 6,412 1,917 1,630 51,917 2,517 2,230 52,517 3,283 2,996 53,283 8 7,520 2,092 1,862 52,092 2,856 2,627 52,856 3,875 3,645 53,875 9 8,683 2,223 2,051 52,223 3,168 2,996 53,168 4,483 4,311 54,483 10 9,905 2,308 2,308 52,308 3,447 3,447 53,447 5,106 5,106 55,106 11 11,188 2,341 2,341 52,341 3,686 3,686 53,686 5,738 5,738 55,738 12 12,535 2,318 2,318 52,318 3,878 3,878 53,878 6,375 6,375 56,375 13 13,949 2,239 2,239 52,239 4,019 4,019 54,019 7,016 7,016 57,016 14 15,434 2,096 2,096 52,096 4,099 4,099 54,099 7,653 7,653 57,653 15 16,993 1,883 1,883 51,883 4,108 4,108 54,108 8,278 8,278 58,278 16 18,630 1,592 1,592 51,592 4,033 4,033 54,033 8,879 8,879 58,879 17 20,349 1,216 1,216 51,216 3,862 3,862 53,862 9,445 9,445 59,445 18 22,154 742 742 50,742 3,576 3,576 53,576 9,957 9,957 59,957 19 24,049 157 157 50,157 3,156 3,156 53,156 10,396 10,396 60,396 20 26,039 (*) (*) (*) 2,582 2,582 52,582 10,738 10,738 60,738 21 28,129 (*) (*) (*) 1,835 1,835 51,835 10,961 10,961 60,961 22 30,323 (*) (*) (*) 894 894 50,894 11,040 11,040 61,040 23 32,626 (*) (*) (*) (*) (*) (*) 10,947 10,947 60,947 24 35,045 (*) (*) (*) (*) (*) (*) 10,649 10,649 60,649 25 37,585 (*) (*) (*) (*) (*) (*) 10,103 10,103 60,103 26 40,252 (*) (*) (*) (*) (*) (*) 9,254 9,254 59,254 27 43,052 (*) (*) (*) (*) (*) (*) 8,036 8,036 58,036 28 45,992 (*) (*) (*) (*) (*) (*) 6,366 6,366 56,366 29 49,079 (*) (*) (*) (*) (*) (*) 4,151 4,151 54,151 30 52,321 (*) (*) (*) (*) (*) (*) 1,298 1,298 51,298
(1) No policy loans and no partial withdrawals have been made. (2) Guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 57 62 DEATH BENEFIT OPTION 1 $1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,260 641 0 50,000 693 0 50,000 745 52 50,000 2 2,583 1,341 648 50,000 1,487 794 50,000 1,640 947 50,000 3 3,972 2,004 1,380 50,000 2,290 1,666 50,000 2,601 1,978 50,000 4 5,431 2,628 2,073 50,000 3,099 2,545 50,000 3,633 3,079 50,000 5 6,962 3,204 2,719 50,000 3,907 3,421 50,000 4,735 4,250 50,000 6 8,570 3,734 3,318 50,000 4,714 4,298 50,000 5,918 5,502 50,000 7 10,259 4,211 3,864 50,000 5,514 5,167 50,000 7,183 6,837 50,000 8 12,032 4,626 4,349 50,000 6,298 6,021 50,000 8,535 8,258 50,000 9 13,893 4,981 4,773 50,000 7,068 6,860 50,000 9,986 9,778 50,000 10 15,848 5,267 5,267 50,000 7,816 7,816 50,000 11,544 11,544 50,000 11 17,901 5,482 5,482 50,000 8,538 8,538 50,000 13,222 13,222 50,000 12 20,056 5,615 5,615 50,000 9,226 9,226 50,000 15,032 15,032 50,000 13 22,318 5,658 5,658 50,000 9,872 9,872 50,000 16,990 16,990 50,000 14 24,694 5,601 5,601 50,000 10,466 10,466 50,000 19,115 19,115 50,000 15 27,189 5,441 5,441 50,000 11,007 11,007 50,000 21,437 21,437 50,000 16 29,808 5,166 5,166 50,000 11,484 11,484 50,000 23,988 23,988 50,000 17 32,559 4,748 4,748 50,000 11,872 11,872 50,000 26,796 26,796 50,000 18 35,447 4,181 4,181 50,000 12,167 12,167 50,000 30,006 30,006 50,000 19 38,479 3,447 3,447 50,000 12,354 12,354 50,000 33,612 33,612 50,000 20 41,663 2,528 2,528 50,000 12,415 12,415 50,000 37,693 37,693 50,000 21 45,006 1,387 1,387 50,000 12,322 12,322 50,000 42,348 42,348 50,000 22 48,517 (*) (*) (*) 12,040 12,040 50,000 47,707 47,707 50,093 23 52,202 (*) (*) (*) 11,528 11,528 50,000 53,725 53,725 56,411 24 56,073 (*) (*) (*) 10,742 10,742 50,000 60,337 60,337 63,354 25 60,136 (*) (*) (*) 9,624 9,624 50,000 67,597 67,597 70,977 26 64,403 (*) (*) (*) 8,099 8,099 50,000 75,564 75,564 79,342 27 68,883 (*) (*) (*) 6,073 6,073 50,000 84,301 84,301 88,516 28 73,587 (*) (*) (*) 3,434 3,434 50,000 93,877 93,877 98,571 29 78,527 (*) (*) (*) 21 21 50,000 104,366 104,366 109,584 30 83,713 (*) (*) (*) (*) (*) (*) 115,843 115,843 121,635
(1) no policy loans and no partial withdrawals have been made. (2) current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums up to the break point premium and 4% on premiums in excess of a 6% break point for any single policy year. (3) net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 58 63 DEATH BENEFIT OPTION 1 $1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,260 287 0 50,000 328 0 50,000 368 0 50,000 2 2,583 728 35 50,000 833 140 50,000 944 251 50,000 3 3,972 1,110 487 50,000 1,309 685 50,000 1,526 903 50,000 4 5,431 1,429 874 50,000 1,746 1,192 50,000 2,110 1,556 50,000 5 6,962 1,676 1,191 50,000 2,138 1,652 50,000 2,689 2,204 50,000 6 8,570 1,846 1,430 50,000 2,472 2,056 50,000 3,256 2,840 50,000 7 10,259 1,929 1,582 50,000 2,739 2,393 50,000 3,802 3,455 50,000 8 12,032 1,912 1,635 50,000 2,922 2,645 50,000 4,314 4,036 50,000 9 13,893 1,781 1,574 50,000 3,002 2,794 50,000 4,775 4,567 50,000 10 15,848 1,523 1,523 50,000 2,959 2,959 50,000 5,170 5,170 50,000 11 17,901 1,121 1,121 50,000 2,773 2,773 50,000 5,478 5,478 50,000 12 20,056 560 560 50,000 2,420 2,420 50,000 5,680 5,680 50,000 13 22,318 (*) (*) (*) 1,872 1,872 50,000 5,750 5,750 50,000 14 24,694 (*) (*) (*) 1,096 1,096 50,000 5,656 5,656 50,000 15 27,189 (*) (*) (*) 45 45 50,000 5,354 5,354 50,000 16 29,808 (*) (*) (*) (*) (*) (*) 4,783 4,783 50,000 17 32,559 (*) (*) (*) (*) (*) (*) 3,863 3,863 50,000 18 35,447 (*) (*) (*) (*) (*) (*) 2,481 2,481 50,000 19 38,479 (*) (*) (*) (*) (*) (*) 499 499 50,000 20 41,663 (*) (*) (*) (*) (*) (*) (*) (*) (*) 21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*) 22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*) 23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*) 24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*) 25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*) 26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*) 27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*) 28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) No policy loans and no partial withdrawals have been made. (2) Guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 59 64 DEATH BENEFIT OPTION 2 $1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,260 635 0 50,635 687 0 50,687 738 45 50,738 2 2,583 1,324 631 51,324 1,468 775 51,468 1,619 926 51,619 3 3,972 1,971 1,347 51,971 2,252 1,628 52,252 2,557 1,933 52,557 4 5,431 2,571 2,016 52,571 3,031 2,477 53,031 3,552 2,997 53,552 5 6,962 3,115 2,630 53,115 3,796 3,311 53,796 4,599 4,114 54,599 6 8,570 3,606 3,190 53,606 4,548 4,132 54,548 5,704 5,288 55,704 7 10,259 4,034 3,687 54,034 5,275 4,929 55,275 6,864 6,517 56,864 8 12,032 4,389 4,112 54,389 5,966 5,688 55,966 8,071 7,794 58,071 9 13,893 4,674 4,466 54,674 6,618 6,410 56,618 9,331 9,123 59,331 10 15,848 4,878 4,878 54,878 7,219 7,219 57,219 10,638 10,638 60,638 11 17,901 4,997 4,997 54,997 7,763 7,763 57,763 11,991 11,991 61,991 12 20,056 5,023 5,023 55,023 8,235 8,235 58,235 13,384 13,384 63,384 13 22,318 4,946 4,946 54,946 8,621 8,621 58,621 14,809 14,809 64,809 14 24,694 4,756 4,756 54,756 8,905 8,905 58,905 16,256 16,256 66,256 15 27,189 4,454 4,454 54,454 9,083 9,083 59,083 17,728 17,728 67,728 16 29,808 4,030 4,030 54,030 9,137 9,137 59,137 19,213 19,213 69,213 17 32,559 3,458 3,458 53,458 9,033 9,033 59,033 20,683 20,683 70,683 18 35,447 2,738 2,738 52,738 8,762 8,762 58,762 22,135 22,135 72,135 19 38,479 1,862 1,862 51,862 8,305 8,305 58,305 23,554 23,554 73,554 20 41,663 819 819 50,819 7,643 7,643 57,643 24,924 24,924 74,924 21 45,006 (*) (*) (*) 6,740 6,740 56,740 26,215 26,215 76,215 22 48,517 (*) (*) (*) 5,562 5,562 55,562 27,476 27,476 77,476 23 52,202 (*) (*) (*) 4,070 4,070 54,070 28,598 28,598 78,598 24 56,073 (*) (*) (*) 2,233 2,233 52,233 29,544 29,544 79,544 25 60,136 (*) (*) (*) 10 10 50,010 30,272 30,272 80,272 26 64,403 (*) (*) (*) (*) (*) (*) 30,730 30,730 80,730 27 68,883 (*) (*) (*) (*) (*) (*) 30,863 30,863 80,863 28 73,587 (*) (*) (*) (*) (*) (*) 30,617 30,617 80,617 29 78,527 (*) (*) (*) (*) (*) (*) 29,917 29,917 79,917 30 83,713 (*) (*) (*) (*) (*) (*) 28,677 28,677 78,677
(1) No policy loans and no partial withdrawals have been made. (2) Current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums up to the break point premium and 4% on premiums in excess of break point for any single policy year. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 60 65 DEATH BENEFIT OPTION 2 $1200 ANNUAL PREMIUM: $50,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,260 280 0 50,280 319 0 50,319 360 0 50,360 2 2,583 708 15 50,708 811 118 50,811 919 226 50,919 3 3,972 1,071 447 51,071 1,263 639 51,263 1,474 850 51,474 4 5,431 1,364 809 51,364 1,668 1,113 51,668 2,016 1,461 52,016 5 6,962 1,579 1,094 51,579 2,015 1,530 52,015 2,535 2,050 52,535 6 8,570 1,709 1,293 51,709 2,293 1,877 52,293 3,021 2,605 53,021 7 10,259 1,747 1,401 51,747 2,489 2,143 52,489 3,460 3,114 53,460 8 12,032 1,680 1,403 51,680 2,586 2,309 52,586 3,833 3,555 53,833 9 13,893 1,496 1,288 51,496 2,565 2,357 52,565 4,117 3,909 54,117 10 15,848 1,183 1,183 51,183 2,407 2,407 52,407 4,290 4,290 54,290 11 17,901 730 730 50,730 2,093 2,093 52,093 4,326 4,326 54,326 12 20,056 128 128 50,128 1,603 1,603 51,603 4,199 4,199 54,199 13 22,318 (*) (*) (*) 919 919 50,919 3,879 3,879 53,879 14 24,694 (*) (*) (*) 16 16 50,016 3,332 3,332 53,332 15 27,189 (*) (*) (*) (*) (*) (*) 2,511 2,511 52,511 16 29,808 (*) (*) (*) (*) (*) (*) 1,360 1,360 51,360 17 32,559 (*) (*) (*) (*) (*) (*) (*) (*) (*) 18 35,447 (*) (*) (*) (*) (*) (*) (*) (*) (*) 19 38,479 (*) (*) (*) (*) (*) (*) (*) (*) (*) 20 41,663 (*) (*) (*) (*) (*) (*) (*) (*) (*) 21 45,006 (*) (*) (*) (*) (*) (*) (*) (*) (*) 22 48,517 (*) (*) (*) (*) (*) (*) (*) (*) (*) 23 52,202 (*) (*) (*) (*) (*) (*) (*) (*) (*) 24 56,073 (*) (*) (*) (*) (*) (*) (*) (*) (*) 25 60,136 (*) (*) (*) (*) (*) (*) (*) (*) (*) 26 64,403 (*) (*) (*) (*) (*) (*) (*) (*) (*) 27 68,883 (*) (*) (*) (*) (*) (*) (*) (*) (*) 28 73,587 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 78,527 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 83,713 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) no policy loans and no partial withdrawals have been made. (2) guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 61 66 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,575 947 49 100,000 1,016 119 100,000 1,085 188 100,000 2 3,229 1,946 1,049 100,000 2,146 1,249 100,000 2,354 1,457 100,000 3 4,965 2,910 2,102 100,000 3,304 2,496 100,000 3,732 2,924 100,000 4 6,788 3,837 3,119 100,000 4,492 3,774 100,000 5,231 4,513 100,000 5 8,703 4,731 4,103 100,000 5,712 5,084 100,000 6,865 6,236 100,000 6 10,713 5,591 5,053 100,000 6,967 6,429 100,000 8,648 8,110 100,000 7 12,824 6,408 5,960 100,000 8,247 7,799 100,000 10,587 10,139 100,000 8 15,040 7,172 6,813 100,000 9,544 9,185 100,000 12,689 12,330 100,000 9 17,367 7,884 7,615 100,000 10,860 10,590 100,000 14,972 14,703 100,000 10 19,810 8,535 8,535 100,000 12,186 12,186 100,000 17,449 17,449 100,000 11 22,376 9,139 9,139 100,000 13,536 13,536 100,000 20,155 20,155 100,000 12 25,069 9,703 9,703 100,000 14,919 14,919 100,000 23,123 23,123 100,000 13 27,898 10,229 10,229 100,000 16,341 16,341 100,000 26,386 26,386 100,000 14 30,868 10,700 10,700 100,000 17,784 17,784 100,000 30,052 30,052 100,000 15 33,986 11,097 11,097 100,000 19,236 19,236 100,000 34,077 34,077 100,000 16 37,261 11,427 11,427 100,000 20,701 20,701 100,000 38,511 38,511 100,000 17 40,699 11,681 11,681 100,000 22,175 22,175 100,000 43,402 43,402 100,000 18 44,309 11,846 11,846 100,000 23,649 23,649 100,000 48,803 48,803 100,000 19 48,099 11,916 11,916 100,000 25,119 25,119 100,000 54,780 54,780 100,000 20 52,079 11,897 11,897 100,000 26,675 26,675 100,000 61,418 61,418 100,000 21 56,258 11,775 11,775 100,000 28,234 28,234 100,000 68,803 68,803 100,000 22 60,646 11,522 11,522 100,000 29,779 29,779 100,000 77,036 77,036 100,000 23 65,253 11,128 11,128 100,000 31,306 31,306 100,000 86,243 86,243 101,766 24 70,091 10,566 10,566 100,000 32,798 32,798 100,000 96,429 96,429 112,822 25 75,170 9,824 9,824 100,000 34,252 34,252 100,000 107,629 107,629 124,850 26 80,504 8,891 8,891 100,000 35,666 35,666 100,000 119,945 119,945 137,937 27 86,104 7,726 7,726 100,000 37,017 37,017 100,000 133,520 133,520 150,878 28 91,984 6,311 6,311 100,000 38,301 38,301 100,000 148,498 148,498 164,832 29 98,158 4,619 4,619 100,000 39,509 39,509 100,000 165,042 165,042 179,895 30 104,641 2,600 2,600 100,000 40,618 40,618 100,000 183,337 183,337 196,171
(1) No policy loans and no partial withdrawals have been made. (2) Current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 62 67 DEATH BENEFIT OPTION 1 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL(1) 2% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,575 750 0 100,000 813 0 100,000 876 0 100,000 2 3,229 1,672 774 100,000 1,851 953 100,000 2,038 1,140 100,000 3 4,965 2,552 1,744 100,000 2,906 2,098 100,000 3,290 2,483 100,000 4 6,788 3,389 2,671 100,000 3,978 3,260 100,000 4,642 3,924 100,000 5 8,703 4,182 3,554 100,000 5,065 4,437 100,000 6,102 5,473 100,000 6 10,713 4,926 4,388 100,000 6,163 5,625 100,000 7,676 7,138 100,000 7 12,824 5,618 5,169 100,000 7,269 6,821 100,000 9,373 8,925 100,000 8 15,040 6,251 5,892 100,000 8,378 8,019 100,000 11,202 10,843 100,000 9 17,367 6,820 6,551 100,000 9,482 9,213 100,000 13,171 12,901 100,000 10 19,810 7,320 7,320 100,000 10,578 10,578 100,000 15,291 15,291 100,000 11 22,376 7,744 7,744 100,000 11,657 11,657 100,000 17,575 17,575 100,000 12 25,069 8,088 8,088 100,000 12,717 12,717 100,000 20,039 20,039 100,000 13 27,898 8,348 8,348 100,000 13,751 13,751 100,000 22,703 22,703 100,000 14 30,868 8,515 8,515 100,000 14,753 14,753 100,000 25,586 25,586 100,000 15 33,986 8,580 8,580 100,000 15,711 15,711 100,000 28,798 28,798 100,000 16 37,261 8,532 8,532 100,000 16,615 16,615 100,000 32,298 32,298 100,000 17 40,699 8,357 8,357 100,000 17,452 17,452 100,000 36,118 36,118 100,000 18 44,309 8,036 8,036 100,000 18,201 18,201 100,000 40,294 40,294 100,000 19 48,099 7,548 7,548 100,000 18,843 18,843 100,000 44,873 44,873 100,000 20 52,079 6,873 6,873 100,000 19,356 19,356 100,000 49,910 49,910 100,000 21 56,258 5,988 5,988 100,000 19,718 19,718 100,000 55,475 55,475 100,000 22 60,646 4,871 4,871 100,000 19,905 19,905 100,000 61,656 61,656 100,000 23 65,253 3,497 3,497 100,000 19,891 19,891 100,000 68,558 68,558 100,000 24 70,091 1,834 1,834 100,000 19,643 19,643 100,000 76,311 76,311 100,000 25 75,170 (*) (*) (*) 19,116 19,116 100,000 85,073 85,073 100,000 26 80,504 (*) (*) (*) 18,248 18,248 100,000 94,894 94,894 109,128 27 86,104 (*) (*) (*) 16,963 16,963 100,000 105,704 105,704 119,446 28 91,984 (*) (*) (*) 15,157 15,157 100,000 117,616 117,616 130,554 29 98,158 (*) (*) (*) 12,706 12,706 100,000 130,763 130,763 142,532 30 104,641 (*) (*) (*) 9,468 9,468 100,000 145,305 145,305 155,477
(1) no policy loans and no partial withdrawals have been made. (2) guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 63 68 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,575 943 46 100,943 1,012 115 101,012 1,082 184 101,082 2 3,229 1,936 1,039 101,936 2,135 1,237 102,135 2,342 1,444 102,342 3 4,965 2,889 2,081 102,889 3,280 2,472 103,280 3,705 2,897 103,705 4 6,788 3,802 3,084 103,802 4,450 3,732 104,450 5,181 4,463 105,181 5 8,703 4,677 4,048 104,677 5,645 5,017 105,645 6,781 6,153 106,781 6 10,713 5,514 4,975 105,514 6,867 6,328 106,867 8,520 7,981 108,520 7 12,824 6,302 5,853 106,302 8,105 7,656 108,105 10,397 9,948 110,397 8 15,040 7,031 6,672 107,031 9,346 8,987 109,346 12,415 12,056 112,415 9 17,367 7,701 7,431 107,701 10,593 10,324 110,593 14,587 14,318 114,587 10 19,810 8,302 8,302 108,302 11,832 11,832 111,832 16,919 16,919 116,919 11 22,376 8,848 8,848 108,848 13,078 13,078 113,078 19,438 19,438 119,438 12 25,069 9,347 9,347 109,347 14,338 14,338 114,338 22,173 22,173 122,173 13 27,898 9,803 9,803 109,803 15,614 15,614 115,614 25,147 25,147 125,147 14 30,868 10,195 10,195 110,195 16,886 16,886 116,886 28,447 28,447 128,447 15 33,986 10,502 10,502 110,502 18,131 18,131 118,131 32,010 32,010 132,010 16 37,261 10,731 10,731 110,731 19,353 19,353 119,353 35,866 35,866 135,866 17 40,699 10,873 10,873 110,873 20,541 20,541 120,541 40,037 40,037 140,037 18 44,309 10,913 10,913 110,913 21,677 21,677 121,677 44,539 44,539 144,539 19 48,099 10,847 10,847 110,847 22,750 22,750 122,750 49,397 49,397 149,397 20 52,079 10,679 10,679 110,679 23,765 23,765 123,765 54,655 54,655 154,655 21 56,258 10,398 10,398 110,398 24,701 24,701 124,701 60,337 60,337 160,337 22 60,646 9,972 9,972 109,972 25,523 25,523 125,523 66,454 66,454 166,454 23 65,253 9,394 9,394 109,394 26,295 26,295 126,295 73,040 73,040 173,040 24 70,091 8,636 8,636 108,636 26,908 26,908 126,908 80,114 80,114 180,114 25 75,170 7,694 7,694 107,694 27,344 27,344 127,344 87,716 87,716 187,716 26 80,504 6,560 6,560 106,560 27,585 27,585 127,585 95,891 95,891 195,891 27 86,104 5,199 5,199 105,199 27,582 27,582 127,582 104,658 104,658 204,658 28 91,984 3,604 3,604 103,604 27,315 27,315 127,315 114,068 114,068 214,068 29 98,158 1,762 1,762 101,762 26,752 26,752 126,752 124,170 124,170 224,170 30 104,641 0 0 0 25,840 25,840 125,840 134,993 134,993 234,993
(1) No policy loans and no partial withdrawals have been made. (2) Current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums up to the break point premium and 4% on premiums in excess of break point for any single policy year. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 64 69 DEATH BENEFIT OPTION 2 $1,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 45 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 1,575 747 0 100,747 809 0 100,809 872 0 100,872 2 3,229 1,661 763 101,661 1,839 941 101,839 2,025 1,127 102,025 3 4,965 2,530 1,722 102,530 2,881 2,073 102,881 3,262 2,454 103,262 4 6,788 3,352 2,634 103,352 3,933 3,215 103,933 4,589 3,871 104,589 5 8,703 4,124 3,496 104,124 4,993 4,365 104,993 6,013 5,385 106,013 6 10,713 4,842 4,304 104,842 6,055 5,517 106,055 7,537 6,999 107,537 7 12,824 5,502 5,053 105,502 7,114 6,665 107,114 9,166 8,717 109,166 8 15,040 6,097 5,738 106,097 8,162 7,803 108,162 10,902 10,543 110,902 9 17,367 6,619 6,350 106,619 9,190 8,921 109,190 12,749 12,480 112,749 10 19,810 7,065 7,065 107,065 10,191 10,191 110,191 14,709 14,709 114,709 11 22,376 7,426 7,426 107,426 11,155 11,155 111,155 16,786 16,786 116,786 12 25,069 7,697 7,697 107,697 12,073 12,073 112,073 18,983 18,983 118,983 13 27,898 7,874 7,874 107,874 12,937 12,937 112,937 21,309 21,309 121,309 14 30,868 7,950 7,950 107,950 13,737 13,737 113,737 23,764 23,764 123,764 15 33,986 7,913 7,913 107,913 14,455 14,455 114,455 26,350 26,350 126,350 16 37,261 7,752 7,752 107,752 15,075 15,075 115,075 29,154 29,154 129,154 17 40,699 7,455 7,455 107,455 15,578 15,578 115,578 32,103 32,103 132,103 18 44,309 7,004 7,004 107,004 15,937 15,937 115,937 35,191 35,191 135,191 19 48,099 6,379 6,379 106,379 16,125 16,125 116,125 38,408 38,408 138,408 20 52,079 5,563 5,563 105,563 16,112 16,112 116,112 41,745 41,745 141,745 21 56,258 4,539 4,539 104,539 15,871 15,871 115,871 45,197 45,197 145,197 22 60,646 3,293 3,293 103,293 15,371 15,371 115,371 48,752 48,752 148,752 23 65,253 1,809 1,809 101,809 14,585 14,585 114,585 52,405 52,405 152,405 24 70,091 70 70 100,070 13,475 13,475 113,475 56,141 56,141 156,141 25 75,170 (*) (*) (*) 11,996 11,996 111,996 59,933 59,933 159,933 26 80,504 (*) (*) (*) 10,089 10,089 110,089 63,745 63,745 163,745 27 86,104 (*) (*) (*) 7,684 7,684 107,684 67,523 67,523 167,523 28 91,984 (*) (*) (*) 4,691 4,691 104,691 71,195 71,195 171,195 29 98,158 (*) (*) (*) 1,020 1,020 101,020 74,681 74,681 174,681 30 104,641 (*) (*) (*) (*) (*) (*) 77,902 77,902 177,902
(1) No policy loans and no partial withdrawals have been made. (2) Guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 65 70 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,625 1,533 371 100,000 1,647 485 100,000 1,762 599 100,000 2 5,381 3,104 1,941 100,000 3,431 2,268 100,000 3,772 2,609 100,000 3 8,275 4,625 3,579 100,000 5,267 4,221 100,000 5,964 4,918 100,000 4 11,314 6,078 5,148 100,000 7,141 6,211 100,000 8,341 7,411 100,000 5 14,505 7,447 6,633 100,000 9,036 8,222 100,000 10,905 10,091 100,000 6 17,855 8,737 8,039 100,000 10,960 10,262 100,000 13,684 12,986 100,000 7 21,373 9,943 9,362 100,000 12,910 12,328 100,000 16,699 16,118 100,000 8 25,066 11,052 10,587 100,000 14,875 14,410 100,000 19,968 19,503 100,000 9 28,945 12,062 11,714 100,000 16,854 16,505 100,000 23,520 23,172 100,000 10 33,017 12,980 12,980 100,000 18,857 18,857 100,000 27,400 27,400 100,000 11 37,293 13,793 13,793 100,000 20,877 20,877 100,000 31,739 31,739 100,000 12 41,782 14,476 14,476 100,000 22,892 22,892 100,000 36,497 36,497 100,000 13 46,497 15,025 15,025 100,000 24,903 24,903 100,000 41,735 41,735 100,000 14 51,446 15,415 15,415 100,000 26,893 26,893 100,000 47,511 47,511 100,000 15 56,644 15,639 15,639 100,000 28,949 28,949 100,000 53,913 53,913 100,000 16 62,101 15,691 15,691 100,000 30,997 30,997 100,000 61,045 61,045 100,000 17 67,831 15,536 15,536 100,000 33,017 33,017 100,000 69,018 69,018 100,000 18 73,848 15,164 15,164 100,000 35,010 35,010 100,000 77,985 77,985 100,000 19 80,165 14,555 14,555 100,000 36,973 36,973 100,000 88,129 88,129 100,000 20 86,798 13,667 13,667 100,000 38,890 38,890 100,000 99,603 99,603 106,575 21 93,763 12,467 12,467 100,000 40,753 40,753 100,000 112,329 112,329 117,946 22 101,076 10,871 10,871 100,000 42,524 42,524 100,000 126,332 126,332 132,649 23 108,755 8,813 8,813 100,000 44,183 44,183 100,000 141,732 141,732 148,819 24 116,818 6,215 6,215 100,000 45,708 45,708 100,000 158,661 158,661 166,594 25 125,284 2,976 2,976 100,000 47,071 47,071 100,000 177,258 177,258 186,121 26 134,173 (*) (*) (*) 48,244 48,244 100,000 197,678 197,678 207,562 27 143,506 (*) (*) (*) 49,200 49,200 100,000 220,086 220,086 231,090 28 153,307 (*) (*) (*) 49,893 49,893 100,000 244,659 244,659 256,892 29 163,597 (*) (*) (*) 50,268 50,268 100,000 271,586 271,586 285,165 30 174,402 (*) (*) (*) 50,237 50,237 100,000 301,066 301,066 316,119
(1) No policy loans and no partial withdrawals have been made. (2) Current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums up to the break point premium and 4% on premiums in excess of break point for any single policy year. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 66 71 DEATH BENEFIT OPTION 1 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,625 1,210 48 100,000 1,314 152 100,000 1,419 256 100,000 2 5,381 2,538 1,375 100,000 2,827 1,664 100,000 3,130 1,967 100,000 3 8,275 3,769 2,723 100,000 4,330 3,284 100,000 4,941 3,895 100,000 4 11,314 4,898 3,968 100,000 5,816 4,886 100,000 6,857 5,927 100,000 5 14,505 5,916 5,103 100,000 7,275 6,462 100,000 8,882 8,069 100,000 6 17,855 6,814 6,117 100,000 8,698 8,001 100,000 11,022 10,324 100,000 7 21,373 7,581 7,000 100,000 10,072 9,491 100,000 13,281 12,700 100,000 8 25,066 8,200 7,735 100,000 11,379 10,914 100,000 15,661 15,196 100,000 9 28,945 8,653 8,305 100,000 12,600 12,251 100,000 18,167 17,818 100,000 10 33,017 8,925 8,925 100,000 13,716 13,716 100,000 20,805 20,805 100,000 11 37,293 8,996 8,996 100,000 14,708 14,708 100,000 23,587 23,587 100,000 12 41,782 8,851 8,851 100,000 15,556 15,556 100,000 26,529 26,529 100,000 13 46,497 8,469 8,469 100,000 16,240 16,240 100,000 29,748 29,748 100,000 14 51,446 7,826 7,826 100,000 16,730 16,730 100,000 33,197 33,197 100,000 15 56,644 6,885 6,885 100,000 16,989 16,989 100,000 36,908 36,908 100,000 16 62,101 5,596 5,596 100,000 16,966 16,966 100,000 40,917 40,917 100,000 17 67,831 3,893 3,893 100,000 16,591 16,591 100,000 45,266 45,266 100,000 18 73,848 1,689 1,689 100,000 15,776 15,776 100,000 50,008 50,008 100,000 19 80,165 (*) (*) (*) 14,416 14,416 100,000 55,221 55,221 100,000 20 86,798 (*) (*) (*) 12,393 12,393 100,000 61,017 61,017 100,000 21 93,763 (*) (*) (*) 9,571 9,571 100,000 67,554 67,554 100,000 22 101,076 (*) (*) (*) 5,787 5,787 100,000 75,040 75,040 100,000 23 108,755 (*) (*) (*) 836 836 100,000 83,755 83,755 100,000 24 116,818 (*) (*) (*) (*) (*) (*) 94,068 94,068 100,000 25 125,284 (*) (*) (*) (*) (*) (*) 105,902 105,902 111,197 26 134,173 (*) (*) (*) (*) (*) (*) 118,857 118,857 124,800 27 143,506 (*) (*) (*) (*) (*) (*) 133,024 133,024 139,675 28 153,307 (*) (*) (*) (*) (*) (*) 148,495 148,495 155,920 29 163,597 (*) (*) (*) (*) (*) (*) 165,367 165,367 173,635 30 174,402 (*) (*) (*) (*) (*) (*) 183,741 183,741 192,928
(1) No policy loans and no partial withdrawals have been made. (2) Guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 67 72 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 CURRENT VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,625 1,521 358 101,521 1,634 471 101,634 1,747 585 101,747 2 5,381 3,068 1,905 103,068 3,390 2,228 103,390 3,727 2,565 103,727 3 8,275 4,553 3,507 104,553 5,185 4,138 105,185 5,870 4,824 105,870 4 11,314 5,957 5,027 105,957 6,995 6,065 106,995 8,168 7,238 108,168 5 14,505 7,260 6,446 107,260 8,803 7,989 108,803 10,618 9,804 110,618 6 17,855 8,467 7,770 108,467 10,611 9,913 110,611 13,236 12,538 113,236 7 21,373 9,572 8,991 109,572 12,410 11,829 112,410 16,032 15,450 116,032 8 25,066 10,558 10,093 110,558 14,182 13,717 114,182 19,004 18,539 119,004 9 28,945 11,422 11,073 111,422 15,920 15,571 115,920 22,165 21,816 122,165 10 33,017 12,169 12,169 112,169 17,625 17,625 117,625 25,537 25,537 125,537 11 37,293 12,787 12,787 112,787 19,282 19,282 119,282 29,216 29,216 129,216 12 41,782 13,245 13,245 113,245 20,855 20,855 120,855 33,119 33,119 133,119 13 46,497 13,537 13,537 113,537 22,329 22,329 122,329 37,260 37,260 137,260 14 51,446 13,634 13,634 113,634 23,672 23,672 123,672 41,634 41,634 141,634 15 56,644 13,532 13,532 113,532 24,866 24,866 124,866 46,253 46,253 146,253 16 62,101 13,225 13,225 113,225 25,897 25,897 125,897 51,134 51,134 151,134 17 67,831 12,676 12,676 112,676 26,801 26,801 126,801 56,262 56,262 156,262 18 73,848 11,880 11,880 111,880 27,481 27,481 127,481 61,654 61,654 161,654 19 80,165 10,824 10,824 110,824 27,908 27,908 127,908 67,317 67,317 167,317 20 86,798 9,472 9,472 109,472 28,031 28,031 128,031 73,238 73,238 173,238 21 93,763 7,801 7,801 107,801 27,806 27,806 127,806 79,414 79,414 179,414 22 101,076 5,739 5,739 105,739 27,138 27,138 127,138 85,789 85,789 185,789 23 108,755 3,246 3,246 103,246 25,958 25,958 125,958 92,333 92,333 192,333 24 116,818 283 283 100,283 24,195 24,195 124,195 99,016 99,016 199,016 25 125,284 (*) (*) (*) 21,690 21,690 121,690 105,789 105,789 205,789 26 134,173 (*) (*) (*) 18,438 18,438 118,438 112,609 112,609 212,609 27 143,506 (*) (*) (*) 14,369 14,369 114,369 119,439 119,439 219,439 28 153,307 (*) (*) (*) 9,384 9,384 109,384 126,214 126,214 226,214 29 163,597 (*) (*) (*) 3,380 3,380 103,380 132,863 132,863 232,863 30 174,402 (*) (*) (*) (*) (*) (*) 139,270 139,270 239,270
(1) No policy loans and no partial withdrawals have been made. (2) Current values reflect current cost of insurance charges and a monthly $12.50 administrative expense charge for the first policy year and $5.00 thereafter. Current values reflect a 6% of premium charge on all premiums up to the break point premium and 4% on premiums in excess of break point for any single policy year. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 68 73 DEATH BENEFIT OPTION 2 $2,500 ANNUAL PREMIUM: $100,000 SPECIFIED AMOUNT MALE: NON-TOBACCO: AGE 55 GUARANTEED VALUES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN PREMIUMS PAID PLUS CASH CASH CASH POLICY INTEREST CASH SURR DEATH CASH SURR DEATH CASH SURR DEATH YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2,625 1,196 33 101,196 1,299 136 101,299 1,402 239 101,402 2 5,381 2,495 1,333 102,495 2,780 1,617 102,780 3,078 1,915 103,078 3 8,275 3,684 2,638 103,684 4,232 3,186 104,232 4,829 3,782 104,829 4 11,314 4,755 3,825 104,755 5,643 4,713 105,643 6,651 5,721 106,651 5 14,505 5,695 4,882 105,695 6,999 6,186 106,999 8,540 7,727 108,540 6 17,855 6,496 5,799 106,496 8,285 7,587 108,285 10,488 9,791 110,488 7 21,373 7,145 6,564 107,145 9,481 8,900 109,481 12,486 11,905 112,486 8 25,066 7,623 7,158 107,623 10,563 10,098 110,563 14,516 14,051 114,516 9 28,945 7,912 7,563 107,912 11,503 11,154 111,503 16,558 16,210 116,558 10 33,017 7,994 7,994 107,994 12,275 12,275 112,275 18,593 18,593 118,593 11 37,293 7,854 7,854 107,854 12,851 12,851 112,851 20,598 20,598 120,598 12 41,782 7,476 7,476 107,476 13,204 13,204 113,204 22,551 22,551 122,551 13 46,497 6,846 6,846 106,846 13,306 13,306 113,306 24,427 24,427 124,427 14 51,446 5,947 5,947 105,947 13,122 13,122 113,122 26,195 26,195 126,195 15 56,644 4,750 4,750 104,750 12,608 12,608 112,608 27,897 27,897 127,897 16 62,101 3,219 3,219 103,219 11,706 11,706 111,706 29,400 29,400 129,400 17 67,831 1,308 1,308 101,308 10,348 10,348 110,348 30,627 30,627 130,627 18 73,848 (*) (*) (*) 8,448 8,448 108,448 31,482 31,482 131,482 19 80,165 (*) (*) (*) 5,915 5,915 105,915 31,856 31,856 131,856 20 86,798 (*) (*) (*) 2,666 2,666 102,666 31,640 31,640 131,640 21 93,763 (*) (*) (*) (*) (*) (*) 30,725 30,725 130,725 22 101,076 (*) (*) (*) (*) (*) (*) 28,996 28,996 128,996 23 108,755 (*) (*) (*) (*) (*) (*) 26,330 26,330 126,330 24 116,818 (*) (*) (*) (*) (*) (*) 22,587 22,587 122,587 25 125,284 (*) (*) (*) (*) (*) (*) 17,520 17,520 117,520 26 134,173 (*) (*) (*) (*) (*) (*) 10,976 10,976 110,976 27 143,506 (*) (*) (*) (*) (*) (*) 2,678 2,678 102,678 28 153,307 (*) (*) (*) (*) (*) (*) (*) (*) (*) 29 163,597 (*) (*) (*) (*) (*) (*) (*) (*) (*) 30 174,402 (*) (*) (*) (*) (*) (*) (*) (*) (*)
(1) No policy loans and no partial withdrawals have been made. (2) Guaranteed values reflect guaranteed cost of insurance charges and a monthly $25.00 administrative expense charge for the first policy year and $7.50 thereafter. Guaranteed values reflect a 6% of premium charge on all premiums. (3) Net investment returns are calculated as the hypothetical gross investment return less all charges and deductions shown in the prospectus appendix. (*) Unless additional premium is paid, the policy will not stay in force. The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less than those shown and will depend on a number of factors, including the investment allocations made by an owner, prevailing rates and rates of inflation. The death benefit and cash value for a policy would be different from those shown if the actual rates of return averaged 0%, 6%, and 12% over a period of years but also fluctuated above or below those averages for individual policy years. No representation can be made by nationwide life or the trust that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. 69 74 APPENDIX D: PERFORMANCE SUMMARY INFORMATION The following performance tables display historical investment results of the underlying mutual fund sub-accounts. This information may be useful in helping potential investors in deciding which underlying mutual fund sub-accounts to choose and in assessing the competence of the underlying mutual funds' investment advisers. The performance figures shown should be considered in light of the investment objectives and policies, characteristics and quality of the underlying portfolios of the underlying mutual funds, and the market conditions during the periods of time quoted. The performance figures should not be considered as estimates or predictions of future performance. Investment return and the principal value of the underlying mutual fund sub-accounts are not guaranteed and will fluctuate so that a policy owner's units, when redeemed, may be worth more or less than their original cost. 70 75 FUND PERFORMANCE TABLE
Annual Percentage Non annualized Annualized Change Percentage Change Percentage Change UNDERLYING Fund Unit 1 mo 1 Yr 2 Yrs 3 Yrs. 5 yrs. Inception 3 Yrs. 5 yrs. Inception INVESTMENT Inception Values 1996 1997 1998 To to to to to to to to to OPTIONS Date** 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 American Century 05/01/91 19.32 20.16 11.31 14.88 4.18 14.85 31.94 46.87 76.14 119 13.67 11.99 10.77 VP Balanced American Century 11/20/87 14.28 30.06 -5.09 -4.03 10.6 -2.94 -6.85 -11.59 12.74 120.72 -4.02 2.43 7.38 VP Capital Appreciation American Century 10/30/97 10.86 NA "NA" NA 5.91 25.86 NA NA NA 35.49 NA NA 29.66 VP Inc & Growth American Century 05/01/94 16.49 11.32 13.49 17.69 5.32 17.81 38.65 57.36 NA 65.53 16.31 NA 11.41 VP International American Century 05/01/96 13.19 NA NA 25.08 -0.51 3.98 30.05 NA NA 45.26 NA NA 15.04 VP Value Dreyfus Socially 10/06/93 28.32 33.49 20.26 27.41 7.83 28.35 63.54 96.67 164.34 183.24 25.29 21.46 22.01 Responsible Growth Fund Dreyfus Stock 09/29/89 28.09 35.69 21.56 31.9 5.71 27.19 67.76 103.92 176.93 301.24 26.81 22.6 16.2 Index Fund Dreyfus Variable 04/05/93 13.2 32.48 23.3 27.05 4.28 29.18 64.12 102.36 174.06 190.81 26.49 22.34 20.45 Investment Fund Capital Appreciation Fund Dreyfus Variable 05/02/94 12.77 60.65 18.68 15.29 4.37 10.92 27.88 51.76 NA 137.45 14.92 NA 20.39 Investment Fund Growth & Income Fund Fidelity VIP Fund 09/06/89 24.82 16.03 13.69 19.69 4.06 14.13 36.61 55.3 67.87 189.57 15.81 10.92 12.09 II - Asset Manager Portfolio Fidelity VIP Fund 01/03/95 21.21 NA 20.34 23.15 12.09 28.94 58.8 91.09 NA 164.7 24.09 NA 27.62 II - Contrafund Portfolio Fidelity VIP 10/09/86 35.44 34.02 13.37 27.09 3.05 10.74 40.73 59.55 127.12 370.69 16.85 17.83 13.51 Fund - Equity Income Portfolio Fidelity VIP Fund 01/03/95 13.55 NA 17.34 28.93 5.32 23.62 59.38 87.02 NA 145.93 23.2 NA 25.28 III - Growth Opportunity Portfolio Fidelity VIP 10/09/86 41 34.29 13.79 22.5 8.47 38.38 69.51 92.88 156.91 542.21 24.48 20.77 16.43 Fund - Growth Portfolio Fidelity VIP 09/19/85 26.13 19.65 13.12 16.73 -0.67 -5.09 10.79 25.32 46.45 260.78 7.81 7.93 10.14 Fund - High Income Port Fidelity VIP 01/28/87 18.97 8.81 12.31 10.67 2.12 11.85 23.78 39.02 52.65 142.94 11.61 8.83 7.73 Fund - Overseas Portfolio Morgan Stanley 06/16/97 6.99 NA NA NA -2.4 -28.95 NA NA NA -28.71 NA NA -19.74 Emerging Markets Debt Portfolio Van Kampen 07/03/95 15.9 NA 39.41 20.51 1.03 -12.33 5.65 47.29 NA 58.96 13.78 NA 14.19 American Capital Life Real Estate Securities Fund NSAT Capital 04/15/92 31.67 28.33 25.13 33.42 5.16 28.93 72.02 115.25 171.56 210.57 29.12 22.12 18.4 Appreciation Fund NSAT Government 11/08/82 18.08 17.8 2.66 8.79 0.23 8.04 17.54 20.67 36.46 282.12 6.46 6.41 8.66 Bond Fund NSAT Money Market 11/10/81 13.32 4.81 4.27 4.42 0.34 4.43 9.04 13.7 22.81 170.93 4.37 4.2 5.99 Fund NSAT Small 10/23/95 16.23 NA 21.85 16.41 7.96 0.2 16.65 42.14 NA 62.33 12.43 NA 16.41 Company Fund NSAT Small Cap 10/31/97 8.56 NA NA NA 4.56 -3.84 NA NA NA -5.51 NA NA -4.75 Value NSAT Total Return 11/08/82 33.07 28.07 20.87 28.4 3.39 17.13 50.4 81.78 133.43 912.56 22.04 18.48 15.42 Fund Neuberger & 09/10/84 25.35 30.68 8.27 27.98 12.95 14.61 46.67 58.8 95.6 486.92 16.67 14.36 13.17 Berman Advisers Management Trust - Growth Portfolio Neuberger & 09/10/84 9.31 NA NA NA 4.7 30.62 NA NA NA 37.24 NA NA 31.42 Berman Advisers Mngmt Trust - Lmtd Maturity Bond Portfolio Neuberger & 11/03/97 14.86 10.05 3.47 5.89 0.08 3.56 9.66 13.47 23.69 165.27 4.3 4.34 7.06 Berman Advisors Management Trust Guardian Neuberger & 03/22/94 23.51 35.39 28.53 30.21 2.31 3.38 34.6 73.01 NA 127.43 20.05 NA 18.78 Berman Advisers Management Trust - Partners Port Oppenheimer 04/30/85 18.1 16.07 3.96 8.38 0.34 5.95 14.83 19.38 34.79 211.5 6.08 6.15 8.67 Variable Account Fund - Bond Fund Oppenheimer 11/12/90 18.54 1.43 16.86 21.45 5.98 13.2 37.48 60.65 52.4 144.06 17.12 8.79 11.59 Variable Account Fund - Global Securities Fund Oppenheimer 04/03/85 12.86 35.6 24.22 25.69 9.52 23.01 54.61 92.06 160.86 592.38 24.3 21.14 15.12 Variable Account Fund - Growth Fund Oppenheimer 02/09/87 22.7 20.39 14.57 16.29 1.48 5.8 23.04 40.97 65.09 234.43 12.13 10.55 10.69 Variable Account Fund - Multiple Strategies Fund Strong Variable 05/08/92 19.42 34.18 0 10.5 8.37 6.41 17.58 17.58 48.09 94.18 5.55 8.17 10.5 Insurance Fund, Inc. - Discovery Fund II Strong Variable 10/20/95 9.08 NA 9.5 -14.21 4.83 -5.54 -18.96 -11.26 NA -9.08 -3.9 NA -2.93 Insurance Fund, Inc. - International Fund II Strong Variable 05/08/92 30.25 24.82 17.2 24.46 4.56 12.64 40.18 64.3 110.77 202.45 18 16.08 18.12 Insurance Fund, Inc. - Opportunity Fund II Van Eck Worldwide 09/01/89 15.31 16.37 1.7 1.57 1.5 11.86 13.61 15.55 31.64 72.2 4.94 5.65 6 Insurance Trust - Worldwide Bond Fund Van Eck Worldwide 12/27/95 5.78 NA 25.72 -12.24 0.64 -34.66 -42.65 -27.91 NA -28.63 -10.33 NA -10.6 Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide 09/01/89 12.21 10.11 17.12 -2.46 -2.4 -31.52 -33.2 -21.77 -18.64 12.63 -7.86 -4.04 1.28 Insurance Trust - Worldwide Hard Assets Fund Warburg Pincus 06/30/95 11.82 NA 9.1 -3.04 0.85 4.51 1.34 10.56 NA 18.16 3.4 NA 4.9 Trust - International Equity Portfolio
71 76
EQUITY PORTFOLIO Warburg Pincus 09/30/96 12.08 NA NA 12.43 9.41 5.66 18.8 NA NA 15.92 NA NA 6.79 Trust - Post Venture Capital Portfolio Warburg Pincus 06/30/95 15.57 NA 13 14.73 7.52 -3.63 10.57 24.94 NA 55.69 7.7 NA 13.52 Trust - Small Company Growth Portfolio
The preceding table displays three types of total return. Simply stated, total return shows the percent change in unit values, with dividends and capital gains reinvested, after the deduction of a 0.80% asset charge (and the deduction of applicable investment advisory fees and other expenses of the Underlying Mutual Funds). The total return figures shown in the Annual Percentage Change and Annualized Percentage Change columns represent annualized figures, i.e., they show the rate of growth that would have produced the corresponding cumulative return had performance been constant over the entire period quoted. The Non-Annualized Percentage Change total return figures are not annual return figures but instead represent the total percentage change in unit value over the stated periods without annualization. THE TOTAL RETURN FIGURES DO NOT TAKE INTO ACCOUNT THE SEVERAL OTHER POLICY CHARGES WHICH ARE DESCRIBED IN THE "POLICY CHARGES" SECTION. THESE OTHER CHARGES INCLUDE DEDUCTIONS FROM PREMIUMS, COST OF INSURANCE CHARGES, SURRENDER CHARGES AND A MONTHLY ADMINISTRATIVE CHARGE. The underlying mutual fund Inception Date is the date the underlying mutual fund first became effective, which is not necessarily the same date the underlying mutual fund was first made available through the variable account. For those underlying mutual funds which have not been offered as sub-accounts through the variable account for one of the quoted periods, the total return figures will show the investment performance such underlying mutual funds would have achieved (reduced by the 0.80% asset charge and Fund investment advisory fees and expenses) had they been offered as sub-accounts through the variable account for the period quoted. Certain underlying mutual funds are not as old as some of the periods quoted, therefore, total return figures may not be available for all of the periods shown. 72 77 CASH VALUE TABLE
1 YEAR TO 2 YEARS TO 3 YEARS TO 5 YEARS TO 10 YEARS TO INCEPTION TO 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 FUND CASH CASH CASH CASH CASH CASH UNDERLYING INVESTMENT INCEPTION ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. OPTIONS DATE** VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE American Century VP 05/01/91 $9,389 $4,579 $20,183 $15,373 $32,070 $27,741 $60,405 $57,038 $0 $0 $106,960 $105,036 Balanced American Century VP 11/20/87 $7,761 $2,951 $15,264 $10,454 $22,319 $17,990 $40,564 $37,197 $102,915 $102,915 $133,037 $133,037 Capital Appreciation American Century VP 10/30/97 $10,331 $5,521 $0 $0 $0 $0 $0 $0 $0 $0 $22,270 $17,460 Income and Growth American Century VP 05/01/94 $9,712 $4,902 $21,128 $16,317 $33,886 $29,556 $0 $0 $0 $0 $58,189 $54,822 International American Century VP 05/01/96 $8,438 $3,628 $19,135 $14,325 $0 $0 $0 $0 $0 $0 $30,371 $26,042 Value Dreyfus Socially 10/06/93 $10,530 $5,720 $24,033 $19,223 $40,095 $35,766 $82,832 $79,465 $0 $0 $96,520 $93,634 Responsible Growth Fund Dreyfus Stock Index 09/29/89 $10,445 $5,635 $24,335 $19,525 $40,983 $36,654 $85,926 $82,559 $0 $0 $219,626 $219,626 Fund Dreyfus Variable 04/05/93 $10,642 $5,831 $24,218 $19,407 $40,771 $36,442 $84,716 $81,348 $0 $0 $105,209 $102,323 Investment Fund Capital Appreciation Fund Dreyfus Variable 05/02/94 $9,010 $4,200 $19,472 $14,662 $31,895 $27,566 $0 $0 $0 $0 $65,384 $62,017 Investment Fund Growth & Income Fund Fidelity VIP Fund II - 09/06/89 $9,306 $4,496 $20,517 $15,707 $33,108 $28,779 $60,907 $57,540 $0 $0 $154,389 $154,389 Asset Manager Portfolio Fidelity VIP Fund II - 01/03/95 $10,566 $5,756 $23,617 $18,807 $39,175 $34,846 $0 $0 $0 $0 $61,046 $57,198 Contrafund Portfolio Fidelity VIP Fund - 10/09/86 $9,017 $4,207 $20,620 $15,810 $33,561 $29,232 $69,376 $66,009 $206,004 $206,004 $288,127 $288,127 Equity Income Portfolio Fidelity VIP Fund III 01/03/95 $10,108 $5,298 $23,253 $18,442 $38,432 $34,103 $0 $0 $0 $0 $58,596 $54,748 - - Growth Opportunity Portfolio Fidelity VIP Fund - 10/09/86 $11,397 $6,587 $25,345 $20,534 $41,054 $36,724 $82,825 $79,458 $248,704 $248,704 $357,975 $357,975 Growth Portfolio Fidelity VIP Fund - 09/19/85 $7,669 $2,859 $16,736 $11,926 $26,907 $22,578 $50,715 $47,348 $147,848 $147,848 $231,283 $231,283 High Income Portfolio Fidelity VIP Fund - 01/28/87 $9,155 $4,344 $19,306 $14,496 $30,571 $26,241 $54,883 $51,515 $134,992 $134,992 $173,145 $173,145 Overseas Portfolio Morgan Stanley 06/16/97 $5,583 $772 $0 $0 $0 $0 $0 $0 $0 $0 $11,715 $6,905 Emerging Markets Debt Portfolio Van Kampen American 07/03/95 $6,990 $2,180 $15,622 $10,812 $27,639 $23,309 $0 $0 $0 $0 $40,406 $36,558 Capital Life Investment Trust Stanley Real Estate Securities Portfolio NSAT Capital 04/15/92 $10,605 $5,795 $24,847 $20,037 $42,463 $38,133 $86,694 $83,326 $0 $0 $132,322 $129,916 Appreciation Fund NSAT Government 11/08/82 $8,795 $3,985 $18,353 $13,543 $28,016 $23,687 $50,245 $46,878 $121,626 $121,626 $276,314 $276,314 Bond Fund NSAT Money Market 11/10/81 $8,478 $3,668 $17,331 $12,520 $26,477 $22,147 $45,703 $42,336 $98,497 $98,497 $218,248 $218,248 Fund NSAT Small Company 10/23/95 $8,074 $3,264 $17,616 $12,806 $29,248 $24,919 $0 $0 $0 $0 $41,423 $37,574 Fund NSAT Small Cap Value 10/31/97 $7,711 $2,901 $0 $0 $0 $0 $0 $0 $0 $0 $18,076 $13,266 Fund NSAT Total Return 11/08/82 $9,580 $4,770 $22,008 $17,197 $36,825 $32,496 $74,588 $71,221 $205,003 $205,003 $558,406 $558,406 Fund Neuberger & Berman 09/10/84 $9,298 $4,488 $21,422 $16,612 $34,260 $29,930 $66,810 $63,443 $171,328 $171,328 $328,019 $328,019 Advisers Management Trust - Growth Portfolio Neuberger & Berman 09/10/84 $10,851 $6,041 $0 $0 $0 $0 $0 $0 $0 $0 $21,747 $16,937 Advisers Management Trust - Limited Maturity Bond Portfolio Neuberger & Berman 11/03/97 $8,406 $3,596 $17,318 $12,508 $26,424 $22,095 $46,199 $42,831 $104,736 $104,736 $182,422 $182,422 Advisers Management Trust - Guardian Neuberger & Berman 03/22/94 $8,373 $3,563 $19,496 $14,685 $33,669 $29,340 $0 $0 $0 $0 $68,446 $65,079 Advisers Management Trust - Partners Portfolio Oppenheimer Variable 04/30/85 $8,614 $3,804 $17,950 $13,140 $27,528 $23,199 $49,350 $45,983 $121,334 $121,334 $201,673 $201,673 Account Fund - Bond Fund Oppenheimer Variable 11/12/90 $9,225 $4,415 $20,560 $15,750 $33,629 $29,300 $58,702 $55,335 $0 $0 $129,399 $127,956 Account Fund - Global Securities Fund Oppenheimer Variable 04/03/85 $10,058 $5,248 $22,818 $18,008 $38,539 $34,209 $80,861 $77,494 $221,986 $221,986 $388,153 $388,153 Account Fund - Growth Fund Oppenheimer Variable 02/09/87 $8,591 $3,781 $18,670 $13,860 $30,109 $25,779 $57,016 $53,649 $146,197 $146,197 $195,647 $195,647 Account Fund - Multiple Strategies Fund
73 78
1 YEAR TO 2 YEARS TO 3 YEARS TO 5 YEARS TO 10 YEARS TO INCEPTION TO 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 FUND CASH CASH CASH CASH CASH CASH UNDERLYING INVESTMENT INCEPTION ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. ACCUM SURR. OPTIONS DATE** VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE Strong Variable 05/08/92 $8,608 $3,797 $18,186 $13,376 $27,565 $23,235 $52,087 $48,720 $0 $0 $82,194 $79,789 Insurance Fund, Inc. - Discovery Fund II Strong Variable 10/20/95 $7,648 $2,838 $14,207 $9,396 $21,391 $17,062 $0 $0 $0 $0 $30,393 $26,545 Insurance Fund, Inc. - International Fund II Strong Variable 05/08/92 $9,192 $4,382 $20,717 $15,907 $34,079 $29,750 $67,691 $64,324 $0 $0 $108,571 $106,166 Insurance Fund, Inc. - Opportunity Fund II Van Eck Worldwide 09/01/89 $9,114 $4,304 $18,291 $13,481 $27,531 $23,202 $48,764 $45,397 $0 $0 $106,261 $106,261 Insurance Trust - Worldwide Bond Fund Van Eck Worldwide 12/27/95 $5,011 $201 $9,710 $4,900 $15,588 $11,259 $0 $0 $0 $0 $24,971 $21,123 Insurance Trust - Worldwide Emerging Markets Fund Van Eck Worldwide 09/01/89 $5,345 $535 $10,753 $5,943 $17,128 $12,798 $30,403 $27,036 $0 $0 $76,849 $76,849 Insurance Trust - Worldwide Hard Assets Fund Warburg Pincus 06/30/95 $8,535 $3,725 $16,805 $11,995 $25,753 $21,424 $0 $0 $0 $0 $32,818 $28,970 Trust - International Equity Portfolio Warburg Pincus 09/30/96 $8,547 $3,737 $18,215 $13,405 $0 $0 $0 $0 $0 $0 $28,643 $24,314 Trust - Post Venture Capital Portfolio Warburg Pincus 06/30/95 $7,720 $2,910 $16,695 $11,885 $26,854 $22,524 $0 $0 $0 $0 $38,512 $34,664 Trust - Small Company Growth Portfolio
The preceding cash-value performance table shows the effect of the performance quoted on accumulated values and cash surrender values, based on a hypothetical annual premium of $10,000 for a 45 year-old male, non-tobacco preferred, with a level death benefit and an initial specified amount of $496,386 (based on a guideline-level premium of $10,000 issued on a preferred basis). The cash surrender value figures reflect the deduction of all applicable policy charges, including a deduction from each premium payment, a 0.80% asset charge, applicable cost of insurance charges, surrender charges, and a monthly administrative charge (and the deduction of applicable investment advisory fees and other expenses of the Underlying Mutual Funds). See the "Policy Charges" section for more information about these charges. The cost of insurance charges may be higher or lower for purchasers who do not meet the profile of the hypothetical purchaser. Illustrations reflecting a potential purchaser's specific characteristics are available from Nationwide upon request. **The underlying mutual fund Inception Date is the date the underlying mutual fund first became effective, which is not necessarily the same date the underlying mutual fund was first made available through the variable account. For those underlying mutual funds which have not been offered as sub-accounts through the variable account for one of the quoted periods, the cash values will show the investment performance such underlying mutual funds would have achieved (reduced by any applicable variable account and policy charges, and underlying mutual fund investment advisory fees and expenses) had they been offered as sub-accounts through the variable account for the period quoted. Certain underlying mutual funds are not as old as some of the periods quoted, therefore, the cash values may not be available for all of the periods shown. 74 79 1 Independent Auditors' Report The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide VLI Separate Account-2: We have audited the accompanying statement of assets, liabilities and contract owners' equity of Nationwide VLI Separate Account-2 as of December 31, 1998, and the related statements of operations and changes in contract owners' equity for each of the years in the three year period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures include confirmation of securities owned as of December 31, 1998, by correspondence with the transfer agents of the underlying mutual funds. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nationwide VLI Separate Account-2 as of December 31, 1998, and the results of its operations and its changes in contract owners' equity for each of the years in the three year period then ended in conformity with generally accepted accounting principles. KPMG LLP Columbus, Ohio February 5, 1999 2 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY DECEMBER 31, 1998
ASSETS: Investments at market value: American Century VP - American Century VP Balanced (ACVPBal) 667,058 shares (cost $5,343,930) ...................................... $ 5,563,263 American Century VP - American Century VP Capital Appreciation (ACVPCapAp) 1,285,611 shares (cost $13,112,689) ................................... 11,596,209 American Century VP - American Century VP Income & Growth (ACVPIncGr) 227,927 shares (cost $1,413,839) ...................................... 1,545,347 American Century VP - American Century VP International (ACVPInt) 1,806,789 shares (cost $13,291,133) ................................... 13,767,730 American Century VP - American Century VP Value (ACVPValue) 403,199 shares (cost $2,677,987) ...................................... 2,713,527 The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) 388,872 shares (cost $11,240,402) ..................................... 12,086,156 Dreyfus Stock Index Fund (DryStkIx) 2,430,963 shares (cost $68,540,273) ................................... 79,054,923 Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) 129,312 shares (cost $4,499,999) ...................................... 4,669,456 Dreyfus VIF - Growth and Income Portfolio (DryGrInc) 97,841 shares (cost $2,176,879) ....................................... 2,214,133 Fidelity VIP - Equity-Income Portfolio (FidVIPEI) 3,288,235 shares (cost $68,688,982) ................................... 83,586,925 Fidelity VIP - Growth Portfolio (FidVIPGr) 2,610,901 shares (cost $98,245,877) ................................... 117,151,133 Fidelity VIP - High Income Portfolio (FidVIPHI) 2,372,894 shares (cost $29,208,547) ................................... 27,359,471 Fidelity VIP - Overseas Portfolio (FidVIPOv) 1,108,508 shares (cost $21,869,861) ................................... 22,225,589 Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM) 1,776,182 shares (cost $27,388,181) ................................... 32,255,471 Fidelity VIP-II - Contrafund Portfolio (FidVIPCon) 2,039,961 shares (cost $38,346,102) ................................... 49,856,648 Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp) 257,373 shares (cost $5,282,575) ...................................... 5,888,693 Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) 55,772 shares (cost $371,601) ......................................... 340,210 Nationwide SAT - Capital Appreciation Fund (NSATCapAp) 1,553,137 shares (cost $38,080,554) ................................... 41,297,903 Nationwide SAT - Government Bond Fund (NSATGvtBd) 1,202,610 shares (cost $14,267,240) ................................... 14,058,510 Nationwide SAT - Money Market Fund (NSATMyMkt) 44,571,880 shares (cost $44,571,880) .................................. 44,571,880 Nationwide SAT - Small Cap Value Fund (NSATSmCapV) 88,617 shares (cost $809,334) ......................................... 840,976
3 Nationwide SAT - Small Company Fund (NSATSmCo) 1,093,214 shares (cost $17,223,078) ............................ 17,502,348 Nationwide SAT - Total Return Fund (NSATTotRe) 5,388,073 shares (cost $83,326,583) ............................ 99,140,546 Neuberger &Berman AMT - Growth Portfolio (NBAMTGro) 932,473 shares (cost $22,947,521) .............................. 24,514,709 Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) 62,015 shares (cost $804,621) .................................. 858,282 Neuberger &Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) 363,249 shares (cost $5,022,473) ............................... 5,020,101 Neuberger &Berman AMT - Partners Portfolio (NBAMTPart) 1,847,861 shares (cost $36,287,150) ............................ 34,980,006 Oppenheimer VAF - Bond Fund (OppBdFd) 1,003,501 shares (cost $12,261,046) ............................ 12,363,132 Oppenheimer VAF - Global Securities Fund (OppGlSec) 957,560 shares (cost $18,773,976) .............................. 21,133,338 Oppenheimer VAF - Growth Fund (OppGro) 164,365 shares (cost $5,914,563) ............................... 6,027,268 Oppenheimer VAF - Multiple Strategies Fund (OppMult) 833,758 shares (cost $13,141,814) .............................. 14,215,574 Strong Opportunity Fund II, Inc. (StOpp2) 1,429,116 shares (cost $27,438,063) ............................ 31,040,403 Strong VIF - Strong Discovery Fund II (StDisc2) 656,556 shares (cost $8,140,634) ............................... 8,351,399 Strong VIF - Strong International Stock Fund II (StIntStk2) 226,407 shares (cost $2,171,645) ............................... 1,987,856 Van Eck WIT - Worldwide Bond Fund (VEWrldBd) 288,886 shares (cost $3,540,727) ............................... 3,547,526 Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) 260,082 shares (cost $1,743,623) ............................... 1,851,783 Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 448,922 shares (cost $4,172,279) ............................... 4,130,087 Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio (VKMSRESec) 475,308 shares (cost $7,366,326) ............................... 6,540,232 Warburg Pincus Trust - International Equity Portfolio (WPIntEq) 845,293 shares (cost $9,714,262) ............................... 9,289,767 Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) 93,442 shares (cost $1,035,844) ................................ 1,100,743 Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr) 948,154 shares (cost $15,361,244) .............................. 15,179,948 ------------ Total investments ........................................... 891,419,201 Accounts receivable .................................................. 2,737,278 ------------ Total assets ................................................ 894,156,479 ACCOUNTS PAYABLE ........................................................ - ------------ CONTRACT OWNERS' EQUITY (NOTE 7) ........................................ $894,156,479 ============
See accompanying notes to financial statements. 4 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
Total ACVPBal -------------------------------------- --------------------- 1998 1997 1996 1998 1997 ---- ---- ---- ---- ---- Investment activity: Reinvested dividends ........... $ 11,649,564 9,547,366 6,387,808 73,602 32,123 Mortality and expense charges (note 3) ..................... (6,238,523) (4,642,993) (2,983,466) (38,972) (27,654) ------------- ------------ ------------ ---------- --------- Net investment activity ........ 5,411,041 4,904,373 3,404,342 34,630 4,469 ------------- ------------ ------------ ---------- --------- Proceeds from mutual fund shares sold .................. 760,513,313 443,749,426 275,979,207 1,247,480 2,604,070 Cost of mutual funds sold ...... (729,684,314) (409,583,997) (266,008,543) (1,152,261) (2,212,633) ------------- ------------ ------------ ---------- --------- Realized gain (loss) on investments ................ 30,828,999 34,165,429 9,970,664 95,219 391,437 Change in unrealized gain (loss) on investments ............... 26,818,372 31,280,650 12,175,328 37,264 (79,247) ------------- ------------ ------------ ---------- --------- Net gain (loss) on investments . 57,647,371 65,446,079 22,145,992 132,483 312,190 ------------- ------------ ------------ ---------- --------- Reinvested capital gains ....... 43,742,310 19,594,720 10,584,883 456,397 126,772 ------------- ------------ ------------ ---------- --------- Net change in contract owners' equity resulting from operations .......... 106,800,722 89,945,172 36,135,217 623,510 443,431 ------------- ------------ ------------ ---------- --------- Equity transactions: Purchase payments received from contract owners ......... 213,764,519 218,381,791 174,104,282 617,960 560,697 Transfers between funds ........ -- -- -- 1,045,491 402,250 Surrenders ..................... (20,881,099) (11,960,967) (6,124,049) (139,847) (201,818) Death benefits (note 4) ........ (1,636,729) (664,672) (730,700) (12,665) (18,479) Policy loans (net of repayments) (note 5) ..................... (15,272,227) (9,898,715) (6,468,023) (97,880) (62,819) Deductions for surrender charges (note 2d) .................... (2,374,941) (1,603,674) (721,263) (16,788) (27,058) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (44,274,845) (34,553,252) (24,075,896) (164,907) (31,708) Deductions for asset charges (note 3) .................... (556,243) (227,535) (20,037) (3,475) (1,282) ------------- ------------ ------------ ---------- --------- Net equity transactions .... 128,768,435 159,472,976 135,964,314 1,227,889 619,783 ------------- ------------ ------------ ---------- --------- Net change in contract owners' equity ............... 235,569,157 249,418,148 172,099,531 1,851,399 1,063,214 Contract owners' equity beginning of period .......... 658,587,322 409,169,174 237,069,643 3,711,460 2,648,246 ------------- ------------ ------------ ---------- --------- Contract owners' equity end of period ................ $ 894,156,479 658,587,322 409,169,174 5,562,859 3,711,460 ============= =========== =========== ========= =========
ACVPBal ACVPCapAp ----------- ----------------------------------------- 1996 1998 1997 1996 ---- ---- ---- ---- Investment activity: Reinvested dividends ........... 37,120 -- -- -- Mortality and expense charges (note 3) ..................... (19,284) (82,384) (104,781) (103,669) ----------- ----------- ----------- ----------- Net investment activity ........ 17,836 (82,384) (104,781) (103,669) Proceeds from mutual fund shares sold .................. 308,084 5,476,348 32,724,781 29,396,492 Cost of mutual funds sold ...... (253,217) (6,203,432) (32,719,977) (28,812,207) Realized gain (loss) on investments ................ 54,867 (727,084) 4,804 584,285 Change in unrealized gain (loss) on investments ............... 104,799 (95,403) (649,578) (2,360,038) ----------- ----------- ----------- ----------- Net gain (loss) on investments . 159,666 (822,487) (644,774) (1,775,753) ----------- ----------- ----------- ----------- Reinvested capital gains ....... 48,770 626,545 235,181 1,326,118 ----------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations .......... 226,272 (278,326) (514,374) (553,304) ----------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ......... 293,943 2,567,119 2,396,050 1,943,037 Transfers between funds ........ 705,211 (1,460,314) (731,351) 854,921 Surrenders ..................... (50,854) (537,440) (294,647) (333,226) Death benefits (note 4) ........ (142) (1,791) (279) (6,887) Policy loans (net of repayments) (note 5) ..................... (33,101) (208,014) (317,723) (76,974) Deductions for surrender charges (note 2d) .................... (5,989) (63,643) (39,505) (39,246) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (15,745) (533,669) (354,495) (285,952) Deductions for asset charges (note 3) .................... (130) (7,346) (4,187) (587) ----------- ----------- ----------- ----------- Net equity transactions .... 893,193 (245,098) 653,863 2,055,086 ----------- ----------- ----------- ----------- Net change in contract owners' equity ............... 1,119,465 (523,424) 139,489 1,501,782 Contract owners' equity beginning of period .......... 1,528,781 12,118,077 11,978,588 10,476,806 ----------- ----------- ----------- ----------- Contract owners' equity end of period ................ 2,648,246 11,594,653 12,118,077 11,978,588 =========== =========== =========== ===========
5 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
ACVPIncGr ACVPInt ------------------------------------------ -------------------------- 1998 1997 1996 1998 1997 ---- ---- ---- ---- ---- Investment activity: Reinvested dividends ........... $ 7,293 -- -- 48,574 39,611 Mortality and expense charges (note 3) ..................... (7,590) -- -- (100,304) (43,589) ---------- ------------ ------------ ----------- ----------- Net investment activity ........ (297) -- -- (51,730) (3,978) ---------- ------------ ------------ ----------- ----------- Proceeds from mutual fund shares sold .................. 579,403 -- -- 26,953,998 12,528,472 Cost of mutual funds sold ...... (585,659) -- -- (26,717,868) (11,671,277) ---------- ------------ ------------ ----------- ----------- Realized gain (loss) on investments ................ (6,256) -- -- 236,130 857,195 Change in unrealized gain (loss) on investments ............... 131,508 -- -- 538,699 (221,309) ---------- ------------ ------------ ----------- ----------- Net gain (loss) on investments . 125,252 -- -- 774,829 635,886 ---------- ------------ ------------ ----------- ----------- Reinvested capital gains ....... -- -- -- 498,647 76,392 ---------- ------------ ------------ ----------- ----------- Net change in contract owners' equity resulting from operations .......... 124,955 -- -- 1,221,746 708,300 ---------- ------------ ------------ ----------- ----------- Equity transactions: Purchase payments received from contract owners ......... 115,227 -- -- 1,075,296 827,281 Transfers between funds ........ 1,333,797 -- -- 5,394,451 1,897,413 Surrenders ..................... (9,343) -- -- (91,333) (37,650) Death benefits (note 4) ........ (1) -- -- (11,988) -- Policy loans (net of repayments) (note 5) ..................... (3,122) -- -- (25,253) (123,364) Deductions for surrender charges (note 2d) .................... (970) -- -- (7,357) (5,048) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (14,226) -- -- (371,602) (116,507) Deductions for asset charges (note 3) .................... (677) -- -- (8,943) (2,276) ---------- ------------ ------------ ----------- ----------- Net equity transactions .... 1,420,685 -- -- 5,953,271 2,439,849 ---------- ------------ ------------ ----------- ----------- Net change in contract owners' equity ............... 1,545,640 -- -- 7,175,017 3,148,149 Contract owners' equity beginning of period .......... -- -- -- 6,586,196 3,438,047 ---------- ------------ ------------ ----------- ----------- Contract owners' equity end of period ................ $1,545,640 -- -- 13,761,213 6,586,196 ========== ============ ============ =========== ===========
ACVPInt ACVPValue ----------- -------------------------------------- 1996 1998 1997 1996 ---- ---- ---- ---- Investment activity: Reinvested dividends ............... 27,668 14,238 1,245 -- Mortality and expense charges (note 3) ......................... (20,991) (19,998) (7,498) (42) ---------- ---------- ---------- ---------- Net investment activity ............ 6,677 (5,760) (6,253) (42) ---------- ---------- ---------- --------- Proceeds from mutual fund shares sold ...................... 2,744,824 3,978,821 2,118,031 -- Cost of mutual funds sold .......... (2,625,412) (4,072,379) (1,966,550) -- ---------- ---------- ---------- --------- Realized gain (loss) on investments .................... 119,412 (93,558) 151,481 -- Change in unrealized gain (loss) on investments ................... 131,744 7,367 28,166 (54) ---------- ---------- ---------- ---------- Net gain (loss) on investments ..... 251,156 (86,191) 179,647 (54) ---------- ---------- ---------- ---------- Reinvested capital gains ........... 9,222 169,984 2,540 -- ---------- ---------- ---------- ---------- Net change in contract owners' equity resulting from operations .............. 267,055 78,033 175,934 (96) ---------- ---------- ---------- ---------- Equity transactions: Purchase payments received from contract owners ............. 440,016 402,104 111,600 64 Transfers between funds ............ 1,731,900 705,143 1,429,037 9,189 Surrenders ......................... (30,514) (64,948) (4,196) (19) Death benefits (note 4) ............ -- (2) -- -- Policy loans (net of repayments) (note 5) ......................... (14,420) (39,222) (2,706) -- Deductions for surrender charges (note 2d) ........................ (3,594) (5,005) (563) (2) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ................ (60,957) (76,187) (2,525) (7) Deductions for asset charges (note 3) ........................ (168) (1,783) (593) -- ---------- ---------- ---------- ---------- Net equity transactions ........ 2,062,263 920,100 1,530,054 9,225 ---------- ---------- ---------- ---------- Net change in contract owners' equity ................... 2,329,318 998,133 1,705,988 9,129 Contract owners' equity beginning of period .............. 1,108,729 1,715,117 9,129 -- ---------- ---------- ---------- ---------- Contract owners' equity end of period .................... 3,438,047 2,713,250 1,715,117 9,129 ========== ========== ========== ==========
6 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
DrySRGro DryStkix ----------------------------------------- ---------------------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Investment activity: Reinvested dividends ........... $ 18,491 24,764 6,374 840,788 488,743 212,732 Mortality and expense charges (note 3) ..................... (76,955) (44,201) (18,622) (508,329) (258,618) (93,077) ------------ ----------- ----------- ----------- ----------- ----------- Net investment activity ........ (58,464) (19,437) (12,248) 332,459 230,125 119,655 ------------ ----------- ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold .................. 30,530,607 6,036,906 3,195,875 34,044,658 12,995,115 4,656,338 Cost of mutual funds sold ...... (29,068,944) (5,411,329) (2,863,782) (26,882,152) (10,012,154) (3,763,242) ------------ ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments ................ 1,461,663 625,577 332,093 7,162,506 2,982,961 893,096 Change in unrealized gain (loss) on investments ............... 619,023 301,151 (119,764) 6,892,116 2,734,985 553,288 ------------ ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments . 2,080,686 926,728 212,329 14,054,622 5,717,946 1,446,384 ------------ ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ....... 429,304 192,785 114,244 156,109 1,196,951 240,306 ------------ ----------- ----------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations .......... 2,451,526 1,100,076 314,325 14,543,190 7,145,022 1,806,345 ------------ ----------- ----------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ......... 2,646,682 1,226,366 387,401 8,792,308 6,007,824 2,423,394 Transfers between funds ........ 1,547,337 2,303,963 1,261,823 15,454,943 16,661,441 7,060,289 Surrenders ..................... (808,738) (145,994) (23,790) (489,388) (380,643) (115,515) Death benefits (note 4) ........ (3,645) (6,412) (126) (395,851) (33,328) (2,844) Policy loans (net of repayments) (note 5) ..................... (431,011) (107,480) (35,903) (500,204) (210,457) (108,558) Deductions for surrender charges (note 2d) .................... (101,807) (19,574) (2,802) (44,357) (51,035) (13,605) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (448,348) (82,935) (34,935) (2,263,707) (618,664) (240,014) Deductions for asset charges (note 3) .................... (6,861) (2,493) (144) (45,324) (15,198) (758) ------------ ----------- ----------- ----------- ----------- ----------- Net equity transactions .... 2,393,609 3,165,441 1,551,524 20,508,420 21,359,940 9,002,389 ------------ ----------- ----------- ----------- ----------- ----------- Net change in contract owners' equity ............... 4,845,135 4,265,517 1,865,849 35,051,610 28,504,962 10,808,734 Contract owners' equity beginning of period .......... 7,215,240 2,949,723 1,083,874 43,989,896 15,484,934 4,676,200 ------------ ----------- ----------- ----------- ----------- ----------- Contract owners' equity end of period ................ $ 12,060,375 7,215,240 2,949,723 79,041,506 43,989,896 15,484,934 ============ ========= ========= ========== ========== ==========
DryCapAp ------------------------------------ 1998 1997 1996 ---- ---- ---- Investment activity: Reinvested dividends ........... 24,846 4,780 -- Mortality and expense charges (note 3) ..................... (27,124) (1,877) -- ----------- ----------- ----- Net investment activity ........ (2,278) 2,903 -- ----------- ----------- ----- Proceeds from mutual fund shares sold .................. 20,319,146 3,153,711 -- Cost of mutual funds sold ...... (19,666,415) (3,172,025) -- ----------- ----------- ----- Realized gain (loss) on investments ................ 652,731 (18,314) -- Change in unrealized gain (loss) on investments ............... 173,020 (3,579) -- ----------- ----------- ----- Net gain (loss) on investments . 825,751 (21,893) -- ----------- ----------- ----- Reinvested capital gains ....... 1,151 400 -- ----------- ----------- ----- Net change in contract owners' equity resulting from operations .......... 824,624 (18,590) -- ----------- ----------- ----- Equity transactions: Purchase payments received from contract owners ......... 502,552 26,933 -- Transfers between funds ........ 3,058,005 425,397 -- Surrenders ..................... (44,456) (1,058) -- Death benefits (note 4) ........ (4) -- -- Policy loans (net of repayments) (note 5) ..................... (18,317) (33) -- Deductions for surrender charges (note 2d) .................... (5,020) (142) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (77,478) (762) -- Deductions for asset charges (note 3) .................... (2,418) (149) -- ----------- ----------- ----- Net equity transactions .... 3,412,864 450,186 -- ----------- ----------- ----- Net change in contract owners' equity ............... 4,237,488 431,596 -- Contract owners' equity beginning of period .......... 431,596 -- -- ----------- ----------- ----- Contract owners' equity end of period ................ 4,669,084 431,596 -- ========= ======= =====
7 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
DryGrinc FidVIPEI ------------------------------------------- ------------------------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Investment activity: Reinvested dividends ........... $ 17,968 8,082 -- 997,915 783,723 46,329 Mortality and expense charges (note 3) ..................... (15,042) (5,230) -- (614,949) (498,094) (338,519) ----------- ------------ ------------ ------------ ------------ ------------ Net investment activity ........ 2,926 2,852 -- 382,966 285,629 (292,190) ----------- ------------ ------------ ------------ ------------ ------------ Proceeds from mutual fund shares sold .................. 2,469,056 2,254,831 -- 6,996,930 6,293,311 6,728,246 Cost of mutual funds sold ...... (2,437,658) (2,197,145) -- (4,750,633) (4,356,281) (5,352,183) ----------- ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ................ 31,398 57,686 -- 2,246,297 1,937,030 1,376,063 Change in unrealized gain (loss) on investments ............... 115,375 (78,166) -- 1,497,328 7,168,421 2,155,544 ----------- ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments . 146,773 (20,480) -- 3,743,625 9,105,451 3,531,607 ----------- ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ....... 29,897 70,270 -- 3,551,403 3,940,387 1,328,108 ----------- ------------ ------------ ------------ ------------ ------------ Net change in contract owners' equity resulting from operations .......... 179,596 52,642 -- 7,677,994 13,331,467 4,567,525 ----------- ------------ ------------ ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners ......... 1,960,370 186,196 -- 10,207,531 11,073,470 8,100,500 Transfers between funds ........ 533,213 972,727 -- 2,383,113 7,046,924 8,008,996 Surrenders ..................... (701,730) (2,948) -- (904,020) (1,110,322) (532,338) Death benefits (note 4) ........ (2) -- -- (80,375) (73,247) (146,188) Policy loans (net of repayments) (note 5) ..................... (801,908) (3,749) -- (597,978) (781,383) (504,548) Deductions for surrender charges (note 2d) .................... (90,325) (395) -- (83,892) (148,867) (62,696) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (66,760) (1,204) -- (4,711,838) (4,404,162) (3,117,070) Deductions for asset charges (note 3) .................... (1,341) (416) -- (54,830) (24,090) (2,195) ----------- ------------ ------------ ------------ ------------ ------------ Net equity transactions .... 831,517 1,150,211 -- 6,157,711 11,578,323 11,744,461 ----------- ------------ ------------ ------------ ------------ ------------ Net change in contract owners' equity ............... 1,011,113 1,202,853 -- 13,835,705 24,909,790 16,311,986 Contract owners' equity beginning of period .......... 1,202,853 -- -- 69,728,573 44,818,783 28,506,797 ----------- ------------ ------------ ------------ ------------ ------------ Contract owners' equity end of period ................ $ 2,213,966 1,202,853 -- 83,564,278 69,728,573 44,818,783 =========== ============ ============ =========== ========== ===========
FidVIPGr --------------------------------------------- 1998 1997 1996 ---- ---- ---- Investment activity: Reinvested dividends ........... 398,089 370,457 95,668 Mortality and expense charges (note 3) ..................... (759,610) (560,322) (401,774) ------------ ------------ ------------ Net investment activity ........ (361,521) (189,865) (306,106) ------------ ------------ ------------ Proceeds from mutual fund shares sold .................. 85,473,779 46,683,280 40,156,823 Cost of mutual funds sold ...... (75,903,979) (40,913,295) (40,192,712) ------------ ------------ ------------ Realized gain (loss) on investments ................ 9,569,800 5,769,985 (35,889) Change in unrealized gain (loss) on investments ............... 10,952,975 5,352,235 2,985,844 ------------ ------------ ------------ Net gain (loss) on investments . 20,522,775 11,122,220 2,949,955 ------------ ------------ ------------ Reinvested capital gains ....... 10,413,177 1,658,235 2,415,616 ------------ ------------ ------------ Net change in contract owners' equity resulting from operations .......... 30,574,431 12,590,590 5,059,465 ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners ......... 11,800,595 12,214,633 9,003,984 Transfers between funds ........ 6,611,922 1,631,518 10,555,655 Surrenders ..................... (1,541,170) (1,311,193) (794,363) Death benefits (note 4) ........ (54,733) (86,298) (141,589) Policy loans (net of repayments) (note 5) ..................... (593,726) (970,109) (722,540) Deductions for surrender charges (note 2d) .................... (161,482) (175,799) (93,557) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (4,387,847) (2,800,521) (2,100,258) Deductions for asset charges (note 3) .................... (67,729) (25,899) (2,639) ------------ ------------ ------------ Net equity transactions .... 11,605,830 8,476,332 15,704,693 ------------ ------------ ------------ Net change in contract owners' equity ............... 42,180,261 21,066,922 20,764,158 Contract owners' equity beginning of period .......... 74,962,498 53,895,576 33,131,418 ------------ ------------ ------------ Contract owners' equity end of period ................ 117,142,759 74,962,498 53,895,576 =========== ========== ============
(Continued) 8 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
FidVIPHI FidVIPOv --------------------------- ---------------------------------------- 1998 1997 1996 1998 1997 ---- ---- ---- ---- ---- Investment activity: Reinvested dividends ......................... $ 1,930,736 1,246,428 778,006 372,727 285,975 Mortality and expense charges (note 3) ................................... (211,621) (183,573) (124,686) (167,806) (153,477) ------------ ----------- ----------- ----------- ----------- Net investment activity ...................... 1,719,115 1,062,855 653,320 204,921 132,498 ------------ ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold ................................ 16,168,581 10,300,446 8,573,109 23,614,905 13,404,627 Cost of mutual funds sold .................... $(16,734,695) (9,520,272) (8,171,739) (22,518,443) (11,354,404) ------------ ----------- ----------- ----------- ----------- Realized gain (loss) on investments .............................. (566,114) 780,174 401,370 1,096,462 2,050,223 Change in unrealized gain (loss) on investments ............................. (3,958,695) 1,203,652 323,859 2,343 (1,243,832) ------------ ----------- ----------- ----------- ----------- Net gain (loss) on investments ............... (4,524,809) 1,983,826 725,229 1,098,805 806,391 ------------ ----------- ----------- ----------- ----------- Reinvested capital gains ..................... 1,226,822 154,053 152,219 1,098,564 1,135,234 ------------ ----------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ........................ (1,578,872) 3,200,734 1,530,768 2,402,290 2,074,123 ------------ ----------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ....................... 5,333,328 6,155,268 3,975,355 3,170,855 3,466,918 Transfers between funds ...................... 1,830,834 2,316,320 3,971,432 (323,986) (393,971) Surrenders ................................... (481,342) (255,542) (197,286) (367,369) (496,949) Death benefits (note 4) ...................... (9,509) (22,399) (47,017) (33,198) (56,932) Policy loans (net of repayments) (note 5) ................................... (379,699) (282,232) (141,523) (393,533) (309,770) Deductions for surrender charges (note 2d) .................................. (54,547) (34,262) (23,236) (41,687) (66,629) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (2,449,174) (2,961,119) (1,967,104) (1,268,155) (1,319,172) Deductions for asset charges (note 3) .................................. (18,869) (8,693) (835) (14,962) (6,596) ------------ ----------- ----------- ----------- ----------- Net equity transactions .................. 3,771,022 4,907,341 5,569,786 727,965 816,899 ------------ ----------- ----------- ----------- ----------- Net change in contract owners' equity ............................. 2,192,150 8,108,075 7,100,554 3,130,255 2,891,022 Contract owners' equity beginning of period ........................ 25,162,314 17,054,239 9,953,685 19,093,154 16,202,132 ------------ ----------- ----------- ----------- ----------- Contract owners' equity end of period .............................. $ 27,354,464 25,162,314 17,054,239 22,223,409 19,093,154 ============ =========== =========== =========== ===========
FidVIPOv FidVIPAM ----------- ----------------------------------------- 1996 1998 1997 1996 ---- ---- ---- ---- Investment activity: Reinvested dividends ........... 145,650 894,977 787,310 678,218 Mortality and expense charges (note 3) ..................... (127,996) (239,207) (219,940) (188,497) ----------- ----------- ----------- ----------- Net investment activity ........ 17,654 655,770 567,370 489,721 ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold .................. 5,292,727 3,554,904 2,514,749 2,233,648 Cost of mutual funds sold ...... (4,778,968) (2,948,897) (2,201,452) (2,187,742) ----------- ----------- ----------- ----------- Realized gain (loss) on investments ................ 513,759 606,007 313,297 45,906 Change in unrealized gain (loss) on investments ............... 921,192 28,492 1,651,903 1,506,448 ----------- ----------- ----------- ----------- Net gain (loss) on investments . 1,434,951 634,499 1,965,200 1,552,354 ----------- ----------- ----------- ----------- Reinvested capital gains ....... 160,215 2,684,931 1,974,948 559,232 ----------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations .......... 1,612,820 3,975,200 4,507,518 2,601,307 ----------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ......... 3,165,767 2,483,246 2,672,468 2,754,552 Transfers between funds ........ 1,580,583 115,769 284,292 (571,349) Surrenders ..................... (251,317) (1,327,378) (659,510) (268,409) Death benefits (note 4) ........ (4,564) (17,947) (43,658) (13,007) Policy loans (net of repayments) (note 5) ..................... (278,183) (195,419) (323,969) (349,545) Deductions for surrender charges (note 2d) .................... (29,599) (149,118) (88,424) (31,612) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ............ (1,115,155) (874,287) (389,701) (319,982) Deductions for asset charges (note 3) .................... (793) (21,328) (9,765) (1,093) ----------- ----------- ----------- ----------- Net equity transactions .... 3,066,739 13,538 1,441,733 1,199,555 ----------- ----------- ----------- ----------- Net change in contract owners' equity ............... 4,679,559 3,988,738 5,949,251 3,800,862 Contract owners' equity beginning of period .......... 11,522,573 28,264,549 22,315,298 18,514,436 ----------- ----------- ----------- ----------- Contract owners' equity end of period ................ 16,202,132 32,253,287 28,264,549 22,315,298 =========== =========== =========== ===========
9 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
FidVIPCon FidVIPGrOp ------------------------------------------------ --------------------------------------- 1998 1997 1996 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ ------- Investment activity: Reinvested dividends ............. $ 208,958 131,312 -- 20,203 -- -- Mortality and expense charges (note 3) ....................... (316,241) (184,659) (75,488) (35,749) (4,822) -- ------------ ------------ ------------ ------------ ------------ ------- Net investment activity ........ (107,283) (53,347) (75,488) (15,546) (4,822) -- ------------ ------------ ------------ ------------ ------------ ------- Proceeds from mutual fund shares sold .................... 5,270,262 2,972,056 1,863,525 6,596,939 1,418,908 -- Cost of mutual funds sold ........ (3,518,595) (2,266,444) (1,717,849) (6,370,749) (1,383,237) -- ------------ ------------ ------------ ------------ ------------ ------- Realized gain (loss) on investments .................. 1,751,667 705,612 145,676 226,190 35,671 -- Change in unrealized gain (loss) on investments ................. 6,821,820 3,432,249 1,232,338 577,416 28,661 -- ------------ ------------ ------------ ------------ ------------ ------- Net gain (loss) on investments . 8,573,487 4,137,861 1,378,014 803,606 64,332 -- ------------ ------------ ------------ ------------ ------------ ------- Reinvested capital gains ......... 1,537,336 347,039 28,665 70,230 -- -- ------------ ------------ ------------ ------------ ------------ ------- Net change in contract owners' equity resulting from operations ............ 10,003,540 4,431,553 1,331,191 858,290 59,510 -- ------------ ------------ ------------ ------------ ------------ ------- Equity transactions: Purchase payments received from contract owners ........... 7,814,633 4,330,090 2,045,437 3,299,608 43,645 -- Transfers between funds .......... 7,442,220 7,341,211 7,865,892 3,732,648 1,013,974 -- Surrenders ....................... (1,418,496) (274,806) (71,750) (1,598,688) (2,852) -- Death benefits (note 4) .......... (122,001) (39,015) (2,305) (9,225) -- -- Policy loans (net of repayments) (note 5) ......................... (1,095,851) (292,640) (45,090) (1,157,827) (2,231) -- Deductions for surrender charges (note 2d) ...................... (175,050) (36,845) (8,450) (205,666) (382) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (1,378,370) (300,404) (148,335) (136,692) (2,262) -- Deductions for asset charges (note 3) ......................... (28,197) (9,953) (669) (3,187) (383) -- ------------ ------------ ------------ ------------ ------------ ------- Net equity transactions ...... 11,038,888 10,717,638 9,634,730 3,920,971 1,049,509 -- ------------ ------------ ------------ ------------ ------------ ------- Net change in contract owners' equity ................. 21,042,428 15,149,191 10,965,921 4,779,261 1,109,019 -- Contract owners' equity beginning of period ............ 28,807,807 13,658,616 2,692,695 1,109,019 -- -- ------------ ------------ ------------ ------------ ------------ ------- Contract owners' equity end of period .................. $ 49,850,235 28,807,807 13,658,616 5,888,280 1,109,019 -- ============ ============ ============ ============ ============ =======
MSEmMkt ----------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Investment activity: Reinvested dividends ............. 37,885 11,378 -- Mortality and expense charges (note 3) ....................... (2,400) (1,095) -- ------------ ------------ ------------ Net investment activity ........ 35,485 10,283 -- ------------ ------------ ------------ Proceeds from mutual fund shares sold .................... 2,208,004 1,348,011 -- Cost of mutual funds sold ........ (2,302,818) (1,367,276) -- ------------ ------------ ------------ Realized gain (loss) on investments .................. (94,814) (19,265) -- Change in unrealized gain (loss) on investments ................. (33,784) 2,383 -- ------------ ------------ ------------ Net gain (loss) on investments . (128,598) (16,882) -- ------------ ------------ ------------ Reinvested capital gains ......... -- 4,938 -- ------------ ------------ ------------ Net change in contract owners' equity resulting from operations ............ (93,113) (1,661) -- ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners ........... 398,199 10,188 -- Transfers between funds .......... 133,381 247,359 -- Surrenders ....................... (214,691) (617) -- Death benefits (note 4) .......... (9) -- -- Policy loans (net of repayments) (note 5) ......................... (92,787) (2,742) -- Deductions for surrender charges (note 2d) ...................... (27,689) (83) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (14,797) (471) -- Deductions for asset charges (note 3) ......................... (214) (87) -- ------------ ------------ ------------ Net equity transactions ...... 181,393 253,547 -- ------------ ------------ ------------ Net change in contract owners' equity ................. 88,280 251,886 -- Contract owners' equity beginning of period ............ 251,886 -- -- ------------ ------------ ------------ Contract owners' equity end of period .................. 340,166 251,886 -- ============ ============ ============
(continued) 10 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
NSATCapAp NSATGvtBd ------------------------------------------ -------------------------------------------- 1998 1997 1996 1998 1997 1996 Investment activity: Reinvested dividends ................ $ 246,198 157,773 73,189 635,908 492,781 350,275 Mortality and expense charges (note 3) .......................... (258,178) (130,365) (51,198) (111,282) (68,282) (55,348) ------------ ------------ ------------ ------------ ------------ ------------ Net investment activity ........... (11,980) 27,408 21,991 524,626 424,499 294,927 ------------ ------------ ------------ ------------ ------------ ------------ Proceeds from mutual fund shares sold ....................... 41,145,976 22,800,149 4,082,806 43,945,372 10,818,170 1,915,031 Cost of mutual funds sold ........... (37,562,739) (19,539,881) (3,277,635) (43,540,184) (10,417,945) (1,819,552) ------------ ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments ..................... 3,583,237 3,260,268 805,171 405,188 400,225 95,479 Change in unrealized gain (loss) on investments .................... 2,897,785 41,944 (2,277) (159,490) (140,391) (232,150) ------------ ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments .... 6,481,022 3,302,212 802,894 245,698 259,834 (136,671) ------------ ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ............ 1,139,693 463,551 234,567 67,018 -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net change in contract owners' equity resulting from operations ............... 7,608,735 3,793,171 1,059,452 837,342 684,333 158,256 ------------ ------------ ------------ ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners .............. 4,921,929 2,643,340 912,101 1,866,413 1,870,588 1,418,942 Transfers between funds ............. 9,212,515 8,096,052 3,597,889 3,757,206 1,527,412 960,557 Surrenders .......................... (339,981) (225,077) (86,470) (140,551) (132,876) (70,278) Death benefits (note 4) ............. (12,217) (5,534) (4,969) (50,211) (6,196) (173) Policy loans (net of repayments) (note 5) ............................ (247,383) (353,707) (21,622) (220,482) (245,452) (210,723) Deductions for surrender charges (note 2d) ......................... (30,979) (30,177) (10,184) (15,200) (17,815) (8,277) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ................. (1,558,711) (385,883) (80,008) (989,812) (1,333,897) (876,800) Deductions for asset charges (note 3) (23,020) (7,515) (403) (9,922) (3,117) (327) ------------ ------------ ------------ ------------ ------------ ------------ Net equity transactions ......... 11,922,153 9,731,499 4,306,334 4,197,441 1,658,647 1,212,921 ------------ ------------ ------------ ------------ ------------ ------------ Net change in contract owners' equity .................... 19,530,888 13,524,670 5,365,786 5,034,783 2,342,980 1,371,177 Contract owners' equity beginning of period ............... 21,752,456 8,227,786 2,862,000 9,022,990 6,680,010 5,308,833 ------------ ------------ ------------ ------------ ------------ ------------ Contract owners' equity end of period ..................... $ 41,283,344 21,752,456 8,227,786 14,057,773 9,022,990 6,680,010 ============ ============ ============ ============ ============ ============
NSATMyMkt -------------------------------------------- 1998 1997 1996 Investment activity: Reinvested dividends ................ 2,517,296 2,001,810 1,504,594 Mortality and expense charges (note 3) .......................... (414,977) (359,665) (292,093) ------------ ------------ ------------ Net investment activity ........... 2,102,319 1,642,145 1,212,501 ------------ ------------ ------------ Proceeds from mutual fund shares sold ....................... 213,040,345 122,915,553 94,947,088 Cost of mutual funds sold ........... (213,040,345) (122,915,553) (94,947,088) ------------ ------------ ------------ Realized gain (loss) on investments ..................... -- -- -- Change in unrealized gain (loss) on investments .................... -- -- -- ------------ ------------ ------------ Net gain (loss) on investments .... -- -- -- ------------ ------------ ------------ Reinvested capital gains ............ -- -- -- ------------ ------------ ------------ Net change in contract owners' equity resulting from operations ............... 2,102,319 1,642,145 1,212,501 ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners .............. 87,844,599 117,478,803 109,975,355 Transfers between funds ............. (81,357,019) (103,571,498) (89,998,126) Surrenders .......................... (1,151,432) (2,413,548) (1,011,391) Death benefits (note 4) ............. (5,841) (37,820) (89,256) Policy loans (net of repayments) (note 5) ............................ (233,125) (1,758,491) (2,054,004) Deductions for surrender charges (note 2d) ......................... (117,086) (323,598) (119,117) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ................. (3,968,229) (4,837,509) (4,633,914) Deductions for asset charges (note 3) (37,000) (15,353) (1,874) ------------ ------------ ------------ Net equity transactions ......... 974,867 4,520,986 12,067,673 ------------ ------------ ------------ Net change in contract owners' equity .................... 3,077,186 6,163,131 13,280,174 Contract owners' equity beginning of period ............... 44,437,799 38,274,668 24,994,494 ------------ ------------ ------------ Contract owners' equity end of period ..................... 47,514,985 44,437,799 38,274,668 ============ ============ ============
11 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
NSATSmCapV NSATSmCo ---------------------------------- ----------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ---------- -------- ----------- ----------- ----------- Investment activity: Reinvested dividends ............. $ -- -- -- -- -- 13,336 Mortality and expense charges (note 3) ....................... (3,508) -- -- (115,584) (251,559) (205,531) ----------- ---------- -------- ----------- ----------- ----------- Net investment activity ........ (3,508) -- -- (115,584) (251,559) (192,195) ----------- ---------- -------- ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 1,549,129 -- -- 12,262,712 16,417,304 5,132,176 Cost of mutual funds sold ........ (1,489,413) -- -- (13,098,101) (14,437,205) (4,970,227) ----------- ---------- -------- ----------- ----------- ----------- Realized gain (loss) on investments .................. 59,716 -- -- (835,389) 1,980,099 161,949 Change in unrealized gain (loss) on investments ................. 31,642 -- -- 1,062,670 (943,075) 154,021 ----------- ---------- -------- ----------- ----------- ----------- Net gain (loss) on investments . 91,358 -- -- 227,281 1,037,024 315,970 ----------- ---------- -------- ----------- ----------- ----------- Reinvested capital gains ......... -- -- -- -- 371,914 32,269 ----------- ---------- -------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ 87,850 -- -- 111,697 1,157,379 156,044 ----------- ---------- -------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 495,836 -- -- 2,534,601 2,031,832 885,089 Transfers between funds .......... 742,114 -- -- 2,008,259 5,027,832 4,719,727 Surrenders ....................... (342,834) -- -- (175,480) (161,763) (120,346) Death benefits (note 4) .......... (1) -- -- (24,329) (40,234) -- Policy loans (net of repayments) (note 5) ........................ (92,219) -- -- (112,094) (171,323) (16,070) Deductions for surrender charges (note 2d) ...................... (44,169) -- -- (19,078) (21,689) (14,174) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (5,642) -- -- (497,764) (47,754) (45,634) Deductions for asset charges (note 3) ...................... (313) -- -- (10,306) (4,726) (2,163) ----------- ---------- -------- ----------- ----------- ----------- Net equity transactions ...... 752,772 -- -- 3,703,809 6,612,175 5,406,429 ----------- ---------- -------- ----------- ----------- ----------- Net change in contract owners' equity ................. 840,622 -- -- 3,815,506 7,769,554 5,562,473 Contract owners' equity beginning of period ............ -- -- -- 13,679,771 5,910,217 347,744 ----------- ---------- -------- ----------- ----------- ----------- Contract owners' equity end of period .................. $ 840,622 -- -- 17,495,277 13,679,771 5,910,217 =========== ========== ======== =========== =========== ===========
NSATTotRe ----------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Investment activity: Reinvested dividends ............. 923,892 906,286 619,079 Mortality and expense charges (note 3) ....................... (673,496) (342,466) (121,638) ----------- ----------- ----------- Net investment activity ........ 250,396 563,820 497,441 ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 17,758,523 7,806,204 3,735,825 Cost of mutual funds sold ........ (10,907,631) (5,268,505) (2,818,736) ----------- ----------- ----------- Realized gain (loss) on investments .................. 6,850,892 2,537,699 917,089 Change in unrealized gain (loss) on investments ................. 2,647,189 8,597,412 2,952,680 ----------- ----------- ----------- Net gain (loss) on investments . 9,498,081 11,135,111 3,869,769 ----------- ----------- ----------- Reinvested capital gains ......... 3,859,922 2,381,668 1,608,453 ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ 13,608,399 14,080,599 5,975,663 ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 18,994,728 21,089,542 12,792,421 Transfers between funds .......... 6,079,393 12,507,830 10,467,352 Surrenders ....................... (1,330,528) (993,966) (370,512) Death benefits (note 4) .......... (120,757) (73,080) (155,928) Policy loans (net of repayments) (note 5) ........................ (809,785) (1,397,247) (479,238) Deductions for surrender charges (note 2d) ...................... (122,860) (133,267) (43,637) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (11,763,303) (12,793,173) (8,037,584) Deductions for asset charges (note 3) ...................... (60,051) (25,787) (202) ----------- ----------- ----------- Net equity transactions ...... 10,866,837 18,180,852 14,172,672 ----------- ----------- ----------- Net change in contract owners' equity ................. 24,475,236 32,261,451 20,148,335 Contract owners' equity beginning of period ............ 74,640,126 42,378,675 22,230,340 ----------- ----------- ----------- Contract owners' equity end of period .................. 99,115,362 74,640,126 42,378,675 =========== =========== ===========
(Continued) 12 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
NBAMTGro NBAMTGuard -------------------------------------------- ------------------------------------- 1998 1997 1996 1998 1997 1996 ------------ ------------ ------------ ------------ -------- -------- Investment activity: Reinvested dividends ............. $ -- -- 3,554 -- -- -- Mortality and expense charges (note 3) ....................... (153,887) (131,622) (100,683) (4,780) -- -- ------------ ------------ ------------ ------------ -------- -------- Net investment activity ........ (153,887) (131,622) (97,129) (4,780) -- -- ------------ ------------ ------------ ------------ -------- -------- Proceeds from mutual fund shares sold .................... 28,296,554 11,391,328 9,167,114 1,186,919 -- -- Cost of mutual funds sold ........ (30,054,251) (10,218,717) (8,250,417) (1,243,303) -- -- ------------ ------------ ------------ ------------ -------- -------- Realized gain (loss) on investments .................. (1,757,697) 1,172,611 916,697 (56,384) -- -- Change in unrealized gain (loss) on investments ................. 273,491 1,144,227 (851,158) 53,662 -- -- ------------ ------------ ------------ ------------ -------- -------- Net gain (loss) on investments . (1,484,206) 2,316,838 65,539 (2,722) -- -- ------------ ------------ ------------ ------------ -------- -------- Reinvested capital gains ......... 4,778,935 1,172,597 831,750 -- -- -- ------------ ------------ ------------ ------------ -------- -------- Net change in contract owners' equity resulting from operations ............ 3,140,842 3,357,813 800,160 (7,502) -- -- ------------ ------------ ------------ ------------ -------- -------- Equity transactions: Purchase payments received from contract owners ........... 3,124,257 2,009,831 1,703,348 149,649 -- -- Transfers between funds .......... 3,739,437 498,211 1,821,036 831,617 -- -- Surrenders ....................... (1,015,843) (419,539) (351,632) (64,538) -- -- Death benefits (note 4)........... (13,565) (7,880) (88,967) (1) -- -- Policy loans (net of repayments) (note 5) ......................... (1,132,396) (305,567) (67,474) (25,325) -- -- Deductions for surrender charges (note 2d) ...................... (120,721) (56,250) (41,414) (8,207) -- -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (741,732) (249,631) (134,631) (17,066) -- -- Deductions for asset charges (note 3) ......................... (13,721) (6,062) (623) (426) -- -- ------------ ------------ ------------ ------------ -------- -------- Net equity transactions ...... 3,825,716 1,463,113 2,839,643 865,703 -- -- ------------ ------------ ------------ ------------ -------- -------- Net change in contract owners' equity ................. 6,966,558 4,820,926 3,639,803 858,201 -- -- Contract owners' equity beginning of period ............ 17,545,164 12,724,238 9,084,435 -- -- -- ------------ ------------ ------------ ------------ -------- -------- Contract owners' equity end of period .................. $ 24,511,722 17,545,164 12,724,238 858,201 -- -- ============ ============ ============ ============ ======== ========
NBAMTLMat ---------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Investment activity: Reinvested dividends ............. 365,591 166,562 269,872 Mortality and expense charges (note 3) ....................... (42,729) (37,669) (27,176) ------------ ------------ ------------ Net investment activity ........ 322,862 128,893 242,696 ------------ ------------ ------------ Proceeds from mutual fund shares sold .................... 3,525,682 1,060,839 1,636,406 Cost of mutual funds sold ........ (3,557,763) (1,087,427) (1,665,764) ------------ ------------ ------------ Realized gain (loss) on investments .................. (32,081) (26,588) (29,358) Change in unrealized gain (loss) on investments ................. (88,989) 99,993 (133,639) ------------ ------------ ------------ Net gain (loss) on investments . (121,070) 73,405 (162,997) ------------ ------------ ------------ Reinvested capital gains ......... -- -- -- ------------ ------------ ------------ Net change in contract owners' equity resulting from operations ............ 201,792 202,298 79,699 ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners ........... 1,227,568 568,335 346,310 Transfers between funds .......... (1,104,263) 2,560,467 (538,197) Surrenders ....................... (340,366) (49,744) (119,696) Death benefits (note 4)........... (168,478) (6,820) -- Policy loans (net of repayments) (note 5) ......................... (490,348) (50,416) (37,533) Deductions for surrender charges (note 2d) ...................... (43,208) (6,669) (14,097) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (151,014) (95,419) (59,859) Deductions for asset charges (note 3) ......................... (3,810) (2,035) (136) ------------ ------------ ------------ Net equity transactions ...... (1,073,919) 2,917,699 (423,208) ------------ ------------ ------------ Net change in contract owners' equity ................. (872,127) 3,119,997 (343,509) Contract owners' equity beginning of period ............ 5,891,455 2,771,458 3,114,967 ------------ ------------ ------------ Contract owners' equity end of period .................. 5,019,328 5,891,455 2,771,458 ============ ============ ============
13 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
NBAMTPart OppBdFd ------------------------------------------- -------------------------------------------- 1998 1997 1996 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ ------------ Investment activity: Reinvested dividends ............. $ 123,869 38,636 10,660 177,251 444,589 303,136 Mortality and expense charges (note 3) ....................... (254,428) (171,233) (62,373) (91,564) (64,328) (46,310) ------------ ------------ ------------ ------------ ------------ ------------ Net investment activity ........ (130,559) (132,597) (51,713) 85,687 380,261 256,826 ------------ ------------ ------------ ------------ ------------ ------------ Proceeds from mutual fund shares sold .................... 16,262,946 14,044,895 3,866,535 25,959,216 6,493,858 965,110 Cost of mutual funds sold ........ (15,129,583) (11,426,520) (3,344,085) (25,616,936) (6,309,717) (925,841) ------------ ------------ ------------ ------------ ------------ ------------ Realized gain (loss) on investments .................. 1,133,363 2,618,375 522,450 342,280 184,141 39,269 Change in unrealized gain (loss) on investments ................. (3,917,798) 1,495,768 897,631 13,809 7,331 (111,019) ------------ ------------ ------------ ------------ ------------ ------------ Net gain (loss) on investments . (2,784,435) 4,114,143 1,420,081 356,089 191,472 (71,750) ------------ ------------ ------------ ------------ ------------ ------------ Reinvested capital gains ......... 3,901,869 594,994 133,254 160,413 20,983 2,481 ------------ ------------ ------------ ------------ ------------ ------------ Net change in contract owners' equity resulting from operations ............ 986,875 4,576,540 1,501,622 602,189 592,716 187,557 ------------ ------------ ------------ ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners ........... 5,722,483 3,058,953 1,291,043 1,446,313 1,185,778 736,203 Transfers between funds .......... 2,646,725 11,362,270 5,427,919 2,081,829 1,429,093 1,298,812 Surrenders ....................... (676,703) (291,383) (115,788) (168,318) (151,014) (117,770) Death benefits (note 4) .......... (11,051) -- (550) (24,489) (6,177) -- Policy loans (net of repayments) (note 5) ......................... (1,178,884) (215,128) (140,654) (23,153) (97,629) (148,996) Deductions for surrender charges (note 2d) ...................... (78,170) (39,067) (13,637) (19,765) (20,247) (13,870) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (1,174,585) (364,291) (159,092) (348,809) (74,240) (34,156) Deductions for asset charges (note 3) ...................... (22,686) (9,925) (522) (8,164) (3,049) (292) ------------ ------------ ------------ ------------ ------------ ------------ Net equity transactions ..... 5,227,129 13,501,429 6,288,719 2,935,444 2,262,515 1,719,931 ------------ ------------ ------------ ------------ ------------ ------------ Net change in contract owners' equity ................. 6,214,004 18,077,969 7,790,341 3,537,633 2,855,231 1,907,488 Contract owners' equity beginning of period ............ 28,728,327 10,650,358 2,860,017 8,824,474 5,969,243 4,061,755 ------------ ------------ ------------ ------------ ------------ ------------ Contract owners' equity end of period .................. $ 34,942,331 28,728,327 10,650,358 12,362,107 8,824,474 5,969,243 ============ ============ ============ ============ ============ ============
OppGlSec -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Investment activity: Reinvested dividends ............. 389,267 139,580 -- Mortality and expense charges (note 3) ....................... (147,592) (115,087) (73,271) ------------ ------------ ------------ Net investment activity ........ 241,675 24,493 (73,271) ------------ ------------ ------------ Proceeds from mutual fund shares sold .................... 4,690,056 2,123,253 1,410,941 Cost of mutual funds sold ........ (3,335,880) (1,585,760) (1,363,666) ------------ ------------ ------------ Realized gain (loss) on investments .................. 1,354,176 537,493 47,275 Change in unrealized gain (loss) on investments ................. (702,629) 1,880,371 1,197,144 ------------ ------------ ------------ Net gain (loss) on investments . 651,547 2,417,864 1,244,419 ------------ ------------ ------------ Reinvested capital gains ......... 1,465,275 -- -- ------------ ------------ ------------ Net change in contract owners' equity resulting from operations ............ 2,358,497 2,442,357 1,171,148 ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners ........... 2,591,457 2,244,408 1,618,641 Transfers between funds .......... 1,052,407 2,806,084 1,527,191 Surrenders ....................... (390,303) (332,828) (109,366) Death benefits (note 4) .......... (12,688) (1,951) (4,893) Policy loans (net of repayments) (note 5) ......................... (265,465) (260,746) (101,645) Deductions for surrender charges (note 2d) ...................... (46,476) (44,624) (12,881) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (696,092) (209,063) (129,866) Deductions for asset charges (note 3) ...................... (13,160) (5,719) (486) ------------ ------------ ------------ Net equity transactions ..... 2,219,680 4,195,561 2,786,695 ------------ ------------ ------------ Net change in contract owners' equity ................. 4,578,177 6,637,918 3,957,843 Contract owners' equity beginning of period ............ 16,552,365 9,914,447 5,956,604 ------------ ------------ ------------ Contract owners' equity end of period .................. 21,130,542 16,552,365 9,914,447 ============ ============ ============
(Continued) 14 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
OppGro OppMult ------------------------------------- ------------------------------------------ 1998 1997 1996 1998 1997 1996 ----------- ----------- ------- ----------- ----------- ----------- Investment activity: Reinvested dividends ............. $ 9,433 -- -- 116,421 401,123 325,992 Mortality and expense charges (note 3) ....................... (26,246) (2,691) -- (104,971) (88,369) (60,231) ----------- ----------- ------- ----------- ----------- ----------- Net investment activity ........ (16,813) (2,691) -- 11,450 312,754 265,761 ----------- ----------- ------- ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 5,173,603 346,058 -- 1,906,489 1,256,650 669,520 Cost of mutual funds sold ........ (4,835,421) (340,426) -- (1,502,365) (1,026,967) (587,875) ----------- ----------- ------- ----------- ----------- ----------- Realized gain (loss) on investments .................. 338,182 5,632 -- 404,124 229,683 81,645 Change in unrealized gain (loss) on investments ................. 109,336 3,346 -- (366,305) 697,954 393,561 ----------- ----------- ------- ----------- ----------- ----------- Net gain (loss) on investments . 447,518 8,978 -- 37,819 927,637 475,206 ----------- ----------- ------- ----------- ----------- ----------- Reinvested capital gains ......... 113,813 -- -- 675,242 329,608 125,621 ----------- ----------- ------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ 544,518 6,287 -- 724,511 1,569,999 866,588 ----------- ----------- ------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 1,452,830 32,403 -- 3,243,119 1,361,025 882,926 Transfers between funds .......... 4,492,087 586,430 -- 706,703 1,935,508 1,713,791 Surrenders ....................... (576,151) (2,135) -- (1,061,880) (189,727) (334,495) Death benefits (note 4) .......... (5) -- -- (182,084) (18,581) (5,755) Policy loans (net of repayments) (note 5) ......................... (312,911) (3,203) -- (1,005,743) (138,576) (127,191) Deductions for surrender charges (note 2d) ...................... (73,520) (286) -- (126,681) (25,438) (39,395) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (116,339) (433) -- (435,809) (102,354) (67,708) Deductions for asset charges (note 3) .................... (2,340) (214) -- (9,359) (4,269) (390) ----------- ----------- ------- ----------- ----------- ----------- Net equity transactions ........ 4,863,651 612,562 -- 1,128,266 2,817,588 2,021,783 ----------- ----------- ------- ----------- ----------- ----------- Net change in contract owners' equity ................. 5,408,169 618,849 -- 1,852,777 4,387,587 2,888,371 Contract owners' equity beginning of period ............ 618,849 -- -- 12,354,982 7,967,395 5,079,024 ----------- ----------- ------- ----------- ----------- ----------- Contract owners' equity end of period .................. $ 6,027,018 618,849 -- 14,207,759 12,354,982 7,967,395 =========== =========== ======= =========== =========== ===========
StOpp2 ----------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Investment activity: Reinvested dividends ............. 71,635 79,875 104,072 Mortality and expense charges (note 3) ....................... (220,760) (185,205) (132,256) ----------- ----------- ----------- Net investment activity ........ (149,125) (105,330) (28,184) ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 3,215,306 3,417,734 2,078,877 Cost of mutual funds sold ........ (2,191,788) (2,305,866) (1,767,607) ----------- ----------- ----------- Realized gain (loss) on investments .................. 1,023,518 1,111,868 311,270 Change in unrealized gain (loss) on investments ................. (1,078,872) 1,866,652 1,442,512 ----------- ----------- ----------- Net gain (loss) on investments . (55,354) 2,978,520 1,753,782 ----------- ----------- ----------- Reinvested capital gains ......... 3,488,003 1,736,733 467,556 ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ 3,283,524 4,609,923 2,193,154 ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 5,452,015 3,291,881 2,757,995 Transfers between funds .......... 470,365 1,720,221 1,427,887 Surrenders ....................... (1,037,130) (584,361) (225,124) Death benefits (note 4) .......... (143,979) (46,618) (8,328) Policy loans (net of repayments) (note 5) ......................... (1,307,454) (446,793) (266,027) Deductions for surrender charges (note 2d) ...................... (121,009) (78,349) (26,514) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (946,709) (237,366) (127,661) Deductions for asset charges (note 3) .................... (19,684) (8,777) (842) ----------- ----------- ----------- Net equity transactions ........ 2,346,415 3,609,838 3,531,386 ----------- ----------- ----------- Net change in contract owners' equity ................. 5,629,939 8,219,761 5,724,540 Contract owners' equity beginning of period ............ 25,405,845 17,186,084 11,461,544 ----------- ----------- ----------- Contract owners' equity end of period .................. 31,035,784 25,405,845 17,186,084 =========== =========== ===========
15 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
StDisc2 StlntStk2 ------------------------------------------ ---------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- ----------- Investment activity: Reinvested dividends ............. $ -- -- 523,958 22,725 35,008 5,657 Mortality and expense charges (note 3) ....................... (58,150) (62,162) (56,198) (15,028) (16,592) (8,901) ----------- ----------- ----------- ----------- ----------- ----------- Net investment activity ........ (58,150) (62,162) 467,760 7,697 18,416 (3,244) ----------- ----------- ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 4,234,899 6,947,379 1,458,502 4,328,033 1,180,714 1,503,391 Cost of mutual funds sold ........ (3,682,201) (7,014,226) (1,298,009) (4,573,810) (1,254,173) (1,466,992) ----------- ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments .................. 552,698 (66,847) 160,493 (245,777) (73,459) 36,399 Change in unrealized gain (loss) on investments ................. (128,321) 897,855 (1,253,670) 138,162 (320,243) (2,354) ----------- ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments . 424,377 831,008 (1,093,177) (107,615) (393,702) 34,045 ----------- ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ......... 120,028 -- 645,525 -- 54,007 -- ----------- ----------- ----------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ 486,255 768,846 20,108 (99,918) (321,279) 30,801 ----------- ----------- ----------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 686,440 1,157,860 1,076,505 1,319,108 396,577 134,707 Transfers between funds .......... 154,482 (800,200) 485,660 (186,236) 159,418 1,618,370 Surrenders ....................... (128,257) (159,830) (123,465) (444,664) (39,345) (21,946) Death benefits (note 4) .......... (23,649) (17,470) (5,438) (5,993) -- -- Policy loans (net of repayments) (note 5) ......................... (104,497) (79,472) (84,412) (462,567) (28,189) (23,320) Deductions for surrender charges (note 2d) ...................... (15,109) (21,429) (14,541) (56,530) (5,275) (2,585) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (244,196) (50,118) (27,103) (61,036) (4,583) (4,827) Deductions for asset charges (note 3) ...................... (5,185) (2,607) (331) (1,340) (686) (90) ----------- ----------- ----------- ----------- ----------- ----------- Net equity transactions ....... 320,029 26,734 1,306,875 100,742 477,917 1,700,309 ----------- ----------- ----------- ----------- ----------- ----------- Net change in contract owners' equity ................. 806,284 795,580 1,326,983 824 156,638 1,731,110 Contract owners' equity beginning of period ............ 7,545,548 6,749,968 5,422,985 1,986,172 1,829,534 98,424 ----------- ----------- ----------- ----------- ----------- ----------- Contract owners' equity end of period .................. $ 8,351,832 7,545,548 6,749,968 1,986,996 1,986,172 1,829,534 =========== =========== =========== =========== =========== ===========
VEWrldBd ------------------------------------------ 1998 1997 1996 ----------- ----------- ----------- Investment activity: Reinvested dividends ............. 24,030 73,945 54,317 Mortality and expense charges (note 3) ....................... (26,599) (20,793) (19,810) ----------- ----------- ----------- Net investment activity ........ (2,569) 53,152 34,507 ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 7,510,962 1,289,613 851,361 Cost of mutual funds sold ........ (7,101,791) (1,326,687) (817,166) ----------- ----------- ----------- Realized gain (loss) on investments .................. 409,171 (37,074) 34,195 Change in unrealized gain (loss) on investments ................. (35,624) 23,130 (31,601) ----------- ----------- ----------- Net gain (loss) on investments . 373,547 (13,944) 2,594 ----------- ----------- ----------- Reinvested capital gains ......... -- -- -- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ 370,978 39,208 37,101 ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 173,889 303,361 291,664 Transfers between funds .......... 663,078 89,247 (8,294) Surrenders ....................... (47,678) (109,226) (58,485) Death benefits (note 4) .......... (35,715) -- -- Policy loans (net of repayments) (note 5) ......................... (21,466) (20,191) (33,856) Deductions for surrender charges (note 2d) ...................... (5,615) (14,645) (6,888) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (77,084) (10,312) (6,755) Deductions for asset charges (note 3) ...................... (2,372) (874) (110) ----------- ----------- ----------- Net equity transactions ....... 647,037 237,360 177,276 ----------- ----------- ----------- Net change in contract owners' equity ................. 1,018,015 276,568 214,377 Contract owners' equity beginning of period ............ 2,529,206 2,252,638 2,038,261 ----------- ----------- ----------- Contract owners' equity end of period .................. 3,547,221 2,529,206 2,252,638 =========== =========== ===========
(Continued) 16 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
VEWrldEMkt VEWrldHAs ----------------------------------------- ---------------------------------------- 1998 1997 1996 1998 1997 1996 Investment activity: Reinvested dividends ............. $ 20,182 1,791 -- 35,945 118,188 58,970 Mortality and expense charges (note 3) ....................... (14,186) (10,449) (15) (38,345) (54,934) (45,454) ----------- ----------- ----------- ----------- ----------- ----------- Net investment activity ........ 5,996 (8,658) (15) (2,400) 63,254 13,516 ----------- ----------- ----------- ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 4,758,410 3,744,118 -- 13,571,199 19,348,273 20,434,481 Cost of mutual funds sold ........ (6,579,731) (3,668,967) -- (17,132,731) (18,769,875) (19,926,482) ----------- ----------- ----------- ----------- ----------- ----------- Realized gain (loss) on investments .................. (1,821,321) 75,151 -- (3,561,532) 578,398 507,999 Change in unrealized gain (loss) on investments ................. 923,464 (815,392) -- 644,209 (898,401) 173,786 ----------- ----------- ----------- ----------- ----------- ----------- Net gain (loss) on investments . (897,857) (740,241) -- (2,917,323) (320,003) 681,785 ----------- ----------- ----------- ----------- ----------- ----------- Reinvested capital gains ......... 17,939 -- -- 882,647 160,126 57,828 ----------- ----------- ----------- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ (873,922) (748,899) (15) (2,037,076) (96,623) 753,129 ----------- ----------- ----------- ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 701,612 585,373 27 1,602,107 840,495 555,530 Transfers between funds .......... (173,962) 2,650,105 3,213 (1,198,538) (282,076) 1,779,241 Surrenders ....................... (41,678) (8,373) (7) (132,778) (171,081) (65,411) Death benefits (note 4) .......... (4,922) -- -- (3,026) (99) -- Policy loans (net of repayments) (note 5) ......................... (80,091) (71,376) -- (200,964) (124,185) (132,561) Deductions for surrender charges (note 2d) ...................... (5,094) (1,123) (1) (13,168) (22,938) (7,704) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (68,777) (8,419) (2) (199,756) (142,112) (93,537) Deductions for asset charges (note 3) ......................... (1,265) (829) -- (3,419) (2,182) (309) ----------- ----------- ----------- ----------- ----------- ----------- Net equity transactions ...... 325,823 3,145,358 3,230 (149,542) 95,822 2,035,249 ----------- ----------- ----------- ----------- ----------- ----------- Net change in contract owners' equity ................. (548,099) 2,396,459 3,215 (2,186,618) (801) 2,788,378 Contract owners' equity beginning of period ............ 2,399,674 3,215 -- 6,316,203 6,317,004 3,528,626 ----------- ----------- ----------- ----------- ----------- ----------- Contract owners' equity end of period .................. $ 1,851,575 2,399,674 3,215 4,129,585 6,316,203 6,317,004 =========== =========== =========== =========== =========== ===========
VKMSRESec ---------------------------------------- 1998 1997 1996 Investment activity: Reinvested dividends ............. 12,298 193,749 33,201 Mortality and expense charges (note 3) ....................... (52,029) (47,059) (16,174) ----------- ----------- ----------- Net investment activity ........ (39,731) 146,690 17,027 ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 4,635,925 8,117,619 2,711,361 Cost of mutual funds sold ........ (5,200,298) (7,257,679) (2,487,998) ----------- ----------- ----------- Realized gain (loss) on investments .................. (564,373) 859,940 223,363 Change in unrealized gain (loss) on investments ................. (513,939) (625,237) 303,132 ----------- ----------- ----------- Net gain (loss) on investments . (1,078,312) 234,703 526,495 ----------- ----------- ----------- Reinvested capital gains ......... 121,016 641,054 15,620 ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ (997,027) 1,022,447 559,142 ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 1,337,143 827,543 110,695 Transfers between funds .......... (908,402) 2,852,464 2,319,779 Surrenders ....................... (163,286) (100,507) (41,251) Death benefits (note 4) .......... (22,389) -- -- Policy loans (net of repayments) (note 5) ......................... (78,704) (85,370) (50,080) Deductions for surrender charges (note 2d) ...................... (19,126) (13,476) (4,858) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (232,710) (65,828) (9,078) Deductions for asset charges (note 3) ......................... (4,639) (2,636) (156) ----------- ----------- ----------- Net equity transactions ...... (92,113) 3,412,190 2,325,051 ----------- ----------- ----------- Net change in contract owners' equity ................. (1,089,140) 4,434,637 2,884,193 Contract owners' equity beginning of period ............ 7,628,431 3,193,794 309,601 ----------- ----------- ----------- Contract owners' equity end of period .................. 6,539,291 7,628,431 3,193,794 =========== =========== ===========
17 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 1998, 1997 and 1996
WPIntEq WPPVenCap ------------------------------------------ -------------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- -------------- Investment activity: Reinvested dividends ............. $ 50,333 79,669 106,181 -- 70 -- Mortality and expense charges (note 3) ....................... (72,995) (79,873) (46,519) (6,193) (3,334) -- ----------- ----------- ----------- ----------- ----------- -------------- Net investment activity ........ (22,662) (204) 59,662 (6,193) (3,264) -- ----------- ----------- ----------- ----------- ----------- -------------- Proceeds from mutual fund shares sold .................... 9,538,799 7,769,039 6,857,480 4,879,898 1,898,871 -- Cost of mutual funds sold ........ (9,941,358) (7,238,368) (6,604,093) (4,873,755) (1,856,944) -- ----------- ----------- ----------- ----------- ----------- -------------- Realized gain (loss) on investments .................. (402,559) 530,671 253,387 6,143 41,927 -- Change in unrealized gain (loss) on investments ................. 929,287 (1,377,503) (5,493) 66,492 (1,622) -- ----------- ----------- ----------- ----------- ----------- -------------- Net gain (loss) on investments . 526,728 (846,832) 247,894 72,635 40,305 -- ----------- ----------- ----------- ----------- ----------- -------------- Reinvested capital gains ......... -- 551,360 47,244 -- -- -- ----------- ----------- ----------- ----------- ----------- -------------- Net change in contract owners' equity resulting from operations ............ 504,066 (295,676) 354,800 66,442 37,041 -- ----------- ----------- ----------- ----------- ----------- -------------- Equity transactions: Purchase payments received from contract owners ........... 1,111,024 1,506,986 1,046,656 105,973 70,984 -- Transfers between funds .......... (1,578,624) 674,324 5,515,236 180,265 668,066 -- Surrenders ....................... (168,491) (113,178) (47,964) (1,367) (2,034) -- Death benefits (note 4) .......... (7,848) (16,165) (1,774) (1) -- -- Policy loans (net of repayments) (note 5) ......................... (259,475) (84,201) (65,730) 4,787 (5,947) -- Deductions for surrender charges (note 2d) ...................... (18,111) (15,174) (5,649) (7) (273) -- Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (265,303) (65,212) (91,320) (21,553) (897) -- Deductions for asset charges (note 3) ...................... (6,508) (3,447) (411) (552) (265) -- ----------- ----------- ----------- ----------- ----------- -------------- Net equity transactions ...... (1,193,336) 1,883,933 6,349,044 267,545 729,634 -- ----------- ----------- ----------- ----------- ----------- -------------- Net change in contract owners' equity ................. (689,270) 1,588,257 6,703,844 333,987 766,675 -- Contract owners' equity beginning of period ............ 9,978,378 8,390,121 1,686,277 766,675 -- -- ----------- ----------- ----------- ----------- ----------- -------------- Contract owners' equity end of period .................. $ 9,289,108 9,978,378 8,390,121 1,100,662 766,675 -- =========== =========== =========== =========== =========== ==============
WPSmCoGr ------------------------------------------ 1998 1997 1996 ----------- ----------- ----------- Investment activity: Reinvested dividends ............. -- -- -- Mortality and expense charges (note 3) ....................... (106,735) (99,826) (49,642) ----------- ----------- ----------- Net investment activity ........ (106,735) (99,826) (49,642) ----------- ----------- ----------- Proceeds from mutual fund shares sold .................... 11,652,539 13,210,500 7,405,511 Cost of mutual funds sold ........ (11,657,359) (11,590,838) (6,950,257) ----------- ----------- ----------- Realized gain (loss) on investments .................. (4,820) 1,619,662 455,254 Change in unrealized gain (loss) on investments ................. (287,723) 18,436 (150,978) ----------- ----------- ----------- Net gain (loss) on investments . (292,543) 1,638,098 304,276 ----------- ----------- ----------- Reinvested capital gains ......... -- -- -- ----------- ----------- ----------- Net change in contract owners' equity resulting from operations ............ (399,278) 1,538,272 254,634 ----------- ----------- ----------- Equity transactions: Purchase payments received from contract owners ........... 2,471,813 2,516,266 1,034,674 Transfers between funds .......... (1,849,405) 4,654,236 2,826,415 Surrenders ....................... (200,485) (128,687) (63,271) Death benefits (note 4) .......... (10,544) -- -- Policy loans (net of repayments) (note 5) ......................... 19,268 (162,099) (96,502) Deductions for surrender charges (note 2d) ...................... (20,649) (17,254) (7,452) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (454,770) (88,146) (50,847) Deductions for asset charges (note 3) ...................... (9,517) (5,401) (359) ----------- ----------- ----------- Net equity transactions ...... (54,289) 6,768,915 3,642,658 ----------- ----------- ----------- Net change in contract owners' equity ................. (453,567) 8,307,187 3,897,292 Contract owners' equity beginning of period ............ 15,632,197 7,325,010 3,427,718 ----------- ----------- ----------- Contract owners' equity end of period .................. 15,178,630 15,632,197 7,325,010 =========== =========== ===========
See accompanying notes to financial statements. 18 NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Nature of Operations The Nationwide VLI Separate Account-2 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on May 7, 1987. The Account has been registered as a unit investment trust under the Investment Company Act of 1940. The Company offers Single Premium, Modified Single Premium, Flexible Premium and Last Survivor Flexible Premium Variable Life Insurance Policies through the Account. The primary distribution for the contracts is through the brokerage community; however, other distributors may be utilized. (b) The Contracts Prior to December 31, 1990, only contracts without a front-end sales charge, but with a contingent deferred sales charge and certain other fees, were offered for purchase. Beginning December 31, 1990, contracts with a front-end sales charge, a contingent deferred sales charge and certain other fees, are offered for purchase. See note 2 for a discussion of policy charges, and note 3 for asset charges. Contract owners may invest in the following: Portfolios of the American Century Variable Portfolios, Inc. (American Century VP) (formerly TCI Portfolios, Inc.); American Century VP - American Century VP Balanced (ACVPBal) (formerly TCI Portfolios - TCI Balanced) American Century VP - American Century VP Capital Appreciation (ACVPCapAp) (formerly TCI Portfolios - TCI Growth) American Century VP - American Century VP Income & Growth (ACVPIncGr) American Century VP - American Century VP International (ACVPInt) (formerly TCI Portfolios - TCI International) American Century VP - American Century VP Value (ACVPValue) (formerly TCI Portfolios - TCI Value) The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro) Dreyfus Stock Index Fund (DryStkIx) Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF); Dreyfus VIF - Capital Appreciation Portfolio (DryCapAp) Dreyfus VIF - Growth and Income Portfolio (DryGrInc) Fidelity Advisor High Yield Fund - Class T (FAHiYld) Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP); Fidelity VIP - Equity-Income Portfolio (FidVIPEI) Fidelity VIP - Growth Portfolio (FidVIPGr) Fidelity VIP - High Income Portfolio (FidVIPHI) Fidelity VIP - Overseas Portfolio (FidVIPOv) Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity VIP-II); Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM) Fidelity VIP-II - Contrafund Portfolio (FidVIPCon) Portfolio of the Fidelity Variable Insurance Products Fund III (Fidelity VIP-III); Fidelity VIP-III - Growth Opportunities Portfolio (FidVIPGrOp) 19 Portfolio of the Morgan Stanley Universal Funds, Inc. (Morgan Stanley); Morgan Stanley - Emerging Markets Debt Portfolio (MSEmMkt) Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed for a fee by an affiliated investment advisor); Nationwide SAT - Capital Appreciation Fund (NSATCapAp) Nationwide SAT - Government Bond Fund (NSATGvtBd) Nationwide SAT - Money Market Fund (NSATMyMkt) Nationwide SAT - Small Cap Value Fund (NSATSmCapV) Nationwide SAT - Small Company Fund (NSATSmCo) Nationwide SAT - Total Return Fund (NSATTotRe) Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger &Berman AMT); Neuberger & Berman AMT - Growth Portfolio (NBAMTGro) Neuberger & Berman AMT - Guardian Portfolio (NBAMTGuard) Neuberger & Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) Neuberger & Berman AMT - Partners Portfolio (NBAMTPart) Funds of the Oppenheimer Variable Account Funds (Oppenheimer VAF); Oppenheimer VAF - Aggressive Growth Fund (OppAggGro) (formerly Oppenheimer VAF - Capital Appreciation Fund) Oppenheimer VAF - Bond Fund (OppBdFd) Oppenheimer VAF - Global Securities Fund (OppGlSec) Oppenheimer VAF - Growth Fund (OppGro) Oppenheimer VAF - Multiple Strategies Fund (OppMult) Strong Opportunity Fund II, Inc. (StOpp2) (formerly Strong Special Fund II) Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF); Strong VIF - Strong Discovery Fund II (StDisc2) Strong VIF - Strong International Stock Fund II (StIntStk2) Funds of the Van Eck Worldwide Insurance Trust (Van Eck WIT); Van Eck WIT - Worldwide Bond Fund (VEWrldBd) Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) (formerly Van Eck WIT - Gold and Natural Resources Fund) Portfolio of the Van Kampen American Capital Life Investment Trust (Van Kampen American Capital LIT); Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio (VKMSRESec) (formerly Van Kampen American Capital LIT - Real Estate Securities Fund) Portfolios of the Warburg Pincus Trust; Warburg Pincus Trust - International Equity Portfolio (WPIntEq) Warburg Pincus Trust - Post Venture Capital Portfolio (WPPVenCap) Warburg Pincus Trust - Small Company Growth Portfolio (WPSmCoGr) At December 31, 1998, contract owners have invested in all of the above funds except for Fidelity Advisor High Yield Fund Class T and Oppenheimer VAF - Aggressive Growth Fund. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain contract expenses (see notes 2 and 3). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. A contract owner may choose from among a number of different underlying mutual fund options. The underlying mutual fund options are not available to the general public directly. The underlying mutual funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. 20 Some of the underlying mutual funds have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the underlying mutual funds may be similar to, and may in fact be modeled after, publicly traded mutual funds, the underlying mutual funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any corresponding underlying mutual funds may differ substantially. (c) Security Valuation, Transactions and Related Investment Income The market value of the underlying mutual funds is based on the closing net asset value per share at December 31, 1998. Fund purchases and sales are accounted for on the trade date (date the order to buy or sell is executed). The cost of investments sold is determined on a specific identification basis, and dividends (which include capital gain distributions) are accrued as of the ex-dividend date. (d) Federal Income Taxes Operations of the Account form a part of, and are taxed with, operations of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code. The Company does not provide for income taxes within the Account. Taxes are the responsibility of the contract owner upon termination or withdrawal. (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (f) Reclassifications Certain 1997 and 1996 amounts have been reclassified to conform with the current period presentation. (2) POLICY CHARGES (a) Deductions from Premiums For single premium contracts, no deduction is made from any premium at the time of payment. On multiple payment contracts and flexible premium contracts, the Company deducts a charge for state premium taxes equal to 2.5% of all premiums received to cover the payment of these premium taxes. The Company also deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. On last survivor flexible premium contracts, the Company deducts a charge for state premium taxes equal to 3.5% of all premiums received to cover the payment of these premium taxes. The Company also deducts a sales load from each premium payment received not to exceed 5% of each premium payment during the first ten years and 1.5% of each premium payment thereafter. The Company may at its sole discretion reduce this sales loading. (b) Cost of Insurance A cost of insurance charge is assessed monthly against each contract by liquidating units. The amount of the charge is based upon age, sex, rate class and net amount at risk (death benefit less total contract value). For last survivor flexible premium contracts, the monthly cost of insurance is determined in a manner that reflects the anticipated mortality of the two insureds and the fact that the death benefit is not payable until the death of the second insured policyholder. (c) Administrative Charges An administrative charge is assessed against each contract to recover policy maintenance, accounting, record keeping and other administrative expenses and is assessed against each contract by liquidating units. 21 For single premium contracts, the Company deducts an annual administrative charge which is determined as follows: Contracts issued prior to April 16, 1990: Purchase payments totalling less than $25,000 - $10/month Purchase payments totalling $25,000 or more - none Contracts issued on or after April 16, 1990: Purchase payments totalling less than $25,000 - $90/year ($65/year in New York) Purchase payments totalling $25,000 or more - $50/year For multiple payment contracts, the Company currently deducts a monthly administrative charge of $5 (may deduct up to $7.50, maximum). For flexible premium contracts, the Company currently deducts a monthly administrative charge of $12.50 during the first policy year and $5 per month thereafter (may deduct up to $7.50, maximum). Additionally, the Company deducts an increase charge of $2.04 per year per $1,000 applied to any increase in the specified amount during the first 12 months after the increase becomes effective. For modified single premium contracts, the monthly charge is equal to an annual rate of .30% multiplied by the policy's cash value. For policy years 11 and later, this monthly charge is reduced to an annual rate of 0.15% of the policy's cash value. The monthly charge is subject to a $10 minimum. For last survivor flexible premium contracts, the Company deducts a monthly administrative charge equal to the sum of the policy charge and the basic coverage charge. For policy years one through ten the policy charge is $10. Additionally, there is a $0.04 per $1000 basic coverage charge (not less than $20 or more than $80 per policy). For policy years eleven and after, the policy charge is $5. Additionally, there is a $0.02 per $1000 basic coverage charge (not less than $10 or more than $40 per policy). Additionally, the Company deducts a monthly increase charge of $2.40 per $1000 applied to any increase in the specified amount during the first 12 months after the increase becomes effective. The charge may be raised to $3.60 per $1000 of increase per year at the Company's discretion. (d) Surrender Charges Policy surrenders result in a redemption of the contract value from the Account and payment of the surrender proceeds to the contract owner or designee. The surrender proceeds consist of the contract value, less any outstanding policy loans, and less a surrender charge, if applicable. The charge is determined according to contract type. For single premium contracts, the charge is determined based upon a specified percentage of the original purchase payment. For single premium contracts issued prior to April 16, 1990, the charge is 8% in the first year and declines to 0% after the ninth year. For single premium contracts issued on or after April 16, 1990, the charge is 8.5% in the first year, and declines to 0% after the ninth year. For multiple payment contracts and flexible premium contracts, the amount charged is based upon a specified percentage of the initial surrender charge, which varies by issue age, sex and rate class. The charge is 100% of the initial surrender charge in the first year, declining to 0% after the ninth year. For modified single premium contracts, the amount charged is based on the original purchase payment. The charge is 10% in the first year, declining to 0% in the ninth year. For last survivor flexible premium contracts, the charge is 100% of the initial surrender charge, declining to 0% in the fourteenth year if the average issue age is 74 or less. The charge is 100% of the initial surrender charge, declining to 0% in the ninth year if the average issue age is 75 or greater. For last survivor flexible payment contracts, the initial surrender charge is comprised of two components, an underwriting surrender charge and a sales surrender charge. The Company may waive the surrender charge for certain contracts in which the sales expenses normally associated with the distribution of a contract are not incurred. 22 (3) ASSET CHARGES For single premium contracts, the Company deducts a charge from the contract to cover mortality and expense risk charges related to operations, and to recover policy maintenance and premium tax charges. For contracts issued prior to April 16, 1990, the charge is equal to an annual rate of .95% during the first ten policy years, and .50% thereafter. A reduction of charges on these contracts is possible in policy years six through ten for those contracts achieving certain investment performance criteria. For single premium contracts issued on or after April 16, 1990, the charge is equal to an annual rate of 1.30% during the first ten policy years, and 1.00% thereafter. For multiple payment contracts and flexible premium contracts, the Company deducts a charge equal to an annual rate of .80%, with certain exceptions, to cover mortality and expense risk charges related to operations. The above charges are assessed through the daily unit value calculation. For modified single premium contracts, the Company deducts an annual rate of .90% charged against the cash value of the contracts. This charge is assessed monthly against each contract by liquidating units. For last survivor flexible premium contracts, the Company deducts an annual rate of .80% in policy years one through ten. This charge is assessed monthly by liquidating units. In policy years eleven and greater, the Company deducts an annual rate of .80% if the cash value of the contract is less than $100,000. If the cash value is greater than or equal to $100,000, the Company reduces the annual asset fee rate to .30%. The following table provides mortality and expense risk charges by contract type for the period ended December 31, 1998:
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 ============ ============ ============ ============ ============
23
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 ============ ============ ============ ============ ============
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 ============ ============
(4) DEATH BENEFITS Death benefits result in a redemption of the contract value from the Account and payment of the death benefit proceeds, less any outstanding policy loans (and policy charges), to the legal beneficiary. For last survivor flexible premium contracts, the proceeds are payable on the death of the last surviving insured. The excess of the death benefit proceeds over the contract value on the date of death is paid by the Company's general account. 24 (5) POLICY LOANS (NET OF REPAYMENTS) Contract provisions allow contract owners to borrow up to 90% (50% during first year of single and modified single premium contracts) of a policy's cash surrender value. For single premium contracts issued prior to April 16, 1990, 6.5% interest is due and payable annually in advance. For single premium contracts issued on or after April 16, 1990, multiple payment, flexible premium, modified single and last survivor flexible premium contracts, 6% interest is due and payable in advance on the policy anniversary when there is a loan outstanding on the policy. At the time the loan is granted, the amount of the loan is transferred from the Account to the Company's general account as collateral for the outstanding loan. Collateral amounts in the general account are credited with the stated rate of interest in effect at the time the loan is made, subject to a guaranteed minimum rate. Loan repayments result in a transfer of collateral, including interest, back to the Account. (6) RELATED PARTY TRANSACTIONS The Company performs various services on behalf of the Mutual Fund Companies in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions. These fees are paid to an affiliate of the Company. 25 (7) COMPONENTS OF CONTRACT OWNERS' EQUITY The following is a summary of contract owners' equity at December 31, 1998, for each product in the accumulation phase.
Contract owners' equity represented by: ANNUAL UNITS UNIT VALUE RETURN(b) ----- ---------- --------- Single Premium contracts issued prior to April 16, 1990: American Century VP - American Century VP Capital Appreciation ............................. 6,437 $22.339504 $143,799 (3)% Dreyfus Stock Index Fund ............................... 14,798 27.871347 412,440 27% Dreyfus VIF - Capital Appreciation Portfolio ...................... 876 13.168334 11,535 29% Fidelity VIP - Equity-Income Portfolio ................. 6,566 41.890019 275,050 11% Fidelity VIP - Growth Portfolio ........................ 4,551 58.102055 264,422 38% Fidelity VIP - High Income Portfolio ................... 3,510 27.054068 94,960 (5)% Fidelity VIP - Overseas Portfolio ...................... 4,966 24.255551 120,453 12% Fidelity VIP-II - Asset Manager Portfolio .............. 1,193 27.955691 33,351 14% Fidelity VIP-II - Contrafund Portfolio ................. 684 21.098746 14,432 29% Nationwide SAT - Capital Appreciation Fund ........................... 2,354 31.356408 73,813 29% Nationwide SAT - Government Bond Fund ................................ 1,481 23.252862 34,437 8% Nationwide SAT - Money Market Fund ..................... 9,477 16.171326 153,256 4% Nationwide SAT - Total Return Fund ..................... 4,462 40.062865 178,761 17% Neuberger &Berman AMT - Growth Portfolio .................................... 4,910 36.321304 178,338 14% Neuberger &Berman AMT - Limited Maturity Bond Portfolio ..................... 5,842 17.967444 104,966 3% Strong Opportunity Fund II, Inc. ....................... 452 29.946506 13,536 12% Van Eck WIT - Worldwide Bond Fund ...................... 264 16.631673 4,391 12% Van Eck WIT - Worldwide Hard Assets Fund .......................... 5,479 9.998900 54,784 (32)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio ................................ 4,103 15.812545 64,879 (12)% Warburg Pincus Trust - International Equity Portfolio ...................... 1,777 11.754581 20,888 4% Single Premium contracts issued on or after April 16, 1990: American Century VP - American Century VP Balanced ........................ 43,205 18.685028 807,287 14%
(Continued) 26 American Century VP - American Century VP Capital Appreciation .............. 113,249 14.906965 1,688,199 (3)% American Century VP - American Century VP Income & Growth ................... 18,703 10.826437 202,487 8%(a) American Century VP - American Century VP International .... 168,629 16.127264 2,719,524 17% American Century VP - American Century VP Value ............ 25,086 13.059452 327,609 3% The Dreyfus Socially Responsible Growth Fund, Inc. .................... 27,695 27.592332 764,170 28% Dreyfus Stock Index Fund ................ 326,895 27.364353 8,945,270 27% Dreyfus VIF - Capital Appreciation Portfolio ....... 62,982 13.101026 825,129 29% Dreyfus VIF - Growth and Income Portfolio .......... 14,240 12.644103 180,052 10% Fidelity VIP - Equity-Income Portfolio .. 456,214 34.025630 15,522,969 10% Fidelity VIP - Growth Portfolio ......... 376,885 39.900577 15,037,929 38% Fidelity VIP - High Income Portfolio .... 144,326 27.638937 3,989,017 (6)% Fidelity VIP - Overseas Portfolio ....... 248,471 17.348011 4,310,478 11% Fidelity VIP-II - Asset Manager Portfolio ............................. 253,412 27.112311 6,870,585 14% Fidelity VIP-II - Contrafund Portfolio .. 275,660 20.842351 5,745,402 28% Fidelity VIP-III - Growth Opportunities Portfolio ....... 64,568 13.447707 868,292 23% Morgan Stanley - Emerging Markets Debt Portfolio ...... 7,315 6.935753 50,735 (29)% Nationwide SAT - Capital Appreciation Fund ............ 113,664 30.628674 3,481,378 28% Nationwide SAT - Government Bond Fund ................. 274,184 19.142839 5,248,660 8% Nationwide SAT - Money Market Fund ...... 814,530 13.470763 10,972,341 4% Nationwide SAT - Small Cap Value Fund ... 28,961 8.529271 247,016 (15)%(a) Nationwide SAT - Small Company Fund ..... 68,318 15.976308 1,091,469 0% Nationwide SAT - Total Return Fund ...... 136,311 34.300994 4,675,603 17% Neuberger &Berman AMT - Growth Portfolio ..................... 136,629 25.442656 3,476,205 14% Neuberger & Berman AMT - Guardian Portfolio ................... 4,760 9.282948 44,187 (7)%(a) Neuberger &Berman AMT - Limited Maturity Bond Portfolio ...... 76,004 15.295923 1,162,551 3% Neuberger &Berman AMT - Partners Portfolio ................... 176,971 23.001381 4,070,577 3% Oppenheimer VAF - Bond Fund ............. 84,868 18.882225 1,602,497 5%
27 Oppenheimer VAF - Global Securities Fund ............ 88,848 18.062180 1,604,789 13% Oppenheimer VAF - Growth Fund ........ 26,155 12.764150 333,846 22% Oppenheimer VAF - Multiple Strategies Fund .......... 110,357 22.780548 2,513,993 5% Strong Opportunity Fund II, Inc. ..... 111,969 29.253391 3,275,473 12% Strong VIF - Strong Discovery Fund II ............................ 58,970 18.780910 1,107,510 6% Strong VIF - Strong International Stock Fund II ......................... 35,834 8.939643 320,343 (6)% Van Eck WIT - Worldwide Bond Fund .... 56,294 16.129801 908,011 11% Van Eck WIT - Worldwide Emerging Markets Fund ... 25,018 5.717162 143,032 (35)% Van Eck WIT - Worldwide Hard Assets Fund ........ 128,220 10.966233 1,406,090 (32)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio .............. 67,042 15.620311 1,047,217 (13)% Warburg Pincus Trust - International Equity Portfolio .... 92,476 11.611647 1,073,799 4% Warburg Pincus Trust - Post Venture Capital Portfolio .... 23,108 11.954408 276,242 5% Warburg Pincus Trust - Small Company Growth Portfolio .... 152,727 15.298780 2,336,537 (4)% Multiple Payment contracts and Flexible Premium contracts: American Century VP - American Century VP Balanced ...... 215,629 19.320541 4,166,069 15% American Century VP - American Century VP Capital Appreciation ........... 649,478 14.277913 9,273,190 (3)% American Century VP - American Century VP Income & Growth ................ 73,815 10.862660 801,827 9%(a) American Century VP - American Century VP International . 568,779 16.487231 9,377,591 18% American Century VP - American Century VP Value ......... 140,522 13.192098 1,853,780 4% The Dreyfus Socially Responsible Growth Fund, Inc. ................. 359,871 28.323603 10,192,843 28% Dreyfus Stock Index Fund ............. 2,166,290 28.091438 60,854,201 27% Dreyfus VIF - Capital Appreciation Portfolio .... 257,361 13.197284 3,396,466 29% Dreyfus VIF - Growth and Income Portfolio ....... 125,274 12.772496 1,600,062 11% Fidelity VIP - Equity-Income Portfolio 1,726,955 35.444796 61,211,568 11%
(Continued) 28 Fidelity VIP - Growth Portfolio ......... 2,346,630 40.998916 96,209,286 38% Fidelity VIP - High Income Portfolio .... 737,225 26.133234 19,266,073 (5)% Fidelity VIP - Overseas Portfolio ....... 871,214 18.969496 16,526,490 12% Fidelity VIP-II - Asset Manager Portfolio ............................. 961,754 24.821550 23,872,225 14% Fidelity VIP-II - Contrafund Portfolio .. 1,826,890 21.209617 38,747,637 29% Fidelity VIP-III - Growth Opportunities Portfolio ....... 315,036 13.546531 4,267,645 24% Morgan Stanley - Emerging Markets Debt Portfolio ...... 34,905 6.986851 243,876 (29)% Nationwide SAT - Capital Appreciation Fund ............ 1,058,148 31.669989 33,511,536 29% Nationwide SAT - Government Bond Fund ................. 414,068 18.081576 7,487,002 8% Nationwide SAT - Money Market Fund ...... 1,953,963 13.319323 26,025,464 4% Nationwide SAT - Small Cap Value Fund ... 50,840 8.557853 435,081 (14)%(a) Nationwide SAT - Small Company Fund ..... 879,309 16.233001 14,273,824 0% Nationwide SAT - Total Return Fund ...... 2,650,483 33.070880 87,653,805 17% Neuberger &Berman AMT - Growth Portfolio ..................... 767,489 25.347646 19,454,039 15% Neuberger & Berman AMT - Guardian Portfolio ................... 71,761 9.314041 668,385 (7)%(a) Neuberger &Berman AMT - Limited Maturity Bond Portfolio ...... 195,748 14.860392 2,908,892 4% Neuberger &Berman AMT - Partners Portfolio ................... 1,151,452 23.514569 27,075,898 3% Oppenheimer VAF - Bond Fund ............. 532,098 18.103341 9,632,752 6% Oppenheimer VAF - Global Securities Fund ............... 980,014 18.542353 18,171,766 13% Oppenheimer VAF - Growth Fund ........... 342,717 12.857977 4,406,647 23% Oppenheimer VAF - Multiple Strategies Fund ............. 460,679 22.696024 10,455,582 6% Strong Opportunity Fund II, Inc. ........ 874,006 30.245312 26,434,584 13% Strong VIF - Strong Discovery Fund II ... 360,468 19.418031 6,999,579 6% Strong VIF - Strong International Stock Fund II ... 149,776 9.083353 1,360,468 (6)% Van Eck WIT - Worldwide Bond Fund ....... 154,980 15.314274 2,373,406 12% Van Eck WIT - Worldwide Emerging Markets Fund ...... 253,188 5.775322 1,462,242 (35)% Van Eck WIT - Worldwide Hard Assets Fund ........... 206,325 12.213208 2,519,890 (32)%
29 Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio ................. 287,075 15.895654 4,563,245 (12)% Warburg Pincus Trust - International Equity Portfolio ....... 579,078 11.816371 6,842,600 5% Warburg Pincus Trust - Post Venture Capital Portfolio ....... 64,081 12.075838 773,832 6% Warburg Pincus Trust - Small Company Growth Portfolio ....... 731,702 15.568525 11,391,521 (4)% Modified Single Premium contracts and Last Survivor Flexible Premium contracts: American Century VP - American Century VP Balanced ......... 40,224 14.655512 589,503 16% American Century VP - American Century VP Capital Appreciation .............. 56,709 8.631172 489,465 (2)% American Century VP - American Century VP Income & Growth ................... 49,568 10.920877 541,326 9%(a) American Century VP - American Century VP International .... 109,633 15.178805 1,664,098 19% American Century VP - American Century VP Value ............ 39,670 13.407134 531,861 5% The Dreyfus Socially Responsible Growth Fund, Inc. .................... 59,391 18.577940 1,103,362 29% Dreyfus Stock Index Fund ................ 451,985 19.535151 8,829,595 28% Dreyfus VIF - Capital Appreciation Portfolio ....... 32,649 13.352746 435,954 30% Dreyfus VIF - Growth and Income Portfolio .......... 33,423 12.980656 433,852 12% Fidelity VIP - Equity-Income Portfolio .. 424,796 15.430209 6,554,691 12% Fidelity VIP - Growth Portfolio ......... 312,967 17.992701 5,631,122 39% Fidelity VIP - High Income Portfolio .... 328,441 12.192188 4,004,414 (4)% Fidelity VIP - Overseas Portfolio ....... 94,348 13.418281 1,265,988 13% Fidelity VIP-II - Asset Manager Portfolio ............................ 96,546 15.299714 1,477,126 15% Fidelity VIP-II - Contrafund Portfolio .. 294,323 18.152724 5,342,764 30% Fidelity VIP-III - Growth Opportunities Portfolio ....... 54,891 13.706120 752,343 25% Morgan Stanley - Emerging Markets Debt Portfolio ...... 6,444 7.069376 45,555 (28)% Nationwide SAT - Capital Appreciation Fund ............ 207,778 20.293858 4,216,617 30% Nationwide SAT - Government Bond Fund ................. 100,956 12.754801 1,287,674 9% Nationwide SAT - Money Market Fund ...... 904,630 11.456534 10,363,924 5%
(Continued) 30 Nationwide SAT - Small Cap Value Fund ............................... 18,425 8.603810 158,525 (14)%(a) Nationwide SAT - Small Company Fund .. 170,740 12.475012 2,129,984 1% Nationwide SAT - Total Return Fund ... 377,762 17.490359 6,607,193 18% Neuberger &Berman AMT - Growth Portfolio .................. 95,390 14.709510 1,403,140 16% Neuberger & Berman AMT - Guardian Portfolio ................ 15,552 9.364011 145,629 (6)%(a) Neuberger &Berman AMT - Limited Maturity Bond Portfolio ... 72,201 11.674617 842,919 4% Neuberger &Berman AMT - Partners Portfolio ................ 241,826 15.696640 3,795,856 4% Oppenheimer VAF - Bond Fund .......... 90,724 12.420731 1,126,858 7% Oppenheimer VAF - Global Securities Fund ............ 89,467 15.133929 1,353,987 14% Oppenheimer VAF - Growth Fund ........ 98,891 13.009524 1,286,525 24% Oppenheimer VAF - Multiple Strategies Fund .......... 90,548 13.674340 1,238,184 7% Strong Opportunity Fund II, Inc. ..... 85,559 15.336685 1,312,191 14% Strong VIF - Strong Discovery Fund II ............................ 20,724 11.809640 244,743 7% Strong VIF - Strong International Stock Fund II ......................... 36,980 8.279751 306,185 (5)% Van Eck WIT - Worldwide Bond Fund .... 21,531 12.141253 261,413 13% Van Eck WIT - Worldwide Emerging Markets Fund ... 41,962 5.869611 246,301 (34)% Van Eck WIT - Worldwide Hard Assets Fund ........ 21,804 6.825397 148,821 (31)% Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities Portfolio .............. 58,853 14.679798 863,950 (12)% Warburg Pincus Trust - International Equity Portfolio .... 132,142 10.230064 1,351,821 5% Warburg Pincus Trust - Post Venture Capital Portfolio .... 4,122 12.272697 50,588 7% Warburg Pincus Trust - Small Company Growth Portfolio .... 131,376 11.041376 1,450,572 (3)% ======= ========= ========= == $894,156,479 =============
(a) This investment option was not being utilized for the entire period. Accordingly, the annual return was computed for such period as the investment option was utilized. (b) The annual return does not include contract charges satisfied by surrendering units. 80 1 INDEPENDENT AUDITORS' REPORT The Board of Directors Nationwide Life Insurance Company: We have audited the accompanying consolidated balance sheets of Nationwide Life Insurance Company and subsidiaries (collectively the Company), a wholly owned subsidiary of Nationwide Financial Services, Inc., as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Columbus, Ohio January 29, 1999 2
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Consolidated Balance Sheets (in millions of dollars, except per share amounts) December 31, ----------------------- Assets 1998 1997 ------ --------- --------- Investments: Securities available-for-sale, at fair value: Fixed maturity securities $14,245.1 $13,204.1 Equity securities 127.2 80.4 Mortgage loans on real estate, net 5,328.4 5,181.6 Real estate, net 243.6 311.4 Policy loans 464.3 415.3 Other long-term investments 44.0 25.2 Short-term investments 289.1 358.4 --------- --------- 20,741.7 19,576.4 --------- --------- Cash 3.4 175.6 Accrued investment income 218.7 210.5 Deferred policy acquisition costs 2,022.2 1,665.4 Other assets 420.3 438.4 Assets held in separate accounts 50,935.8 37,724.4 --------- --------- $74,342.1 $59,790.7 ========= ========= Liabilities and Shareholder's Equity ------------------------------------ Future policy benefits and claims $19,767.1 $18,702.8 Other liabilities 866.1 885.6 Liabilities related to separate accounts 50,935.8 37,724.4 --------- --------- 71,569.0 57,312.8 --------- --------- Commitments and contingencies (notes 7 and 12) Shareholder's equity: Common stock, $1 par value. Authorized 5.0 million shares; 3.8 million shares issued and outstanding 3.8 3.8 Additional paid-in capital 914.7 914.7 Retained earnings 1,579.0 1,312.3 Accumulated other comprehensive income 275.6 247.1 --------- --------- 2,773.1 2,477.9 --------- --------- $74,342.1 $59,790.7 ========= =========
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 of dollars) Years ended December 31, ----------------------------------- 1998 1997 1996 -------- -------- --------- Revenues: Policy charges $ 698.9 $ 545.2 $ 400.9 Life insurance premiums 200.0 205.4 198.6 Net investment income 1,481.6 1,409.2 1,357.8 Realized gains (losses) on investments 28.4 11.1 (0.3) Other 66.8 46.5 35.9 -------- -------- -------- 2,475.7 2,217.4 1,992.9 -------- -------- -------- Benefits and expenses: Interest credited to policyholder account balances 1,069.0 1,016.6 982.3 Other benefits and claims 175.8 178.2 178.3 Policyholder dividends on participating policies 39.6 40.6 41.0 Amortization of deferred policy acquisition costs 214.5 167.2 133.4 Other operating expenses 419.7 384.9 342.4 -------- -------- -------- 1,918.6 1,787.5 1,677.4 -------- -------- -------- Income from continuing operations before federal income tax expense 557.1 429.9 315.5 Federal income tax expense 190.4 150.2 110.9 -------- -------- -------- Income from continuing operations 366.7 279.7 204.6 Income from discontinued operations (less federal income tax expense of $4.5 in 1996) -- -- 11.3 -------- -------- -------- Net income $ 366.7 $ 279.7 $ 215.9 ======== ======== ========
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, 1998, 1997 and 1996 (in millions of dollars) Accumulated Additional other Total Common paid-in Retained comprehensive shareholder's stock capital earnings income equity ----- ------- -------- ------ ------ December 31, 1995 $ 3.8 $ 657.2 $1,583.2 $ 384.3 $2,628.5 Comprehensive income: Net income -- -- 215.9 -- 215.9 Net unrealized losses on securities available-for-sale arising during the year -- -- -- (170.9) (170.9) -------- Total comprehensive income 45.0 -------- Dividends to shareholder -- (129.3) (366.5) (39.8) (535.6) ------ ------- -------- ------- -------- December 31, 1996 3.8 527.9 1,432.6 173.6 2,137.9 Comprehensive income: Net income -- -- 279.7 -- 279.7 Net unrealized gains on securities available-for-sale arising during the year -- -- -- 73.5 73.5 -------- Total comprehensive income 353.2 -------- Capital contribution -- 836.8 -- -- 836.8 Dividend to shareholder -- (450.0) (400.0) -- (850.0) ------ ------- -------- ------- -------- December 31, 1997 3.8 914.7 1,312.3 247.1 2,477.9 Comprehensive income: Net income -- -- 366.7 -- 366.7 Net unrealized gains on securities available-for-sale arising during the year -- -- -- 28.5 28.5 -------- Total comprehensive income 395.2 -------- Dividend to shareholder -- -- (100.0) -- (100.0) ------ ------- -------- ------- -------- December 31, 1998 $ 3.8 $ 914.7 $1,579.0 $ 275.6 $2,773.1 ====== ======= ======== ======= ========
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 of dollars) Years ended December 31, --------------------------------------- 1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net income $ 366.7 $ 279.7 $ 215.9 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 1,069.0 1,016.6 982.3 Capitalization of deferred policy acquisition costs (584.2) (487.9) (422.6) Amortization of deferred policy acquisition costs 214.5 167.2 133.4 Amortization and depreciation (8.5) (2.0) 7.0 Realized gains on invested assets, net (28.4) (11.1) (0.3) (Increase) decrease in accrued investment income (8.2) (0.3) 2.8 (Increase) decrease in other assets 16.4 (12.7) (38.9) Decrease in policy liabilities (8.3) (23.1) (151.0) (Decrease) increase in other liabilities (34.8) 230.6 191.4 Other, net (11.3) (10.9) (61.7) --------- --------- --------- Net cash provided by operating activities 982.9 1,146.1 858.3 --------- --------- --------- Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 1,557.0 993.4 1,162.8 Proceeds from sale of securities available-for-sale 610.5 574.5 299.6 Proceeds from repayments of mortgage loans on real estate 678.2 437.3 309.0 Proceeds from sale of real estate 103.8 34.8 18.5 Proceeds from repayments of policy loans and sale of other invested assets 23.6 22.7 22.8 Cost of securities available-for-sale acquired (3,182.8) (2,828.1) (1,573.6) Cost of mortgage loans on real estate acquired (829.1) (752.2) (972.8) Cost of real estate acquired (0.8) (24.9) (7.9) Policy loans issued and other invested assets acquired (88.4) (62.5) (57.7) Short-term investments, net 69.3 (354.8) 28.0 --------- --------- --------- Net cash used in investing activities (1,058.7) (1,959.8) (771.3) --------- --------- --------- Cash flows from financing activities: Proceeds from capital contributions -- 836.8 -- Cash dividends paid (100.0) -- (50.0) Increase in investment product and universal life insurance product account balances 2,682.1 2,488.5 1,781.8 Decrease in investment product and universal life insurance product account balances (2,678.5) (2,379.8) (1,784.5) --------- --------- --------- Net cash (used in) provided by financing activities (96.4) 945.5 (52.7) --------- --------- --------- Net (decrease) increase in cash (172.2) 131.8 34.3 Cash, beginning of year 175.6 43.8 9.5 --------- --------- --------- Cash, end of year $ 3.4 $ 175.6 $ 43.8 ========= ========= =========
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, 1998, 1997 and 1996 (1) Organization and Description of Business ---------------------------------------- Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was wholly owned by Nationwide Corporation (Nationwide Corp.). On that date, Nationwide Corp. contributed the outstanding shares of NLIC's common stock to Nationwide Financial Services, Inc. (NFS), a holding company formed by Nationwide Corp. in November 1996 for NLIC and the other companies within the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. On March 11, 1997, NFS completed an initial public offering of its Class A common stock. During 1996 and 1997, Nationwide Corp. and NFS completed certain transactions in anticipation of the initial public offering that focused the business of NFS on long-term savings and retirement products. On September 24, 1996, NLIC declared a dividend payable to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of certain subsidiaries that do not offer or distribute long-term savings or retirement products. In addition, during 1996, NLIC entered into two reinsurance agreements whereby all of NLIC's accident and health and group life insurance business was ceded to two affiliates effective January 1, 1996. These subsidiaries, through December 31, 1996, and all accident and health and group life insurance business have been accounted for as discontinued operations for all periods presented. See notes 10 and 14. Additionally, NLIC paid $900.0 million of dividends, $50.0 million to Nationwide Corp. on December 31, 1996 and $850.0 million to NFS, which then made an equivalent dividend to Nationwide Corp., on February 24, 1997. NFS contributed $836.8 million to the capital of NLIC during March 1997. Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC), Nationwide Advisory Services, Inc., Nationwide Investment Services Corporation and NWE, Inc. NLIC and its subsidiaries are collectively referred to as "the Company." The Company is a leading provider of long-term savings and retirement products, including variable annuities, fixed annuities and life insurance. (2) Summary of Significant Accounting Policies ------------------------------------------ The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles, which differ from statutory accounting practices prescribed or permitted by regulatory authorities. Annual Statements for NLIC and NLAIC, filed with the Department of Insurance of the State of Ohio (the Department), are prepared on the basis of accounting practices prescribed or permitted by the Department. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company has no material permitted statutory accounting practices. 7 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. The most significant estimates include those used in determining deferred policy acquisition costs, valuation allowances for mortgage loans on real estate and real estate investments and the liability for future policy benefits and claims. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. (a) Consolidation Policy -------------------- The consolidated financial statements include the accounts of NLIC and its wholly owned subsidiaries. Operations that are classified and reported as discontinued operations are not consolidated but rather are reported as "Income from discontinued operations" in the accompanying consolidated statements of income. All significant intercompany balances and transactions have been eliminated. (b) Valuation of Investments and Related Gains and Losses ----------------------------------------------------- The Company is required to classify its fixed maturity securities and equity securities as either held-to-maturity, available-for-sale or trading. Fixed maturity securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity and are stated at amortized cost. Fixed maturity securities not classified as held-to-maturity and all equity securities are classified as available-for-sale and are stated at fair value, with the unrealized gains and losses, net of adjustments to deferred policy acquisition costs and deferred federal income tax, reported as a separate component of shareholder's equity. The adjustment to deferred policy acquisition costs represents the change in amortization of deferred policy acquisition costs that would have been required as a charge or credit to operations had such unrealized amounts been realized. The Company has no fixed maturity securities classified as held-to-maturity or trading as of December 31, 1998 or 1997. Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. The measurement of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered to be impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in interest income in the period received. Real estate is carried at cost less accumulated depreciation and valuation allowances. Other long-term investments are carried on the equity basis, adjusted for valuation allowances. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Estimates for valuation allowances and other than temporary declines are included in realized gains and losses on investments. 8 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (c) Revenues and Benefits --------------------- Investment Products and Universal Life Insurance Products: Investment products consist primarily of individual and group variable and fixed deferred annuities. Universal life insurance products include universal life insurance, variable universal life insurance, corporate owned life insurance and other interest-sensitive life insurance policies. Revenues for investment products and universal life insurance products consist of net investment income, asset fees, cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. Policy benefits and claims that are charged to expense include interest credited to policy account balances and benefits and claims incurred in the period in excess of related policy account balances. Traditional Life Insurance Products: Traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies. Premiums for traditional life insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future policy benefits and the deferral and amortization of policy acquisition costs. (d) Deferred Policy Acquisition Costs --------------------------------- The costs of acquiring new business, principally commissions, certain expenses of the policy issue and underwriting department and certain variable sales expenses have been deferred. For investment products and universal life insurance products, deferred policy acquisition costs are being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset fees, cost of insurance, policy administration and surrender charges. For years in which gross profits are negative, deferred policy acquisition costs are amortized based on the present value of gross revenues. For traditional life insurance products, these deferred policy acquisition costs are predominantly being amortized with interest over the premium paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue was estimated using the same assumptions as were used for computing liabilities for future policy benefits. Deferred policy acquisition costs are adjusted to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b). (e) Separate Accounts ----------------- Separate account assets and liabilities represent contractholders' funds which have been segregated into accounts with specific investment objectives. For all but $743.9 million of separate account assets, the investment income and gains or losses of these accounts accrue directly to the contractholders. The activity of the separate accounts is not reflected in the consolidated statements of income and cash flows except for the fees the Company receives. (f) Future Policy Benefits ---------------------- Future policy benefits for investment products in the accumulation phase, universal life insurance and variable universal life insurance policies have been calculated based on participants' contributions plus interest credited less applicable contract charges. The average interest rate credited on investment product policy reserves was 6.0%, 6.1% and 6.3% for the years ended December 31, 1998, 1997 and 1996, respectively. Future policy benefits for traditional life insurance policies have been calculated by the net level premium method using interest rates varying from 6.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the time the policies were issued, rather than the assumptions prescribed by state regulatory authorities. 9 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (g) Participating Business ---------------------- Participating business represents approximately 40% in 1998 (50% in 1997 and 52% in 1996) of the Company's life insurance in force, 74% in 1998 (77% in 1997 and 78% in 1996) of the number of life insurance policies in force, and 14% in 1998 (27% in 1997 and 40% in 1996) of life insurance statutory premiums. The provision for policyholder dividends is based on current dividend scales and is included in "Future policy benefits and claims" in the accompanying consolidated balance sheets. (h) Federal Income Tax ------------------ The Company files a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC), the majority shareholder of Nationwide Corp. The members of the consolidated tax return group have a tax sharing arrangement which provides, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. The Company utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. (i) Reinsurance Ceded ----------------- Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. All of the Company's accident and health and group life insurance business is ceded to affiliates and is accounted for as discontinued operations. See notes 10 and 14. 10 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (j) Recently Issued Accounting Pronouncements ----------------------------------------- On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures about Segments of an Enterprise and Related Information (SFAS 131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 did not affect results of operations or financial position, nor did it affect the manner in which the Company defines its operating segments. The segment information required for annual financial statements is included in note 13. On January 1, 1998, the Company adopted SFAS No. 132 - Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS 132). SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. The Statement does not change the measurement or recognition of benefit plans in the financial statements. The revised disclosures required by SFAS 132 are included in note 8. In June 1998, the FASB issued SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. Contracts that contain embedded derivatives, such as certain insurance contracts, are also addressed by the Statement. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for fiscal years beginning after June 15, 1999. It may be implemented earlier provided adoption occurs as of the beginning of any fiscal quarter after issuance. The Company plans to adopt this Statement in first quarter 2000 and is currently evaluating the impact on results of operations and financial condition. In March 1998, The American Institute of Certified Public Accountant's Accounting Standards Executive Committee issued Statement of Position 98-1 - Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance intended to standardize accounting practices for costs incurred to develop or obtain computer software for internal use. Specifically, SOP 98-1 provides guidance for determining whether computer software is for internal use and when costs incurred for internal use software are to be capitalized. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect the adoption of SOP 98-1, which occurred on January 1, 1999, to have a material impact on the Company's financial statements. (k) Reclassification ---------------- Certain items in the 1997 and 1996 consolidated financial statements have been reclassified to conform to the 1998 presentation. 11 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (3) Investments ----------- The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 1998 and 1997 were:
Gross Gross Amortized unrealized unrealized Estimated (in millions of dollars) cost gains losses fair value ------------------------ ---- ----- ------ ---------- December 31, 1998: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 255.9 $ 13.0 $ -- $ 268.9 Obligations of states and political subdivisions 1.6 -- -- 1.6 Debt securities issued by foreign governments 106.5 4.5 -- 111.0 Corporate securities 9,899.6 423.2 (18.7) 10,304.1 Mortgage-backed securities 3,457.7 104.2 (2.4) 3,559.5 --------- ------ ------ --------- Total fixed maturity securities 13,721.3 544.9 (21.1) 14,245.1 Equity securities 110.4 18.3 (1.5) 127.2 --------- ------ ------ --------- $13,831.7 $563.2 $(22.6) $14,372.3 ========= ====== ====== ========= December 31, 1997: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 305.1 $ 8.6 $ -- $ 313.7 Obligations of states and political subdivisions 1.6 -- -- 1.6 Debt securities issued by foreign governments 93.3 2.7 (0.2) 95.8 Corporate securities 8,698.7 355.5 (11.5) 9,042.7 Mortgage-backed securities 3,634.2 118.6 (2.5) 3,750.3 --------- ------ ------ --------- Total fixed maturity securities 12,732.9 485.4 (14.2) 13,204.1 Equity securities 67.8 12.9 (0.3) 80.4 --------- ------ ------ --------- $12,800.7 $498.3 $(14.5) $13,284.5 ========= ====== ====== =========
As of December 31, 1998 the Company had entered into S&P 500 futures contracts with a notional amount of $20.0 million to reduce the risk of changes in the fair market value of certain investments classified as equity securities. These contracts had an unrealized loss of $1.3 million as of December 31, 1998 which is included in the recorded amount of the equity securities and in accumulated other comprehensive income, net of tax, similar to other unrealized gains and losses on securities available-for-sale. 12 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The amortized cost and estimated fair value of fixed maturity securities available-for-sale as of December 31, 1998, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated (in millions of dollars) cost fair value ---- ---------- Fixed maturity securities available for sale: Due in one year or less $ 2,019.9 $ 2,048.0 Due after one year through five years 8,169.1 8,470.6 Due after five years through ten years 2,795.0 2,927.7 Due after ten years 737.3 798.8 --------- --------- $13,721.3 $14,245.1 ========= =========
The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:
(in millions of dollars) 1998 1997 ---- ---- Gross unrealized gains $ 540.6 $ 483.8 Adjustment to deferred policy acquisition costs (116.6) (103.7) Deferred federal income tax (148.4) (133.0) ------- ------- $ 275.6 $ 247.1 ======= =======
An analysis of the change in gross unrealized gains (losses) on securities available-for-sale and fixed maturity securities held-to-maturity follows for the years ended December 31:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Securities available-for-sale: Fixed maturity securities $52.6 $137.5 $(289.2) Equity securities 4.2 (2.7) 8.9 ----- ------ ------- $56.8 $134.8 $(280.3) ===== ====== =======
Proceeds from the sale of securities available-for-sale during 1998, 1997 and 1996 were $610.5 million, $574.5 million and $299.6 million, respectively. During 1998, gross gains of $9.0 million ($9.9 million and $6.6 million in 1997 and 1996, respectively) and gross losses of $7.6 million ($18.0 million and $6.9 million in 1997 and 1996, respectively) were realized on those sales. In addition, gross gains of $15.1 million and gross losses of $0.7 million were realized in 1997 when the Company paid a dividend to NFS, which then made an equivalent dividend to Nationwide Corp., consisting of securities having an aggregate fair value of $850.0 million. The recorded investment of mortgage loans on real estate considered to be impaired as of December 31, 1998 was $3.7 million. No valuation allowance has been recorded for these loans as of December 31, 1998. The recorded investment of mortgage loans on real estate considered to be impaired as of December 31, 1997 was $19.9 million which includes $3.9 million of impaired mortgage loans on real estate for which the related valuation allowance was $0.1 million and $16.0 million of impaired mortgage loans on real estate for which there was no valuation allowance. During 1998, the average recorded investment in impaired mortgage loans on real estate was approximately $9.1 million ($31.8 million in 1997) and interest income recognized on those loans was $0.3 million ($1.0 million in 1997), which is equal to interest income recognized using a cash-basis method of income recognition. 13 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Activity in the valuation allowance account for mortgage loans on real estate is summarized for the years ended December 31:
(in millions of dollars) 1998 1997 ---- ---- Allowance, beginning of year $42.5 $51.0 Reductions credited to operations (0.1) (1.2) Direct write-downs charged against the allowance -- (7.3) ----- ----- Allowance, end of year $42.4 $42.5 ===== =====
Real estate is presented at cost less accumulated depreciation of $21.5 million as of December 31, 1998 ($45.1 million as of December 31, 1997) and valuation allowances of $5.4 million as of December 31, 1998 ($11.1 million as of December 31, 1997). Investments that were non-income producing for the twelve month period preceding December 31, 1998 amounted to $42.4 million ($19.4 million for 1997) and consisted of $32.7 million ($3.0 million in 1997) in securities available-for-sale and $9.7 million ($16.4 million in 1997) in real estate. An analysis of investment income by investment type follows for the years ended December 31:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Gross investment income: Securities available-for-sale: Fixed maturity securities $ 982.5 $ 911.6 $ 917.1 Equity securities 0.8 0.8 1.3 Mortgage loans on real estate 458.9 457.7 432.8 Real estate 40.4 42.9 44.3 Short-term investments 17.8 22.7 4.2 Other 30.7 21.0 4.0 -------- -------- -------- Total investment income 1,531.1 1,456.7 1,403.7 Less investment expenses 49.5 47.5 45.9 -------- -------- -------- Net investment income $1,481.6 $1,409.2 $1,357.8 ======== ======== ========
An analysis of realized gains (losses) on investments, net of valuation allowances, by investment type follows for the years ended December 31:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Securities available-for-sale: Fixed maturity securities $(0.7) $ 3.6 $(3.5) Equity securities 2.1 2.7 3.2 Mortgage loans on real estate 3.9 1.6 (4.1) Real estate and other 23.1 3.2 4.1 ----- ----- ----- $28.4 $11.1 $(0.3) ===== ===== =====
Fixed maturity securities with an amortized cost of $6.5 million and $6.2 million as of December 31, 1998 and 1997, respectively, were on deposit with various regulatory agencies as required by law. 14 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (4) Federal Income Tax ------------------ The Company's current federal income tax liability was $72.8 million and $60.1 million as of December 31, 1998 and 1997, respectively. The tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31, 1998 and 1997 are as follows:
(in millions of dollars) 1998 1997 ---- ---- Deferred tax assets: Future policy benefits $207.7 $200.1 Liabilities in Separate Accounts 319.9 242.0 Mortgage loans on real estate and real estate 17.5 19.0 Other assets and other liabilities 58.9 59.2 ------ ------ Total gross deferred tax assets 604.0 520.3 Less valuation allowance (7.0) (7.0) ------ ------ Net deferred tax assets 597.0 513.3 ------ ------ Deferred tax liabilities: Deferred policy acquisition costs 568.7 480.5 Fixed maturity securities 212.2 193.3 Deferred tax on realized investment gains 34.8 40.1 Equity securities and other long-term investments 9.6 7.5 Other 21.6 22.2 ------ ------ Total gross deferred tax liabilities 846.9 743.6 ------ ------ Net deferred tax liability $249.9 $230.3 ====== ======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. Nearly all future deductible amounts can be offset by future taxable amounts or recovery of federal income tax paid within the statutory carryback period. There has been no change in the valuation allowance for the years ended December 31, 1998, 1997 and 1996. Federal income tax expense attributable to income from continuing operations for the years ended December 31 was as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Currently payable $186.1 $121.7 $116.5 Deferred tax expense (benefit) 4.3 28.5 (5.6) ------ ------ ------ $190.4 $150.2 $110.9 ====== ====== ======
15 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Total federal income tax expense for the years ended December 31, 1998, 1997 and 1996 differs from the amount computed by applying the U.S. federal income tax rate to income before tax as follows:
1998 1997 1996 ----------------- ---------------- ----------------- (in millions of dollars) Amount % Amount % Amount % ------ - ------ - ------ - Computed (expected) tax expense $195.0 35.0 $150.5 35.0 $110.4 35.0 Tax exempt interest and dividends received deduction (4.9) (0.9) - 0.0 (0.2) (0.1) Other, net 0.3 0.1 (0.3) (0.1) 0.7 0.3 ------ ---- ------ ---- ------ ---- Total (effective rate of each year) $190.4 34.2 $150.2 34.9 $110.9 35.2 ====== ==== ====== ==== ====== ====
Total federal income tax paid was $173.4 million, $91.8 million and $115.8 million during the years ended December 31, 1998, 1997 and 1996, respectively. (5) Comprehensive Income -------------------- Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the Company adopted January 1, 1998, the Consolidated Statements of Shareholder's Equity include a new measure called "Comprehensive Income". Comprehensive Income includes net income as well as certain items that are reported directly within separate components of shareholders' equity that bypass net income. Currently, the Company's only component of Other Comprehensive Income is unrealized gains (losses) on securities available-for-sale. The related before and after federal tax amounts are as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Unrealized gains (losses) on securities available-for-sale arising during the period: Gross $ 58.2 $141.1 $(272.4) Adjustment to deferred policy acquisition costs (12.9) (21.8) 57.0 Related federal income tax (expense) benefit (15.9) (41.7) 44.0 ------ ------ ------ Net 29.4 77.6 (171.4) ------ ------ ------ Reclassification adjustment for net (gains) losses on securities available-for-sale realized during the period: Gross (1.4) (6.3) 0.7 Related federal income tax expense (benefit) 0.5 2.2 (0.2) ------ ------ ------- Net (0.9) (4.1) 0.5 ------ ------ ------- Total Other Comprehensive Income $ 28.5 $ 73.5 $(170.9) ====== ====== =======
(6) Fair Value of Financial Instruments ----------------------------------- The following disclosures summarize the carrying amount and estimated fair value of the Company's financial instruments. Certain assets and liabilities are specifically excluded from the disclosure requirements of financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. 16 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The fair value of a financial instrument is defined as the amount at which the financial instrument could be exchanged in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is to be based on estimates using present value or other valuation techniques. Many of the Company's assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from the disclosure requirements, estimated fair value of policy reserves on life insurance contracts is provided to make the fair value disclosures more meaningful. The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following methods and assumptions were used by the Company in estimating its fair value disclosures: Fixed maturity and equity securities: The fair value for fixed maturity securities is based on quoted market prices, where available. For fixed maturity securities not actively traded, fair value is estimated using values obtained from independent pricing services or, in the case of private placements, is estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. The carrying amount and fair value for equity securities exclude the fair value of futures contracts designated as hedges of equity securities. Mortgage loans on real estate, net: The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair value for mortgage loans in default is the estimated fair value of the underlying collateral. Policy loans, short-term investments and cash: The carrying amount reported in the consolidated balance sheets for these instruments approximates their fair value. Separate account assets and liabilities: The fair value of assets held in separate accounts is based on quoted market prices. The fair value of liabilities related to separate accounts is the amount payable on demand, which is net of certain surrender charges. Investment contracts: The fair value for the Company's liabilities under investment type contracts is disclosed using two methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued. 17 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Policy reserves on life insurance contracts: Included are disclosures for individual life insurance, universal life insurance and supplementary contracts with life contingencies for which the estimated fair value is the amount payable on demand. Also included are disclosures for the Company's limited payment policies, which the Company has used discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value. Commitments to extend credit: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 7. Futures contracts: The fair value for futures contracts is based on quoted market prices. Carrying amount and estimated fair value of financial instruments subject to disclosure requirements and policy reserves on life insurance contracts were as follows as of December 31:
1998 1997 ------------------------- -------------------------- Carrying Estimated Carrying Estimated (in millions of dollars) amount fair value amount fair value --------- ---------- --------- ---------- Assets: Investments: Securities available-for-sale: Fixed maturity securities $14,245.1 $14,245.1 $13,204.1 $13,204.1 Equity securities 128.5 128.5 80.4 80.4 Mortgage loans on real estate, net 5,328.4 5,527.6 5,181.6 5,509.7 Policy loans 464.3 464.3 415.3 415.3 Short-term investments 289.1 289.1 358.4 358.4 Cash 3.4 3.4 175.6 175.6 Assets held in separate accounts 50,935.8 50,935.8 37,724.4 37,724.4 Liabilities: Investment contracts 15,468.7 15,158.6 14,708.2 14,322.1 Policy reserves on life insurance contracts 3,914.0 3,768.9 3,345.4 3,182.4 Liabilities related to separate accounts 50,935.8 49,926.5 37,724.4 36,747.0 Futures contracts 1.3 1.3 -- --
(7) Risk Disclosures ---------------- The following is a description of the most significant risks facing life insurers and how the Company mitigates those risks: Credit Risk: The risk that issuers of securities owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a conservative investment strategy, by maintaining reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible. Interest Rate Risk: The risk that interest rates will change and cause a decrease in the value of an insurer's investments. This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that transfer this risk to the purchaser, and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer would have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss. 18 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Legal/Regulatory Risk: The risk that changes in the legal or regulatory environment in which an insurer operates will result in increased competition, reduced demand for a company's products, or create additional expenses not anticipated by the insurer in pricing its products. The Company mitigates this risk by offering a wide range of products and by operating throughout the United States, thus reducing its exposure to any single product or jurisdiction, and also by employing underwriting practices which identify and minimize the adverse impact of this risk. Financial Instruments with Off-Balance-Sheet Risk: The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business through management of its investment portfolio. These financial instruments include commitments to extend credit in the form of loans. These instruments involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. Commitments to fund fixed rate mortgage loans on real estate are agreements to lend to a borrower, and are subject to conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a deposit. Commitments extended by the Company are based on management's case-by-case credit evaluation of the borrower and the borrower's loan collateral. The underlying mortgage property represents the collateral if the commitment is funded. The Company's policy for new mortgage loans on real estate is to lend no more than 75% of collateral value. Should the commitment be funded, the Company's exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for all unfunded commitments. Commitments on mortgage loans on real estate of $156.0 million extending into 1999 were outstanding as of December 31, 1998. The Company also had $40.0 million of commitments to purchase fixed maturity securities outstanding as of December 31, 1998. Significant Concentrations of Credit Risk: The Company grants mainly commercial mortgage loans on real estate to customers throughout the United States. The Company has a diversified portfolio with no more than 22% (20% in 1997) in any geographic area and no more than 2% (2% in 1997) with any one borrower as of December 31, 1998. As of December 31, 1998, 42% (46% in 1997) of the remaining principal balance of the Company's commercial mortgage loan portfolio financed retail properties. Reinsurance: The Company has entered into a reinsurance contract to cede a portion of its general account individual annuity business to The Franklin Life Insurance Company (Franklin). Total recoveries due from Franklin were $187.9 million and $220.2 million as of December 31, 1998 and 1997, respectively. The contract is immaterial to the Company's results of operations. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. Under the terms of the contract, Franklin has established a trust as collateral for the recoveries. The trust assets are invested in investment grade securities, the market value of which must at all times be greater than or equal to 102% of the reinsured reserves. (8) Pension Plan and Postretirement Benefits Other Than Pensions ------------------------------------------------------------ The Company is a participant, together with other affiliated companies, in a pension plan covering all employees who have completed at least one year of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work efforts benefit the Company. Assets of the Retirement Plan are invested in group annuity contracts of NLIC and Employers Life Insurance Company of Wausau (ELICW). Pension costs charged to operations by the Company during the years ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million and $7.4 million, respectively. The Company has recorded a prepaid pension asset of $5.0 million as of December 31, 1998 and no prepaid or accrued pension asset or expense as of December 31, 1997. 19 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In addition to the defined benefit pension plan, the Company, together with other affiliated companies, participates in life and health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits are contributory and generally available to full time employees who have attained age 55 and have accumulated 15 years of service with the Company after reaching age 40. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Company's portion of the per-participant cost of the postretirement health care benefits. These caps can increase annually, but not more than three percent. The Company's policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in group annuity contracts of NLIC. The Company elected to immediately recognize its estimated accumulated postretirement benefit obligation (APBO), however, certain affiliated companies elected to amortize their initial transition obligation over periods ranging from 10 to 20 years. The Company's accrued postretirement benefit expense as of December 31, 1998 and 1997 was $40.1 million and $36.5 million, respectively, and the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and 1996 was $4.1 million, $3.0 million and $3.3 million, respectively. Information regarding the funded status of the pension plan as a whole and the postretirement life and health care benefit plan as a whole as of December 31, 1998 and 1997 follows:
Pension Benefits Postretirement Benefits --------------------- ----------------------- (in millions of dollars) 1998 1997 1998 1997 --------------------------------------------------------- -------- -------- -------- ------- Change in benefit obligation: Benefit obligation at beginning of year $2,033.8 $1,847.8 $237.9 $ 200.7 Service cost 87.6 77.3 9.8 7.0 Interest cost 123.4 118.6 15.4 14.0 Actuarial loss 123.2 60.0 15.6 24.4 Plan curtailment in 1998/merger in 1997 (107.2) 1.5 - - Benefits paid (75.8) (71.4) (8.6) (8.2) -------- -------- ------- ------- Benefit obligation at end of year 2,185.0 2,033.8 270.1 237.9 -------- -------- ------- ------- Change in plan assets: Fair value of plan assets at beginning of year 2,212.9 1,947.9 69.2 63.0 Actual return on plan assets 300.7 328.1 5.0 3.6 Employer contribution 104.1 7.2 12.1 10.6 Plan merger - 1.1 - - Benefits paid (75.8) (71.4) (8.4) (8.0) -------- -------- ------- ------- Fair value of plan assets at end of year 2,541.9 2,212.9 77.9 69.2 -------- -------- ------- ------- Funded status 356.9 179.1 (192.2) (168.7) Unrecognized prior service cost 31.5 34.7 - - Unrecognized net (gains) losses (345.7) (330.7) 16.0 1.6 Unrecognized net (asset) obligation at transition (11.0) 33.3 1.3 1.5 -------- -------- ------- ------- Prepaid (accrued) benefit cost $ 31.7 $ (83.6) $(174.9) $(165.6) ======== ======== ======= =======
20 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Basis for measurements, funded status of the pension plan and postretirement life and health care benefit plan:
Pension Benefits Postretirement Benefits -------------------- ----------------------- 1998 1997 1998 1997 -------- ------ -------- -------- Weighted average discount rate 5.50% 6.00% 6.65% 6.70% Rate of increase in future compensation levels 3.75% 4.25% -- -- Assumed health care cost trend rate: Initial rate -- -- 15.00% 12.13% Ultimate rate -- -- 8.00% 6.12% Uniform declining period -- -- 15 Years 12 Years
The net periodic pension cost for the pension plan as a whole for the years ended December 31, 1998, 1997 and 1996 follows:
(in millions of dollars) 1998 1997 1996 -------------------------------------------------------------------------------- ---- ---- Service cost (benefits earned during the period) $ 87.6 $ 77.3 $ 75.5 Interest cost on projected benefit obligation 123.4 118.6 105.5 Expected return on plan assets (159.0) (139.0) (116.1) Recognized gains (3.8) - - Amortization of prior service cost 3.2 3.2 3.2 Amortization of unrecognized transition obligation 4.2 4.2 4.1 ------- ------- ------- $ 55.6 $ 64.3 $ 72.2 ======= ======= =======
Effective December 31, 1998, Wausau Service Corporation (WSC) ended its affiliation with the Nationwide Insurance Enterprise and employees of WSC ended participation in the plan. A curtailment gain of $67.1 million resulted (consisting of a $107.2 million reduction in the projected benefit obligation, net of the write-off of the $40.1 million remaining unamortized transition obligation related to WSC). The Company anticipates that the plan will settle the obligation related to WSC employees with a transfer of assets during 1999. Basis for measurements, net periodic pension cost for the pension plan:
1998 1997 1996 ---- ---- ---- Weighted average discount rate 6.00% 6.50% 6.00% Rate of increase in future compensation levels 4.25% 4.75% 4.25% Expected long-term rate of return on plan assets 7.25% 7.25% 6.75%
21 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The amount of NPPBC for the postretirement benefit plan as a whole for the years ended December 31, 1998, 1997 and 1996 was as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Service cost (benefits attributed to employee service during the year) $ 9.8 $ 7.0 $ 6.5 Interest cost on accumulated postretirement benefit obligation 15.4 14.0 13.7 Actual return on plan assets (5.0) (3.6) (4.3) Amortization of unrecognized transition obligation of affiliates 0.2 0.2 0.2 Net amortization and deferral 1.2 (0.5) 1.8 ----- ----- ----- $21.6 $17.1 $17.9 ===== ===== =====
Actuarial assumptions used for the measurement of the accumulated postretirement benefit obligation (APBO) and the NPPBC for the postretirement benefit plan for 1998, 1997 and 1996 were as follows:
1998 1997 1996 ----- ----- ---- NPPBC: Discount rate 6.70% 7.25% 6.65% Long term rate of return on plan assets, net of tax 5.83% 5.89% 4.80% Assumed health care cost trend rate: Initial rate 12.00% 11.00% 11.00% Ultimate rate 6.00% 6.00% 6.00% Uniform declining period 12 Years 12 Years 12 Years
For the postretirement benefit plan as a whole, a one percentage point increase or decrease in the assumed health care cost trend rate would have no impact on the APBO as of December 31, 1998 and have no impact on the NPPBC for the year ended December 31, 1998. (9) Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings ---------------------------------------------------------------------- and Dividend Restrictions ------------------------- Ohio, NLIC's and NLAIC's state of domicile, imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and NLAIC each exceed the minimum risk-based capital requirements. The statutory capital and surplus of NLIC as of December 31, 1998, 1997 and 1996 was $1.32 billion, $1.13 billion and $1.00 billion, respectively. The statutory net income of NLIC for the years ended December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and $73.2 million, respectively. The Company is limited in the amount of shareholder dividends it may pay without prior approval by the Department. As of December 31, 1998, the maximum amount available for dividend payment from the Company to its shareholder without prior approval of the Department was $71.0 million. 22 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of New York that limit the amount of statutory profits on NLIC's participating policies (measured before dividends to policyholders) that can inure to the benefit of the Company and its shareholder. The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses and shareholder dividends in the future. (10) Transactions With Affiliates ---------------------------- As part of the restructuring described in note 1, NLIC paid a dividend valued at $485.7 million to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of ELICW, National Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC). Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid an equivalent dividend to Nationwide Corp., consisting of securities having an aggregate fair value of $850.0 million. The Company recognized a gain of $14.4 million on the transfer of securities. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the Company made lease payments to NMIC and its subsidiaries of $8.0 million, $8.4 million and $9.1 million, respectively. Pursuant to a cost sharing agreement among NMIC and certain of its direct and indirect subsidiaries, including the Company, NMIC provides certain operational and administrative services, such as sales support, advertising, personnel and general management services, to those subsidiaries. Expenses covered by this agreement are subject to allocation among NMIC, the Company and other affiliates. Amounts allocated to the Company were $95.0 million, $85.8 million and $101.6 million in 1998, 1997 and 1996, respectively. The allocations are based on techniques and procedures in accordance with insurance regulatory guidelines. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commissions expense and other methods agreed to by the participating companies that are within industry guidelines and practices. The Company believes these allocation methods are reasonable. In addition, the Company does not believe that expenses recognized under the inter-company agreements are materially different than expenses that would have been recognized had the Company operated on a stand alone basis. Amounts payable to NMIC from the Company under the cost sharing agreement were $31.9 million and $20.5 million as of December 31, 1998 and 1997, respectively. The Company also participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or a stated period, the securities will be repurchased by the seller at the original sales price plus a price differential. Transactions under the agreements during 1998 and 1997 were not material. The Company believes that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties. 23 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Intercompany reinsurance agreements exist between NLIC and, respectively, NMIC and ELICW whereby all of NLIC's accident and health and group life insurance business is ceded on a modified coinsurance basis. NLIC entered into the reinsurance agreements during 1996 because the accident and health and group life insurance business was unrelated to the Company's long-term savings and retirement products. Accordingly, the accident and health and group life insurance business has been accounted for as discontinued operations for all periods presented. Under modified coinsurance agreements, invested assets are retained by the ceding company and investment earnings are paid to the reinsurer. Under the terms of the Company's agreements, the investment risk associated with changes in interest rates is borne by ELICW or NMIC, as the case may be. Risk of asset default is retained by the Company, although a fee is paid by ELICW or NMIC, as the case may be, to the Company for the Company's retention of such risk. The agreements will remain in force until all policy obligations are settled. However, with respect to the agreement between NLIC and NMIC, either party may terminate the contract on January 1 of any year with prior notice. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified coinsurance agreements are consistent in all material respects with what the Company could have obtained with unaffiliated parties. Amounts ceded to NMIC and ELICW for the years ended December 31, 1998, 1997 and 1996 were:
1998 1997 1996 ------------------------------------------------------------------------------------ (in millions of dollars) NMIC ELICW NMIC ELICW NMIC ELICW ----------------------------------------------------------------------------------------------------------------------- Premiums $90.1 $106.3 $ 91.4 $199.8 $ 97.3 $224.2 Net investment income and other revenue $11.1 $ 9.4 $ 10.7 $ 13.4 $ 10.9 $ 14.8 Benefits, claims and expenses $98.8 $160.5 $100.7 $225.9 $100.5 $246.6
The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC were $248.4 million and $211.0 million as of December 31, 1998 and 1997, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. Certain annuity products are sold through three affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the three years ended December 31, 1998 were $60.0 million, $66.1 million and $76.9 million, respectively. (11) Bank Lines of Credit -------------------- In August 1996, NLIC, along with NMIC, entered into a $600.0 million revolving credit facility which provides for a $600.0 million loan over a five year term on a fully revolving basis with a group of national financial institutions. The credit facility provides for several and not joint liability with respect to any amount drawn by either NLIC or NMIC. NLIC and NMIC pay facility and usage fees to the financial institutions to maintain the revolving credit facility. All previously existing line of credit agreements were canceled. In September 1997, the credit agreement was amended to include NFS as a party to and borrower under the agreement. As of December 31, 1998 the Company had no amounts outstanding under the agreement. 24 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued (12) Contingencies ------------- On October 29, 1998, the Company and certain of its affiliates were named in a lawsuit filed in the Common Pleas Court of Franklin County, Ohio related to the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company). The plaintiff in such lawsuit seeks to represent a national class of the Company's customers and seeks unspecified compensatory and punitive damages. The Company is currently evaluating this lawsuit, which is in an early stage and has not been certified as a class. The Company intends to defend this lawsuit vigorously. (13) Segment Information ------------------- The Company uses differences in products as the basis for defining its reportable segments. The Company reports three product segments: Variable Annuities, Fixed Annuities and Life Insurance. The Variable Annuities segment consists of annuity contracts that provide the customer with the opportunity to invest in mutual funds managed by independent investment managers and the Company, with investment returns accumulating on a tax-deferred basis. The Company's variable annuity products consist almost entirely of flexible premium deferred variable annuity contracts. The Fixed Annuities segment consists of annuity contracts that generate a return for the customer at a specified interest rate, fixed for a prescribed period, with returns accumulating on a tax-deferred basis. Such contracts consist of single premium deferred annuities, flexible premium deferred annuities and single premium immediate annuities. The Fixed Annuities segment includes the fixed option under variable annuity contracts. The Life Insurance segment consists of insurance products, including variable universal life insurance and corporate-owned life insurance products, that provide a death benefit and may also allow the customer to build cash value on a tax-deferred basis. In addition to the product segments, the Company reports corporate revenue and expenses, investments and related investment income supporting capital not specifically allocated to its product segments, revenues and expenses of its investment advisor subsidiary (other than the portion allocated to the Variable Annuities and Life Insurance segments), revenues and expenses related to group annuity contracts sold to Nationwide Insurance Enterprise employee and agent benefit plans and all realized gains and losses on investments in a Corporate and Other segment. 25 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued The following table summarizes the financial results of the Company's business segments for the years ended December 31, 1998, 1997 and 1996.
Variable Fixed Life Corporate (in millions of dollars) Annuities Annuities Insurance and Other Total - ------------------------------------ --------- --------- --------- --------- ----- 1998: Net investment income (1) $ (31.3) $ 1,116.6 $ 231.6 $ 164.7 $ 1,481.6 Other operating revenue 560.8 35.7 319.6 49.6 965.7 --------- --------- -------- -------- --------- Total operating revenue (2) 529.5 1,152.3 551.2 214.3 2,447.3 --------- --------- -------- -------- --------- Interest credited to policyholder account balances -- 828.6 115.4 125.0 1,069.0 Amortization of deferred policy acquisition costs 123.9 44.2 46.4 -- 214.5 Other benefits and expenses 187.2 104.2 294.6 49.1 635.1 --------- --------- -------- -------- --------- Total expenses 311.1 977.0 456.4 174.1 1,918.6 --------- --------- -------- -------- --------- Operating income (loss) before federal income tax 218.4 175.3 94.8 40.2 528.7 Realized gains on investments -- -- -- 28.4 28.4 --------- --------- -------- -------- --------- Consolidated income before federal tax expense $ 218.4 $ 175.3 $ 94.8 $ 68.6 $ 557.1 ========= ========= ======== ======== ========= Assets as of year end $47,668.7 $15,215.7 $5,187.6 $6,270.1 $74,342.1 ========= ========= ======== ======== ========= 1997: Net investment income (1) $ (26.9) $ 1,098.2 $ 189.1 $ 148.8 $ 1,409.2 Other operating revenue 430.9 43.2 284.0 39.0 797.1 --------- --------- -------- -------- --------- Total operating revenue (2) 404.0 1,141.4 473.1 187.8 2,206.3 --------- --------- -------- -------- --------- Interest credited to policyholder account balances -- 823.4 78.5 114.7 1,016.6 Amortization of deferred policy acquisition costs 87.8 39.8 39.6 -- 167.2 Other benefits and expenses 165.3 108.7 284.1 45.6 603.7 --------- --------- -------- -------- --------- Total expenses 253.1 971.9 402.2 160.3 1,787.5 --------- --------- -------- -------- --------- Operating income before federal income tax 150.9 169.5 70.9 27.5 418.8 Realized gains on investments -- -- -- 11.1 11.1 --------- --------- -------- -------- --------- Consolidated income before federal tax expense $ 150.9 $ 169.5 $ 70.9 $ 38.6 $ 429.9 ========= ========= ======== ======== ========= Assets as of year end $35,278.7 $14,436.3 $3,901.4 $6,174.3 $59,790.7 ========= ========= ======== ======== =========
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 of dollars) Annuities Annuities Insurance and Other Total ------------------------------------ ---------- ---------- --------- --------- --------- 1996: Net investment income (1) $ (21.5) $ 1,050.6 $ 174.0 $ 154.7 $ 1,357.8 Other operating revenue 306.1 42.0 261.6 25.7 635.4 ---------- ---------- --------- --------- --------- Total operating revenue (2) 284.6 1,092.6 435.6 180.4 1,993.2 ---------- ---------- --------- --------- --------- Interest credited to policyholder account balances -- 805.0 70.2 107.1 982.3 Amortization of deferred policy acquisition costs 57.4 38.6 37.4 -- 133.4 Benefits and expenses 136.9 113.6 260.8 50.4 561.7 ---------- ---------- --------- --------- --------- Total expenses 194.3 957.2 368.4 157.5 1,677.4 ---------- ---------- --------- --------- --------- Operating income before federal income tax 90.3 135.4 67.2 22.9 315.8 Realized losses on investments -- -- -- (0.3) (0.3) ---------- ---------- --------- --------- --------- Consolidated income from continuing operations before federal tax expense $ 90.3 $ 135.4 $ 67.2 $ 22.6 $ 315.5 ========== ========== ======== ======== ========= Assets as of year end $ 25,069.7 $ 13,994.7 $3,353.3 $5,348.5 $47,766.2 ========== ========== ======== ======== =========
----------- (1) The Company's method of allocating net investment income results in a charge (negative net investment income) to the Variable Annuities segment which is recognized in the Corporate and Other segment. The charge relates to non-invested assets which support this segment on a statutory basis. (2) Excludes realized gains and losses on investments. The Company has no significant revenue from customers located outside of the United States nor does the Company have any significant long-lived assets located outside the United States. (14) Discontinued Operations ----------------------- As discussed in note 1, NFS is a holding company for NLIC and certain other companies within the Nationwide Insurance Enterprise that offer or distribute long-term savings and retirement products. Prior to the contribution by Nationwide Corp. of the outstanding common stock of NLIC to NFS, NLIC effected certain transactions with respect to certain subsidiaries and lines of business that were unrelated to long-term savings and retirement products. On September 24, 1996, NLIC's Board of Directors declared a dividend payable to Nationwide Corp. on January 1, 1997 consisting of the outstanding shares of common stock of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group accident and health and group life insurance business and maintains it offices in Wausau, Wisconsin. NCC is a property and casualty company with offices in Scottsdale, Arizona that serves as a fronting company for a property and casualty subsidiary of NMIC. WCLIC writes high dollar term life insurance policies and is located in San Francisco, California. ELICW, NCC and WCLIC have been accounted for as discontinued operations in the accompanying consolidated financial statements through December 31, 1996. The Company did not recognize any gain or loss on the disposal of these subsidiaries. 27 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of Nationwide Financial Services, Inc.) Notes to Consolidated Financial Statements, Continued Also, during 1996, NLIC entered into two reinsurance agreements whereby all of NLIC's accident and health and group life insurance business was ceded to ELICW and NMIC, effective January 1, 1996. See note 10 for a complete discussion of the reinsurance agreements. The Company has discontinued its accident and health and group life insurance business and in connection therewith has entered into reinsurance agreements to cede all existing and any future writings to other affiliated companies. NLIC's accident and health and group life insurance business is accounted for as discontinued operations for all periods presented. The Company did not recognize any gain or loss on the disposal of the accident and health and group life insurance business. The assets, liabilities, results of operations and activities of discontinued operations are distinguished physically, operationally and for financial reporting purposes from the remaining assets, liabilities, results of operations and activities of the Company. A summary of the results of operations of discontinued operations for the years ended December 31, 1998, 1997 and 1996 is as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Revenues $ -- $ -- $ 668.9 Net income $ -- $ -- $ 11.3
A summary of the assets and liabilities of discontinued operations as of December 31, 1998, 1997 and 1996 is as follows:
(in millions of dollars) 1998 1997 1996 ---- ---- ---- Assets, consisting primarily of investments $221.5 $247.3 $3,288.5 Liabilities, consisting primarily of policy benefits and claims $221.5 $247.3 $2,802.8
81 PART II - OTHER INFORMATION CONTENTS OF REGISTRATION STATEMENT This Post-Effective Amendment 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 130 pages. Representations and Undertakings. Signatures. Independent Auditors' Consent
The following exhibits required by Forms N-8B-2 and S-6: 1. Power of Attorney dated April 1, 1999. Attached hereto. 2. Resolution of the Depositor's Board of Directors Included with the Registration Statement on Form N-8B-2 for authorizing the establishment of the Registrant, the Nationwide VLI Separate Account-2 (File No. 811-5311), adopted and is hereby incorporated by reference. 3. Distribution Contracts Included with the Registration Statement on Form N-8B-2 for the Nationwide VLI Separate Account-2 (File No. 811-5311), and is hereby incorporated by reference. 4. Form of Security Included with the Registration Statement on Form S-6 for the Nationwide VLI Separate Account-2 (File No. 33-42180), and is hereby incorporated by reference. 5. Articles of Incorporation of Depositor Included with the Registration Statement on Form N-8B-2 for the Nationwide VLI Separate Account-2 (File No. 811-5311), and is hereby incorporated by reference. 6. Application form of Security Included with the Registration Statement on Form S-6 for the Nationwide VLI Separate Account-2 (File No. 33-42180), and is hereby incorporated by reference. 7. Opinion of Counsel Included with the Registration Statement on Form S-6 for the Nationwide VLI Separate Account-2 (File No. 33-42180), and is hereby incorporated by reference.
82 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 "Act"). The Registrant and Nationwide elect to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the Act with respect to the policies described in the prospectus. The policies have been designed in a way as to qualify for the exemptive relief from various provisions of the Act afforded by Rule 6e-3(T). (b) Paragraph (b) (13) (iii) (F) of Rule 6e-3(T) is being relied on for the deduction of the mortality and expense risk charges ("risk charges") assumed by 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 ("SEC") 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 SEC 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 the company, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the Registrant hereby undertakes to file with the SEC such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the SEC heretofore or hereafter duly adopted pursuant to authority conferred in that section. (f) The fees and charges deducted under the policy in the aggregate are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Nationwide. 83 INDEPENDENT AUDITORS' CONSENT The Board of Directors of Nationwide Life Insurance Company and Contract Owners of Nationwide VLI Separate Account-2: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the Prospectus. KPMG LLP Columbus, Ohio April 29, 1999 84 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, NATIONWIDE VLI SEPARATE ACCOUNT-2, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment and has duly caused this Post-Effective Amendment to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Columbus, and State of Ohio, on the 23rd day of September, 1999. NATIONWIDE VLI SEPARATE ACCOUNT-2 ---------------------------------------------------- (Registrant) NATIONWIDE LIFE INSURANCE COMPANY ---------------------------------------------------- (Depositor) Attest: GLENN W. SODEN By: JOSEPH P. RATH - ------------------- ---------------------------------------------------- Glenn W. Soden Joseph P. Rath Assistant Secretary Vice President- Office of Product and Market Compliance Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment has been signed below by the following persons in the capacities indicated on the 23rd day of September, 1999. 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 Office 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- - ---------------- 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/JOSEPH P. RATH - ----------------------------------- Joseph P. Rath Attorney-in-Fact EX-1 2 EXHIBIT 1 1 POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as directors and/or officers of NATIONWIDE LIFE INSURANCE COMPANY, and NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY, both Ohio corporations, which have filed or will file with the U.S. Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, various Registration Statements and amendments thereto for the registration under said Act of Individual Deferred Variable Annuity Contracts in connection with MFS Variable Account, Nationwide Variable Account, Nationwide Variable Account-II, Nationwide Variable Account-3, Nationwide Variable Account-4, Nationwide Variable Account-5, Nationwide Variable Account-6, Nationwide Fidelity Advisor Variable Account, Nationwide Multi-Flex Variable Account, Nationwide Variable Account-8, Nationwide Variable Account-9, Nationwide Variable Account-10, Nationwide VA Separate Account-A, Nationwide VA Separate Account-B, Nationwide VA Separate Account-C and Nationwide VA Separate Account-Q; and the registration of fixed interest rate options subject to a market value adjustment offered under some or all of the aforementioned individual Variable Annuity Contracts in connection with Nationwide Multiple Maturity Separate Account and Nationwide Multiple Maturity Account-A, and the registration of Group Flexible Fund Retirement Contracts in connection with Nationwide DC Variable Account, Nationwide DCVA-II, and NACo Variable Account; and the registration of Group Common Stock Variable Annuity Contracts in connection with Separate Account No. 1; and the registration of variable life insurance policies in connection with Nationwide VLI Separate Account, Nationwide VLI Separate Account-2, Nationwide VLI Separate Account-3, Nationwide VLI Separate Account-4, Nationwide VLI Separate Account-5, Nationwide VL Separate Account-A and Nationwide VL Separate Account-B, Nationwide VL Separate Account-C, Nationwide VL Separate Account-D, hereby constitutes and appoints Dimon Richard McFerson, Joseph J. Gasper, Robert J. Woodward, Jr., Philip C. Gath Richard A. Karas, Edwin P. McCausland, Jr., Douglas C. Robinette, Susan A. Wolken, Mark B. Koogler, Joseph P. Rath, and Mark R. Thresher, and each of them with power to act without the others, his/her attorney, with full power of substitution and resubstitution, for and in his/her name, place and stead, in any and all capacities, to approve, and sign such Registration Statements and any and all amendments thereto, with power to affix the corporate seal of said corporation thereto and to attest said seal and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby gaining unto said attorneys, and each of them, full power and authority to do and perform all and every act and thing requisite to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming that which said attorneys, or any of them, may lawfully do or cause to be done by virtue hereof. This instrument may be executed in one or more counterparts. IN WITNESS WHEREOF, the undersigned have herewith set their names and seals as of this 1st day of April, 1999. /s/ Lewis J. Alphin /s/ David O. Miller - ------------------------------------- ------------------------------------- Lewis J. Alphin, Director David O. Miller, Chairman of the Board, Director /s/ A. I. Bell /s/ Yvonne L. Montgomery - ------------------------------------- ------------------------------------- A. I. Bell, Director Yvonne L. Montgomery, Director /s/ Kenneth D. Davis /s/ Robert A. Oakley - ------------------------------------- ------------------------------------- Kenneth D. Davis, Director Robert A. Oakley, Executive Vice President and Chief Financial Officer /s/ Keith W. Eckel /s/ Ralph M. Paige - ------------------------------------- ------------------------------------- Keith W. Eckel, Director Ralph M. Paige, Director /s/ Willard J. Engel /s/ James F. Patterson - ------------------------------------- ------------------------------------- Willard J. Engel, Director James F. Patterson, Director /s/ Fred C. Finney /s/ Arden L. Shisler - ------------------------------------- ------------------------------------- Fred C. Finney, Director Arden L. Shisler, Director /s/ Joseph J. Gasper /s/ Robert L. Stewart - ------------------------------------- ------------------------------------- Joseph J. Gasper, President and Robert L. Stewart, Director Chief Operating Officer and Director /s/ Dimon Richard McFerson /s/ Nancy C. Thomas - ------------------------------------- ------------------------------------- Dimon Richard McFerson, Chairman and Nancy C. Thomas, Director Chief Executive Officer and Director -----END PRIVACY-ENHANCED MESSAGE-----